UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 
Washington, D.C. 20549
 
FORM 10-K
 
[X]
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the fiscal year ended August 31, 2008
 
[  ]
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from ________ to ________
 
Commission File Number: 0-53482
 
Texas Rare Earth Resources Corp.
(Exact name of registrant as specified in its charter)
 
Nevada, United States
87-0294969
(State or other jurisdiction of incorporation or organization) (IRS Employer Identification Number)
 
3 Riverway, Suite 1800, Houston, Texas 77056
(Address of principal executive offices)
 
(361) 790-5831
 (Issuer’s telephone number)
 

Securities registered under Section 12(b) of the Exchange Act: None

Securities registered under Section 12(g) of the Exchange Act: Shares of common stock, par value $0.01

Indicate by checkmark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.     Yes [ ]   No [X ]

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.   [ ]

Indicate by check mark whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes [  ]   No [X]
 
Indicate by check mark whether the issuer has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 229.405 of this chapter) during the preceding 12 months (or for such shorter period that the issuer was required to submit and post such files).    Yes [  ] No [X]
 
 

 
Indicate by check mark if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained in this form, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  [ ]

Indicate by check mark whether the issuer is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer[  ]
Accelerated filer[  ]
   
Non-accelerated filer[  ]
Smaller reporting company[X]

Indicate by check mark whether the registrant is a shell company.  Yes [ ]    No [X]

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant computed by reference to the price at which the registrant’s common equity was last sold, as of February 28, 2010 (the last day of the registrant’s most recently completed second fiscal quarter) was approximately $3,606,334.  Shares of common stock held by each current executive officer and director and by each person known by the registrant to own 5% or more of the outstanding common stock have been excluded from this computation in that such persons may be deemed to be affiliates.  This determination of affiliate status is not necessarily a conclusive determination for any other purpose.

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: 26,781,259 shares of common stock as of January 31, 2011.

Documents incorporated by reference:   None
 
 
 
 
 
 
 
 
 
 
 
 
 

 
Table of Contents

   
Page
 
Glossary of Terms
4
 
Cautionary Notice Regarding Forward-Looking Statements
6
 
Part I
 
Item 1
Business
6
Item 1A
Risk Factors
17
Item 2
Properties
26
Item 3
Legal Proceedings
26
Item 4
(REMOVED AND RESERVED)
26
 
Part II
 
Item 5
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
27
Item 6
Selected Financial Data
28
Item 7
Management’s Discussion and Analysis of Financial Condition and Results of Operations
28
Item 7A
Quantitative and Qualitative Disclosures About Market Risk
32
Item 8
Financial Statements and Supplementary Data
33
Item 9
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
46
Item 9A
Controls and Procedures
46
Item 9B
Other Information
47
 
Part III
 
Item 10
Directors, Executive Officers and Corporate Governance
48
Item 11
Executive Compensation
50
Item 12
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
51
Item 13
Certain Relationships and Related Transactions and Director Independence
53
Item 14
Principal Accountant Fees and Services
55
Item 15
Exhibits, Financial Statement Schedules
56
   
Signatures
57
   


 
 

 
Glossary of Terms
 
Alteration
Any physical or chemical change in a rock or mineral subsequent to its formation.
 
Breccia
A rock in which angular fragments are surrounded by a mass of fine-grained minerals.
 
Concession
A grant of a tract of land made by a government or other controlling authority in return for stipulated services or a promise that the land will be used for a specific purpose.
 
Core
The long cylindrical piece of a rock, about an inch in diameter, brought to the surface by diamond drilling.
 
Diamond drilling
A drilling method in which the cutting is done by abrasion using diamonds embedded in a matrix rather than by percussion.  The drill cuts a core of rock, which is recovered in long cylindrical sections.
 
Drift
A horizontal underground opening that follows along the length of a vein or rock formation as opposed to a cross-cut which crosses the rock formation.
 
Exploration
Work involved in searching for ore, usually by drilling or driving a drift.
 
Exploration expenditures
Costs incurred in identifying areas that may warrant examination and in examining specific areas that are considered to have prospects that may contain mineral deposit reserves.
 
Grade
The average assay of a ton of ore, reflecting metal content.
 
Host rock
The rock surrounding an ore deposit.
 
Intrusive
A body of igneous rock formed by the consolidation of magma intruded into other rocks, in contrast to lavas, which are extruded upon the surface.
 
Lode
A mineral deposit in solid rock.
 
Ore
The naturally occurring material from which a mineral or minerals of economic value can be extracted profitably or to satisfy social or political objectives. The term is generally but not always used to refer to metalliferous material, and is often modified by the names of the valuable constituent; e.g., iron ore.
 
Ore body
A continuous, well-defined mass of material of sufficient ore content to make extraction economically feasible.
 
Mine development
The work carried out for the purpose of opening up a mineral deposit and making the actual ore extraction possible.
 
Mineral
A naturally occurring homogeneous substance having definite physical properties and chemical composition and, if formed under favorable conditions, a definite crystal form.
 
 
 
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Mineralization
The presence of economic minerals in a specific area or geological formation.
 
Mineral reserve
That part of a mineral deposit which could be economically and legally extracted or produced at the time of the reserve determination.  Reserves are customarily stated in terms of “Ore” when dealing with metalliferous minerals.
 
Probable (Indicated) reserves
 
Reserves for which quantity and grade and/or quality are computed from information similar to that used for proven (measure) reserves, but the sites for inspection, sampling, and measurement are farther apart or are otherwise less adequately spaced.  The degree of assurance, although lower than that for proven (measured) reserves, is high enough to assume continuity between points of observation.
 
Prospect
 
Proven (Measured) reserves
 
A mining property, the value of which has not been determined by exploration.
 
Reserves for which (a) quantity is computed from dimensions revealed in outcrops, trenches, workings or drill holes; grade and/or quality are computed from the results of detailed sampling and (b) the sites for inspection, sampling and measurement are spaced so closely and the geologic character is so well defined that size, shape, depth and mineral content of reserves are well-established.
 
Resources
The calculated amount of material in a mineral deposit, based on limited drill information.
 
Tonne
A metric ton which is equivalent to 2,200 pounds.
 
Trend
A general term for the direction or bearing of the outcrop of a geological feature of any dimension, such as a layer, vein, ore body, or fold.
 
Unpatented mining claim
A parcel of property located on federal lands pursuant to the General Mining Law and the requirements of the state in which the unpatented claim is located, the paramount title of which remains with the federal government. The holder of a valid, unpatented lode-mining claim is granted certain rights including the right to explore and mine such claim.
 
Vein
A mineralized zone having a more or less regular development in length, width, and depth, which clearly separates it from neighboring rock.
 

 

 
 
 
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PART I

 
Cautionary Notice Regarding Forward-Looking Statements
 
In addition to historical information, this Annual Report contains statements that plan for or anticipate the future, including, without limitation, statements under the captions “Description of Business,” “Risk Factors” and “Management’s Discussion and Analysis or Plan of Operation.” These forward-looking statements include statements about our future business plans and strategies, future actions, future performance, costs and expenses, interest rates, outcome of contingencies, financial condition, results of operations, liquidity, objectives of management, and other such matters, as well as certain projections and business trends, and most other statements that are not historical in nature, that are “forward-looking”.

Item 1.  Description of Business

Corporate organization

The Company changed its name from “Standard Silver Corporation” to “Texas Rare Earth Resources Corp.” effective as of September 1, 2010.  Our common stock is currently listed for quotation in the Pink Sheets, a centralized quotation service maintained by OTC Markets Inc. that collects and publishes market maker quotes for over-the-counter securities (PK:TRER).

The Company was incorporated in the State of Nevada in 1970.  In July 2004, our articles of incorporation were amended and restated to increase the authorized capital to 25,000,000 common shares and, in April 2007, we affected a 1-for-2 reverse stock split.  In September 2008, our articles of incorporation were further amended and restated to increase the authorized capital to 100,000,000 common shares with a par value of $0.01 per share and to authorize 10,000,000 preferred shares with a par value of $0.001 per share.  The Company’s fiscal year-end is August 31.

The Company

We are a mining company engaged in the business of the acquisition and development of mineral properties.  We currently hold a twenty year lease, executed in August 2010, to explore and develop an 860 acre rare earth uranium-beryllium prospect located in Hudspeth County, Texas known as “Round Top” and prospecting permits covering an adjacent 9,345 acres.  We also hold prospecting permits on certain other mineral properties located in Texas and New Mexico.  We currently have limited operations and have not established that our Round Top property contains any proven reserves or probable reserves.  The strategic necessity of developing rare earth resources, the compelling fundamentals of uranium and the future potential for beryllium in the nuclear fuel cycle all present what we believe to be excellent opportunities for us.

The Round Top rare earth prospect was developed in the late 1980's as a high grade beryllium resource. During the course of this project it was discovered that heavy rare earth and uranium mineralization were also present. Market conditions precluded commercialization of these elements at that time. Recent technology and geopolitical developments, however, have increased the interest in and demand for rare earth elements.  Increased demand for nuclear power and medical applications has renewed interest in uranium. New beryllium applications are also now potentially emerging.

Rare earth elements (or “REEs”) are a group of chemically similar elements that usually are found together in nature; they are referred to as the “lanthanide series.” These individual elements have a variety of characteristics that are important in a wide range of technologies, products, and applications and are critical inputs in existing and emerging applications including: computer hard drives, cell phones, clean energy technologies, such as hybrid and electric vehicles and wind power turbines; multiple high-tech uses, including fiber optics, lasers and hard disk drives; numerous defense applications, such as guidance and control systems and global positioning systems; and advanced water treatment technology for use in industrial, military and outdoor recreation applications. As a result, global demand for REE is projected to steadily increase due to continuing growth in existing applications and increased innovation and development of new end uses.  Interest in developing resources domestically has become a strategic necessity as there are at present extremely limited sources of these elements outside of China. We believe the partially explored Round Top rhyolite which caps the beryllium deposits could be a large resource of rare earth elements.  According to a report published by the Bureau of Economic Geology (a copy of which can be found at http://www.minsocam.org/ammin/AM72/AM72_1122.pdf and referred to herein as the “Round Top Report”) heavy rare earth elements make up 67% of the total rare earth element content at Round Top.
 
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The strategic necessity of developing rare earth resources, the compelling fundamentals of uranium and the future potential for beryllium in the nuclear fuel cycle all present what we believe to be excellent opportunities for us.  Collateral benefits and features of the Round Top project are:

·  
Preliminary drill sampling has indicated ore grade faces of both the beryllium and the uranium.
·  
The mine is in excellent shape with all services still in place including vent fan and bag-house for filtering the reverse circulated air.
·  
The Round Top rhyolite is well situated for large scale, low cost open pit mining.
·  
Location on Texas lands, and under the permitting jurisdiction of the State of Texas.
·  
No federal land use agency is in any way involved.
·  
Location in a sparsely populated, economically distressed county.
·  
Ready access to power and water and with rail and highway transportation within four miles.

We intend to (i) conduct a geologic, and radiometric study of the surface of the rhyolite to define areas where beryllium, rare earth minerals and thorium are concentrated in fractures, breccias or magmatic segregations, and to understand the distribution of uranium in this rock, (ii) conduct radiation and geologic mapping underground to better define the distribution and habit of occurrence of the uranium, (iii) re-log drill samples that are stored on the property with emphasis on uranium and rare metal distribution, (iv) conduct a sampling and laboratory examination program to determine the precise mineralogy of the rare elements in the rhyolite, and (v) use these results to develop a drill program to test higher grade rare earth targets deeper in the rhyolite.

Beryllium is a lightweight metal possessing unique mechanical and thermal properties. Its specific stiffness is much greater than other engineered structured material such as steel. The physical and mechanical properties of beryllium include high stiffness-to-weight and strength-to-weight ratios, stability within a broad range of temperatures, resistance to corrosion and fatigue, excellent electric conductivity and one of the highest melting points of all light metals. Beryllium products are used in a variety of high performance applications in the defense, aerospace, industrial, scientific equipment, electronics (including acoustics), medical, automotive, optical scanning and oil and gas markets.  We believe Round Top could possess the potential to produce beryllium.

In addition to Round Top, we also own unpatented mining claims covering the Old Dude Mine, located in Sierra County, New Mexico, and the HA claim group located in Luna County, New Mexico.  The Old Dude Mine has a production history of silver dating from the 1890’s.  The HA claims cover an andesite hosted vein system similar to and some 10 miles to the southwest of the Macho District. These claims surround another historic producer, the Graphic Mine. The geologic setting at the HA property is the same as the Macho.
 

 
 
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Overview of the Round Top Rare Earth-Uranium-Beryllium Project

Round Top is a small mountain, one of a group of five that comprises the Sierra Blanca, located in Hudspeth County approximately eight miles northwest of the town of Sierra Blanca. The property is reached by a private road that turns north off Interstate 10 access road approximately one mile west of the town of Sierra Blanca.
 
 

In November 2007, we purchased the prospecting permits covering Sections 5, 7, 8, and 18 of Township 7, Block 71, and most of Sections 12 and 13 of Township 7, Block 72, Hudspeth County, Texas. In September 2009, this land position was expanded when the prospecting permits for Sections 3, 4, 9, 10, 16, 17, 19, 20, 21, 28, 29, 32 and 33 of Township 7, Block 71 were acquired.  In August 2010, we entered into a mining lease with the Texas General Land Office covering Sections 7 and 18 of Township 7, Block 71 and Section 12 of Block 72, covering approximately 860 acres in Hudspeth County, Texas.  The mining lease issued by the Texas General Land Office gives us the right to explore, produce, develop, mine, extract, mill, remove, and market beryllium, uranium, rare earth elements, all other base and precious metals, industrial minerals and construction materials and all other minerals excluding oil, gas, coal, lignite, sulfur, salt, and potash.  The term of the lease is twenty years so long as minerals are produced in paying quantities.

 
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Under the lease, we will pay the State of Texas a lease bonus of $197,800, $35,000 of which was paid upon the execution of the lease, $65,000 of which will be due when we submit our initial plan of operations to conduct exploration, and $97,800 of which will be due when we submit a supplemental plan of operations to conduct mining.  Upon the sale of minerals removed from Round Top, we will pay the State of Texas a $500,000 minimum advance royalty.  Thereafter, we will pay the State of Texas a production royalty equal to eight percent (8%) of the market value of uranium and other fissionable materials removed and sold from Round Top and six and one quarter percent (6 ¼%) of the market value of all other minerals removed and sold from Round Top.

If production of paying quantities of minerals has not been obtained on or before August 17, 2011, we may pay the State of Texas a delay rental to extend the term of the lease in an amount equal to $44,718.  Thereafter, assuming production of paying quantities has not been obtained, we may pay additional delay rental fees to extend the term of the lease for successive one (1) year periods pursuant to the following schedule:
 
   
Per Acre Amount
   
Total Amount
 
August 17, 2012 – 2014
  $ 50     $ 44,718  
August 17, 2015 – 2019
  $ 75     $ 67,077  
August 17, 2019 – 2024
  $ 150     $ 134,155  
August 17, 2025 – 2029
  $ 200     $ 178,873  

The Round Top rare earth-uranium-beryllium prospect was initially drilled in 1984 and 1985, during which time the ore body known as the "West End Ore Zone" was discovered. There were 1,115 feet of underground workings driven and additional reverse circulation and diamond drilling done both on the surface and underground. The operator at the time ultimately abandoned the project, ostensibly because of their inability to develop a viable market for beryllium.

Description of Rare Earth and other Rare Elements

During the course of the beryllium exploration, approximately 200 drill holes penetrated varying thicknesses of the rhyolite volcanic rock that makes up the mass of Round Top Mountain and caps the beryllium-uranium deposits which occur in the underlying limestones; some 100 more were drilled on Little Round Top, Sierra Blanca and Little Blanca Mountains.

The Texas Bureau of Economic Geology, working with the project geologists, conducted an extensive investigation of the rhyolite to better understand its rare metal content. This research shows that the rhyolite laccoliths at Sierra Blanca are enriched in a variety of REEs and other rare elements such as tantalum, niobium, thorium and lithium. They analyzed a series of samples from outcrop and drill holes and studied the geochemistry and mineralogy of the rhyolite. The results of their research were published in the Round Top Report, which stated that the Round Top rhyolites are so enriched that they should be considered large-tonnage, low grade resources of several rare metals, including yttrium, heavy rare earths, niobium, tantalum, lithium and thorium. The Round Top rhyolite is estimated to contain at least 1.6 billion metric tons. The other rhyolite bodies, particular Little Round Top have similar potential. Most of the rare elements occur in discrete minerals and may be amenable to conventional floatation, gravity, or some combination of these processes of concentration.  Although thorium is highly enriched in the rhyolite, it occurs as the separate mineral, thorite, and is not chemically combined with the REE's thus simplifying any ultimate processing of these concentrates.  The Round Top rhyolite requires further evaluation of its mineralogical makeup and economic modeling to determine the appropriate course for potential future commercial development. However, the size of this rhyolite deposit, the fact that 67% of the total rare earth elements are the heavy elements and the projected increase in their demand could result in its becoming a reliable and long term domestic source for these increasingly strategic metals.

 
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Importantly, aside from the large scale-low grade potential, there is geologic evidence that suggests that higher grade concentrations of these elements may be present in the deeper parts of this mineralizing system. Only the upper parts of the rhyolite body have been drilled and there was no thought given to developing the potential rare earth resources at the time of the Cabot-Cyprus project.

The rare earth element supply has been dominated by China, which has historically used its ability to overproduce as a means of discouraging development by others. It is now universally thought that China will soon utilize their production domestically and that as a result, their declining resources will not be available to the rest of the developed world. . This "drying up" of the Chinese source comes at a time when there is a virtual "explosion" in the uses of these elements. Rare earth elements have a wide variety of useful characteristics and are currently components in a number of commercial products and critical applications across industries ranging from defense to medical to high technology. Their applicability to green energy technologies has generated considerable recent interest. An example is their potential use in the manufacture of super strength permanent magnets, a major emerging area of development. The market has focused mainly on their use in small hybrid vehicles and wind turbines. We believe that these applications are important, but that the adoption of this new technology to reduce energy costs, particularly diesel, by the traditional heavy trucking, railroads, construction, mining and other heavy industry will stimulate a demand greater than even that of the most optimistic of forecasters.

Uranium

The presence of uranium has long been known. Various companies conducted reconnaissance in the area during the last cycle of uranium activity in the 1970’s. This exploration was in its beginning stages when the uranium market collapsed in the early 1980’s.  The prior operator of the project logged visible uranium mineralization in several drill holes but low prices prevailing at the time of the project precluded any interest on their part. No radiometric logging of the drill holes was done and no radiation measurement was done in the mine workings.

We believe the market fundamentals for uranium are strong and that there may be a shortfall of supply which will widen in the coming years, primarily based on:

·  
Usage should increase as a result of planned expansion of nuclear power.
·  
In all likelihood, the expansion of nuclear power will be greater than presently predicted owing to its efficiency, which can be expected to improve as advanced reactor designs come on stream.
·  
The price of U3O8 (producer yellowcake) is a relatively small increment of total nuclear power costs, unlike the cost of gas and coal for the power they produce.
·  
Utility companies are acutely aware of the future supply problems and at some point will have to start supporting exploration and development in order to assure their long term supply.
·  
Increasing medical technology applications.

Beryllium

Beryllium is a light, strong, very ridged metal with high thermal conductivity. Beryllium is most commonly used as an alloy with other metals, particularly copper, to make springs, contacts and other applications where rigidity, fatigue resistance and good electrical and thermal conductivity are required. Many everyday electronic applications use beryllium-copper alloys in contacts and current carrying springs.  Pure beryllium metal and high beryllium alloys are also used where reliable, dimensionally stable parts are needed in high stress or high heat environments. Transparency to x-ray and other radiation is another important characteristic of beryllium metal.  Companies engaged in aerospace, X-ray equipment manufacturing, oil drilling, sub-atomic particle research, and nuclear reactor industries are the primary users of beryllium metal. Beryllia (BeO) ceramics are used where superior heat conductivity and light weight are required.

 
-10-

 
Beryllium is not an exchanged traded commodity and its marketing is done under negotiated terms.  We believe that the addition of beryllium oxide to a conventional nuclear fuel pellet may extend the life of a fuel rod.  The mixed uranium-beryllium oxide fuel more efficiently transfers heat out of the rods and prevents degradation of the fuel because of excessive heat retention.

Competition

The mining industry is highly competitive.  We will be competing with numerous companies, substantially all with far greater resources available to them.  We therefore will be at a significant disadvantage in the course of acquiring mining properties and obtaining materials, supplies, labor, and equipment.  Additionally, we are and will continue to be an insignificant participant in the business of mining properties.  A large number of established and well-financed companies are active in the mining industry and will have an advantage over us if they are competing for the same properties.  Nearly all such entities have greater financial resources, technical expertise and managerial capabilities than ourselves and, consequently, we will be at a competitive disadvantage in identifying possible mining properties and procuring the same.

Government Approvals

The exploration, drilling and mining industries operate in a legal environment that requires permits to conduct virtually all operations.  Thus permits are required by local, state and federal government agencies.   Local authorities, usually counties, also have control over mining activity.  The various permits address such issues as prospecting, development, production, labor standards, taxes, occupational health and safety, toxic substances, air quality, water use, water discharge, water quality, noise, dust, wildlife impacts, as well as other environmental and socioeconomic issues.

Prior to receiving the necessary permits to explore or mine, the operator must comply with all regulatory requirements imposed by all governmental authorities having jurisdiction over the project area.  Very often, in order to obtain the requisite permits, the operator must have its land reclamation, restoration or replacement plans pre-approved. Specifically, the operator must present its plan as to how it intends to restore or replace the affected area. Often all or any of these requirements can cause delays or involve costly studies or alterations of the proposed activity or time frame of operations, in order to mitigate impacts.  All of these factors make it more difficult and costly to operate and have a negative and sometimes fatal impact on the viability of the exploration or mining operation. Finally, it is possible that future changes in these laws or regulations could have a significant impact on our business, causing those activities to be economically reevaluated at that time.

Effect of Existing or Probable Government Regulations

Mineral exploration, including mining operations are subject to governmental regulation. Our operations may be affected in varying degrees by government regulation such as restrictions on production, price controls, tax increases, expropriation of property, environmental and pollution controls or changes in conditions under which minerals may be marketed. An excess supply of certain minerals may exist from time to time due to lack of markets, restrictions on exports, and numerous factors beyond our control. These factors include market fluctuations and government regulations relating to prices, taxes, royalties, allowable production and importing and exporting minerals. The effect of these factors cannot be accurately determined, and we are not aware of any probable government regulations that would impact the Company.  This section is intended as a brief overview of the laws and regulations described herein and is not intended to be a comprehensive treatment of the subject matter.
 
 
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Overview.   Like all other mining companies doing business in the United States, we are subject to a variety of federal, state and local statutes, rules and regulations designed to protect the quality of the air and water, and threatened or endangered species, in the vicinity of its operations. These include “permitting” or pre-operating approval requirements designed to ensure the environmental integrity of a proposed mining facility, operating requirements designed to mitigate the effects of discharges into the environment during exploration, mining operations, and reclamation or post-operation requirements designed to remediate the lands affected by a mining facility once commercial mining operations have ceased.
 
Federal legislation in the United States and implementing regulations adopted and administered by the Environmental Protection Agency, the Forest Service, the Bureau of Land Management, the Fish and Wildlife Service, the Army Corps of Engineers and other agencies—in particular, legislation such as the federal Clean Water Act, the Clean Air Act, the National Environmental Policy Act, the Endangered Species Act, the National Forest Management Act, the Wilderness Act, and the Comprehensive Environmental Response, Compensation and Liability Act—have a direct bearing on domestic mining operations. These federal initiatives are often administered and enforced through state agencies operating under parallel state statutes and regulations.
 
The Clean Water Act.   The federal Clean Water Act is the principal federal environmental protection law regulating mining operations in the United States as it pertains to water quality.
 
At the state level, water quality is regulated by the Environment Department, Water and Waste Management Division under the Water Quality Act (state). If our exploration or any future development activities might affect a ground water aquifer, it will have to apply for a Ground Water Discharge Permit from the Ground Water Quality Bureau in compliance with the Groundwater Regulations. If exploration affects surface water, then compliance with the Surface Water Regulations is required.
 
The Clean Air Act.  The federal Clean Air Act establishes ambient air quality standards, limits the discharges of new sources and hazardous air pollutants and establishes a federal air quality permitting program for such discharges. Hazardous materials are defined in the federal Clean Air Act and enabling regulations adopted under the federal Clean Air Act to include various metals. The federal Clean Air Act also imposes limitations on the level of particulate matter generated from mining operations.
  
National Environmental Policy Act (NEPA).  NEPA requires all governmental agencies to consider the impact on the human environment of major federal actions as therein defined.
 
Endangered Species Act (ESA).  The ESA requires federal agencies to ensure that any action authorized, funded or carried out by such agency is not likely to jeopardize the continued existence of any endangered or threatened species or result in the destruction or adverse modification of their critical habitat. In order to facilitate the conservation of imperiled species, the ESA establishes an interagency consultation process. When a federal agency proposes an action that “may affect” a listed species, it must consult with the USFWS and must prepare a “biological assessment” of the effects of a major construction activity if the USFWS advises that a threatened species may be present in the area of the activity.
 
National Forest Management Act.  The National Forest Management Act, as implemented through title 36 of the Code of Federal Regulations, provides a planning framework for lands and resource management of the National Forests. The planning framework seeks to manage the National Forest System resources in a combination that best serves the public interest without impairment of the productivity of the land, consistent with the Multiple Use Sustained Yield Act of 1960.
 
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Wilderness Act.  The Wilderness Act of 1964 created a National Wilderness Preservation System composed of federally owned areas designated by Congress as “wilderness areas” to be preserved for future use and enjoyment.
 
The Comprehensive Environmental Response, Compensation and Liability Act (CERCLA).  CERCLA imposes clean-up and reclamation responsibilities with respect to discharges into the environment, and establishes significant criminal and civil penalties against those persons who are primarily responsible for such discharges.
 
The Resource Conservation and Recovery Act (RCRA).  RCRA was designed and implemented to regulate the disposal of solid and hazardous wastes. It restricts solid waste disposal practices and the management, reuse or recovery of solid wastes and imposes substantial additional requirements on the subcategory of solid wastes that are determined to be hazardous. Like the Clean Water Act, RCRA provides for citizens’ suits to enforce the provisions of the law.
 
National Historic Preservation Act.  The National Historic Preservation Act was designed and implemented to protect historic and cultural properties. Compliance with the Act is necessary where federal properties or federal actions are undertaken, such as mineral exploration on federal land, which may impact historic or traditional cultural properties, including native or Indian cultural sites.

Employees

Including our executive officers, we currently have four full time employees.  In order to implement our business plan, we will be required to employ qualified technical and administrative employees or retain the services of qualified consultants with the technical expertise to evaluate the mineral properties.

Insurance

We currently do not maintain any insurance coverage to cover losses or risks incurred in the ordinary course of business.

Research and Development

The Company has spent only nominal amounts during each of the last two fiscal years on research and development activities.

Facilities

Our current headquarters are located at 3 Riverway, Suite 1800, Houston, Texas 77056, and we maintain an additional office at 7 Copana Pt., Rockport, Texas 78382.
 
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Description of our Capital Stock

We are authorized to issue 100,000,000 shares of common stock, $0.01 par value.  We are also authorized to issue 10,000,000 shares of preferred stock, par value $0.001, none of which have been issued as of February 8, 2011.

Common Stock

The holders of common stock are entitled to one vote per share with respect to all matters required by law to be submitted to stockholders.  The holders of common stock have the sole right to vote, except as otherwise provided by law or by our certificate of incorporation, including provisions governing any preferred stock.  The common stock does not have any cumulative voting, preemptive, subscription or conversion rights.  Election of directors and other general stockholder action requires the affirmative vote of a majority of shares represented at a meeting in which a quorum is represented.  The outstanding shares of common stock are validly issued, fully paid and non-assessable.

Subject to the rights of any outstanding shares of preferred stock, the holders of common stock are entitled to receive dividends, if declared by our board of directors out of funds legally available.  In the event of liquidation, dissolution or winding up of the affairs of the Company, the holders of common stock are entitled to share ratably in all assets remaining available for distribution to them after payment or provision for all liabilities and any preferential liquidation rights of any preferred stock then outstanding.

 The authorized but unissued shares of our common stock are available for future issuance without shareholder approval. These additional shares may be used for a variety of corporate purposes, including future public offering to raise additional capital, corporate acquisitions and employee benefit plans. The existence of authorized but unissued shares of common stock may enable our Board to issue shares of stock to persons friendly to existing management, which may deter or frustrate a takeover of the Company.

Preferred Stock

We are authorized to issue of blank check authorized preferred stock.  No shares of preferred stock are issued and outstanding, and we have no present plans for the issuance thereof. Our board of directors has the authority, without action by our stockholders, to designate and issue preferred stock in one or more series. Our board of directors may also designate the rights, preferences, and privileges of each series of preferred stock, any or all of which may be greater than the rights of the common stock. It is not possible to state the actual effect of the issuance of any shares of preferred stock on the rights of holders of the common stock until the board of directors determines the specific rights of the holders of the preferred stock. However, these effects might include:

·  
restricting dividends on the common stock;
·  
diluting the voting power of the common stock;
·  
impairing the liquidation rights of the common stock; and
·  
delaying or preventing a change in control without further action by the stockholders

 
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Warrants

Class A Warrants

Rights to Purchase Shares of Common Stock .  There are Class A   Warrants issued and outstanding to purchase an aggregate of 1,826,250 shares of common stock.  Each Class A Warrant entitles the registered holder to purchase from one share of common stock at an exercise price of $0.50 per share.  Each Class A Warrant is exercisable at any time on or before December 31, 2011.

Call .  Each Class A Warrant is redeemable by us if the our common stock trades at $0.75 or more for a period of at least twenty of the last thirty trading days at any time during the term of the Class A Warrant.  The redemption price is $0.01 per share of common stock.

Exercise.   The Class A Warrants are immediately exercisable.  The holder of a Class A Warrant may exercise such warrant by surrendering the warrant exercise form properly completed and executed, together with payment of the exercise price to the Company.  The exercise price will be payable in cash, certified check or wire transfer of funds.  If the Class A Warrant is exercised only in part, then, unless the warrant expired, the Company shall, at its expense, deliver a new warrant representing the right to purchase the remaining shares of common stock.

Adjustments.   The exercise price and the number of shares of common stock purchasable upon exercise of the Class A Warrant, are subject to adjustment upon the occurrence of certain events, including stock dividends, reclassifications, reorganizations, consolidations, and mergers.

Class B Warrants

Rights to Purchase Shares of Common Stock.   There are Class B   Warrants issued and outstanding to purchase an aggregate of 913,125 shares of common stock.  Each Class B Warrant entitles the registered holder to purchase one share of common stock at an exercise price of $0.75 per share. Each Class B Warrant is exercisable at any time on or before December 31, 2011.

Call .  Each Class B Warrant is redeemable by us if the our common stock trades at $1.00 or more for a period of at least twenty of the last thirty trading days at any time during the term of the Class B Warrant.  The redemption price is $0.01 per share of common stock.

Exercise.   The Class B Warrants are immediately exercisable.  The holder of a Class B Warrant may exercise such warrant by surrendering the warrant exercise form properly completed and executed, together with payment of the exercise price to the Company.  The exercise price will be payable in cash, certified check or wire transfer of funds.  If the Class B Warrant is exercised only in part, then, unless the warrant expired, the Company shall, at its expense, deliver a new warrant representing the right to purchase the remaining shares of common stock.

Adjustments.   The exercise price and the number of shares of common stock purchasable upon exercise of the Class B Warrant, are subject to adjustment upon the occurrence of certain events, including stock dividends, reclassifications, reorganizations, consolidations, and mergers.

Other Warrants

In November 2010, the Company entered into a 24 month institutional public relations retainer agreement with Sunrise Securities Corp. (“SSC”) pursuant to which it was issued five-year options, terminating on November 1, 2015, to purchase 250,000 shares of common stock at $1.60 per share and 250,000 shares of common stock at $5.00 per share.  The number of shares and exercise price per share subject to the option shall be adjusted in the case of any dividend, stock split or other recapitalization or reorganization of the Company so that the option shall not be diminished or diluted.
 
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January 2011 Warrants

Rights to Purchase Shares of Common Stock.   In January 2011, we issued warrants to purchase an aggregate of 969,000 shares of common stock (which includes warrants to purchase 169,000 shares of common stock issued to registered broker dealers as commissions, each of which have identical terms to the investor warrants).  Each warrant entitles the registered holder to purchase one share of common stock at an exercise price of $2.50 per share, on or prior to January 25, 2016.

Call .  These warrants are not callable by the Company.

Exercise.   The warrants are immediately exercisable.  The holder of a warrant may exercise such warrant by surrendering the warrant exercise form properly completed and executed, together with payment of the exercise price to the Company.  The exercise price will be payable in cash, Additionally, in the event that the Company fails to maintain an effective registration statement covering the resale of the shares of common stock underlying the January 2011 Warrants, commencing six months after the issuance date and for the duration of  the term of the warrants, the holders have the right to exercise such warrants on a cashless basis.

Adjustments.   The exercise price and the number of shares of common stock purchasable upon exercise of the warrant, are subject to adjustment upon the occurrence of certain events, including stock dividends, reclassifications, reorganizations, consolidations, and mergers.
 
Registration Rights.

With respect to the private placement between September 2009 and November 2010 of 2,920,000 shares of common stock (giving effect to the exercise of Class A Warrants to purchase 437,500 shares of common stock and Class B Warrants to purchase 218,750 shares of common stock), as well as 1,826,250 shares of common stock currently exercisable underlying the Class A Warrants and 913,125 shares of common stock currently exercisable underlying the Class B Warrants, the Company has agreed to register the resale of these 5,659,375 shares under the Securities Act.  Under the registration rights agreements, the Company is required to file a registration statement covering the resale of the shares of common stock and shares of common stock underlying the warrants by February 9, 2011, and the registration is required to be deemed effective by the SEC on or before the 150 th calendar day after the filing of such registration statement.  In the event these milestones are not met by the Company, the Company is obligated to issue, as liquidated damages on a pro-rata basis to these investors, approximately 290,000 shares for each month, or pro-rated for a period less than one month, the registration is late up to a maximum of approximately 1,450,000 shares.  

We have also granted demand registration rights with respect to the 800,000 shares of common stock and five year warrants to purchase up to 800,000 shares of common stock issued in our January 2011 private placement.  If a registration statement is not filed with the SEC on or before February 9, 2011, or if such registration statement deemed effective by the SEC on or before the 150 th calendar day after the filing of the registration statement, the Company has agreed to make pro rata payments to the investors, as liquidated damages, number of shares of Company common stock equal to ten percent of the shares of common stock purchased by the respective investors and issued upon the exercise of the five year warrants for each 30-day period or pro rata for any portion thereof for which no registration statement has been filed or has not been declared effective by the SEC, as the case may be, provided that such amount shall not exceed five times the liquidated damages amount.  There can be no assurance that the Company’s registration statement will be effective within 150 days after February 9, 2011.
 
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Additionally, pursuant the Company has agreed to register the resale of the 500,000 shares of common stock underlying the options issued to SSC pursuant to the public relations agreement, and the 169,000 shares of common stock underlying warrants issued to registered broker dealers in January 2011 as payment of commissions in connection with the sale of the Company’s securities.  No liquidated damage provisions exist with respect to these registration rights.

Indemnification

As permitted by Nevada law, our Articles of Incorporation, as amended, provide that we will indemnify its directors and officers against expenses and liabilities as they are incurred to defend, settle, or satisfy any civil or criminal action brought against them on account of their being or having been Company directors or officers unless, in any such action, they are adjudged to have acted with gross negligence or willful misconduct.  Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling the Company pursuant to the foregoing provisions, the Company has been informed that, in the opinion of the Securities and Exchange Commission , such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable.

Transfer Agent

The transfer agent and registrar for our common stock is Securities Transfer Corporation whose address is 2591 Dallas Parkway, Suite 102, Frisco, Texas 75034.

Item 1A. Risk Factors

You should carefully consider the risks described below, together with all other information contained in this Annual Report in evaluating our business and prospects. The risks and uncertainties described below are not the only ones we face.  If any of the following risks and uncertainties occur they may adversely affect our business, operating results or financial condition.  Additional risks and uncertainties, other than those we describe below, that are not presently known to us or that we may currently believe are immaterial, may also impair our business operations.  You should refer to the other information contained in this Annual Report, including the consolidated financial statements and notes thereto of our company, before deciding to invest in our common stock.

Risk Associated with Our Exploration and Mining Business

All of our properties are in the exploration stage. There is no assurance that we can establish the existence of any mineral resource on any of our properties in commercially exploitable quantities. Until we can do so, we cannot earn any revenues from these properties, and our business could fail.

Despite mineral exploration work on certain of our mineral properties, we have not established that any of them contain any mineral reserve, nor can there be any assurance that we will be able to do so.  The probability of an individual prospect ever having a mineral reserve that meets the requirements of the Securities and Exchange Commission is extremely remote; in all probability our mineral resource property does not contain any mineral reserve and any funds that we spend on exploration will probably be lost. Even if we do eventually discover a mineral reserve on one or more of our properties, there can be no assurance that they can be developed into producing mines and extract those resources. Both mineral exploration and development involve a high degree of risk and few properties, which are explored, are ultimately developed into producing mines.
 
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The commercial viability of an established mineral deposit will depend on a number of factors including, by way of example, the size, grade and other attributes of the mineral deposit, the proximity of the resource to infrastructure such as a smelter, roads and a point for shipping, government regulation and market prices. Most of these factors will be beyond our control, and any of them could increase costs and make extraction of any identified mineral resource unprofitable.

Even if commercial viability of a mineral deposit is established, it may take several years in the initial phases of drilling until production is possible, during which time the economic feasibility of production may change. Substantial expenditures are required to establish proven and probable reserves through drilling and bulk sampling, to determine the optimal metallurgical process to extract the metals from the ore and, in the case of new properties, to construct mining and processing facilities. Because of these uncertainties, no assurance can be given that our exploration programs will result in the establishment or expansion of resources or reserves.

If we establish the existence of a mineral resource on any of our properties in a commercially exploitable quantity, we will require additional capital in order to develop the property into a producing mine. If we cannot raise this additional capital, we will not be able to exploit the resource, and our business could fail.

If we do discover mineral resources in commercially exploitable quantities on any of our properties, we will be required to expend substantial sums of money to establish the extent of the resource, develop processes to extract it and develop extraction and processing facilities and infrastructure. We do not have adequate capital to develop necessary facilities and infrastructure and will need to raise additional funds.  Although we may derive substantial benefits from the discovery of a major deposit, there can be no assurance that such a resource will be large enough to justify commercial operations, nor can there be any assurance that we will be able to raise the funds required for development on a timely basis. If we cannot raise the necessary capital or complete the necessary facilities and infrastructure, our business may fail.

Our exploration activities may not be commercially successful.

While we believe there are positive indicators that our properties contain commercially exploitable minerals, such belief has been based solely on preliminary tests that we have conducted and data provided by third parties, including the data published in the Round Top Report.  There can be no assurance that the tests and data upon which we have relied is correct or accurate.  Moreover, mineral exploration is highly speculative in nature, involves many risks and is frequently non-productive.  Unusual or unexpected geologic formations and the inability to obtain suitable or adequate machinery, equipment or labor are risks involved in the conduct of exploration programs.  The success of mineral exploration and development is determined in part by the following factors:

·  
the identification of potential mineralization based on analysis;
·  
the availability of exploration permits;
·  
the quality of our management and our geological and technical expertise; and
·  
the capital available for exploration.

Substantial expenditures and time are required to establish existing proven and probable reserves through drilling and analysis, to develop metallurgical processes to extract metal, and to develop the mining and processing facilities and infrastructure at any site chosen for mining.  Whether a mineral deposit will be commercially viable depends on a number of factors, which include, without limitation, the particular attributes of the deposit, such as size, grade and proximity to infrastructure; metal prices, which fluctuate widely; and government regulations, including, without limitation, regulations relating to prices, taxes, royalties, land tenure, land use, importing and exporting of minerals and environmental protection.
 
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There may be challenges to the title of our mineral properties.

The Company will acquire most of its properties by unpatented claims or by lease from those owning the property.  The lease of our Round Top property was issued by the State of Texas.  The validity of title to many types of natural resource property depends upon numerous circumstances and factual matters (many of which are not discoverable of record or by other readily available means) and is subject to many uncertainties of existing law and its application.  We cannot assure you that the validity of our titles to our properties will be upheld or that third parties will not otherwise invalidate those rights. In the event the validity of our titles are not upheld, such an event would have a material adverse effect on us.

Mineral operations are subject to applicable law and government regulations. Even if we discover a mineral resource in a commercially exploitable quantity, these laws and regulations could restrict or prohibit the exploitation of that mineral resource. If we cannot exploit any mineral resource that we might discover on our properties, our business may fail.

Both mineral exploration and extraction require permits from various foreign, federal, state, provincial and local governmental authorities and are governed by laws and regulations, including those with respect to prospecting, mine development, mineral production, transport, export, taxation, labor standards, occupational health, waste disposal, toxic substances, land use, environmental protection, mine safety and other matters.  

Companies such as ours that engage in exploration activities often experience increased costs and delays in production and other schedules as a result of the need to comply with applicable laws, regulations and permits. Issuance of permits for our activities is subject to the discretion of government authorities, and we may be unable to obtain or maintain such permits.  Permits required for future exploration or development may not be obtainable on reasonable terms or on a timely basis.  There can be no assurance that we will be able to obtain or maintain any of the permits required for the continued exploration or development of our mineral properties or for the construction and operation of a mine on our properties at economically viable costs. If we cannot accomplish these objectives, our business could face difficulty and/or fail.

We believe that we are in compliance with all material laws and regulations that currently apply to our activities but there can be no assurance that we can continue to do so. Current laws and regulations could be amended and we might not be able to comply with them, as amended. Further, there can be no assurance that we will be able to obtain or maintain all permits necessary for our future operations, or that we will be able to obtain them on reasonable terms. To the extent such approvals are required and are not obtained, we may be delayed or prohibited from proceeding with planned exploration or development of our mineral properties.

Environmental hazards unknown to us, which have been caused by previous or existing owners or operators of the properties, may exist on the properties in which we hold an interest.  It is possible that our properties could be located on or near the site of a Federal Superfund cleanup project. Although we will endeavor to avoid such sites, it is possible that environmental cleanup or other environmental restoration procedures could remain to be completed or mandated by law, causing unpredictable and unexpected liabilities to arise.  At the date of this Annual Report, we are not aware of any environmental issues or litigation relating to any of our current or former properties.
 
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Competition in the mining industry is intense, and we have limited financial and personnel resources with which to compete.

Competition in the mining industry for desirable properties, investment capital, equipment and personnel is intense. Numerous companies headquartered in the United States, Canada and elsewhere throughout the world compete for properties on a global basis. We are currently an insignificant participant in the mining industry due to our limited financial and personnel resources. We may be unable to attract the necessary investment capital or a joint venture partner to fully develop our mineral properties, be unable to acquire other desirable properties, be unable to attract and hire necessary personnel, or be unable to purchase necessary equipment.

We may be adversely affected by fluctuations in demand for, and prices of, rare earth products.

We expect to derive revenues, if any, from the sale of rare earth and related minerals.  Changes in demand for, and the market price of, these minerals could significantly affect our profitability. The value and price of our common stock and our financial results may be significantly adversely affected by declines in the prices of rare earth minerals and products. Rare earth minerals and product prices may fluctuate and are affected by numerous factors beyond our control such as interest rates, exchange rates, inflation or deflation, fluctuation in the relative value of the U.S. dollar against foreign currencies on the world market, global and regional supply and demand for rare earth minerals and products, and the political and economic conditions of countries that produce rare earth minerals and products.
 
A prolonged or significant economic contraction in the United States or worldwide could put further downward pressure on market prices of rare earth minerals and products. Protracted periods of low prices for rare earth minerals and products could significantly reduce revenues and the availability of required development funds in the future. This could cause substantial reductions to, or a suspension of, REO production operations, impair asset values and reduce our proven and probable rare earth ore reserves.
 
In contrast, extended periods of high commodity prices may create economic dislocations that may be destabilizing to rare earth minerals supply and demand and ultimately to the broader markets. Periods of high rare earth mineral market prices generally are beneficial to our financial performance. However, strong rare earth mineral prices also create economic pressure to identify or create alternate technologies that ultimately could depress future long-term demand for rare earth minerals and products, and at the same time may incentivize development of otherwise marginal mining properties.

The nature of mineral exploration and production activities involves a high degree of risk and the possibility of uninsured losses.

The business of exploring for rare earth minerals and beryllium involves a high degree of risk. Few properties are ultimately developed into producing mines. Whether a mineral deposit can be commercially viable depends upon a number of factors, including the particular attributes of the deposit, including size, grade and proximity to infrastructure, metal prices, which can be highly variable, and government regulation, including environmental and reclamation obligations. These factors are not within our control. Uncertainties as to the metallurgical amenability of any minerals discovered may not warrant the mining of these minerals on the basis of available technology. Our operations are subject to all of the operating hazards and risks normally incident to exploring for and developing mineral properties, such as, but not limited to:

·  
encountering unusual or unexpected formations;
·  
environmental pollution;
 
 
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·  
personal injury, flooding and landslides;
·  
variations in grades of minerals;
·  
labor disputes; and
·  
a decline in the price of rare earth elements or beryllium.

We currently have no insurance to guard against any of these risks. If we determine that capitalized costs associated with any of our mineral interests are not likely to be recovered, we would incur a write-down on our investment in such property interests.  All of these factors may result in losses in relation to amounts spent which are not recoverable.  The payment of any liabilities that arise from any such occurrence would have a material, adverse impact on our Company.

Rare earth and beryllium mining presents potential health risks.  Payment of any liabilities that arise from these health risks may adversely impact our Company.

Complying with health and safety standards will require additional expenditure on testing and the installation of safety equipment. Moreover, inhalation of certain minerals, such as beryllium can result in specific potential health risks ranging from acute pneumonitis, tracheobronchitis, and chronic beryllium disease to an increased risk of cancer.  Symptoms of these diseases may take years to manifest.  Failure to comply with health and safety standards could result in statutory penalties and civil liability.  We do not currently maintain any insurance coverage against these health risks. The payment of any liabilities that arise from any such occurrences would have a material, adverse impact on our Company.

Our exploration and development activities are subject to environmental risks, which could expose us to significant liability and delay, suspension or termination of our operations.

The exploration, possible future development and production phases of our business will be subject to federal, state and local environmental regulation. These regulations mandate, among other things, the maintenance of air and water quality standards and land reclamation. They also set out limitations on the generation, transportation, storage and disposal of solid and hazardous waste. Environmental legislation is evolving in a manner which will require stricter standards and enforcement, increased fines and penalties for non-compliance, more stringent environmental assessments, and a heightened degree of responsibility for companies and their officers, directors and employees. Future changes in environmental regulations, if any, may adversely affect our operations. If we fail to comply with any of the applicable environmental laws, regulations or permit requirements, we could face regulatory or judicial sanctions. Penalties imposed by either the courts or administrative bodies could delay or stop our operations or require a considerable capital expenditure. Although we intend to comply with all environmental laws and permitting obligations in conducting our business, there is a possibility that those opposed to exploration and mining will attempt to interfere with our operations, whether by legal process, regulatory process or otherwise.

We could be subject to environmental lawsuits.

Neighboring landowners and other third parties could file claims based on environmental statutes and common law for personal injury and property damage allegedly caused by the release of hazardous substances or other waste material into the environment on or around our properties.  There can be no assurance that our defense of such claims will be successful.  A successful claim against us could have an adverse effect on our business prospects, financial condition and results of operation.

 
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Risks Associated with our Company

There can be no assurance the Company will successfully implement its plans.

For the fiscal year ended August 31, 2008 we had accumulated deficit of $730,211.  We expect losses for the foreseeable future.  Our likelihood of success must be considered in light of the problems, expenses, difficulties, complications and delays frequently encountered in connection with the formation of a new business which seeks to obtain funds to finance its operations in a highly competitive environment.  There can be no assurance that we will successfully implement any of its plans in a timely or effective manner or that we will ever be profitable.  In addition, there can be no assurances that we will choose to continue to develop any of our current properties because we intend to consider and, as appropriate, to divest ourselves of properties that may no longer be a strategic fit to our business strategy.

We have a history of losses and expect to incur substantial losses and negative operating cash flows for the foreseeable future, and we may never achieve or maintain profitability.

We had no operating revenue during the fiscal years ended August 31, 2008 and 2007.  We are not currently profitable.  We believe that we have sufficient capital to fund operations through calendar year 2011, but we will need to raise additional funding implement our business strategy.  Even if we succeed in developing our prospects, we expect to incur substantial losses for the foreseeable future and may never become profitable. We also expect to continue to incur significant operating and capital expenditures and anticipate that our expenses will increase substantially in the foreseeable future.

We have a limited operating history on which to base an evaluation of our business and properties.

Any investment in us should be considered a high-risk investment because investors will be placing funds at risk in an early stage business with unforeseen costs, expenses, competition, a history of operating losses and other problems to which start-up ventures are often subject. Investors should not invest in us unless they can afford to lose their entire investment.  Your investment must be considered in light of the risks, expenses, and difficulties encountered in establishing a new business in a highly competitive and mature industry.  Our operating history has been restricted to the acquisition and sampling of Round Top and this does not provide a meaningful basis for an evaluation of Round Top.  Other than through conventional and typical exploration methods and procedures, we have no additional way to evaluate the likelihood of whether Round Top or our other mineral properties contains commercial quantities of mineral reserves or, if they do, that they will be operated successfully.  We anticipate that we will continue to incur operating costs without realizing any revenues during the period when we are exploring our properties.

If we cannot raise additional funding, we will be unable to implement our business plan.

We do not generate revenue, will be reliant upon raising additional capital on a best efforts basis, and without additional substantial capital, we will not have sufficient financial resources to undertake by ourselves all planned development activities relating to Round Top.  As of August 31, 2008, we had $11,378 cash on hand.  In January 2011, we entered into a series of transactions with accredited investors pursuant to which we sold an aggregate of 800,000 shares of our common stock and five year warrants to purchase up to 800,000 shares of common stock, exercisable at $2.50 per share, for gross proceeds of $2,000,000.  As additional consideration for the purchase of the shares and warrants, the Company issued to the January 2011 investors options to purchase up to 3,200,000 shares of common stock at $2.50 per share and 100% warrant coverage through the issuance of warrants to purchase up to 3,200,000 shares of common stock at an exercise price of $2.50 per share.   As a result, we believe we have sufficient capital to sustain operations through calendar year 2011, however we will need to raise additional capital to implement our business plan. No assurance can be given that additional financing will be available on terms acceptable to us, or that existing warrants and options will be exercised.  We do not have any commitments for debt or equity financing at this time, nor do we have credit facilities available with financial institutions or other third parties, and investors may lose their all of their investment.

 
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Current economic conditions and capital markets are in a period of disruption and instability which could adversely affect our ability to access the capital markets, and thus adversely affect our business and liquidity.

The current economic conditions and financial crisis have had, and will continue to have, a negative impact on our ability to access the capital markets, and thus have a negative impact on our business and liquidity. The shortage of liquidity and credit combined with substantial losses in worldwide equity markets could lead to an extended worldwide recession. We may face significant challenges if conditions in the capital markets do not improve. Our ability to access the capital markets has been and continues to be severely restricted at a time when we need to access such markets, which could have a negative impact on our business plans. Even if we are able to raise capital, it may not be at a price or on terms that are favorable to us. We cannot predict the occurrence of future financial disruptions or how long the current market conditions may continue.

Our resources may not be sufficient to manage our expected growth; failure to properly manage our potential growth would be detrimental to our business .

We may fail to adequately manage our anticipated future growth. Any growth in our operations will place a significant strain on our administrative, financial and operational resources, and increase demands on our management and on our operational and administrative systems, controls and other resources. We cannot assure you that our existing personnel, systems, procedures or controls will be adequate to support our operations in the future or that we will be able to successfully implement appropriate measures consistent with our growth strategy. As part of this growth, we may have to implement new operational and financial systems, procedures and controls to expand, train and manage our employee base, and maintain close coordination among our staff. We cannot guarantee that we will be able to do so, or that if we are able to do so, we will be able to effectively integrate them into our existing staff and systems.

If we are unable to manage growth effectively, our business, operating results and financial condition could be materially adversely affected. As with all expanding businesses, the potential exists that growth will occur rapidly. If we are unable to effectively manage this growth, our business and operating results could suffer. Anticipated growth in future operations may place a significant strain on management systems and resources. In addition, the integration of new personnel will continue to result in some disruption to ongoing operations. The ability to effectively manage growth in a rapidly evolving market requires effective planning and management processes. We will need to continue to improve operational, financial and managerial controls, reporting systems and procedures, and will need to continue to expand, train and manage our work force.

The loss of Daniel E. Gorski could adversely impact the Company.

The nature of our business, including our ability to continue our exploration and development activities depends, in large part, on the efforts of Dan Gorski.  The loss of Mr. Gorski could have a material adverse effect on our business.

 
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Efforts to comply with recently enacted changes in securities laws and regulations will increase our costs and require additional management resources, and we still may fail to comply.

As directed by Section 404 of the Sarbanes-Oxley Act of 2002, the SEC adopted rules requiring public companies to include a report of management on our internal controls over financial reporting in their annual reports on Form 10-K.  These requirements are not presently applicable to us but we will become subject to these requirements subsequent to the date hereof. If and when these regulations become applicable to us, and if we are unable to conclude that we have effective internal controls over financial reporting or if our independent auditors are unable to provide us with an unqualified report as to the effectiveness of our internal controls over financial reporting as required by Section 404 of the Sarbanes-Oxley Act of 2002, investors could lose confidence in the reliability of our financial statements, which could result in a decrease in the value of our securities. We have not yet begun a formal process to evaluate our internal controls over financial reporting. Given the status of our efforts, coupled with the fact that guidance from regulatory authorities in the area of internal controls continues to evolve, substantial uncertainty exists regarding our ability to comply by applicable deadlines.

Risks Relating to Our Common Stock

The Company’s stock price is highly volatile .

The market price of our common stock has fluctuated and may continue to fluctuate.  These fluctuations may be exaggerated since the trading volume of its common stock is volatile, limited, and sporadic.  These fluctuations may or may not be based upon any business or operating results.  Our common stock may experience similar or even more dramatic price and volume fluctuations in the future.

The market for the common stock is limited, sporadic and volatile.  Any failure to develop or maintain an active trading market could negatively affect the value of our shares and make it difficult or impossible for you to sell your shares.

Our common stock is currently listed for quotation in the Pink Sheets, a centralized quotation service maintained by OTC Markets Group, Inc. that collects and publishes market maker quotes for over-the-counter securities. Although our common stock is quoted in the Pink Sheets, a regular trading market for the securities may not be sustained in the future. Quotes for stocks listed in the Pink Sheets generally are not listed in the financial sections of newspapers and newspapers often devote very little coverage to stocks quoted solely in the pink sheets. Accordingly, prices for, and coverage of, securities quoted solely in the Pink Sheets may be difficult to obtain. In addition, stocks quoted solely in the Pink Sheets tend to have a limited number of market makers and a larger spread between the bid and ask prices than those listed on an exchange. All of these factors may cause holders of our common stock to be unable to resell their securities at any price. This limited trading also could decrease or eliminate our ability to raise additional funds through issuances of our securities.  There is no market for the warrants and options that are currently issued and outstanding.

While we will attempt to have our common stock quoted on the Over-The-Counter Bulletin Board, since the OTC Bulletin Board is a dealer system we will have to seek market-makers to provide quotations for the common stock, and it is possible that no market-maker will want to provide such quotations. Failure to develop or maintain an active trading market could negatively affect the value of our shares and make it difficult for you to sell your shares or recover any part of your investment in us.  Even if an active market for our common stock does develop, the market price of our common stock may be highly volatile.  In addition to the uncertainties relating to our future operating performance and the profitability of our operations, factors such as variations in our interim financial results, or various, as yet unpredictable factors, many of which are beyond our control, may have a negative effect on the market price of our common stock.  Accordingly, there can be no assurance as to the liquidity of any active markets that may develop for our common stock, the ability of holders of our common stock to sell our common stock, or the prices at which holders may be able to sell our common stock.

 
-24-

 
Should our stock become listed on the OTC Bulletin Board, if we fail to remain current on our reporting requirements, we could be removed from the OTC Bulletin Board which would limit the ability of broker-dealers to sell our securities and the ability of stockholders to sell their securities in the secondary market.

Companies trading on the Over-The-Counter Bulletin Board, which we are seeking to become, must be reporting issuers under Section 12 of the Securities Exchange Act of 1934, as amended (“Exchange Act”), and must be current in their reports under Section 13 of the Exchange Act, in order to maintain price quotation privileges on the OTC Bulletin Board. The lack of resources to prepare and file our reports, including the inability to pay our auditor, could result in our failure to remain current on our reporting requirements, which could result in our being removed from the OTC Bulletin Board. As a result, the market liquidity for our securities could be severely adversely affected by limiting the ability of broker-dealers to sell our securities and the ability of stockholders to sell their securities in the secondary market.   In addition, we may be unable to get re-listed on the OTC Bulletin Board, which may have an adverse material effect on our company.

The sale of substantial shares of our common stock or the issuance of shares upon exercise of our warrants will cause immediate and substantial dilution to our existing stockholders and may depress the market price of our common stock .

In order to provide capital for the operation of our business, we may enter into additional financing arrangements.  These arrangements may involve the issuance of new common stock, preferred stock that is convertible into common stock, debt securities that are convertible into common stock or warrants for the purchase of common stock.  Any of these items could result in a material increase in the number of shares of common stock outstanding which would in turn result in a dilution of the ownership interest of existing common shareholders.  In addition, these new securities could contain provisions, such as priorities on distributions and voting rights, which could affect the value of our existing common stock.

Additionally, we have Class A Warrants that may be exercised into 1,826,250 shares of common stock, Class B Warrants that may be exercised into 913,125 shares of common stock, and other options and warrants that may be exercisable into 1,469,000 shares of common stock at exercise prices ranging from $1.60 to $5.00.  The issuance of shares upon exercise of the Warrants may result in additional substantial dilution to the interests of other stockholders and may adversely affect the market price of our common stock

A low market price may severely limit the potential market for the Company’s common stock.

The Company’s common stock is currently trading at a price below $5.00 per share, subjecting trading in the stock to certain SEC rules requiring additional disclosures by broker-dealers.  These rules generally apply to any non-Nasdaq equity security that has a market price of less than $5.00 per share, subject to certain exceptions (a “penny stock”).  Such rules require the delivery, prior to any penny stock transaction, of a disclosure schedule explaining the penny stock market and the risks associated therewith and impose various sales practice requirements on broker-dealers who sell penny stocks to persons other than established customers and institutional or wealthy investors.  For these types of transactions, the broker-dealer must make a special suitability determination for the purchaser and have received the purchaser's written consent to the transaction prior to the sale.  The broker-dealer also must disclose the commissions payable to the broker-dealer, current bid and offer quotations for the penny stock and, if the broker-dealer is the sole market maker, the broker-dealer must disclose this fact and the broker-dealer's presumed control over the market.  Such information must be provided to the customer orally or in writing before or with the written confirmation of trade sent to the customer.

 
-25-

 
Monthly statements must be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks.  The additional burdens imposed upon broker-dealers by such requirements could discourage broker-dealers from effecting transactions in our common stock.

The Company will not pay dividends on its common stock .

We do not anticipate paying any cash dividends on our common stock in the foreseeable future.

Control by current shareholders.

The current shareholders have elected the directors and the directors have appointed current executive officers to serve the Company.  The voting power of these shareholders could also discourage others from seeking to acquire control of us through the purchase of our common stock which might depress the price of our common stock.

Item 2.  Description of Property

A description of our properties is included in “Item 1. Description of Business.”

Item 3.  Legal Proceedings

From time to time, the Company may become involved in litigation relating to claims arising out of its operations in the normal course of business. No legal proceedings, government actions, administrative actions, investigations or claims are currently pending against us or involve the Company.  There are no proceedings in which any of the directors, officers or affiliates of the Company, or any registered or beneficial stockholder, is an adverse party or has a material interest adverse to that of the Company.

Item 4.  REMOVED AND RESERVED
 
 
 
 

 
 
-26-

 

PART II

Item 5.  Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Our common stock is listed for quotation on the Pink Sheets published by Pink OTC Markets, Inc. under the symbol “TRER.”  The market for our common stock on the Pink Sheets is limited, sporadic and highly volatile.  The quotations reflect inter-dealer prices without retail mark-up, mark-down or commission and may not represent actual transactions.  The following table sets forth the range of high and low bid prices during the last three fiscal years, as well as the quarter ended November 30, 2010.

Fiscal Year 2011
 
High
   
Low
 
Quarter ended November 30, 2010
  $ 3.05     $ 0.65  
                 
Fiscal Year 2010
 
High
   
Low
 
Quarter ended August 31, 2010
  $ 1.02     $ 0.25  
Quarter ended May 31, 2010
  $ 0.99     $ 0.55  
Quarter ended February 28, 2010
  $ 1.05     $ 0.36  
Quarter ended November 30, 2009
  $ 1.08     $ 0.37  
                 
Fiscal Year 2009
 
High
   
Low
 
Quarter ended August 31, 2009
  $ 2.05     $ 0.11  
Quarter ended May 31, 2009
  $ 0.51     $ 0.11  
Quarter ended February 28, 2009
  $ 0.51     $ 0.11  
Quarter ended November 30, 2008
  $ 0.69     $ 0.11  
                 
Fiscal Year 2008
 
High
   
Low
 
Quarter ended August 31, 2008
  $ 0.50     $ 0.17  
Quarter ended May 31, 2008
  $ 0.54     $ 0.16  
Quarter ended February 29, 2008
  $ 0.40     $ 0.11  
Quarter ended November 30, 2007
  $ 0.44     $ 0.20  

The last bid price of our common stock on January 31, 2011 was $3.05 per share.
 
Holders
 
The approximate number of holders of record of our common stock as of January 31, 2011 was 520.
 
Dividends
 
We have not paid any cash dividends on our equity security and our board of directors has no present intention of declaring any cash dividends.  We are not prohibited from paying any dividends pursuant to any agreement or contract.

 
-27-

 
Securities Authorized for Issuance under Equity Compensation Plans

In September 2008, the board of directors adopted our 2008 Stock Option Plan (the “2008 Plan), which was also approved by our shareholders in September 2008.  The 2008 Plan allows for the grant of up to 2,000,000 shares of our common stock for awards to our offices, directors, employees and consultants.  The 2008 Plan provides for the grant of incentive stock options, nonqualified stock options, restricted stock, stock appreciation rights, and stock grant awards. The 2008 Plan also permits the grant of awards that qualify for the “performance-based compensation” exception to the $1,000,000 limitation on the deduction of compensation imposed by Section 162(m) of the Code.  As of January 31, 2011, a total of 2,000,000 shares of our common stock remained available for future grants under the 2008 Plan.  The following table sets forth certain information as of August 31, 2008 concerning our common stock that may be issued upon the exercise of options or warrants or pursuant to purchases of stock under the 2008 Plan:

Plan Category
(a)
Number of Securities to be Issued Upon the Exercise of Outstanding Options and Warrants
(b)
Weighted-Average Exercise Price of Outstanding Options and Warrants
(c)
Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a))
Equity compensation plans approved by stockholders
0
N/A
2,000,000
Equity compensation plans not approved by stockholders
--
N/A
--
       
Total
0
N/A
2,000,000

 
Recent Sales of Unregistered Securities During Fiscal 2008
 
None.

Item 6.  Selected Financial Data
 
As a “smaller reporting company”, we are not required to provide the information required by this Item.
 
Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operations.

This Management’s Discussion and Analysis should be read in conjunction with the financial statements of Texas Rare Earth Resources Corp. and notes thereto as set forth herein. Readers are also urged to carefully review and consider the various disclosures made by us, which attempt to advise interested parties of the factors which affect our business, including without limitation, the disclosures made under “ Risk Factors .”

Overview

The Company changed its name from “Standard Silver Corporation” to “Texas Rare Earth Resources Corp.” effective as of September 1, 2010.  Our common stock is currently listed for quotation in the Pink Sheets, a centralized quotation service maintained by OTC Markets Inc. that collects and publishes market maker quotes for over-the-counter securities (PK:TRER).

The Company was incorporated in the State of Nevada in 1970.  In July 2004, our articles of incorporation were amended and restated to increase the authorized capital to 25,000,000 common shares and, in April 2007, we affected a 1-for-2 reverse stock split.  In September 2008, our articles of incorporation were further amended and restated to increase the authorized capital to 100,000,000 common shares with a par value of $0.01 per share and to authorize 10,000,000 preferred shares with a par value of $0.001 per share.  The Company’s fiscal year-end is August 31.
 
-28-

 
We are a mining company engaged in the business of the acquisition and development of mineral properties.  We currently hold a twenty year lease, executed in August 2010, to explore and develop an 860 acre rare earth uranium-beryllium prospect located in Hudspeth County, Texas known as “Round Top” and prospecting permits covering an adjacent 9,345 acres.  We also hold prospecting permits on certain other mineral properties located in Texas and New Mexico.  We are currently not evaluating any additional prospects, and intend to focus the primarily on the development of our Round Top rare earth prospect.  We currently have limited operations and have not established that our Round Top property contains any proven reserves or probable reserves.  The strategic necessity of developing rare earth resources, the compelling fundamentals of uranium and the future potential for beryllium in the nuclear fuel cycle all present what we believe to be excellent opportunities for us.

We intend to (i) conduct a geologic, and radiometric study of the surface of the rhyolite to define areas where beryllium, rare earth minerals and thorium are concentrated in fractures, breccias or magmatic segregations, and to understand the distribution of uranium in this rock (ii) conduct radiation and geologic mapping underground to better define the distribution and habit of occurrence of the uranium, (iii) re-log drill samples that are stored on the property with emphasis on uranium and rare metal distribution (iv) conduct a sampling and laboratory examination program to determine the precise mineralogy of the rare elements in the rhyolite and (v) use these results to develop a drill program to test higher grade rare earth targets deeper in the rhyolite.

We currently do not have any producing properties and consequently, we have no current operating income or cash flow and have not generated any revenues.  Further exploration will be required before a final evaluation as to the economic and practical feasibility of any of the properties is determined.  We plan to raise additional capital to exploit current projects, including Round Top, and to acquire, evaluate, and develop new properties.

Between 2003 and 2007, our operations were minimal.  In 2007 we acquired (i) interests in two mineral properties, the Old Hadley and the Macho Mines, located in southwestern New Mexico, (ii) a 28.5% interest in La Cañada Mining and Exploration LLC (“La Cañada”), (iii) the King Mine located in Boise County, Idaho, and (iv) rights to lease the Round Top Beryllium Deposit (“Round Top Deposit”) located in Hudspeth County, Texas.  In June 2008, the Old Hadley and Round Top Deposit mines were assigned to La Cañada in exchange for La Cañada’s commitment to finance and develop the assigned properties.  In September 2008, La Cañada assigned these two mines back to us.  In October 2009, La Cañada redeemed our 28.5% interest.  In January 2009, the Company relinquished all of its rights to the King Mine.

Results of Operations

Fiscal Years ended August 31, 2008 and 2007

General & Revenue

We had no operating revenues during the fiscal years ended August 31, 2008 and 2007.  We are not currently profitable.  As a result of ongoing operating losses, we had an accumulated deficit of $730,211 as of August 31, 2008.  As discussed in the Company’s financial statements, the Company’s absence of significant revenues, recurring losses from operations, and its need for additional financing in order to fund its projected loss raise substantial doubt about its ability to continue as a going concern.
 
-29-

 
Operating expenses and resulting losses from Operations .

We incurred exploration costs for the fiscal years ended August 31, 2008 and 2007, in the amount of $78,380 and $28,200, respectively.  These expenditures were primarily related to outside consulting services relating to our Round Top project.  Our general and administrative expenses, for the fiscal years ended August 31, 2008 and 2007, respectively, were $24,049 and $141,245.  We had losses from operations for the fiscal years ended August 31, 2008 and 2007, respectively, totaling $126,238 and $175,636.  The losses were primarily a result of expenditures for contract exploration services for our Round Top project and professional fees.  Our net loss for the fiscal years ended August 31, 2008 and 2007, respectively, was $137,929 and $169,892.

Liquidity and Capital Resources

At August 31, 2008, we had current assets of $11,378 and current liabilities of $102,115, resulting in working capital deficit of $90,737.  During the year ended August 31, 2008, we advanced related party loans totaling $52,000 and received $50,000 in proceeds from the sale of common stock and $92,000 in proceeds from loans from related parties.

Between September 2009 and November 2010 (the “2009-2010 Private Placement”), the Company raised $905,500 through the issuance of 2,263,750 shares of common stock and the issuance of Class A Warrants to purchase 2,263,750 shares of common stock and Class B Warrants to purchase 1,131,875 shares of common stock.  Between December 2010 and January 2011, Class A Warrants to purchase 437,500 shares were exercised, and Class B Warrants to purchase 218,750 shares were exercised, resulting in $382,813 of proceeds being raised by the Company.  The Company has, and will continue to, use these proceeds for working capital purposes.

In January 2011, we entered into a series of transactions with accredited investors (the “January 2011 Private Placement”) pursuant to which we sold an aggregate of 800,000 shares of our common stock and five year warrants to purchase up to 800,000 shares of common stock, exercisable at $2.50 per share, for gross proceeds of $2,000,000.  As additional consideration for the purchase of the shares and warrants, the Company issued to the January 2011 Private Placement investors options to purchase up to 3,200,000 shares of common stock at $2.50 per share and 100% warrant coverage through the issuance of warrants to purchase up to 3,200,000 shares of common stock at an exercise price of $2.50 per share.  The Company intends to use proceeds from this financing to fund working capital needs for the balance of calendar 2011. The Company paid cash commissions of $208,000 and issued five year warrants to purchase up to 169,000 shares of its common stock at an exercise price of $2.50 per share in connection with the sale of its securities in the January 2011 Private Placement.

Because of the recurring losses, we will require additional working capital to fund our business operations.  As of the date hereof, we are unable to quantify the amount of capital needed to fund our working capital needs for the foreseeable future, nor are we able to quantify the amount of capital needed to develop the Round Top project. The amount of capital will be dependent upon our business strategy to exploit the Round Top project.  We intend to raise additional working capital through best efforts debt or equity financing.  No assurance can be given that additional financing will be available on terms acceptable to us. Our viability is contingent upon its ability to receive external financing.  Failure to obtain sufficient working capital may result in management resorting to the sale of assets or otherwise curtailing operations.

 
-30-

 
Contractual Commitments

In August 2010, we entered into a mining lease with the Texas General Land Office covering Sections 7 and 18 of Township 7, Block 71 and Section 12 of Block 72, covering approximately 860 acres in Hudspeth County, Texas. Under the lease, we will pay the State of Texas a lease bonus of $197,800, $35,000 of which was paid upon the execution of the lease, $65,000 of which will be due when we submit our initial plan of operations to conduct exploration, and $97,800 of which will be due when we submit a supplemental plan of operations to conduct mining.  Upon the sale of minerals removed from Round Top, we will pay the State of Texas a $500,000 minimum advance royalty.  Thereafter, we will pay the State of Texas a production royalty equal to eight percent (8%) of the market value of uranium and other fissionable materials removed and sold from Round Top and six and one quarter percent (6 ¼%) of the market value of all other minerals removed and sold from Round Top.

If production of paying quantities of minerals has not been obtained on or before August 17, 2011, we may pay the State of Texas a delay rental to extend the term of the lease in an amount equal to $44,718.  Thereafter, assuming production of paying quantities has not been obtained, we may pay additional delay rental fees to extend the term of the lease for successive one (1) year periods pursuant to the following schedule:

   
Per Acre Amount
   
Total Amount
 
August 17, 2012 – 2014
  $ 50     $ 44,718  
August 17, 2015 – 2019
  $ 75     $ 67,077  
August 17, 2019 – 2024
  $ 150     $ 134,155  
August 17, 2025 – 2029
  $ 200     $ 178,873  


Recently Issued Accounting Pronouncements

Fair value of Financial Instruments - The Company will be required to adopt ASC topic 820, “Fair Value Measurements and Disclosures” (ASC 820), formerly SFAS No. 157 “Fair Value Measurements,” effective September 1, 2009. ASC 820 defines “fair value” as the price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Management does not expect there to be any impact relating to the adoption of ASC 820 to the Company’s financial statements.
     
   
ASC 820 also describes three levels of inputs that may be used to measure fair value:
 
Level 1: Observable inputs that reflect unadjusted quoted prices for identical assets or liabilities traded in active markets.
 
Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.
 
Level 3: Inputs that are generally unobservable. These inputs may be used with internally developed methodologies that result in management’s best estimate of fair value.
 
Financial instruments consist principally of cash, prepaid expenses, accounts payable, and accrued liabilities. The carrying amounts of such financial instruments in the accompanying balance sheets approximate their fair values due to their relatively short-term nature. It is management’s opinion that the Company is not exposed to any significant currency or credit risks arising from these financial instruments.

 
-31-

 
Accounting Standards Codification - In June 2009, the FASB issued ASC 105 Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles . The FASB Accounting Standards Codification (the “Codification”) has become the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in accordance with Generally Accepted Accounting Principles (“GAAP”). All existing accounting standard documents are superseded by the Codification and any accounting literature not included in the Codification will not be authoritative. Rules and interpretive releases of the SEC issued under the authority of federal securities laws, however, will continue to be the source of authoritative generally accepted accounting principles for SEC registrants. Effective September 1, 2009, all references made to GAAP in our financial statements will include references to the new Codification. The Codification does not change or alter existing GAAP and, therefore, will not have an impact on our financial position, results of operations or cash flows.

The Company does not expect the adoption of recently issued accounting pronouncements to have a significant impact on the Company’s results of operations, financial position, or cash flow.
 
Critical Accounting Estimates
 
Management’s discussion and analysis of financial condition and results of operations is based on our financial statements, which have been prepared in accordance with GAAP. Preparation of financial statements requires management to make assumptions, estimates and judgments that affect the reported amounts of assets, liabilities, revenues, costs and expenses, and the related disclosures of contingencies. Management bases its estimates on various assumptions and historical experience, which are believed to be reasonable; however, due to the inherent nature of estimates, actual results may differ significantly due to changed conditions or assumptions. On a regular basis, management reviews the accounting policies, assumptions, estimates and judgments to ensure that our financial statements are fairly presented in accordance with GAAP. However, because future events and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates, and such differences could be material. Management believes that the following critical accounting estimates and judgments have a significant impact on our financial statements.

Item 7A.  Quantitative and Qualitative Disclosures About Market Risk.

As smaller reporting company, as defined by Rule 229.10(f)(1), we are not required to provide the information required by this Item.

 
 

 
 
-32-

 
Item 8.  Financial Statements and Supplementary Data

Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors of
Texas Rare Earth Resources Corp. (Formerly Standard Silver Corporation)
Houston, Texas

We have audited the accompanying balance sheets of Texas Rare Earth Resources Corp.  (formerly Standard Silver Corporation) (the “Company”) as of August 31, 2008 and 2007, and the related statements of operations, cash flows, and stockholders' equity (deficit) for the years then ended.  These financial statements are the responsibility of the Company's management.  Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.  Our audits include consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.  Accordingly, we express no such opinion.  An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Texas Rare Earth Resources Corp. as of August 31, 2008 and 2007, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.




LBB & Associates Ltd., LLP
December 21, 2010, except for Note 7,
for which the date is February 6, 2011
 
 
 
 
-33-

 
TEXAS RARE EARTH RESOURCES CORP
 
(Formerly Standard Silver Corporation)
 
BALANCE SHEETS
 
   
   
August 31, 2008
   
August 31, 2007
 
             
ASSETS
           
             
CURRENT ASSETS
           
Cash & cash equivalents
  $ 11,378     $ 19,895  
                 
Total current assets
    11,378       19,895  
                 
Notes and interest receivable from related parties
    54,370       -  
Mineral properties
    -       31,809  
                 
TOTAL ASSETS
  $ 65,748     $ 51,704  
                 
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
               
                 
CURRENT LIABILITIES
               
    Accounts payable and accrued expenses
  $ 6,545     $ -  
    Notes and interest payable to related parties
    95,570       142  
   Total current liabilities
    102,115       142  
                 
COMMITMENTS AND CONTINGENCIES
               
                 
SHAREHOLDERS' EQUITY (DEFICIT)
               
Preferred stock, par value $0.001; 10,000,000 shares authorized, no
               
      shares issued and outstanding as of August 31, 2008 and 2007
    -       -  
Common stock, par value $0.01; 100,000,000 shares authorized
               
   15,155,260 and 15,154,010 issued and outstanding as of
               
   August 31, 2008 and 2007, respectively
    151,553       151,540  
   Additional paid-in capital
    542,291       492,304  
   Accumulated deficit
    (730,211 )     (592,282 )
   Total shareholders' equity (deficit)
    (36,367 )     51,562  
                 
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
  $ 65,748     $ 51,704  
                 
The accompanying notes are an integral part of these financial statements
               
 
-34-

 
TEXAS RARE EARTH RESOURCES CORP
 
(Formerly Standard Silver Corporation)
 
STATEMENTS OF OPERATIONS
 
             
   
Year ended
   
Year ended
 
   
August 31,
   
August 31,
 
   
2008
   
2007
 
             
             
OPERATING EXPENSES
           
   Exploration costs
  $ 78,380     $ 28,200  
   General & administrative expenses
    24,049       141,245  
   Loss from equity investee
    23,809       6,191  
                 
Total operating expenses
    126,238       175,636  
                 
LOSS FROM OPERATIONS
    (126,238 )     (175,636 )
                 
OTHER (INCOME) EXPENSE
               
   (Loss) gain on asset disposition
    10,340       (3,391 )
Interest and other income
    (2,940 )     (2,495 )
Interest expense
    4,291       142  
Total other (income) expense
    11,691       (5,744 )
                 
NET LOSS
  $ (137,929 )   $ (169,892 )
                 
Net loss per share:
               
    Basic and diluted net loss per share
  $ (0.01 )   $ (0.02 )
                 
Weighted average shares outstanding:
               
        Basic and diluted
    15,155,202       7,296,473  
                 
The accompanying notes are an integral part of these financial statements
         

 
-35-

 
TEXAS RARE EARTH RESOURCES CORP
 
(Formerly Standard Silver Corporation)
 
STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
 
For the Year Ended August 31, 2008
 
                               
   
Common Stock
   
Additional Paid-in
       
   
Shares
   
Amount
   
Capital
   
Retained Deficit
   
Total
 
                               
Balance at August 31, 2006
    3,154,010     $ 31,540     $ 492,304     $ (422,390 )   $ 101,454  
Shares issued for services
    12,000,000       120,000       -       -       120,000  
Net loss
    -       -       -       (169,892 )     (169,892 )
Balance at August 31, 2007
    15,154,010       151,540       492,304       (592,282 )     51,562  
                                         
Replacement shares
    1,250       13       (13 )     -       -  
Proceeds from stock subscriptions for
                                       
7,500,000 shares issued October 2008
    -       -       50,000       -       50,000  
Net loss
    -       -       -       (137,929 )     (137,929 )
Balance at August 31, 2008
    15,155,260     $ 151,553     $ 542,291     $ (730,211 )   $ (36,367 )
                                         
The accompanying notes are an integral part of these financial statements
                 



 
 
 
 
 

 
 
-36-

 
TEXAS RARE EARTH RESOURCES CORP
 
(Formerly Standard Silver Corporation)
 
STATEMENTS OF CASH FLOWS
 
   
   
Year ended
   
Year ended
 
   
August 31,
   
August 31,
 
   
2008
   
2007
 
             
CASH FLOWS FROM OPERATING ACTIVITIES
           
Net loss
  $ (137,929 )   $ (169,892 )
Adjustment to reconcile net loss to net cash
               
   used in operating activities:
               
    Stock based compensation
    -       120,000  
    Loss (gain) on asset disposition
    10,340       (3,391 )
    Loss on investment in La Canada
    23,809       6,191  
    Changes in current assets and liabilities:
               
      Other assets
    -       1,050  
      Accounts payable and accrued expenses
    9,973       142  
    Interest accrued on notes receivable from related parties
    (2,370 )     -  
Net cash used in operating activities
    (96,177 )     (45,900 )
                 
CASH FLOWS FROM INVESTING ACTIVITIES
               
  Loans to related parties
    (52,000 )     -  
  Investment in mineral properties
    (2,340 )     (8,000 )
  Proceeds from sale of assets
    -       31,175  
  Investment in La Canada
    -       (30,000 )
Net cash used in investing activities
    (54,340 )     (6,825 )
                 
CASH FLOWS FROM FINANCING ACTIVITIES
               
   Proceeds from sale of common stock
    50,000       -  
 Note proceeds from related parties
    92,000       -  
Net cash provided by financing activities
    142,000       -  
NET CHANGE IN CASH
    (8,517 )     (52,725 )
CASH, BEGINNING OF PERIOD
    19,895       72,620  
CASH, END OF PERIOD
  $ 11,378     $ 19,895  
                 
SUPPLEMENTAL INFORMATION
               
    Interest paid
  $ 863     $ -  
    Taxes paid
  $ -     $ -  
                 
NON-CASH TRANSACTIONS:
               
  Replacement shares
  $ 13     $ -  
                 
The accompanying notes are an integral part of these financial statements
         
 
 
-37-

 
Texas Rare Earth Resources Corp.
Notes to financial statements
August 31, 2008 and 2007

NOTE 1 – ORGANIZATION AND NATURE OF BUSINESS

Texas Rare Earth Resources Corp. (formerly Standard Silver Corporation) (the “Company” or “Standard Silver”) was incorporated in the State of Nevada in 1970.  In July 2004, our articles of incorporation were amended and restated to increase the authorized capital to 25,000,000 common shares and, in April 2007, we affected a 1-for-2 reverse stock split.  In September 2008, our articles of incorporation were further amended and restated to increase the authorized capital to 100,000,000 common shares with a par value of $0.01 per share and to authorize 10,000,000 preferred shares with a par value of $0.001 per share.  The Company’s fiscal year-end is August 31.
 
The Company was incorporated in the State of Nevada in 1970.  In July 2004, our articles of incorporation were amended and restated to increase the authorized capital to 25,000,000 common shares and, in April 2007, we affected a 1-for-2 reverse stock split.  In September 2008, our articles of incorporation were further amended and restated to increase the authorized capital to 100,000,000 common shares with a par value of $0.01 per share and to authorize 10,000,000 preferred shares with a par value of $0.001 per share.  The Company’s fiscal year-end is August 31.

Between 2003 and 2007, our operations were minimal.  In 2007 we acquired (i) interests in two mineral properties, the Old Hadley and the Macho Mines, located in southwestern New Mexico, (ii) a 28.5% interest in La Cañada Mining and Exploration LLC (“La Cañada”), (iii) the King Mine located in Boise County, Idaho, and (iv) rights to lease the Round Top Beryllium Deposit (“Round Top Deposit”) located in Hudspeth County, Texas.  In June 2008, the Old Hadley and Round Top Deposit mines were assigned to La Cañada in exchange for La Cañada’s commitment to finance and develop the assigned properties.  In September 2008, La Cañada assigned these two mines back to Standard Silver.  In October 2009, the Company divested itself of any interest in La Cañada.  In January 2009, the Company relinquished all of its rights to the King Mine.

Effective September 1, 2010, the Company changed its name from “Standard Silver Corporation” to “Texas Rare Earth Resources Corp.” We are now a mining company engaged in the business of the acquisition and development of mineral properties.  As of the date of this filing, we hold a twenty year lease, executed in August 2010, to explore and develop an 860 acre rare earth uranium-beryllium prospect located in Hudspeth County, Texas known as “Round Top”, and prospecting permits covering an adjacent 9,670 acres.  We also hold prospecting permits on certain other mineral properties located in Texas and New Mexico.  We are currently not evaluating any additional prospects, and intend to focus the primarily on the development of our Round Top rare earth prospect.

For the years ended August 31, 2008 and 2007, the Company incurred losses of $137,929 and $169,892, respectively, and had a working capital deficit of $90,737 as of August 31, 2008.  The Company continues to finance its minimal operations through loans from shareholders and proceeds from the private placement of shares (see subsequent events footnote).

NOTE 2 – SUMMARY OF ACCOUNTING POLICIES

Basis of Presentation

Our financial records are maintained on the accrual basis of accounting whereby revenues are recognized when earned and expenses are recorded when incurred.  Effective July 1, 2009, the Financial Accounting Standards Board (“FASB”) issued Standard No. 168, also known as Accounting Standards Codification (“ASC”) 105, which established the ASC as the primary source of authoritative generally accepted accounting principles (“GAAP”) recognized by the FASB to be applied to nongovernmental entities.   Although the establishment of ASC did not change current GAAP, it did change the way we refer to GAAP throughout our financial statements to reflect the updated referencing convention.  As of the date of this filing, we have adopted ASC 105.
 
-38-

 
Cash and Cash Equivalents

The Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents.  Cash and cash equivalents consist of demand deposits at commercial banks.

Investments

Investments in entities over which the Company can exercise significant influence, but not control, are accounted for under the equity method of accounting.  Whether the Company exercises significant influence with respect to an investment depends on an evaluation of several factors including, among others, representation on the investee’s board of directors and ownership level, generally 20% to 50% interest in the voting securities of the investee including voting rights associated with the Company’s holdings in common, preferred, and other convertible instruments in the investee.  Under the equity method of accounting, the Company’s share of the earnings or losses of these companies is included in the Statements of Operations.

A loss in value of an investment that is other than a temporary decline is recognized as a charge to operations.  Evidence of a loss in value might include, but would not necessarily be limited to, absence of an ability to recover the carrying amount of the investment or inability of the investee to sustain an earnings capacity that would justify the carrying amount of the investment.

Lease Deposits

From time to time, the Company makes deposits in anticipation of executing leases.  The deposits are capitalized as an element of mineral properties upon execution of the applicable leases.

Long-lived Assets

The Company reviews the recoverability of long-lived assets whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable through operations.  To determine if these costs are in excess of their recoverable amount, periodic evaluation of carrying value of capitalized costs and any related property and equipment costs are based upon expected future cash flows and/or estimated salvage value in accordance with ASC 360, Property, Plant and Equipment.

Revenue Recognition

The Company recognizes revenue when persuasive evidence of an arrangement exists, services have been performed, the sales price is fixed or determinable, and collectability is probable. The Company has yet to generate revenue.

 
-39-

 
Mineral Exploration and Development Costs

All exploration expenditures are expensed as incurred. Costs of acquisition and option costs of mineral rights are capitalized upon acquisition. Mine development costs incurred to develop new ore deposits, to expand the capacity of mines, or to develop mine areas substantially in advance of current production are also capitalized once proven and probable reserves exist and the property is determined to be a commercially mineable property. Costs incurred to maintain current production or to maintain assets on a standby basis are charged to operations. If the Company does not continue with exploration after the completion of the feasibility study, the mineral rights will be expensed at that time. Costs of abandoned projects are charged to mining costs including related property and equipment costs. Exploration costs were $78,380 and $28,200 for the years ended August 31, 2008 and 2007, respectively.
 
Stock-based Compensation

The Company estimates the fair value of share-based payments using the Black-Scholes valuation model, in accordance with the provisions of ASC 718, Stock Compensation .  Key inputs and assumptions used to estimate the fair value of stock options include the grant price of the award, the expected option term, volatility of the Company’s stock, the risk-free rate, and dividend yield. Estimates of fair value are not intended to predict actual future events or the value ultimately realized by the option holders, and subsequent events are not indicative of the reasonableness of the original estimates of fair value made by the Company.

Stock Option Plan

The Company has approved the 2008 Stock Option Plan (the “Stock Option Plan”) providing for up to 2,000,000 shares of the Company’s stock to be granted under the terms of the Stock Option Plan.  The Company has not granted any stock options since its inception related to this Stock Option Plan.

Income Taxes

Income taxes are computed using the asset and liability method, in accordance with ASC 740, Income Taxes .  Under the asset and liability method, deferred income tax assets and liabilities are determined based on the differences between the financial reporting and tax bases of assets and liabilities, and are measured using the currently enacted tax rates and laws.  A valuation allowance is provided for the amount of deferred tax assets that, based on available evidence, are not expected to be realized.

Basic and Diluted Loss Per Share

The Company computes loss per share in accordance with ASC 260, Earnings Per Share , which requires presentation of both basic and diluted earnings per share on the face of the Statements of Operations.  Basic loss per share is computed by dividing net loss available to common shareholders by the weighted average number of outstanding common shares during the period.  Diluted loss per share gives effect to all dilutive potential common shares outstanding during the period, including stock options and warrants using the treasury method.  Dilutive loss per share excludes all potential common shares if their effect is anti-dilutive.
 
-40-

 
Use of Estimates
 
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.  Management believes that these financial statements include all normal and recurring adjustments necessary for a fair presentation under Generally Accepted Accounting Principles.
 
Fair Value Measurements

We account for assets and liabilities measured at fair value in accordance with ASC 820, Fair Value Measurements and Disclosures .  ASC 820 emphasizes that fair value is a market-based measurement, not an entity-specific measurement.  Therefore, a fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability.  As a basis for considering market participant assumptions in fair value measurements, ASC 820 establishes a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified with Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy).  The three levels of inputs used to measure fair value are as follows:

 
Level 1: Observable inputs that reflect unadjusted quoted prices for identical assets or liabilities traded in active markets.
 
Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.
 
Level 3: Inputs that are generally unobservable.  These inputs may be used with internally developed methodologies that result in management’s best estimate of fair value.
 
Our financial instruments consist principally of cash, accounts payable and accrued liabilities.  The carrying amounts of such financial instruments in the accompanying financial statements approximate their fair values due to their relatively short-term nature.  It is management’s opinion that the Company is not exposed to any significant currency or credit risks arising from these financial instruments.

In January 2010, the FASB issued Accounting Standards Update 2010-06, Fair Value Measurements and Disclosures (Topic 820)-Improving Disclosures about Fair Value Measurements , which enhances the usefulness of fair value measurements.  The amended guidance requires both the disaggregation of information in certain existing disclosures, as well as the inclusion of more robust disclosures about valuation techniques and inputs to recurring and nonrecurring fair value measurements.  The amended guidance is effective for interim and annual reporting periods beginning after December 15, 2009, except for the disaggregation requirement for the reconciliation disclosure of Level 3 measurements, which is effective for fiscal years beginning after December 15, 2010 and for interim periods within those years.  The Company adopted ASU 2010-06 effective December 31, 2009, and the adoption did not have a significant impact on the Company’s financial statements.

Recent Accounting Pronouncements

Pronouncements between August 31, 2009 and the date of this filing did not have a significant impact on the Company’s operations, financial position, or cash flow, nor does the Company expect the adoption of recently issued, but not yet effective, accounting pronouncements to have a significant impact on the Company’s results of operations, financial position or cash flows.
 
-41-

 
NOTE 3 – RELATED PARTY TRANSACTIONS
 
The Company has periodically received cash a dvances from the Company’s officers and relatives of the Company’s officers to fund operations.  As of August 31, 2008 and 2007, $95,570 and $142, respectively, in principal and interest is due and outstanding to the Company’s officers.   The advances are due on December 31, 2010, and accrue interest at rates ranging from five percent (5%) to six percent (6%) per annum.  The loans were paid in full in December 2010.
 
During the twelve months ended August 31, 2008 the Company loaned $52,000 to La Cañada Mining & Exploration LLC. As of August 31, 2008, $52,000 in principal and $2,370 in interest is outstanding from La Cañada Mining & Exploration LLC. There are no repayment terms, and the underlying notes accrue interest at rates ranging from six percent (6%) to seven point seven five percent (7.75%) per annum.

Effective August 31, 2009, the Company elected to divest its ownership interest in La Cañada.  Accordingly, the Company entered into a Redemption and Mutual Release and Settlement Agreement (“Redemption Agreement”) with La Cañada, in which the Company agreed to pay La Cañada $9,303 as payment in full settlement of the Company’s obligations to La Cañada. In return La Cañada redeemed the 28.5% Standard Silver has in La Cañada back.  As a result, the La Cañada loans and related accrued interest receivable were written off during the year ended August 31, 2009.

NOTE 4 – INVESTMENTS

The Company owned a 28.5% interest in La Cañada through October 2009, the date of the Redemption Agreement.  The Company’s investments also included mineral property rights which, in June 2008, were assigned to La Cañada, resulting in a loss of $10,340 upon assignment. The Company’s investment in La Cañada was accounted for under the equity method.  For the year ending August 31, 2008 the Company recorded a loss of $23,809 in its La Cañada investment.  

NOTE 5 – INCOME TAXES

At August 31, 2008 and 2007, the cumulative tax effect at the expected rate of 34% of significant items comprising our net deferred tax amount is as follows:
 
   
August 31, 2008
   
August 31, 2007
 
Net operating loss carryforward
  $ 232,000     $ 185,000  
                 
Less:  Valuation allowance
    (232,000 )     (185,000 )
                 
Deferred tax asset, net of allowance
  $ -     $ -  

  
As a result of the change in control effective in April 2007, the Company’s net operating losses prior to that date may be partially or entirely unavailable, by law, to offset future income and, accordingly, are excluded from the associated deferred tax asset.

The provision for income taxes for the years ended August 31, 2008 and 2007 differs from the result which would be obtained by applying the statutory income tax rate of 34% to income before income taxes because the Company has recorded a valuation allowance in the amount of the change in the deferred tax asset for each year.
 
The table below presents a reconciliation of the tax at the prevailing statutory rate to the Company’s provision for taxes:
 
   
Year ended August 31,
 
   
2008
   
2007
 
Net operating loss
  $ 47,000     $ 58,000  
Change in valuation allowance
    (47,000 )     (58,000 )
                 
Tax provision
  $ -     $ -  
 
The Company’s net operating loss carry-forward expires beginning in 2022.
 
-42-

 
NOTE 6 – STOCKHOLDERS’ EQUITY
 
As of August 31, 2008, the Company’s authorized capital stock consists of 25,000,000 shares of common stock, with a par value of $0.01 per share.  Effective September 2008, the Company increased its number of authorized shares to 110,000,000 shares, of which 100,000,000 shares of capital stock are designated as common stock with a par value of $0.01 per share and 10,000,000 shares of capital stock are designated as preferred stock with a par value of $0.001 per share.  As of August 31, 2008, there were 15,155,260 shares of our common stock outstanding.  All shares of common stock have equal voting rights and, when validly issued and outstanding, are entitled to one non-cumulative vote per share in all matters to be voted upon by shareholders.  The shares of common stock have no pre-emptive, subscription, conversion or redemption rights and may be issued only as fully paid and non-assessable shares.  Holders of the common stock are entitled to equal ratable rights to dividends and distributions with respect to the common stock, as may be declared by the Board of Directors out of funds legally available.  In the event of a liquidation, dissolution or winding up of the affairs of the Company, the holders of common stock are entitled to share ratably in all assets remaining available for distribution to them after payment or provision for all liabilities and any preferential liquidation rights of any preferred stock then outstanding.

On April 16, 2007 the Board approved a 1-for-2 reverse stock split.  The effect of this reverse split is applied retroactively in these financial statements.

After the reverse stock split, the Company issued 12,000,000 shares to its current and former directors and employees for certain mining interest and nominal consideration.  The fair market value of the shares was determined to be $120,000 and is recorded as compensation expense in the accompanying financial statements.
 
During the year ended August 31, 2008, the Company received $25,000 each from Brewer & Pritchard, PC (corporate counsel) and RLR Services Partnership, a five percent (5%) shareholder, for 2,750,000 shares each, which were issued in November 2008.

NOTE 7 – SUBSEQUENT EVENTS

Between September 2009 and November 2010, the Company raised $905,500 through the issuance of 2,263,750 shares of common stock and the issuance of Class A Warrants to purchase 2,263,750 shares of common stock and Class B Warrants to purchase 1,131,875 shares of common stock (“2009-2010 Private Placement”).  Between December 2010 and January 2011, Class A Warrants to purchase 437,500 shares were exercised, and Class B Warrants to purchase 218,750 shares were exercised, resulting in $382,813 of proceeds being raised by the Company. 

In January 2011, we entered into a series of transactions with accredited investors pursuant to which we sold an aggregate of 800,000 shares of our common stock and five year warrants to purchase up to 800,000 shares of common stock, exercisable at $2.50 per share, for gross proceeds of $2,000,000 (“January 2011 Private Placement”).  As additional consideration for the purchase of the shares and warrants, the Company issued to the January 2011 Private Placement investors an option for 120 days to purchase up to 3,200,000 shares of common stock at $2.50 per share with 100% warrant coverage through the issuance of warrants to purchase up to 3,200,000 shares of common stock at an exercise price of $2.50 per share.  The Company paid cash commissions of $208,000 and issued five year warrants to purchase up to 169,000 shares of its common stock at an exercise price of $2.50 per share in connection with the sale of its securities in the January 2011 Private Placement.  We have agreed to register the resale of the 169,000 shares of common stock underlying the warrant issued as payment of commissions.
 
-43-

 
 
In connection with the 2009-2010 Private Placement, the Company also entered into certain registration rights agreements.  Under the registration rights agreements, the Company is required to file a registration statement covering the resale of the shares of common stock and shares of common stock underlying the warrants by February 9, 2011, and the registration is required to be deemed effective by the Securities and Exchange Commission (SEC) on or before the 150 th calendar day after the filing of such registration statement.  In the event these milestones are not met by the Company, the Company is obligated to issue, as liquidated damages on a pro-rata basis to these investors, approximately 290,000 shares for each month, or pro-rated for a period less than one month, the registration is late up to a maximum of approximately 1,450,000 shares.  In connection with the January 2011 Private Placement, we have granted the same demand registration rights with respect to the 800,000 shares of common stock and five year warrants to purchase up to 800,000 shares of common stock.  If a registration statement is not filed with the SEC on or before February 9, 2011, or if such registration statement is not deemed effective by the SEC on or before the 150 th calendar day after the filing of the registration statement, the Company has agreed to make pro rata payments to the investors, as liquidated damages, a number of shares of Company common stock equal to ten percent of the shares of common stock purchased by the respective investors and issued upon the exercise of the warrants for each 30-day period or pro rata for any portion thereof for which no registration statement has been filed or has not been declared effective by the SEC, as the case may be, provided that such amount shall not exceed five times the liquidated damages amount. There can be no assurance that the Company’s registration statement will be effective within 150 days after February 9, 2011. 

In August 2010, we entered into a mining lease with the Texas General Land Office covering Sections 7 and 18 of Township 7, Block 71 and Section 12 of Block 72, covering approximately 860 acres at Round Top mountain in Hudspeth County, Texas.  The mining lease issued by the Texas General Land Office gives us the right to explore, produce, develop, mine, extract, mill, remove, and market beryllium, uranium, rare earth elements, all other base and precious metals, industrial minerals and construction materials and all other minerals excluding oil, gas, coal, lignite, sulfur, salt, and potash.  The term of the lease is twenty years so long as minerals are produced in paying quantities.

Under the lease, we will pay the State of Texas a lease bonus of $197,800, $35,000 of which was paid upon the execution of the lease, $65,000 of which will be due when we submit our initial plan of operations to conduct exploration, and $97,800 of which will be due when we submit a supplemental plan of operations to conduct mining.  Upon the sale of minerals removed from Round Top, we will pay the State of Texas a $500,000 minimum advance royalty.  Thereafter, we will pay the State of Texas a production royalty equal to eight percent (8%) of the market value of uranium and other fissionable materials removed and sold from Round Top and six and one quarter percent (6 ¼%) of the market value of all other minerals removed and sold from Round Top.

If production of paying quantities of minerals has not been obtained on or before August 17, 2011, we may pay the State of Texas a delay rental to extend the term of the lease in an amount equal to $44,718.  Thereafter, assuming production of paying quantities has not been obtained, we may pay additional delay rental fees to extend the term of the lease for successive one (1) year periods pursuant to the following schedule:
 
-44-

 
 
   
Per Acre Amount
   
Total Amount
 
August 17, 2012 – 2014
  $ 50     $ 44,718  
August 17, 2015 – 2019
  $ 75     $ 67,077  
August 17, 2019 – 2024
  $ 150     $ 134,155  
August 17, 2025 – 2029
  $ 200     $ 178,873  
 
In November 2010, the Company entered into a non-exclusive investment banking agreement with Sunrise Securities Corp. (Sunrise) pursuant to which it agreed to pay a sales commission with respect to certain financings effected, or alternative transactions entered into, by the Company through introductions by Sunrise.  The Company agreed to pay Sunrise a monthly fee of 5,000 shares of restricted stock. The Company concurrently entered into a 24 month institutional public relations retainer agreement with Sunrise pursuant to which it agreed to issue Sunrise five-year options to purchase 250,000 shares at $1.60 per share and 250,000 shares at $5.00 per share, with certain demand registration rights.

In November 2010, as a part of our 2009-2010 Private Placement, the Company sold RLR Services Partnership, a five percent shareholder, 37,500 shares of common stock, Class A Warrants to purchase up to 37,500 shares of common stock, and Class B Warrants to purchase up to 18,750 shares of common stock for gross proceeds of $15,000, the terms of which were identical to those offered to other investors.

In December 2010, the Company hired a new Chief Financial Officer.

On December 17, 2009, the Company increased its Board of Directors from three to four directors, appointing Anthony Marchese as the fourth director.
 
In December 2010, the principal and accrued interest for the advances to certain officers was paid in full.

In January 2010, the Company entered into an agreement with Anthony Marchese pursuant to which the Company issued to Mr. Marchese 300,000 shares of common stock as compensation for serving as a member of the Company’s board of directors.  In October 2009, as a part of our 2009-2010 Private Placement, the Company sold Mr. Marchese, a director, 62,500 shares of common stock, Class A Warrants to purchase up to 62,500 shares of common stock, and Class B Warrants to purchase up to 31,250 shares of common stock for gross proceeds of $25,000, the terms of which were identical to those offered to other investors.  In October 2009, as a part of our 2009-2010 Private Placement, the Company sold Insiders Trend Fund, LP, an affiliate of Mr. Marchese, 125,000 shares of common stock, Class A Warrants to purchase up to 125,000 shares of common stock, and Class B Warrants to purchase up to 62,500 shares of common stock for gross proceeds of $50,000, the terms of which were identical to those offered to other investors.
 
In January 2011, we entered into a finders agreement with Aspenwood Capital under which Aspenwood would introduce potential investors to the Company.  The Company agreed to pay Aspenwood up to a 10% cash fee and to issue a five year warrant to purchase shares of common stock in an amount up to 10% of the number of shares sold to investors introduced to the Company by Aspenwood.  The exercise price of the warrants will be equal to 125% of the equity purchase price.  The warrant may be exercised on a cashless basis at any time subsequent to August 31, 2011 in the event the Company does not maintain an effective registration statement on file with the SEC.
 
-45-

 
Item 9.  Changes In and Disagreements With Accountants on Accounting and Financial Disclosure

None.
 
Item 9A.  Controls and Procedures
 
Management’s Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures have been designed to ensure that information required to be disclosed by the Company is collected and communicated to management to allow timely decisions regarding required disclosures.  The Chief Executive Officer and the Chief Financial Officer have concluded, based on their evaluation as of August 31, 2008 that, as a result of the material weaknesses described below, disclosure controls and procedures were ineffective in providing reasonable assurance that material information is made known to them by others within the Company.

Management’s Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles (“GAAP”).  Management has assessed the effectiveness of internal control over financial reporting based on the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in   Internal Control-Integrated Framework .  A material weakness, as defined by SEC rules, is a control deficiency, or combination of control deficiencies, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. The material weaknesses in internal control over financial reporting that were identified are:  

a)
We did not maintain sufficient personnel with an appropriate level of technical accounting knowledge, experience, and training in the application of GAAP commensurate with our complexity and our financial accounting and reporting requirements. We have limited experience in the areas of financial reporting and disclosure controls and procedures.  Also, we do not have an independent audit committee.  As a result, there is a lack of monitoring of the financial reporting process and there is a reasonable possibility that material misstatements of the consolidated financial statements, including disclosures, will not be prevented or detected on a timely basis; and

b)
Due to our small size, we do not have a proper segregation of duties in certain areas of our financial reporting process.  The areas where we have a lack of segregation of duties include cash receipts and disbursements, approval of purchases and approval of accounts payable invoices for payment. This control deficiency, which is pervasive in nature, results in a reasonable possibility that material misstatements of the financial statements will not be prevented or detected on a timely basis.

 
-46-

 
As a result of the existence of these material weaknesses as of August 31, 2008, management has concluded that we did not maintain effective internal control over financial reporting as of August 31, 2008, based on the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in   Internal Control-Integrated Framework.  

This annual report does not include an attestation report of the Company’s independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our independent registered public accounting firm pursuant to temporary rules of the SEC that permit the company to provide only management's report in this annual report.

Changes to Internal Controls and Procedures over Financial Reporting

Our internal control over financial reporting has been modified during our most recent year by adding additional advisors to address deficiencies in the financial closing, review and analysis process, which has improved our internal control over financial reporting.  On December 1, 2010 we hired a new Chief Financial Officer to further strengthen our internal controls.

Management’s Remediation Plans

We will look to increase our personnel resources and technical accounting expertise within the accounting function as funds become available.  Management believes that hiring additional knowledgeable personnel with technical accounting expertise will remedy the following material weakness: insufficient personnel with an appropriate level of technical accounting knowledge, experience, and training in the application of GAAP commensurate with our complexity and our financial accounting and reporting requirements.
 
Item 9B.  Other Information
 
Between September 2009 and November 2010, the Company raised $905,500 through the issuance of 2,263,750 shares of common stock and the issuance of Class A Warrants to purchase 2,263,750 shares of common stock and Class B Warrants to purchase 1,131,875 shares of common stock as part of our 2009-2010 Private Placement.  Between December 2010 and January 2011, Class A Warrants to purchase 437,500 shares were exercised, and Class B Warrants to purchase 218,750 shares were exercised, resulting in $382,813 of proceeds being raised by the Company.  The final closing of this private placement was January 10, 2011.

In January 2011, we entered into a series of transactions with accredited investors pursuant to which we sold an aggregate of 800,000 shares of our common stock and five year warrants to purchase up to 800,000 shares of common stock, exercisable at $2.50 per share, for gross proceeds of $2,000,000.  As additional consideration for the purchase of the shares and warrants, the Company issued to the January 2011 investors an option for 120 days to purchase up to 3,200,000 shares of common stock at $2.50 per share with 100% warrant coverage through the issuance of warrants to purchase up to 3,200,000 shares of common stock at an exercise price of $2.50 per share.  The Company paid cash commissions of $208,000 and issued five year warrants to purchase up to 169,000 shares of its common stock at an exercise price of $2.50 per share in connection with the sale of its securities in the January 2011 Private Placement.  We have agreed to register the resale of the 169,000 shares of common stock underlying the warrant issued as payment of commissions.

In connection with the 2009-2010 Private Placement, the Company also entered into certain registration rights agreements.  Under the registration rights agreements, the Company is required to file a registration statement covering the resale of the shares of common stock and shares of common stock underlying the warrants by February 9, 2011, and the registration is required to be deemed effective by the SEC on or before the 150 th calendar day after the filing of such registration statement.  In the event these milestones are not met by the Company, the Company is obligated to issue, as liquidated damages on a pro-rata basis to these investors, approximately 290,000 shares for each month, or pro-rated for a period less than one month, the registration is late up to a maximum of approximately 1,450,000 shares. In connection with the January 2011 Private Placement, we have granted the same demand registration rights with respect to the 800,000 shares of common stock and five year warrants to purchase up to 800,000 shares of common stock.  If a registration statement is not filed with the SEC on or before February 9, 2011, or if such registration statement is not deemed effective by the SEC on or before the 150 th calendar day after the filing of the registration statement, the Company has agreed to make pro rata payments to the investors, as liquidated damages, a number of shares of Company common stock equal to ten percent of the shares of common stock purchased by the respective investors and issued upon the exercise of the warrants for each 30-day period or pro rata for any portion thereof for which no registration statement has been filed or has not been declared effective by the SEC, as the case may be, provided that such amount shall not exceed five times the liquidated damages amount. There can be no assurance that the Company’s registration statement will be effective within 150 days after February 9, 2011.

The sales described above were made pursuant to the exemption from registration contained in to Section 4(2) of the Securities Act of 1933 as privately negotiated, isolated, non-recurring transactions not involving any public offer or solicitation. Each purchaser represented that such purchaser’s intention to acquire the shares for investment only and not with a view toward distribution. We requested our stock transfer agent to affix appropriate legends to the stock certificate issued to each purchaser and the transfer agent affixed the appropriate legends. Each purchaser was given adequate access to sufficient information about us to make an informed investment decision. Except as described above, no underwriting discounts, commissions, or finder’s fees were involved.
 
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PART III
 
 
Item 10.  Directors, Executive Officers, and Corporate Governance
 
Management and Board of Directors
 
Our current executive officers and directors are:

Name
Age
Position
Positions Held Since
Daniel E. Gorski
72
Director, Chief Executive Officer, and President
January 2007
Chris Mathers
51
Chief Financial Officer
December 2010
G.W. (Mike) McDonald
74
Director and Vice President
January 2004
Cecil C. Wall
78
Director, Secretary & Treasurer
January 2004
Stanley Korzeb
56
Vice President
January 2007
Anthony Marchese
53
Director
December 2009

Daniel E. Gorski .  Mr. Gorski has severed as president and director of the Company since January 2007.  From July 2004 to January 2006, Mr. Gorski was the co-founder and vice president of operations for High Plains Uranium Inc., a uranium exploration and development company that went public on the Toronto Stock Exchange in December 2005.  Between June 1996 to May 2004, Mr. Gorski served as an officer and director of Metalline Mining Co., a publicly traded mining and development company with holdings in the Sierra Mojada Mining District, Coahuila, Mexico.  From January 1992 to June 1996, Mr. Gorski was the exploration geologist under contract to USMX Inc. and worked exclusively in Latin America.  Mr. Gorski earned a BS in 1960 from Sul Ross State College, in Alpine, Texas and an MA in 1970 from the University of Texas in Austin, Texas.  Mr. Gorski has over thirty-five years of experience in the mining industry.  Mr. Gorski’s extensive technical knowledge and experience in the mining industry led the Board to conclude that Mr. Gorski should serve as a member of the Board of Directors.

Chris Mathers . Mr. Mathers was appointed as the Company’s chief financial officer in December 2010.  From 2000 through 2010, Mr. Mathers was involved in providing contract chief financial officer and consulting services to a wide variety of privately and publicly held companies.  From 1993 through 1999 Mr. Mathers served as CFO to InterSystems, Inc. (AMEX:II). Mr. Mathers began his career in public accounting with the international accounting firm of PriceWaterhouse.  Mr. Mathers holds a BBA in accounting from Southwestern University located in Georgetown, Texas, and is also a certified public accountant.

Mike McDonald .  Mr. McDonald has served as the Company’s vice president and director since January 2004, and as chief financial officer from January 2004 to November 2010.  From 1994 and to the present, Mr. McDonald has been involved with various oil and gas companies and related investments.  In 1980, he founded the oil and gas exploration company, Roseland Oil & Gas, Inc. and served as its president until 1987.  From 1975 to 1980, Mr. McDonald was employed with Exxon.  Mr. McDonald received his B.S. Degree in Geology in 1955 from Sul Ross University in Alpine, Texas.  Mr. McDonald’s extensive management experience led the Board to conclude that Mr. McDonald should serve as a member of the Board of Directors.

 
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Cecil C. Wall .  Mr. Wall has served as the Company’s secretary and treasurer and director since January 2004.  Mr. Wall has served as vice president and director for Brenex Oil Corporation, an oil and gas producing company located in St. George, Utah, since April 1998.  Since 1969, Mr. Wall has been engaged in oil and gas and his businesses.  Mr. Wall attended Utah State University, in Logan, Utah from 1951 to 1952.  Mr. Wall’s management experience led the Board to conclude that Mr. Wall should serve as a member of the Board of Directors.

Stanley Korzeb .  Mr. Korzeb has served as the Company’s vice president since January 2007.  From May 2006 to November 2006, Mr. Korzeb served as exploration geologist for Teck Cominco of the Pend Oreille Mine in Metalline Falls, Washington.  From February 2004 to December 2005, Mr. Korzeb was the chief geologist for Metalline Mining Company in Coeur  D’ Alene, Idaho.  From September 1980 to February 1996, Mr. Korzeb was employed by the U.S. Bureau of Mines as a Geologist in Denver, Colorado.  Mr. Korzeb received a Master of Science in Geology in 1977 from Miami University in Oxford, Ohio, and a BS in Geology from the University of Massachusetts in 1975.

Anthony Marchese .  Mr. Marchese has served as a director since December 2009.  Since May 2003, Mr. Marchese has served as president and chief operating officer of Monarch Capital Group LLC, a New York City based FINRA member broker/dealer.  Mr. Marchese also serves as the general partner and chief investment officer of the Insiders Trend Fund, LP, an investment partnership whose mandate is to invest in those public companies whose officers and/or directors have been active acquirers of their own stock.  Mr. Marchese’s prior experience includes Laidlaw Equities, Southcoast Capital, Oppenheimer & Co, Prudential-Bache and the General Motors Corporation.  Mr. Marchese served in the military with the Army Security Agency and the U.S. Army Intelligence and Security Command.  Mr. Marchese attended Boston University and received an MBA in Finance from the University of Chicago.  Mr. Marchese provides the Board with exceptional leadership and management knowledge, having gained extensive management and corporate finance experience during the course of his career. Mr. Marchese’s specific experience, qualifications, attributes and skills described above led the Board to conclude that Mr. Marchese should serve as a member of the Board of Directors.

Voting Agreement for Director Nominee
 
              In connection with the January 2011 financing, the Board of Directors agreed to nominate, and appoint as a director, a nominee of Highline Capital Partners, L.P., Highline Capital International, Ltd., Highline Capital Partners, QP, LP, and Highline A Master Fund, L.L.C., and a majority of our shareholders (Messrs. Gorski and McDonald, Brewer & Pritchard, P.C., and RLR Services Partnership) agreed for a period of one year to vote for such nominee as a director. This voting agreement is for a period of one year, and as of the date of this prospectus, no such nominee has been designed.

Committees of the Board & Director Independence
 
Our board of directors is currently composed of four directors, with Mr. Marchese being the only director that would qualify as independent directors based on the definition of independent director set forth in Section 240.10A-3 of the Securities Act.  We are not subject to corporate governance rules that require that a board of directors be composed of a majority of independent directors.  The Board has not established any committees and, accordingly, the Board serves as the audit, compensation, and nomination committee, and we have no audit committee financial expert.

There have been no changes to the procedures by which security holders may recommend nominees to the Board of Directors.

 
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Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our executive officers and directors, and persons who beneficially own more than 10% of our common stock, to file initial reports of ownership and reports of changes in ownership with the SEC.  Executive officers, directors and greater than 10% beneficial owners are required by SEC regulations to furnish us with copies of all Section 16(a) forms they file.  To the Company’s knowledge, based solely on a review of the copies of such reports furnished to the Company and written representations that no other reports were required, as of the date of this report, all Section 16(a) filing requirements applicable to its officers, directors and greater than ten percent beneficial owners are complied with except for: Dan Gorski, a director, executive officer and greater than 10% holder of our common stock failed to file a Form 3 in December 2008; Mike McDonald, a director, executive officer and greater than 10% holder of our common stock failed to file a Form 3 in December 2008; Brewer & Pritchard, PC, a greater than 10% holder of our common stock, failed to file a Form 3 in December 2008; RLR Partnership, a greater than 10% holder of our common stock, failed to file a Form 3 in December 2008; Cecil Wall, a director, failed to file a Form 3 in December 2008; Stanley Korzeb, an executive officer, failed to file a Form 3 in December 2008; Anthony Marchese, a director, failed to file a Form 3 in December 2009; and Wm Chris Mathers, an executive officer, failed to file a Form 3 in December 2010.

Code of Ethics

We have adopted a code of ethics which applies to all our directors, officers and employees. A copy of our “Code of Ethics” was filed with the Securities and Exchange Commission as Exhibit 14.1 to this Annual Report.

Item 11. Executive Compensation

Summary Compensation Table

The following table contains compensation data for our named executive officers for the last two completed fiscal years ended August 31, 2008 and 2007.

Summary Compensation Table
Name and
Principal
Position
 
Year
 
Salary
And Consulting
Payments
($)
 
Bonus
($)
 
Stock
Awards
($)
 
All Other Compensation
($)
 
Total
($)
 
Daniel E. Gorski
2008
--
--
--
--
--
President, and CEO
2007
--
--
--
--
--
             
G.W. McDonald
2008
--
--
--
--
--
Vice President and CFO
2007
--
--
--
--
--

Grants of Plan-Based Awards

The Company has a stock option plan in which it has reserved two million shares.  No securities or options were issued pursuant to this plan during fiscal 2008 and 2007.  No options have been issued to the named executive officers under this plan or any other plan.
 
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Employment Agreements

The Company has not entered into any employment agreements.

Nonqualified Deferred Compensation

The Company does not offer nonqualified deferred compensation to any of its named executive officers.

Potential Payments upon Termination or Change-in-Control

The Company does not offer any payment to any of its named executive officers following or in connection with any termination, resignation, severance, retirement, change in control, change in the named executive officer’s responsibilities, or any other similar event.

Director Compensation

No compensation was paid to any director during fiscal 2008 or 2007.

Name
Fees Paid
In Cash
($)
Stock
Awards
($)
Total
       
Anthony Marchese
249,000 (1)
$249,000

(1)  
In January 2010, the Company entered into an agreement with Anthony Marchese pursuant to which the Company issued to Mr. Marchese 300,000 shares of common stock as compensation for serving as a member of the Company’s board of directors.  These shares were valued at $0.83 per share.

Compensation Committee Interlocks and Insider Participation

The Company does not have a compensation committee, and therefore such role is assumed by the entire board of directors.  None of the Company’s executive officers serves on the board of directors or compensation committee of a company that has an executive officer that serves on the Company’s board of directors.  No member of the Company’s board of directors is an executive officer of a company in which one of the Company’s executive officers serves as a member of the board of directors or compensation committee of that company.

Item 12.  Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The following table sets forth, as of January 31, 2011, the number and percentage of outstanding shares of common stock owned by: (a) each person who is known by us to be the beneficial owner of more than 5% of our outstanding shares of common stock; (b) each of our directors; (c) the named executive officers; and (d) all current directors and executive officers, as a group.  As of January 31, 2011, there were 26,781,259 shares of common stock issued and outstanding.

 
-51-

 
Beneficial ownership has been determined in accordance with Rule 13d-3 under the Exchange Act.  Under this rule, certain shares may be deemed to be beneficially owned by more than one person (if, for example, persons share the power to vote or the power to dispose of the shares).  In addition, shares are deemed to be beneficially owned by a person if the person has the right to acquire shares (for example, upon exercise of an option or warrant) within 60 days of the date as of which the information is provided. In computing the percentage ownership of any person, the amount of shares is deemed to include the amount of shares beneficially owned by such person by reason of such acquisition rights.  As a result, the percentage of outstanding shares of any person as shown in the following table does not necessarily reflect the person’s actual voting power at any particular date.  To our knowledge, except as indicated in the footnotes to this table and pursuant to applicable community property laws, the persons named in the table have sole voting and investment power with respect to all shares of common stock shown as beneficially owned by them.  Except as set forth below, the address for each of the beneficial owners is 3 Riverway, Suite 1800, Houston, TX 77056.

Name and Address of Beneficial Owner
Number of Shares of Common Stock Beneficially Owned
Percent
Of Class Beneficially Owned
G.W. McDonald
1408 Roseland Blvd., Tyler, TX  75701
5,066,750
18.9%
Daniel E. Gorski
7 Copana Pt., Rockport, TX  78382
4,800,000
17.9%
Stanley Korzeb
1,000,000
3.7%
Cecil C. Wall
600,000
2.2%
Anthony Marchese
769,750 (1)
2.9%
Chris Mathers
--
--
All directors and executive officers as a group (6 persons)
12,236,500
45.7%
Brewer & Pritchard, P.C.
3,750,000
14.0%
RLR Services Partnership
3,787,700 (2)
14.1%
Highline Capital Partners, QP, LP (3)
One Rockefeller Center, 30th Floor, New York, NY 10020
1,524,648 (4)
5.7%
Highline Capital Partners International Ltd. (5)
One Rockefeller Center, 30th Floor, New York, NY 10020
2,957,787 (6)
11.0%
* Less than 1%.

(1)  
Represents (i) the following securities registered in the name of Mr. Marchese (a) 362,500 shares of common stock, (b) 62,500 shares of common stock underlying Class A Warrants, and (c) 31,250 shares of common stock underlying Class B Warrants; and (ii) the following securities registered in the name of the Insiders Trend Fund, LP., an entity in which Mr. Marchese serves as general partner and chief investment officer (x) 125,500 shares of common stock, (y) 125,500 shares of common stock underlying Class A Warrants, and (z) 62,500 shares of common stock underlying Class B Warrants.
 
(2)  
Tony Kamin has voting and investment control over the shares held by RLR Services Partnership.
 
(3)  
Highline Capital Holdings, LLC (“Highline Capital”) serves as the general partner of the selling stockholder, and may be deemed to have beneficial ownership over the securities held by the selling stockholder.  Howard M. Singer serves as an executive officer of Highline Capital.
 
(4)  
Represents (i) 153,092 shares of common stock, (ii) 146,820 shares of common stock underlying a five year warrant exercisable at $2.50 per share, (iii) 612,368 shares of common stock underlying an option exercisable at $2.50 per share, and (iv) 612,368 shares of common stock underlying a warrant issuable upon the exercise of an option.
 
 
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(5)  
Highline Capital Management, LLC (“Highline Management”) serves as the investment manager of the selling stockholder, and may be deemed to have beneficial ownership over the securities held by the selling stockholder.  Howard M. Singer serves as an executive officer of Highline Management
 
(6)  
Represents (i) 296,996 shares of common stock, (ii) 284,823 shares of common stock underlying a five year warrant exercisable at $2.50 per share, (iii) 1,187,984 shares of common stock underlying an option exercisable at $2.50 per share, and (iv) 1,187,984 shares of common stock underlying a warrant issuable upon the exercise of an option.
 
Item 13.  Certain Relationships and Related Transactions, and Director Independence.
 
Other than as disclosed below, during the two fiscal years ended August 31, 2008 and the period, there have been no transactions, or proposed transactions, which have materially affected or will materially affect us in which any director, executive officer or beneficial holder of more than 5% of the outstanding common or preferred stock, or any of their respective relatives, spouses, associates or affiliates, has had or will have any direct or material indirect interest. We have no policy regarding entering into transactions with affiliated parties.

Loans

During the fiscal year ending August 31, 2008, Mr. Gorski advanced $62,000 to the Company.    In July 2010, Mr. Gorski was paid $37,500 in reduction of the note.  In June 2010, the Company entered into an amended and restated note agreement with Mr. Gorski pursuant to which three promissory notes issued to Mr. Gorksi during 2009, having aggregate principal amount of $24,500 and accrued interest of $13,356, were renewed, extended, and consolidated.  The amended and restated note is unsecured and bears interest at 6% per annum.  The principal and accrued interest due under the amended and restated note was paid in December 2010.

During the fiscal years ending August 31, 2008 and 2009, Mr. McDonald advanced $86,000 to the Company.   In July 2010, the Company paid Mr. McDonald $37,500.  In August 2010, the Company entered into an amended and restated note agreement with Mr. McDonald pursuant to which four promissory notes issued to Mr. McDonald and related parties during 2009, having an aggregate principal amount of $48,500 and accrued interest of $4,094, were renewed, extended, and consolidated.  The amended and restated note is unsecured and bears interest at 5% per annum.  The principal and accrued interest due under the amended and restated note is due and payable on December 31, 2010.

Issuance of Stock

In April 2007, the Company issued (i) each of Mr. Gorski and Mr. McDonald 4,800,000 shares of common stock for services rendered, (ii) Mr. Korzeb 1,000,000 shares of common stock for services rendered, and (iii) Mr. Wall 500,000 shares of common stock for services rendered.
 
In November 2008, the Company issued 3,750,000 shares of common stock for $25,000 cash to Brewer & Pritchard, PC, corporate counsel. In November 2008, the Company issued 3,750,000 shares of common stock for $25,000 cash to RLR Services Partnership

In January 2010, the Company entered into an agreement with Anthony Marchese pursuant to which the Company issued to Mr. Marchese 300,000 shares of common stock as compensation for serving as a member of the Company’s board of directors.  In October 2009, in connection with our private placement, the Company sold Mr. Marchese, a director, 62,500 shares of common stock, Class A Warrants to purchase up to 62,500 shares of common stock, and Class B Warrants to purchase up to 31,250 shares of common stock for gross proceeds of $25,000, the terms of which were identical to those offered to other investors in the Company’s private placement.  In October 2009, in connection with our private placement, the Company sold Insiders Trend Fund, LP, an affiliate of Mr. Marchese,125,000 shares of common stock, Class A Warrants to purchase up to 125,000 shares of common stock, and Class B Warrants to purchase up to 62,500 shares of common stock for gross proceeds of $50,000, the terms of which were identical to those offered to other investors in the Company’s private placement.
 
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In November 2010, in connection with our private placement, the Company sold RLR Services Partnership, a five percent shareholder, 37,500 shares of common stock, Class A Warrants to purchase up to 37,500 shares of common stock, and Class B Warrants to purchase up to 18,750 shares of common stock for gross proceeds of $15,000, the terms of which were identical to those offered to other investors in the Company’s private placement.

In January 2011, we sold to Highline Capital Partners, L.P., Highline Capital International, Ltd., Highline Capital Partners, QP, LP, and Highline A Master Fund, L.L.C. an aggregate of 500,000 shares of common stock and five year warrants to purchase up to 480,000 shares of common stock exercisable at $2.50 per share.  As additional consideration for the purchase of the shares and warrants, we issued to these investors an option to purchase (i) up to 2,000,000 shares of common stock exercisable at $2.50 per share and (ii) a warrant to purchase up to 2,000,000 shares of common stock at an exercise price of $2.50 per share.

Director Independence

We have determined that the following individuals who currently serve as directors or served as directors during any part of the last completed fiscal year are not independent, as that term is defined in Section 10A(m)(3) of the Exchange Act:

Name
Committee Membership
Dan Gorski
(1)
Mike McDonald
(1)
Cecil Wall
(1)

(1)  The Board has not established any committees.

We have determined that the following individual who currently serves as a director or served as a director during any part of the last completed fiscal year is independent, as that term is defined in Section 10A(m)(3) of the Exchange Act:

Name
Committee Membership
Anthony Marchese (1)
(2)

(1)  Mr. Marchese joined the Board in December 2009.
(2)  The Board has not established any committees.


 
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Item 14.  Principal Accountant Fees and Services

During the fiscal years ended August 31, 2008 and 2007, the aggregate fees billed by our independent accountants, LBB & Associates, Ltd., LLP,  for the audit of year-end financials and review of our quarterly financials and required SEC filings were as follows:

   
Fiscal year ended
August 31, 2008
   
Fiscal year ended
August 31, 2007
 
Audit fees
  $ 8,065     $ 8,065  
Audit-related fees
  $ 0.00     $ 0.00  
Tax fees
  $ 0.00     $ 0.00  
All other fees
  $ 0.00     $ 0.00  
                 

Audit fees consist of fees related to professional services rendered in connection with the audit of our annual financial statements and the review of the financial statements included in each of our quarterly reports on Form 10-Q.  Tax fees consist of fees for professional services rendered in connection with preparation and filing of our federal income tax returns and limited tax consulting.

Our policy is to pre-approve all audit and permissible non-audit services performed by the independent accountants. These services may include audit services, audit-related services, tax services and other services. Under our audit committee’s policy, pre-approval is provided for particular services or categories of services, including planned services, project based services and routine consultations. In addition, we may also pre-approve particular services on a case-by-case basis. We approved all services that our independent accountants provided to us in the past two fiscal years.

 
 
 
 
 
 
 
 

 
 
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PART IV
 
Item 15.  Exhibits
 
 
The following exhibits are attached hereto or are incorporated by reference:
 
Exhibit Number   Description
   
3.1 (1)
Amended and Restated Bylaws
3.2 (1)
Amended and Restated Articles of Incorporation
3.3 (2)
Amendment to Articles of Incorporation
4.1 (2)
Form of Common Stock Certificate
10.1* (1)
Stock Option Plan
10.2 (2)
Lease
10.3 (2)
Form of Class A Warrant
10.4 (2)
Form of Class B Warrant
10.5 (2)
Form of Registration Rights Agreement
10.6* (2)
Director’s Agreement
10.7 (2)
Form of Subscription Agreement for January 2011 Investment
10.8 (2)
Form of Warrant for January 2011 Investment
10.9 (2)
Form of Registration Rights Agreement for January 2011 Investment
10.10 (2)
Shareholders’ Agreement
14.1 (2)
Code of Ethics
31.1 (2)
Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a)
31.2 (2)
Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a)
32.1 (2)
Certification of Chief Executive Officer Pursuant to Section 18 U.S.C. Section 1350,
adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2 (2)
Certification of Chief Financial Officer Pursuant to Section 18 U.S.C. Section 1350,
adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 
         
* Management contract or compensatory plan or arrangement.

(1)   
Filed as an exhibit to the Form 10 filed with the SEC on October 10, 2008.
(2)   
Filed herewith.


 
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SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Texas Rare Earth Resources Corp.

/s/ DAN GORSKI
Dan Gorski, duly authorized officer
and Principal Executive Officer

DATED:  February 8, 2011


/s/ WM. CHRIS MATHERS
Wm. Chris Mathers, Principal Financial Officer

DATED:  February 8, 2011

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature
Capacity
Date
/s/ DAN GORSKI
Dan Gorski
 
Chief Executive Officer, Principal Executive Officer and Director
February 8, 2011
/s/ WM. CHRIS MATHERS
Wm. Chris Mathers
 
Chief Financial Officer and Principal Financial Officer
February 8, 2011
/s/ Mike McDonald
Mike McDonald
 
Chairman of the Board
February 8, 2011
/s/ Cecil Wall
Cecil Wall
Director
February 8, 2011


 
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Exhibit 3.3
 
CERTIFICATE OF AMENDMENT
(PURSUANT TO NRS 78 385 AND 78 390)
 
USE BLACK INK ONLY - DO NOT HICHUOHT
ABOVE SPACE IS FOR OFFICE USE ONLY

Certificate of Amendment to Articles of Incorporation
For Nevada Profit Corporations
(Pursuant to NRS 78.385 and 78.390 - After Issuance of Stock)

1. Name of corporation:

Standard Silver Corporation

2. The articles have been amended as follows: (provide article numbers, if available)
 
Article 1 of the corporation's Amended and Restated Articles of Incorporation is hereby amended and restated as follows:

"The name of the corporation is "Texas Rare Earth Resources Corp." (hereinafter, the "Corporation")."
 
 
 

3. The vote by which the stockholders holding shares in the corporation entitling them to exercise a least a majority of the voting power, or such greater proportion of the voting power as may be required in the case of a vote by classes or series, or as may be required by the provisions of the articles of incorporation have voted in favor of the amendment is:                                              76%

 
 4 Effective date of filing: (optional)
9/20/10
 
   
must not be later than 90 days after the certificate is filed)
 

5. Signature: (required)
 
 

lf any proposed amendment would alter or change any preference or any relative or other right given to any class or series of outstanding shares, then the amendment must be approved by the vote, in addition to the affirmative vote otherwise required, of the holders of shares representing a majority of the voting power of each class or series affected by the amendment regardless to limitations or restrictions on the voting power thereof

IMPORTANT: Failure to include any of the above information and submit with the proper fees may cause this filing to be rejected

This form must be accompanied by appropriate fees.
Nevada secretary of State Amend Profit-After
 
Revised: 3-6-09

 
 

 
Exhibit 4.1
 
 
 

 
 
 
 

 
Exhibit 10.1
 
Standard Silver Corporation
2008 Stock Option Plan

ARTICLE I - PLAN

1.1            Purpose.   This Plan is a plan for key employees, officers, directors, and consultants of the Company and its Affiliates and is intended to advance the best interests of the Company, its Affiliates, and its stockholders by providing those persons who have substantial responsibility for the management and growth of the Company and its Affiliates with additional incentives and an opportunity to obtain or increase their proprietary interest in the Company, thereby encouraging them to continue in the employ of the Company or any of its Affiliates.
1.2            Rule 16b-3 Plan .  The Company is subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (the “1934 Act”), and therefore the Plan is intended to comply with all applicable conditions of Rule 16b-3 (and all subsequent revisions thereof) promulgated under the 1934 Act.  To the extent any provision of the Plan or action by the Board of Directors or Committee fails to so comply, it shall be deemed null and void, to the extent permitted by law and deemed advisable by the Committee.  In addition, the Board of Directors may amend the Plan from time to time, as it deems necessary in order to meet the requirements of any amendments to Rule 16b-3 without the consent of the shareholders of the Company.

1.3            Effective Date of Plan .   The Plan shall be effective the earlier of September 8, 2008 or the day the shareholders of the Company approve the Plan (the “Effective Date”).  No Award shall be granted pursuant to the Plan ten years after the Effective Date.

ARTICLE II - DEFINITIONS

The words and phrases defined in this Article shall have the meaning set out in these definitions throughout this Plan, unless the context in which any such word or phrase appears reasonably requires a broader, narrower, or different meaning.

2.1           “Affiliate” means any subsidiary corporation.  The term “subsidiary corporation” means any corporation (other than the Company) in an unbroken chain of corporations beginning with the Company if, at the time of the action or transaction, each of the corporations other than the last corporation in the unbroken chain owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in the chain.
 
2.2           “Award” means each of the following granted under this Plan: Incentive Option, Nonqualified Option, Stock Appreciation Right, Restricted Stock Award, Performance Stock Award or Stock Award.

2.3           “Board of Directors” means the board of directors of the Company.

2.4           “Code” means the Internal Revenue Code of 1986, as amended.

 
 

 
2.5           “Committee” means the Compensation Committee of the Board of Directors, or if no Compensation Committee has been formed, then it shall mean the entire Board of Directors.

2.6           “Company” means Standard Silver Corporation, a Nevada corporation.

2.7           “Consultant” means any person, including an advisor, engaged by the Company or Affiliate to render services and who is compensated for such services.

2.8           “Eligible Persons” shall mean, with respect to the Plan, those persons who, at the time that an Award is granted, are (i) Employees and all other key personnel, including officers and directors, of the Company or Affiliate, or (ii) Consultants or independent contractors who provide valuable services to the Company or Affiliate as determined by the Committee.

2.9           “Employee” means a person employed by the Company or any Affiliate to whom an Award is granted.

2.10           “Fair Market Value” of the Stock as of any date means (a) the average of the high and low sale prices of the Stock on that date on the principal securities exchange on which the Stock is listed; or (b) if the Stock is not listed on a securities exchange, the average of the high and low sale prices of the Stock on that date as reported on the Nasdaq; or (c) if the Stock is not listed on the Nasdaq, the average of the high and low bid quotations for the Stock on that date as reported by the National Quotation Bureau Incorporated; or (d) if none of the foregoing is applicable, an amount at the election of the Committee equal to (x), the average between the closing bid and ask prices per share of Stock on the last preceding date on which those prices were reported or (y) that amount as determined by the Committee in good faith.

2.11           “Incentive Option” means an option to purchase Stock granted under this Plan which is designated as an “Incentive Option” and satisfies the requirements of Section 422 of the Code.

2.12           “Non-Employee Directors” means that term as defined in Rule 16b-3 under the 1934 Act.

2.13           “Nonqualified Option” means an option to purchase Stock granted under this Plan other than an Incentive Option.

2.14           “Option” means both an Incentive Option and a Nonqualified Option granted under this Plan to purchase shares of Stock.

2.15           “Option Agreement” means the written agreement by and between the Company and an Eligible Person, which sets out the terms of an Option.

2.16           “Outside Director” shall mean a member of the Board of Directors serving on the Committee who satisfies Section 162(m) of the Code.

 
 

 
           2.17           “Plan” means the Standard Silver Corporation 2008 Stock Option Plan, as set out in this document and as it may be amended from time to time.

           2.18           “Plan Year” means the Company’s fiscal year.

           2.19           “Performance Stock Award” means an award of shares of Stock to be issued to an Eligible Person if specified predetermined performance goals are satisfied as described in Article VII.
 
 
           2.20           “Restricted Stock” means Stock awarded or purchased under a Restricted Stock Agreement entered into pursuant to this Plan, together with (i) all rights, warranties or similar items attached or accruing thereto or represented by the certificate representing the stock and (ii) any stock or securities into which or for which the stock is thereafter converted or exchanged.  The terms and conditions of the Restricted Stock Agreement shall be determined by the Committee consistent with the terms of the Plan.

           2.21           “Restricted Stock Agreement” means an agreement between the Company or any Affiliate and the Eligible Person pursuant to which the Eligible Person receives a Restricted Stock Award subject to Article VI.

           2.22           “Restricted Stock Award” means an Award of Restricted Stock.

           2.23           “Restricted Stock Purchase Price” means the purchase price, if any, per share of Restricted Stock subject to an Award.  The Committee shall determine the Restricted Stock Purchase Price.  It may be greater than or less than the Fair Market Value of the Stock on the date of the Stock Award.

            2.24           “Stock” means the common stock of the Company, $.01 par value, or, in the event that the outstanding shares of common stock are later changed into or exchanged for a different class of stock or securities of the Company or another corporation, that other stock or security.

           2.25           “Stock Appreciation Right” and “SAR” means the right to receive the difference between the Fair Market Value of a share of Stock on the grant date and the Fair Market Value of the share of Stock on the exercise date.
 
           2.26           “Stock Award” means an Award of Stock to an Eligible Person.
 
2.27           “10% Stockholder” means an individual who, at the time the Option is granted, owns Stock possessing more than 10% of the total combined voting power of all classes of stock of the Company or of any Affiliate.  An individual shall be considered as owning the Stock owned, directly or indirectly, by or for his brothers and sisters (whether by the whole or half blood), spouse, ancestors, and lineal descendants; and Stock owned, directly or indirectly, by or for a corporation, partnership, estate, or trust, shall be considered as being owned proportionately by or for its stockholders, partners, or beneficiaries.

 
 

 
ARTICLE III - ELIGIBILITY

The individuals who shall be eligible to receive Awards shall be those Eligible Persons of the Company or any of its Affiliates as the Committee shall determine from time to time. However, no member of the Committee shall be eligible to receive any Award or to receive Stock, Options, Stock Appreciation Rights, or any Performance Stock Award under any other plan of the Company or any of its Affiliates, if to do so would cause the individual not to be a Non-Employee Director or Outside Director.  The Board of Directors may designate one or more individuals who shall not be eligible to receive any Award under this Plan or under other similar plans of the Company.

ARTICLE IV - GENERAL PROVISIONS RELATING TO AWARDS

           4.1            Authority to Grant Awards.    The Committee may grant to those Eligible Persons of the Company or any of its Affiliates, as it shall from time to time determine, Awards under the terms and conditions of this Plan.  The Committee shall determine subject only to any applicable limitations set out in this Plan, the number of shares of Stock to be covered by any Award to be granted to an Eligible Person.

           4.2            Dedicated Shares.    The total number of shares of Stock with respect to which Awards may be granted under the Plan shall be 2,000,000 shares. The shares may be treasury shares or authorized but unissued shares.  The number of shares stated in this Section 4.2 shall be subject to adjustment in accordance with the provisions of Section 4.5.  In the event that any outstanding Award shall expire or terminate for any reason or any Award is surrendered, the shares of Stock allocable to the unexercised portion of that Award may again be subject to an Award under the Plan.

           4.3            Non-transferability .  Awards shall not be transferable by the Eligible Person otherwise than by will or under the laws of descent and distribution, or pursuant to a qualified domestic relations order (as defined by the Code or the rules thereunder), and shall be exercisable, during the Eligible Person’s lifetime, only by him or a transferee permitted by this Section 4.  Any attempt to transfer an Award other than under the terms of the Plan and the Agreement shall terminate the Award and all rights of the Eligible Person to that Award.

           4.4            Requirements of Law .  The Company shall not be required to sell or issue any Stock under any Award if issuing that Stock would constitute or result in a violation by the Eligible Person or the Company of any provision of any law, statute, or regulation of any governmental authority. Specifically, in connection with any applicable statute or regulation relating to the registration of securities, upon exercise of any Option or pursuant to any Award, the Company shall not be required to issue any Stock unless the Committee has received evidence satisfactory to it to the effect that the holder of that Option or Award will not transfer the Stock except in accordance with applicable law, including receipt of an opinion of counsel satisfactory to the Company to the effect that any proposed transfer complies with applicable law.  The determination by the Committee on this matter shall be final, binding, and conclusive. The Company may, but shall in no event be obligated to, register any Stock covered by this Plan pursuant to applicable securities laws of any country or any political subdivision.  In the event the Stock issuable on exercise of an Option or pursuant to an Award is not registered, the Company may imprint on the certificate evidencing the Stock any legend that counsel for the Company considers necessary or advisable to comply with applicable law. The Company shall not be obligated to take any other affirmative action in order to cause the exercise of an Option or vesting under an Award, or the issuance of shares pursuant thereto, to comply with any law or regulation of any governmental authority.

 
 

 
           4.5            Changes in the Company’s Capital Structure.

           (a)           The existence of outstanding Options or Awards shall not affect in any way the right or power of the Company or its stockholders to make or authorize any or all adjustments, recapitalizations, reorganizations or other changes in the Company’s capital structure or its business, or any merger or consolidation of the Company, or any issue of bonds, debentures, preferred or prior preference stock ahead of or affecting the Stock or its rights, or the dissolution or liquidation of the Company, or any sale or transfer of all or any part of its assets or business, or any other corporate act or proceeding, whether of a similar character or otherwise.  If the Company shall effect a subdivision or consolidation of shares or other capital readjustment, the payment of a Stock dividend, or other increase or reduction of the number of shares of the Stock outstanding, without receiving compensation for it in money, services or property, then (a) the number, class, and per share price of shares of Stock subject to outstanding Options under this Plan shall be appropriately adjusted in such a manner as to entitle an Eligible Person to receive upon exercise of an Option, for the same aggregate cash consideration, the equivalent total number and class of shares he would have received had he exercised his Option in full immediately prior to the event requiring the adjustment; and (b) the number and class of shares of Stock then reserved to be issued under the Plan shall be adjusted by substituting for the total number and class of shares of Stock then reserved, that number and class of shares of Stock that would have been received by the owner of an equal number of outstanding shares of each class of Stock as the result of the event requiring the adjustment.

           (b)           If the Company is merged or consolidated with another corporation and the Company is not the surviving corporation, or if the Company is liquidated or sells or otherwise disposes of substantially all its assets while unexercised Options remain outstanding under this Plan (each of the foregoing referred to as a “Corporate Transaction”):

(i)           Subject to the provisions of clause (ii) below, in the event of such a Corporate Transaction, any unexercised Options shall automatically accelerate so that they shall, immediately prior to the specified effective date for the Corporate Transaction become 100% vested and exercisable; provided, however, that any unexercised Options shall not accelerate if and to the extent such Option is, in connection with the Corporate Transaction, either to be assumed by the successor corporation or parent thereof (the “Successor Corporation”) or to be replaced with a comparable award for the purchase of shares of the capital stock of the Successor Corporation.  Whether or not any unexercised Option is assumed or replaced shall be determined by the Company and the Successor Corporation in connection with the Corporate Transaction.  The Board of Directors shall make the determination of what constitutes a comparable award to the unexercised Option, and its determination shall be conclusive and binding.  The unexercised Option shall terminate and cease to remain outstanding immediately following the consummation of the Corporate Transaction, except to the extent assumed by the Successor Corporation.

 
 

 
(ii)           All outstanding Options may be canceled by the Board of Directors as of the effective date of any Corporate Transaction, if (i) notice of cancellation shall be given to each holder of an Option and (ii) each holder of an Option shall have the right to exercise that Option in full (without regard to any limitations set out in or imposed under this Plan or the Option Agreement granting that Option) during a period set by the Board of Directors preceding the effective date of the merger, consolidation, liquidation, sale, or other disposition and, if in the event all outstanding Options may not be exercised in full under applicable securities laws without registration of the shares of Stock issuable on exercise of the Options, the Board of Directors may limit the exercise of the Options to the number of shares of Stock, if any, as may be issued without registration.  The method of choosing which Options may be exercised, and the number of shares of Stock for which Options may be exercised, shall be solely within the discretion of the Board of Directors.

           (c)           After a merger of one or more corporations into the Company or after a consolidation of the Company and one or more corporations in which the Company shall be the surviving corporation, each Eligible Person shall be entitled to have his Restricted Stock and shares earned under a Performance Stock Award appropriately adjusted based on the manner the Stock was adjusted under the terms of the agreement of merger or consolidation.
 
(d)           In each situation described in this Section 4.5, the Committee will make similar adjustments, as appropriate, in outstanding Stock Appreciation Rights.
 
(e)           The issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, for cash or property, or for labor or services either upon direct sale or upon the exercise of rights or warrants to subscribe for them, or upon conversion of shares or obligations of the Company convertible into shares or other securities, shall not affect, and no adjustment by reason of such issuance shall be made with respect to, the number, class, or price of shares of Stock then subject to outstanding Awards.
 
4.6            Election under Section 83(b) of the Code .  No Employee shall exercise the election permitted under Section 83(b) of the Code without written approval of the Committee.  Any Employee doing so shall forfeit all Awards issued to him under this Plan.

ARTICLE V - OPTIONS AND STOCK APPRECIATION RIGHTS

           5.1            Type of Option .  The Committee shall specify at the time of grant whether a given Option shall constitute an Incentive Option or a Nonqualified Option.  Incentive Stock Options may only be granted to Employees.
 
5.2            Option Exercise Price .  The price at which Stock may be purchased under an Incentive Option shall not be less than the greater of:  (a) 100% of the Fair Market Value of the shares of Stock on the date the Option is granted or (b) the aggregate par value of the shares of Stock on the date the Option is granted.  The Committee in its discretion may provide that the price at which shares of Stock may be purchased under an Incentive Option shall be more than 100% of Fair Market Value.  In the case of any 10% Stockholder, the price at which shares of Stock may be purchased under an Incentive Option shall not be less than 110% of the Fair Market Value of the Stock on the date the Incentive Option is granted.   The price at which shares of Stock may be purchased under a Nonqualified Option shall be such price as shall be determined by the Committee in its sole discretion but in no event lower than the par value of the shares of Stock on the date the Option is granted.

 
 

 
5.3            Duration of Options and SARS .  No Option or SAR shall be exercisable after the expiration of ten (10) years from the date the Option or SAR is granted.  In the case of a 10% Stockholder, no Incentive Option shall be exercisable after the expiration of five years from the date the Incentive Option is granted.

5.4            Amount Exercisable -- Incentive Options.    Each Option may be exercised from time to time, in whole or in part, in the manner and subject to the conditions the Committee, in its sole discretion, may provide in the Option Agreement, as long as the Option is valid and outstanding.  To the extent that the aggregate Fair Market Value (determined as of the time an Incentive Option is granted) of the Stock with respect to which Incentive Options first become exercisable by the optionee during any calendar year (under this Plan and any other incentive stock option plan(s) of the Company or any Affiliate) exceeds $100,000, the portion in excess of $100,000 of the Incentive Option shall be treated as a Nonqualified Option.  In making this determination, Incentive Options shall be taken into account in the order in which they were granted.

5.5            Exercise of Options .  Each Option shall be exercised by the delivery of written notice to the Committee setting forth the number of shares of Stock with respect to which the Option is to be exercised, together with:
 
(a)           cash, certified check, bank draft, or postal or express money order payable to the order of the Company for an amount equal to the option price of the shares;
 
(b)           stock at its Fair Market Value on the date of exercise (if approved in advance in writing by the Committee);
 
(c)           an election to make a cashless exercise through a registered broker-dealer (if approved in advance in writing by the Committee);
 
(d)           an election to have shares of Stock, which otherwise would be issued on exercise, withheld in payment of the exercise price (if approved in advance in writing by the Committee); and/or

(e)           any other form of payment which is acceptable to the Committee, including without limitation, payment in the form of a promissory note, and specifying the address to which the certificates for the shares are to be mailed.
 
 

 
 
 

 
As promptly as practicable after receipt of written notification and payment, the Company shall deliver to the Eligible Person certificates for the number of shares with respect to which the Option has been exercised, issued in the Eligible Person’s name. If shares of Stock are used in payment, the aggregate Fair Market Value of the shares of Stock tendered must be equal to or less than the aggregate exercise price of the shares being purchased upon exercise of the Option, and any difference must be paid by cash, certified check, bank draft, or postal or express money order payable to the order of the Company.  Delivery of the shares shall be deemed effected for all purposes when a stock transfer agent of the Company shall have deposited the certificates in the United States mail, addressed to the Eligible Person, at the address specified by the Eligible Person.

Whenever an Option is exercised by exchanging shares of Stock owned by the Eligible Person, the Eligible Person shall deliver to the Company certificates registered in the name of the Eligible Person representing a number of shares of Stock legally and beneficially owned by the Eligible Person, free of all liens, claims, and encumbrances of every kind, accompanied by stock powers duly endorsed in blank by the record holder of the shares represented by the certificates (with signature guaranteed by a commercial bank or trust company or by a brokerage firm having a membership on a registered national stock exchange).  The delivery of certificates upon the exercise of Options is subject to the condition that the person exercising the Option provides the Company with the information the Company might reasonably request pertaining to exercise, sale or other disposition.

5.6            Stock Appreciation Rights .  All Eligible Persons shall be eligible to receive Stock Appreciation Rights.  The Committee shall determine the SAR to be awarded from time to time to any Eligible Person.  The grant of a SAR to be awarded from time to time shall neither entitle such person to, nor disqualify such person from, participation in any other grant of awards by the Company, whether under this Plan or any other plan of the Company.  If granted as a stand-alone SAR Award, the terms of the Award shall be provided in a Stock Appreciation Rights Agreement.

5.7            Stock Appreciation Rights in Tandem with Options .  Stock Appreciation Rights may, at the discretion of the Committee, be included in each Option granted under the Plan to permit the holder of an Option to surrender that Option, or a portion of the part which is then exercisable, and receive in exchange, upon the conditions and limitations set by the Committee, an amount equal to the excess of the Fair Market Value of the Stock covered by the Option, or the portion of it that was surrendered, determined as of the date of surrender, over the aggregate exercise price of the Stock.  In the event of the surrender of an Option, or a portion of it, to exercise the Stock Appreciation Rights, the shares represented by the Option or that part of it which is surrendered, shall not be available for reissuance under the Plan.  Each Stock Appreciation Right issued in tandem with an Option (a) will expire not later than the expiration of the underlying Option, (b) may be for no more than 100% of the difference between the exercise price of the underlying Option and the Fair Market Value of a share of Stock at the time the Stock Appreciation Right is exercised, (c) is transferable only when the underlying Option is transferable, and under the same conditions, and (d) may be exercised only when the underlying Option is eligible to be exercised.
 
 

 
 
 

 
5.8            Conditions of Stock Appreciation Rights .  All Stock Appreciation Rights shall be subject to such terms, conditions, restrictions or limitations as the Committee deems appropriate, including by way of illustration but not by way of limitation, restrictions on transferability, requirement of continued employment, individual performance, financial performance of the Company, or payment of any applicable employment or withholding taxes.

5.9            Payment of Stock Appreciation Rights .  The amount of payment to which the Eligible Person who reserves an SAR shall be entitled upon the exercise of each SAR shall be equal to the amount, if any by which the Fair Market Value of the specified shares of Stock on the exercise date exceeds the Fair Market Value of the specified shares of Stock on the date of grant of the SAR.  The SAR shall be paid in either cash or Stock, as determined in the discretion of the Committee as set forth in the SAR agreement.  If the payment is in Stock, the number of shares to be paid shall be determined by dividing the amount of such payment by the Fair Market Value of Stock on the exercise date of such SAR.

5.10          Exercise on Termination of Employment .  Unless it is expressly provided otherwise in the Option or SAR agreement, Options and SAR’s granted to Employees shall terminate three months after severance of employment of the Employee from the Company and all Affiliates for any reason, with or without Cause (defined below), other than death, retirement under the then established rules of the Company, or severance for disability.  The Committee shall determine whether authorized leave of absence or absence on military or government service shall constitute severance of the employment of the Employee at that time.  Notwithstanding anything contained herein, no Option or SAR may be exercised after termination of employment for any reason (whether by death, disability, retirement or otherwise) if it has not vested as at the date of termination of employment.  Cause shall mean any of the following: (A) conviction of a crime (including conviction on a nolo contendere plea) involving a felony or dishonesty, or moral turpitude; (B) deliberate and continual refusal to perform employment duties reasonably requested by the Company or an affiliate after thirty (30) days’ written notice by certified mail of such failure to perform, specifying that the failure constitutes cause (other than as a result of vacation, sickness, illness or injury); (C) fraud or embezzlement as determined by an independent certified public accountant firm; or (D) gross misconduct or gross negligence in connection with the business of the Company or an affiliate which has substantial effect on the Company or the affiliate.
 
5.11          Death .  If, before the expiration of an Option or SAR, the Eligible Person, whether in the employ of the Company or after he has retired or was severed for disability, or otherwise dies, the Option or SAR may be exercised until the earlier of the Option’s or SAR’s expiration date or six months following the date of his death, unless it is expressly provided otherwise in the Option or SAR agreement.  After the death of the Eligible Person, his executors, administrators, or any persons to whom his Option or SAR may be transferred by will or by the laws of descent and distribution shall have the right, at any time prior to the Option’s or SAR’s expiration or termination, whichever is earlier, to exercise it, to the extent to which he was entitled to exercise it immediately prior to his death, unless it is expressly provided otherwise in the Option or SAR’s agreement.
 
 
 

 
 
 

 
5.12          Retirement .  Unless it is expressly provided otherwise in the Option Agreement, before the expiration of an Option or SAR, the Employee shall be retired in good standing from the employ of the Company under the then established rules of the Company, the Option or SAR may be exercised until the earlier of the Option’s or SAR’s expiration date or three months following the date of his retirement, unless it is expressly provided otherwise in the Option or SAR agreement.

5.13          Disability .  If, before the expiration of an Option or SAR, the Employee shall be severed from the employ of the Company for disability, the Option or SAR shall terminate on the earlier of the Option’s or SAR’s expiration date or six months after the date he was severed because of disability, unless it is expressly provided otherwise in the Option or SAR agreement.

5.14          Substitution Options .  Options may be granted under this Plan from time to time in substitution for stock options held by employees of other corporations who are about to become employees of or affiliated with the Company or any Affiliate as the result of a merger or consolidation of the employing corporation with the Company or any Affiliate, or the acquisition by the Company or any Affiliate of the assets of the employing corporation, or the acquisition by the Company or any Affiliate of stock of the employing corporation as the result of which it becomes an Affiliate of the Company.  The terms and conditions of the substitute Options granted may vary from the terms and conditions set out in this Plan to the extent the Committee, at the time of grant, may deem appropriate to conform, in whole or in part, to the provisions of the stock options in substitution for which they are granted.

5.15          Reload Options .   Without in any way limiting the authority of the Board of Directors or Committee to make or not to make grants of Options hereunder, the Board of Directors or Committee shall have the authority (but not an obligation) to include as part of any Option Agreement a provision entitling the Eligible Person to a further Option (a “Reload Option”) in the event the Eligible Person exercises the Option evidenced by the Option Agreement, in whole or in part, by surrendering other shares of Stock in accordance with this Plan and the terms and conditions of the Option Agreement.  Any such Reload Option (a) shall be for a number of shares equal to the number of shares surrendered as part or all of the exercise price of such Option; (b) shall have an expiration date which is the greater of (i) the same expiration date of the Option the exercise of which gave rise to such Reload Option or (ii) one year from the date of grant of the Reload Option; and (c) shall have an exercise price which is equal to one hundred percent (100%) of the Fair Market Value of the Stock subject to the Reload Option on the date of exercise of the original Option.   Notwithstanding the foregoing, a Reload Option which is an Incentive Option and which is granted to a 10% Stockholder, shall have an exercise price which is equal to one hundred ten percent (110%) of the Fair Market Value of the Stock subject to the Reload Option on the date of exercise of the original Option and shall have a term which is no longer than five (5) years.

Any such Reload Option may be an Incentive Option or a Nonqualified Option, as the Board of Directors or Committee may designate at the time of the grant of the original Option; provided, however, that the designation of any Reload Option as an Incentive Option shall be subject to the provisions of the Code. There shall be no Reload Options on a Reload Option.  Any such Reload Option shall be subject to the availability of sufficient shares under Section 4.2 herein and shall be subject to such other terms and conditions as the Board of Directors or Committee may determine which are not inconsistent with the express provisions of the Plan regarding the terms of Options.
 

 
 
 

 
5.16          No Rights as Stockholder .  No Eligible Person shall have any rights as a stockholder with respect to Stock covered by his Option until the date a stock certificate is issued for the Stock.

ARTICLE VI - AWARDS

6.1            Restricted Stock Awards.   The Committee may issue shares of Stock to an Eligible Person subject to the terms of a Restricted Stock Agreement. The Restricted Stock may be issued for no payment by the Eligible Person or for a payment below the Fair Market Value on the date of grant.  Restricted Stock shall be subject to restrictions as to sale, transfer, alienation, pledge or other encumbrance and generally will be subject to vesting over a period of time specified in the Restricted Stock Agreement.  The Committee shall determine the period of vesting, the number of shares, the price, if any, of Stock included in a Restricted Stock Award, and the other terms and provisions which are included in a Restricted Stock Agreement.

6.2            Restrictions .  Restricted Stock shall be subject to the terms and conditions as determined by the Committee, including without limitation, any or all of the following:
 
 
(a)           a prohibition against the sale, transfer, alienation, pledge, or other encumbrance of the shares of Restricted Stock, such prohibition to lapse (i) at such time or times as the Committee shall determine (whether in annual or more frequent installments, at the time of the death, disability, or retirement of the holder of such shares, or otherwise);

(b)           a requirement that the holder of shares of Restricted Stock forfeit, or in the case of shares sold to an Eligible Person, resell back to the Company at his cost, all or a part of such shares in the event of termination of the Eligible Person’s employment during any period in which the shares remain subject to restrictions;

(c)           a prohibition against employment of the holder of Restricted Stock by any competitor of the Company or its Affiliates, or against such holder’s dissemination of any secret or confidential information belonging to the Company or an Affiliate;

(d)           unless stated otherwise in the Restricted Stock Agreement, (i) if restrictions remain at the time of severance of employment with the Company and all Affiliates, other than for reason of disability or death, the Restricted Stock shall be forfeited; and (ii) if severance of employment is by reason of disability or death, the restrictions on the shares shall lapse and the Eligible Person or his heirs or estate shall be 100% vested in the shares subject to the Restricted Stock Agreement.
 
 
6.3            Stock Certificate.    Shares of Restricted Stock shall be registered in the name of the Eligible Person receiving the Restricted Stock Award and deposited, together with a stock power endorsed in blank, with the Company. Each such certificate shall bear a legend in substantially the following form:

“The transferability of this certificate and the shares of Stock represented by it is restricted by and subject to the terms and conditions (including conditions of forfeiture) contained in the Standard Silver Corporation 2008 Stock Option Plan, and an agreement entered into between the registered owner and the Company.  A copy of the Plan and agreement is on file in the office of the Secretary of the Company.”

 
 

 
6.4            Rights as Stockholder .   Subject to the terms and conditions of the Plan, each Eligible Person receiving a certificate for Restricted Stock shall have all the rights of a stockholder with respect to the shares of Stock included in the Restricted Stock Award during any period in which such shares are subject to forfeiture and restrictions on transfer, including without limitation, the right to vote such shares.  Dividends paid with respect to shares of Restricted Stock in cash or property other than Stock in the Company or rights to acquire stock in the Company shall be paid to the Eligible Person currently.  Dividends paid in Stock in the Company or rights to acquire Stock in the Company shall be added to and become a part of the Restricted Stock.

6.5            Lapse of Restrictions .  At the end of the time period during which any shares of Restricted Stock are subject to forfeiture and restrictions on sale, transfer, alienation, pledge, or other encumbrance, such shares shall vest and will be delivered in a certificate, free of all restrictions, to the Eligible Person or to the Eligible Person’s legal representative, beneficiary or heir; provided the certificate shall bear such legend, if any, as the Committee determines is reasonably required by applicable law.  By accepting a Stock Award and executing a Restricted Stock Agreement, the Eligible Person agrees to remit when due any federal and state income and employment taxes required to be withheld.

6.6            Restriction Period .  No Restricted Stock Award may provide for restrictions continuing beyond ten (10) years from the date of grant.

6.7            Award of Stock .  The Committee may award shares of Stock, without any cash payment for such shares or without any restrictions, to designated Eligible Persons for services rendered to the Company. The Stock may be awarded at, above or below the Fair Market Value on the date of grant.  The designation of a Stock Award shall be made by the Committee in writing at any time after such Eligible Person has provided value to the Company (or within such period as permitted by IRS regulations).  The Committee reserves the right to make adjustments in the amount of an Award if in its discretion unforeseen events make such adjustment appropriate.

ARTICLE VII - PERFORMANCE STOCK AWARDS

7.1            Award of Performance Stock .  The Committee may award shares of Stock, without any payment for such shares, to designated Eligible Persons if specified performance goals established by the Committee are satisfied. The terms and provisions herein relating to these performance-based awards are intended to satisfy Section 162(m) of the Code and regulations issued thereunder.  The designation of an employee eligible for a specific Performance Stock Award shall be made by the Committee in writing prior to the beginning of the period for which the performance is measured (or within such period as permitted by IRS regulations).  The Committee shall establish the maximum number of shares of Stock to be issued to a designated Employee if the performance goal or goals are met.  The Committee reserves the right to make downward adjustments in the maximum amount of an Award if in its discretion unforeseen events make such adjustment appropriate.
 
 

 
 
 

 
7.2            Performance Goals .  Performance goals determined by the Committee may be based on specified increases in cash flow; net profits; Stock price; Company, segment, or Affiliate sales; market share; earnings per share; return on assets; and/or return on stockholders’ equity.

7.3            Eligibility .  The employees eligible for Performance Stock Awards are the senior officers (i.e., chief executive officer, president, vice presidents, secretary, treasurer, and similar positions) of the Company and its Affiliates, and such other employees of the Company and its Affiliates as may be designated by the Committee.

7.4            Certificate of Performance .  The Committee must certify in writing that a performance goal has been attained prior to issuance of any certificate for a Performance Stock Award to any Employee.  If the Committee certifies the entitlement of an Employee to the Performance Stock Award, the certificate will be issued to the Employee as soon as administratively practicable, and subject to other applicable provisions of the Plan, including but not limited to, all legal requirements and tax withholding.  However, payment may be made in shares of Stock, in cash, or partly in cash and partly in shares of Stock, as the Committee shall decide in its sole discretion.  If a cash payment is made in lieu of shares of Stock, the number of shares represented by such payment shall not be available for subsequent issuance under this Plan.

ARTICLE VIII - ADMINISTRATION

The Committee shall administer the Plan.   All questions of interpretation and application of the Plan and Awards shall be subject to the determination of the Committee.  A majority of the members of the Committee shall constitute a quorum.  All determinations of the Committee shall be made by a majority of its members. Any decision or determination reduced to writing and signed by a majority of the members shall be as effective as if it had been made by a majority vote at a meeting properly called and held.  This Plan shall be administered in such a manner as to permit the Options, which are designated to be Incentive Options, to qualify as Incentive Options.  In carrying out its authority under this Plan, the Committee shall have full and final authority and discretion, including but not limited to the following rights, powers and authorities, to:

(a)           determine the Eligible Persons to whom and the time or times at which Options or Awards will be made;
 
 
 
 
 

 
                (b)           determine the number of shares and the purchase price of Stock covered in each Option or Award, subject to the terms of the Plan;
 
(c)           determine the terms, provisions, and conditions of each Option and Award, which need not be identical;

(d)           accelerate the time at which any outstanding Option or SAR may be exercised, or Restricted Stock Award will vest;

(e)           define the effect, if any, on an Option or Award of the death, disability, retirement, or termination of employment of the Employee;

(f)           prescribe, amend and rescind rules and regulations relating to administration of the Plan; and

(g)           make all other determinations and take all other actions deemed necessary, appropriate, or advisable for the proper administration of this Plan.

The actions of the Committee in exercising all of the rights, powers, and authorities set out in this Article and all other Articles of this Plan, when performed in good faith and in its sole judgment, shall be final, conclusive and binding on all parties.

ARTICLE IX - AMENDMENT OR TERMINATION OF PLAN

The Board of Directors of the Company may amend, terminate or suspend this Plan at any time, in its sole and absolute discretion; provided, however, that to the extent required to qualify this Plan under Rule 16b-3 promulgated under Section 16 of the Securities Exchange Act of 1934, as amended, no amendment that would (a) materially increase the number of shares of Stock that may be issued under this Plan, (b) materially modify the requirements as to eligibility for participation in this Plan, or (c) otherwise materially increase the benefits accruing to participants under this Plan, shall be made without the approval of the Company’s stockholders; provided further, however, that to the extent required to maintain the status of any Incentive Option under the Code, no amendment that would (a) change the aggregate number of shares of Stock which may be issued under Incentive Options, (b) change the class of employees eligible to receive Incentive Options, or (c) decrease the Option price for Incentive Options below the Fair Market Value of the Stock at the time it is granted, shall be made without the approval of the Company’s stockholders.  Subject to the preceding sentence, the Board of Directors shall have the power to make any changes in the Plan and in the regulations and administrative provisions under it or in any outstanding Incentive Option as in the opinion of counsel for the Company may be necessary or appropriate from time to time to enable any Incentive Option granted under this Plan to continue to qualify as an incentive stock option or such other stock option as may be defined under the Code so as to receive preferential federal income tax treatment.




 
 

 
ARTICLE X - MISCELLANEOUS

10.1            No Establishment of a Trust Fund .   No property shall be set aside nor shall a trust fund of any kind be established to secure the rights of any Eligible Person under this Plan.  All Eligible Persons shall at all times rely solely upon the general credit of the Company for the payment of any benefit which becomes payable under this Plan.

10.2            No Employment Obligation .  The granting of any Option or Award shall not constitute an employment contract, express or implied, nor impose upon the Company or any Affiliate any obligation to employ or continue to employ any Eligible Person.  The right of the Company or any Affiliate to terminate the employment of any person shall not be diminished or affected by reason of the fact that an Option or Award has been granted to him.

10.3            Forfeiture .  Notwithstanding any other provisions of this Plan, if the Committee finds by a majority vote after full consideration of the facts that an Eligible Person, before or after termination of his employment with the Company or an Affiliate for any reason (a) committed or engaged in fraud, embezzlement, theft, commission of a felony, or proven dishonesty in the course of his employment by the Company or an Affiliate, which conduct damaged the Company or Affiliate, or disclosed trade secrets of the Company or an Affiliate, or (b) participated, engaged in or had a material, financial, or other interest, whether as an employee, officer, director, consultant, contractor, stockholder, owner, or otherwise, in any commercial endeavor in the United States which is competitive with the business of the Company or an Affiliate without the written consent of the Company or Affiliate, the Eligible Person shall forfeit all outstanding Options and all outstanding Awards, and including all exercised Options and other situations pursuant to which the Company has not yet delivered a stock certificate.  Clause (b) shall not be deemed to have been violated solely by reason of the Eligible Person’s ownership of stock or securities of any publicly owned corporation, if that ownership does not result in effective control of the corporation.

The decision of the Committee as to the cause of an Employee’s discharge, the damage done to the Company or an Affiliate, and the extent of an Eligible Person’s competitive activity shall be final.  No decision of the Committee, however, shall affect the finality of the discharge of the Employee by the Company or an Affiliate in any manner.

10.4            Tax Withholding.   The Company or any Affiliate shall be entitled to deduct from other compensation payable to each Eligible Person any sums required by federal, state, or local tax law to be withheld with respect to the grant or exercise of an Option or SAR, lapse of restrictions on Restricted Stock, or award of Performance Stock.  In the alternative, the Company may require the Eligible Person (or other person exercising the Option, SAR or receiving the Stock) to pay the sum directly to the employer corporation. If the Eligible Person (or other person exercising the Option or SAR or receiving the Stock) is required to pay the sum directly, payment in cash or by check of such sums for taxes shall be delivered within 10 days after the date of exercise or lapse of restrictions. The Company shall have no obligation upon exercise of any Option or lapse of restrictions on Stock until payment has been received, unless withholding (or offset against a cash payment) as of or prior to the date of exercise or lapse of restrictions is sufficient to cover all sums due with respect to that exercise.  The Company and its Affiliates shall not be obligated to advise an Eligible Person of the existence of the tax or the amount which the employer corporation will be required to withhold.

 
 

 
10.5            Written Agreement or Course of Conduct.   Each Option and Award shall be embodied in a written agreement which shall be subject to the terms and conditions of this Plan and shall be signed by the Eligible Person and by a member of the Committee on behalf of the Committee and the Company or an executive officer of the Company, other than the Eligible Person, on behalf of the Company.  The agreement may contain any other provisions that the Committee in its discretion shall deem advisable which are not inconsistent with the terms of this Plan.  Notwithstanding the foregoing, a written agreement is not required if the Option or Award is granted in the ordinary course of conduct of the business and the Company has sufficient accounting records reflecting the services rendered in connection with the grant.

10.6            Indemnification of the Committee and the Board of Directors .  With respect  to administration of this Plan, the Company shall indemnify each present and future member of the Committee and the Board of Directors against, and each member of the Committee and the Board of Directors shall be entitled without further act on his part to indemnity from the Company for, all expenses (including attorney’s fees, the amount of judgments, and the amount of approved settlements made with a view to the curtailment of costs of litigation, other than amounts paid to the Company itself) reasonably incurred by him in connection with or arising out of any action, suit, or proceeding in which he may be involved by reason of his being or having been a member of the Committee and/or the Board of Directors, whether or not he continues to be a member of the Committee and/or the Board of Directors at the time of incurring the expenses, including, without limitation, matters as to which he shall be finally adjudged in any action, suit or proceeding to have been found to have been negligent in the performance of his duty as a member of the Committee or the Board of Directors.  However, this indemnity shall not include any expenses incurred by any member of the Committee and/or the Board of Directors in respect of matters as to which he shall be finally adjudged in any action, suit or proceeding to have been guilty of gross negligence or willful misconduct in the performance of his duty as a member of the Committee and the Board of Directors.  In addition, no right of indemnification under this Plan shall be available to or enforceable by any member of the Committee and the Board of Directors unless, within 60 days after institution of any action, suit or proceeding, he shall have offered the Company, in writing, the opportunity to handle and defend same at its own expense.  This right of indemnification shall inure to the benefit of the heirs, executors or administrators of each member of the Committee and the Board of Directors and shall be in addition to all other rights to which a member of the Committee and the Board of Directors may be entitled as a matter of law, contract, or otherwise.

10.7            Gender .  If the context requires, words of one gender when used in this Plan shall include the others and words used in the singular or plural shall include the other.

10.8            Headings .  Headings of Articles and Sections are included for convenience of reference only and do not constitute part of the Plan and shall not be used in construing the terms of the Plan.
 
 

 
 
 

 
 
10.9            Other Compensation Plans .  The adoption of this Plan shall not affect any other stock option, incentive or other compensation or benefit plans in effect for the Company or any Affiliate, nor shall the Plan preclude the Company from establishing any other forms of incentive or other compensation for employees of the Company or any Affiliate.
 
10.10          Other Options or Awards .  The grant of an Option or Award shall not confer upon the Eligible Person the right to receive any future or other Options or Awards under this Plan, whether or not Options or Awards may be granted to similarly situated Eligible Persons, or the right to receive future Options or Awards upon the same terms or conditions as previously granted.

10.11           Governing Law .  The provisions of this Plan shall be construed, administered, and governed under the laws of the State of Texas.

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 
Exhibit 10.2
 
The State of Texas
Official Seal of The State of Texas
Austin, Texas
 
MINING LEASE
M-111331

 
WHEREAS, on the 30th day of October , 2007, Silver Standard Corporation was issued Prospect Permits M-108543, M108545 and,
 
WHEREAS, on the 15th day of July , 2010,   Silver Standard Corporation filed in the General Land Office its application to lease, in accordance with Chapter 53. Subchapter B, of the Texas Natural Resources Code, the following tract(s) of land in the State of Texas;
 
SW/4, S/2 of NW/4, SW/4 of NE/4. W/2 of SE/4, SW/4 of NE/4 of SE/4 and W/2 of SE/4 of SE/4 of Section 7, Block 71, T-7, T&P Ry. Co.;
NW/4, NW/4 of NE/4. NW/4 of NE/4 of NE/4, N/2 of SW/4 of NE/4, and SW/4 of SW/4 of NE/4 of Section 18, Block 71, T-7, T&P Ry. Co.; and
S/2 of NE/4 of NE/4, E/2 of SW/4 of NE/4, SE/4 of NE/4, W/2 of SE/4; NE/4 of SE/4 of SE/4, and SE/4 of SE/4 of SE/4 of Section 12, Block 72, T-7, T&P Ry,
Co., containing   860   acres, more or less, in    Hudspeth   County, Texas, (hereinafter referred to as the "leased premises")
 
NOW, THEREFORE, in accordance with Chapter 53, Subchapter B, of the Texas Natural Resources Code, this Mining Lease is made and entered into this 17th_day of August . 2010. hereinafter the "effective Date", between the State of Texas (hereinafter referred to as "LESSOR", "State of Texas" or "State"), acting by and through the COMMISSIONER of the General Land Office of the State of Texas, (hereinafter referred to as "COMMISSIONER") and Silver Standard Corporation of 1408 Roseland Blvd., Tyler, Texas 75701 (hereinafter referred to as "LESSEE"). LESSEE, as used herein, shall also include any successor, assignee, devisee, legal representative or heir who acquires any right or obligation initially held by this named LESSEE under this lease.

 
1.            GRANTING CLAUSE: For and in consideration of the amounts stated below and of the covenants and agreements of this lease hereby agreed to be paid, kept and performed by LESSEE, the State of Texas hereby grants, leases and lets unto LESSEE the leased premises, for the sole and only purpose of prospecting for, exploring for, producing, developing, mining (by drilling, boring, open pit, underground mining, strip mining, solution mining, or any other method permitted herein), extracting, milling, removing, and marketing the following: beryllium, uranium. rare earth elements, all other base and precious metals, industrial minerals and construction materials of all kinds and all other minerals excluding oil, gas, coal, lignite, sulphur, salt and potash, hereinafter referred to as the "named material", and the rocks, minerals and mineral substances that are contained in or are necessarily and actually produced in conjunction with or incidental to the named material (the named material and the other rocks, minerals and mineral substances granted herein are hereinafter collectively referred to as the "leased minerals"), and no other material or mineral.
 
Additionally, there is hereby excepted and reserved to LESSOR the full use of the property covered hereby and all rights with respect to the surface and subsurface thereof for any and all purposes except those granted and to the extent herein granted to the LESSEE, together with the rights of ingress and egress and use of said lands by LESSOR and its mineral lessees, for purposes of exploring for and producing the minerals which are not covered by the terms of this lease, but which may be located within the surface boundaries of the leased area. All of the rights in and to the leased premises retained by LESSOR and all of the rights in and to the leased premises granted to LESSEE shall be exercised in such a manner that neither shall unduly interfere with the operations of the other.
 
The total bonus to be paid to the State of Texas as consideration paid for this lease is One Hundred Ninety-seven Thousand Eight Hundred and No/100  Dollars (S197,800.00), which represents a bonus of Two Hundred Thirty and No/100 Dollars ($230.00) per acre, on 860 net acres. The total bonus shall be paid in the following manner: (a) upon delivery to LESSEE of the lease, LESSEE shall pay the State Thirty-five Thousand and No/100 Dollars ($ 35,000.00); (b)   upon LESSEE'S submittal to LESSOR of ail initial plan of Operations to conduct exploration, LESSEE shall pay the State Sixty-five Thousand and No/100 Dollars ($ 65,000.00); and (c) upon LESSEE'S submittal to LESSOR of a Supplemental plan of operations to conduct mining, LESSEE shall pay the State Ninety-seven Thousand and Eight Hundred and No/100 Dollars ($ 97,800.00) LESSEE acknowledges that these bonus payments are in addition to the Delay Rental payments set out in Section 3 of this lease.
 
2.            TERM: Subject to the other provisions in this lease, this lease shall be for a term of twenty (20) years from this date (hereinafter called "primary term"), and as long thereafter as the named material shall be produced in paying quantities from the land hereby leased. As used in this lease, fee term "produced in paying quantities" shall be defined to mean that the receipts from the sale of the named material and the market value (as defined in this lease) of any named material used by LESSEE in a manner authorized by the COMMISSIONER (excluding those amounts allocable to the State's royalties provided for in this lease and including those amounts attributable to the working interest as of the date of this lease) exceed Out of pocket operational expenses for the twelve months past. Out of pocket operational expenses, as used in this lease, shall be defined as those costs directly associated, with the current costs of operations. Specifically, this definition shall not include the costs of capital improvements to leased premises and fixtures affixed thereto, and it shall not include non-cash items, Such as depreciation expenses and depletion allowances. If after the expiration of the 20 year term this lease is not producing in paying quantities as defined above, then a rebuttable presumption shall arise that this lease has terminated for failure to so produce.
 
OFFICIAL SEAL
COUNTY COURT
HUDSPETH COUNTY, TEXAS
A CERTIFIED COPY
ABIGAIL ORTEGA, COUNTY CLERK
HUDSPETH COUNTY, TEXAS
PAGE 1 OF 11

 
 

 
3.            DELAY RENTAL: If production in paying quantities of the named material has not been obtained on or before one (1) year after the date of this lease then this lease shall terminate unless LESSEE, on or before that date, pays in the manner prescribed in Section 27 of this lease the following sum:

 
 
 Per Acre Amount  Total Amount
  $50.00       $ 44,718.30
 
In a like manner and upon payment of the amounts set out below on or before the corresponding anniversary dates of this lease, LESSEE may defer the commencement of said production for successive periods of one (1) year each during the primary term hereof:

 
    Per Acre Amount     Total Amount  
 Anniversary Date 2013 - 2014   $ 50.00     $ 44,718.30  
 Anniversary Date 2015 - 2019   $ 75.00     $ 67.077.45  
 Anniversary Dale 2020 - 2024   $ 150.00     $ 134.154.90  
 Anniversary Date 2025 - 2029   $ 200.00     $ 178,873.20  
 

 
Payments under this section shall act as a rental and shall cover the privilege of  deferring commencement of production in paying quantities of the named material for one (1) year from the corresponding anniversary date.

 
4.           MINIMUM ADVANCE ROYALTY: Immediately upon the sale of the leased minerals, if such sale occurs on the lease premises, or the removal of the leased minerals in commercial quantities from the leased premises, LESSEE shall pay in the same manner prescribed in Section 28 of this lease a Sum of Five Hundred Thousand and No/100 Dollars ($ 500,000.00) as minimum advance royalty. This Section 4 shall not apply to the production of waste materials as defined in Section !4(g). The payment of the initial minimum advance royalty shall be considered timely if it is received by the COMMISSIONER, at Austin, on or before seven (7) days after the date of the initial commencement of production. Thereafter, this royalty is to be so paid and received on or before the anniversary date of this lease, in advance, for each lease year (as determined by the anniversary dale of this lease) in which the leased minerals are produced from the leased premises. It is understood and agreed that this minimum advance royalty is due and payable for every year that the leased minerals are produced from the leased premises, regardless of the amount of actual production.

Should LESSEE cease production and later re-commence production, then payment of a minimum advance royalty shall be due and payable immediately upon re-commencement of production in the same manner as if LESSEE were initially commencing production. However, should LESSEE so re-commence production within the same lease year for which a minimum advance royalty has already been properly paid to the COMMISSIONER, then a payment shall not be due upon the re-commencement but shall be due and payable thereafter by LESSEE in the manner described above on or before the anniversary date of this lease, in advance2 for each lease year in which the leased minerals are produced from the leased premises.
 
If applicable, a minimum advance royalty paid will be credited against the first royalty due as hereinafter provided for the leased minerals actually produced from the leased premises during die least year for which such minimum advance royalty was paid.

 
5.           PLAN OF OPERATIONS: Before LESSEE commences any activities associated with mineral exploration or development that require substantially disturbing or destroying the surface or subsurface of the leased premises, LESSEE agrees to submit to and obtain approval from the COMMISSIONER and upon request, submit to any surface lessee of the leased premises, for said lessee's information, a plan of operations in compliance with all current and future General Land Office administrative rules relating to the procedure for filing, obtaining approval and complying with of any such plan of operations. LESSEE also agrees to so submit amended and supplemental plans of operations as required by said rules. The General Land Office reserves the right to require LESSEE to furnish a bond as a condition to approval of a plan of operations. The current and future General Land Office administrative rules relating to plans of operations and conduct of exploration and mining operations shall determine when and how LESSEE may commence and conduct any activities on, in, or under the leased premises.

LESSEE is expressly placed on notice of the National Historical Preservation Act of 1966, (PB-89-66, 80 Statute 915: 16 U.S.C.A. §470} and the Antiquities Code of Texas, Chapter 191, Tex. Nat. Res. Code Ann, (Vernon 1996 Supp.). Before breaking ground at a project location, lessee shall notify the Texas Historical Commission., P.O. Box 12276, Austin, Texas 78711. An archaeological survey might be required by the commission before construction of the project can commence.

OFFICIAL SEAL
COUNTY COURT
HUDSPETH COUNTY, TEXAS
A CERTIFIED COPY
ABIGAIL ORTEGA, COUNTY CLERK
HUDSPETH COUNTY, TEXAS
PAGE 2 OF 11
 
 

 
Further, in the event that any site, object, location, artifact or other feature of archaeological, scientific, educational, cultural or historic interest is encountered during the activities authorized by this lease, lessee will immediately notify LESSOR and the Texas Historical Commission so that adequate measures may be undertaken to protect or recover such discoveries or findings, as appropriate.

6.            EXPLORATION :  It is understood and agreed that LESSEE owes LESSOR a duty to take all steps a reasonably prudent operator would take to explore the leased premises for the named material and to delineate the reserves thereof.
 
7.            DUTY TO MAKE MARKETABLE, PROCESS. ETC.;    (a) If the leased minerals are capable of being economically produced by the LESSEE in commercial quantities, it is understood and agreed that LESSEE owes LESSOR, a duty to take all steps necessary to put the leased minerals into a marketable condition. This may include crushing, separating, concentrating, processing or other forms of preparing the leased minerals for sale. It is understood and agreed that LESSEE has the duty to undertake and/or arrange to have undertaken all operations a reasonably prudent operator would undertake in order to produce, process, and make marketable the most valuable component or components of the leased minerals. No cost incurred in meeting these duties is deductible in the computation of the royalty due under this lease except where expressly allowed in this lease. Should LESSEE not put the leased minerals into a marketable condition as required herein, royalty due under this lease will nevertheless be calculated upon the market value, as defined herein, of the leased minerals in a marketable condition. Should LESSEE not put the leased minerals into their most valuable component or components as required herein, royalty due under this lease will nevertheless be calculated upon the market value, as defined herein2 of this most valuable component or components in a marketable condition. Neither the bonus, rentals, nor royalties paid or to be paid hereunder shall relieve LESSEE from any of the obligations herein expressed. The point at which these said duties have or could have been complied with shall define "the mine" as that phrase is used in this lease for the purposes of royalty calculation.
 
(b) Should LESSEE, in performance of those duties required in Section 7(a) of this lease, transport the leased minerals to a location away from the leased premises. LESSEE may deduct, for the purposes of royalty calculation, the transportation cost, as defined by Generally Accepted Accounting Principles, incurred in and directly allocable to that transportation of the leased minerals from the leased premises, and no other costs, as follows:

If LESSEE actually incurs this transportation cost pursuant to a bona fide transaction entered into at arm's length with a non-affiliated party (as defined in Section 8(a) of this lease) of adverse economic interests, then this transportation cost, if reasonable, may be deducted for the purposes of royalty calculation. If this transportation cost is incurred pursuant to other than the above-described transaction, including by means of LESSEE-owned facilities, then this deduction shall be determined by the reasonable costs that (1) are actually incurred by the party or parties (whether that party is LESSEE and/or some other party) that actually performs the transportation service (hereinafter referred to in this subsection (b) as the "transporter") and (2) are directly allocable to this transportation of the leased minerals. Therefore, the deduction allowed in this second type of transaction (i.e. non arm's length, etc.) shall not include any profit margin, commission or any other similar charge that is charged by any transporter for the performance of this transportation service. In no event shall any transportation deduction discussed in this subsection (b) include any transportation cost incurred for transportation within the leased premises. In no event shall any deduction discussed in this subsection (b) be greater than the State or Federal tariff, whichever was legally applicable, that was in effect at the time the leased minerals were transported and that was for comparable movement of minerals. The daduotion discussed in this subsection (b) is subject at any time to the COMMISSIONERS review and audit. LESSEE must be able to document these deductions to the COMMISSIONER'S satisfaction, should the COMMISSIONER at any time request such verification, in order to properly deduct these costs.
 
(c) LESSEE shall also have the duty to diligently market the leased minerals that are produced, processed and made marketable as required above. (See Section 8(a) for an explanation of the allowed deductions for the costs incurred in meeting this duty for royalty calculation purposes.)
 
8.             PRODUCTION ROYALTY:   As a production royalty LESSEE agrees to pay in the manner prescribed in Section 27 of this lease a sum equal to Eight percent (8%) of the Market Value (as   defined below) of all other leased minerals at "the mine" (as defined in Section 7(a)) produced from the leased premises. (For the treatment of waste material, see   Section 13.)  Notwithstanding anything contained herein, it is expressly provided in accordance with Texas Natural Resources Code, §53.018 that if production is   Obtained, the state shall receive not less than one-sixteenth (6.25%) of the value of the leased minerals produced from the leased premises.
 
(a) Market Value Definition and Procedure. Market value, as that phrase is used in this lease, shall be defined to mean the higher of, at the option of the COMMISSIONER: (1) gross proceeds received by LESSEE (e.g., the gross price paid or offered LESSEE) from the sale of the leased minerals and including any reimbursements for severance taxes and production related costs, or (2) highest price for materials or minerals (a) produced from the leased premises or from other mines and (b) that are comparable in quality to the produced leased minerals. Price shall be determined by any generally accepted method of pricing chosen by the COMMISSIONER, including, but not limited to, comparable sales (e.g. prices paid or offered), published prices plus premium, and values/costs reported to a regulatory agency. Provided, however, that in no event shall the royalty due the State be less than the minimum royalty amounts set out in this lease.
 
For purposes of computing and paying royalties under this lease, the market value shall be presumed to be the gross proceeds received by LESSEE pursuant to a bona fide transaction entered into at arms length with a non-affiliated party, as defined hereafter, of adverse economic interests. An affiliated party is defined for the purposes of this lease as a subsidiary, or parent of LESSEE Or other entity in which LESSEE Of an owner of LESSEE has a financial interest by stock ownership or otherwise of   ten percent or more or one related to LESSEE or an owner of LESSEE by blood, marriage or common business enterprise. A non-affiliated party is defined, for the purposes of this lease, as one without any of the above described characteristics of an affiliated party. This presumption may be overcome and additional royalties may be assessed under Section 8(a)(2) of this lease when a different price is established by any  of the methods set out in that section.
 
OFFICIAL SEAL
COUNTY COURT
HUDSPETH COUNTY, TEXAS
A CERTIFIED COPY
ABIGAIL ORTEGA, COUNTY CLERK
HUDSPETH COUNTY, TEXAS
PAGE 3 OF 11
 
 
 

 
 
Should LESSEE incur post-"mine" costs, i.e. costs other than those incurred as a result of the LESSEE'S performance of those duties required in Section 7{a) of this lease, then, at the option of the COMMISSIONER, the market value of the leased minerals at "the mine" Shall be determined by the market value Of the leased minerals, as defined above, after some or all of these post-"mine" costs have been incurred, less these post-"mine" costs, as defined by this lease and Generally Accepted Accounting Principles, actually incurred in and directly allocate to out of pocket costs, charges and expenses incurred by LESSOR in: (1) transporting run of the mine ore from the portal, pit opening or shaft collar to the mill or other place where beneficiation, concentration or refining takes place; (2) concentrating including the cost of milling, floatation, thickening, regrinding, and filtering; (3) roasting (45 loading and Shipping; and (5) handling tailings and mine waste, (such activities are hereinafter referred to in this paragraph as "marketing"), and no other costs, as follows: If these marketing costs are actually incurred by LESSEE pursuant to a bona fide transaction entered into at arms length with a non-affiliated party (as defined in Section 8(a) of this lease) of adverse economic interests, then these actual marketing costs, if reasonable, may be deducted for the purposes of royalty calculation. If these marketing costs are incurred pursuant to other than the above described transaction, including by means of LESSEE-owned facilities, then this marketing deduction shall be determined by the reasonable costs that (1) are actually incurred by the party or parties (whether that party is LESSEE and/or some other party) that actually perform the post-"mine" marketing services (hereinafter referred to in this paragraph as the "marketer") and (2) are directly allocable to this marketing of the leased minerals, Therefore, the deduction allowed in this second type of transaction (i.e. non arm's length, etc.) shall not include any profit margin, commission Or any Other similar charge that is charged by any marketer for the performance of these marketing services. In no event shall any deduction discussed in this paragraph be greater than the lowest charge available for comparable services or products from an unaffiliated party (defined in Section 8(a) of this lease) with economic interests adverse to those of LESSEE. In no event shall any transportation deduction discussed in this paragraph include any transportation cost incurred for transportation within the "die mine". A deduction for the costs of post-"mine" transportation shall not exceed the State or Federal tariff, whichever was legally applicable, that was in effect at the time the leased minerals were transported and that was for comparable movement of minerals. All deductions discussed in this paragraph are subject at any time to the COMMISSIONER'S review and audit LESSEE must be able to document these deductions to the COMMISSIONER'S satisfaction, should the COMMISSIONER at any time request such verification, in order to properly deduct these costs.
 
(b)            Gross Proceeds Definition and Procedure. For the purpose of determining gross proceeds, the following will apply: When a LESSEE sells or otherwise transfers the leased minerals to a purchaser or transferee by other than a bona fide transaction entered into at arm's length with a non-affiliated party of adverse economic interests, the COMMISSIONER, at his option, may choose to use (1) such purchaser's or transferee's gross proceeds received from its sale of the leased minerals or (2) the total financial benefit accruing to the LESSEE and the purchaser or transferee for the purposes of royalty calculation instead of the LESSEE'S gross proceeds received from the sale or transfer to said purchaser or transferee.  LESSEE agrees to obtain and provide the COMMISSIONER all information requested by the COMMISSIONER for the purposes of determining the affiliation or relationship of LESSEE and a purchaser or transferee of the leased minerals. As in the case of royalty calculation based on the LESSEE'S gross proceeds, no costs incurred as required under this lease are deductible for the purposes of calculating the royalty due under this lease except where expressly allowed in this lease. Upon satisfactory evidence provided to the COMMISSIONER and subject to the COMMISSIONER'S discretion, the purchaser's or transferee's gross proceeds or the total of the financial benefit accruing to LESSEE and the purchaser or transferee will not be used for royalty calculation purposes if LESSEE demonstrates that during the relevant time period either: (1) the purchaser or transferee was legitimately in the business of purchasing and processing or marketing the leased minerals at issue from parties Other than those with which it is affiliated, as defined above, and that its transaction with the LESSEE was an arms length transaction or (2) the transaction at issue contained terms equivalent to those of comparable transactions between non-affiliated parties. In the event LESSEE sells or transfers title to a material and/or mineral covered by this lease and retains a financial interest or benefit to be returned at some later date, the Commissioner may elect to calculate royalty due upon the total value eventually returned to LESSEE.
 
(c)            Minimum Royalty.   Provided, however, in no event shall the royally due under this lease be less than One Dollar ($1.00) per    pound    of the U 3 O 8 (yellow cake) and Forty Cents ($.40) per p ound of the BeO (beryllium oxide), contained in the ore produced from leased premises.
 
(d)            In Kind Royalty. Notwithstanding anything contained herein to the contrary, COMMISSIONER may at the COMMISSIONER'S Option, upon not less than 60 days notice to LESSEE, require at any time or from time to time that payment of all or any portion of the royalties accruing to the State under this lease be made in kind (i.e. Six and 25/100 percent (6.25%)) of the gross production of the leased minerals) at "the mine" without any deduction (including, but not limited to, deduction far the cost of producing, separating, treating, concentrating, processing, or storing said leased minerals or otherwise meeting the duties set out in Section 7 of this lease).   Any leased minerals taken in kind shall be loaded at LESSEE's expense upon the transportation provided by LESSOR at "the mine".   The COMMISSIONER may, at the COMMISSIONER'S option, so require such in kind payment to be so made at a point prior to "the mine". In kind payments of the leased minerals made ready for in kind delivery during a given calendar month shall be made on or before, at the COMMISSIONER'S discretion, the last day of the following calendar month.
 
(e)            Payments and Reports. Unless the COMMISSIONER elects to take the royalties stipulated in this lease in kind, all royalties not taken in kind are to be received by the COMMISSIONER, at Austin, on or before the last day of each calendar month for the leased minerals produced during the preceding calendar month. For die purposes of the prior sentence only, "produced" shall be defined in the applicable administrative rule effective when the leased minerals on which royalty is owed were physically extracted from the leased premises. The royalty payment shall be accompanied by an   affidavit of the LESSEE or his authorized representative completed in the following form and manner: The report shall be based on LESSEE'S samples, assays, analyses, measurements and records and shall set forth, using the appropriate measurements, the type and exact amount of all materials and/or minerals produced from the leased premises during the preceding calendar month and the amount of royalty being submitted. If any materials and/or minerals produced from the leased premises have been sold during the preceding calendar month, then the report shall also set out the type and exact amount of each material and/or mineral sold during the preceding calendar month, the gross amount received for and die market value of the same (including the method and figures used to calculate this value as shown by any relevant documents, records, reports or schedules), and to whom sales were made. If these sales were made to an affiliated or related party, the report shall set out the details of such affiliation or relationship. In addition, the report shall be accompanied by production records, ore records, sales receipts, invoices, weight receipts, records of mill, mint, refinery or smelter settlements, and other pertinent returns 6r documents which shall substantiate the selling price of the materials and/or minerals and the compliance of LESSEE with the royalty or other provisions of this lease and any other report, record, or document the COMMISSIONER may require to verify such compliance. If any materials and/or minerals produced from the leased premises have been used by LESSEE during the preceding calendar month, then the report must also indicate the type and exact amount of each material and/or mineral so used and the method and figures used by LESSEE to calculate the value of each material and/or mineral so used as shown by any relevant documents, records, reports or schedules. Each royally payment shall be accompanied by a check stub, schedule, summary or other remittance advice showing, by the assigned General Land Office lease number, the amount Of royalty being paid on each lease, Even if royalty payments are not due or are taken in kind, an affidavit of the LESSEE or his authorized representative, completed in the same form and manner as described in this paragraph, shall be filed with the General Land Office on or before the last day of each calendar month.
 
OFFICIAL SEAL
COUNTY COURT
HUDSPETH COUNTY, TEXAS
A CERTIFIED COPY
ABIGAIL ORTEGA, COUNTY CLERK
HUDSPETH COUNTY, TEXAS
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(f) Penalty and Interest. Delinquent royalty payments and reports shall accrue penalty and/or interest as determined by Texas Natural Resources Code §53.024 or its successor and any applicable administrative rule in effect at the time the royalty payments or reports were due. As of the date of this lease, the following are the current key penalty and interest provisions under which this lease shall operate: If LESSEE pays royalty on or before thirty (30) days after the royalty payment was due, then LESSEE owes a penalty of 5% on the royalty due or $25.00, whichever is greater. A royalty payment which is over thirty (30) days delinquent shall accrue a penalty of 10% of the royalty due or $25.00 whichever is greater. In addition to a penalty, royalties shall accrue interest at a rate of 12% per year; such interest will begin to accrue 60 days after the due date. Documents which are required under this lease or by law and not filed when due shall incur a penalty in an amount set by the General Land Office administrative rules. The LESSEE shall bear all responsibility for paying royalties or causing such royalties to be paid in the manner prescribed in this lease. Payment of the delinquency penalty shall in no way operate to prohibit the State's right of forfeiture as provided by law and by this lease nor act to postpone the date on which royalties were originally due. The above penalty provisions shall not apply in cases of title dispute as to the State's portion of the royalty or to that portion of the royalty in dispute as to fair market value.

 
9.           SHUT-IN ROYALTY: If at the expiration of the primary term or at any time thereafter: (1) the leased premises is capable of producing the named minerals in paying quantities, and (2) this lease is not otherwise being maintained in force and effect, then LESSEE may, at LESSEES option, pay as a shut-in royalty, in the same manner prescribed in Section 28 of this lease, an amount equal to Five Hundred Thousand and No/100 Dollars ($500,000.00). To be effective, any shut-in royalty must be received by LESSOR on or before: (1) the expiration of the primary term, or (2) not more than sixty days after LESSEE ceases to produce the named minerals in paying quantities from the leased premises, or (3) not more than sixty days after LESSEE completes a mining or rehabilitation operation on the leased premises in accordance with an approved plan of operations, whichever date is latest and must be in the full amount set out above and this lease must have theretofore been maintained in force and effect. The shut-in royalty payment shall be accompanied by (1) a statement by LESSEE describing the circumstances requiring the use of this shut-In provision and (2) an affidavit by LESSE that the mine is shut-in and not producing in paying quantities.

If the shut-in royalty is properly paid and received, this lease shall be considered to be a producing lease and the shut-in payment shall hold this lease in force and effect For a period of one year from the end of the primary term or from the first day of the month following the month in which production in paying quantities ceased or in which said mining or rehabilitation operations were completed, whichever date is later. After that one year period, if the above listed conditions still exist, LESSEE may, at LESSEE'S option, continue to hold this lease in force and effect by shut-in royalty payments for additional and successive periods of one year each if the LESSOR receives the same shut-in royalty amount set out above each year on or before the expiration of the previously held one year period. If the due date of a shut-in royalty payment should fall on a Saturday, Sunday or a legal state or federal holiday, the due date shall be extended to the next calendar day which is not a Saturday, Sunday, or such a holiday, it is provided, however, that shut-in royalty cannot serve to hold this lease in force and effect for more than five years from the date this lease is initially shut-in (i.e. from the first date of the first shut-in period of this lease). LESSEE may proportionately reduce any shut-in payment that if made will hold this lease in effect for less than a full year because of this five (5) year maximum.

None of these provisions shall relieve LESSEE of the obligation of reasonable development. Neither receipt nor retention by the LESSOR of an improperly paid shut-in payment shall operate as ratification or a re-grant of the interest covered by this lease if this lease terminated because of improper payment, nor shall such receipt or retention stop LESSOR from asserting the termination of this lease. Minimum advance royalty that has been paid shall not be credited against a shut-in payment Lessee chooses to make. Shut-in royalty payment shall not be credited against any production royalty due as provided in this lease for the leased minerals actually produced during any shut-in period or thereafter.

10.            MEASURING, ASSAYING AND ANALYZING: LESSEE shall install and use scales, meters, or any other measuring device reasonably necessary to accurately measure the produced leased minerals, prior to said leased minerals being moved from the leased premises.    It is understood and agreed that the COMMISSIONER may, with reasonable notice, require the LESSEE, at any time and at the LESSEE'S expense, to assay and/or analyze the produced leased minerals in a manner consistent with standard techniques of the industry to determine its material or mineral content and/or its quality.

11.            INSPECTIONS:    The books, accounts, weights, wage contracts and records, correspondence, records, contracts and other documents relating to the production, transportation, assaying, analyzing, processing, recovery, use, sale, and marketing of the leased minerals shall at all times be subject to inspection and examination by the COMMISSIONER, or the COMMISSIONER'S authorized representative, and copies of such records shall be forwarded to the COMMISSIONER at Austin, Texas upon request.

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COUNTY COURT
HUDSPETH COUNTY, TEXAS
A CERTIFIED COPY
ABIGAIL ORTEGA, COUNTY CLERK
HUDSPETH COUNTY, TEXAS
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LESSEE'S mining, milling, and processing operations shall be subject at any time to inspection by the COMMISSIONER or the COMMISSIONER'S authorized representative. This inspection right shall include, but shall not be limited to, the following: the COMMISSIONER or the COMMISSIONER'S authorized representative is authorized (1) to check scales, sampling and assaying procedures as to their accuracy, (2) to have full access to any of the entries, shafts, pits. slopes or workings on the leased premises and to any of LESSEE'S other mining, milling and processing operations, and (3) to examine, inspect, survey and take measurements Of same and to examine all books and weight sheets, records and any Other documents that relate to these operations or that may show in any way the material or mineral output of the leased premises or any Other aspect of compliance with the covenants or conditions of this lease, whether express or implied. Copies of any records or other documents pertaining to these operations shall be furnished to the COMMISSIONER upon written request. LESSEE shall cooperate in such manner as shall be reasonably necessary for said inspection, survey, or examination. All inspections, examinations, and the like provided for herein may be performed at any lime and without any requirement of prior notice.

 
12.           LIEN:   By acceptance of this lease, LESSEE pants the State, in addition to any applicable statutory lien, an express contractual Hen on and security interest in all leased minerals in and extracted from the leased premises, all proceeds which may accrue to LESSEE from the sale of such leased minerals, whether such proceeds are held by LESSEE or by a third party, and all fixtures on and improvements to the leased premises used in connection with the production or processing of such leased minerals in order to secure the payment of all royalties or other amounts due or to become due under this lease and to secure payment of any damages or loss that LESSOR may Suffer by reason of LESSEE'S breach of any covenant or condition of this lease, whether express or implied. This lien and security interest may be foreclosed with or without court proceedings in the manner provided in Title 1. Chapter 9 of the Texas Business and Commerce Code.
 
LESSEE agrees that the COMMISSIONER may require LESSEE to execute and record such instruments as may be reasonably necessary to acknowledge, attach or perfect this lien. LESSEE hereby represents that there are no prior or superior liens arising from and relating to LESSEE'S activities upon the above-described property or from LESSEE'S acquisition of this lease. Should the COMMISSIONER at any time determine that this representation is not true, then the COMMISSIONER may declare this lease forfeited as provided in Section 18 of this lease.
 
13.           REQUIRED FILINGS: A log, sample analysis, or other information obtained from each test drilled or area sampled on the area covered by this lease shall be filed with the General Land Office upon request.   Within ninety (90) days after any sampling, drilling, mining Of Other evaluation program shall have been completed or abandoned, LESSEE shall file in the General Land Office an evaluation map or plat showing all geological formations penetrated, the depth, thickness, grade, and mineral character of all ore bodies, the water bearing strata, the elevation and location of all test holes, and other pertinent information, The correctness of such map or plat shall be sworn to by LESSEE or his representative.  Further, LESSEE must furnish annually on the anniversary date of this lease a map or plat showing all activities and workings conducted on or in association with this lease. The filings discussed in this section shall be required notwithstanding the fact that this lease may have subsequently terminated, been forfeited or been released.
 
14.           DEVELOPMENT:    If the leased minerals are capable of being economically produced by the LESSEE in commercial quantities, LESSEE agrees to diligently develop the leased premises into a viable mine and to mine the leased minerals in such a manner as is consistent with good mining practice including, but not limited to, in a manner consistent with General Land Office and Railroad Commission rules and regulations. Neither bonus, rentals nor royalties paid or to be paid hereunder shall relieve the LESSEE from any of the obligations herein expressed. Such methods of mining must be used as will insure the extraction of the greatest ossible amounts of the leased minerals consistent with prevailing good mining practice. Specific examples of compliance with the above include, but are not limited t o:
 
(a)
LESSEE agrees to slope the sides of all surface pits, excavations and subsidence areas in a manner consistent with good mining practices. Such  sloping is to become a normal part of the operation:
 
(b)
Whenever practicable, all surface pits, excavations and subsidence areas shall not be allowed to become a hazard to persons, wildlife or livestock.
 
(c) 
LESSEE agrees to mine the leased minerals in such a manner as to leave as much level surface as is reasonable and consistent with prevailing good mining practices; All development shall be done in such a manner as to prevent the pollution of water.
 
(d)
In underground workings, all shafts, inclines, and drifts must be adequately supported and all parts of workings, where minerals commercially minable are not exhausted, shall be kept free from water and waste materials to the extent reasonably possible;
 
(e)
Underground workings art to be protected against fire, floods, creeps and squeezes. If such events do occur, they shall be checked by LESSEE  to the extent and in a manner which is in keeping with good methods of mining;
 
(f)
If relevant, LESSEE shall take all steps a reasonably prudent operator would take to adequately protect the leased minerals from drainage by operations on other lands or this lease shall be subject to forfeiture by the COMMISSIONER; and
 
 
(g)
As governed by the duties and standards set out in Section 7 of this lease, all leased minerals produced by LESSEE from the leased premises that cannot be so marketed (herein called "waste materials') will be used to fill) the pits, shafts and excavations On the leased premises and no royalty shall be due thereon at that time.   No other use of these waste materials or any leased mineral is allowed unless the LESSEE obtains the COMMISSIONER'S prior written consent to such other use. However, should another use of the leased minerals be permitted, royalty shall be due for these used leased minerals in accordance with Sections 7 and 8 of this lease and, should another use of the waste materials be permitted, the waste material royalty exception of this subsection shall not apply and royalty shall be due for these used waste materials in accordance with sections 7 and 8 of this lease, The LESSEE'S duty regarding the leased minerals as set out in Section 7 of this lease is a continuing duty. Should changing technology or market conditions render any component of former waste materials marketable, then LESSEE shall (1) process, make marketable and market those former waste materials as set out in   Section 7 of this lease and (2) pay royalty thereon in accordance with Sections 7 and 8 of this lease. The state reserves the title to all minerals contained in these waste materials both during the term of this lease, subject to LESSEE'S duty set out above, and upon the expiration, surrender, or termination of this lease.
 
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COUNTY COURT
HUDSPETH COUNTY, TEXAS
A CERTIFIED COPY
ABIGAIL ORTEGA, COUNTY CLERK
HUDSPETH COUNTY, TEXAS
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Nothing in this section shall be construed to give LESSEE the right to sell or otherwise dispose of minerals or substances other than those covered hereby.
 
In the event LESSEE, in the interest of economy or efficiency of mining operations or for other valid reasons, intends to conduct mining operations on or within the leased premises in conjunction with mining operations on or within any other land (whether state or privately owned), for example by commingling production, then prior thereto LESSEE must obtain the COMMISSIONER'S approval of such plan of operations, which shall not unreasonably be withheld.
 
15.           RECLAMATION:    By the end of the term of this lease, LESSEE shall grade the leased premises so that the grade of the leased premises shall approximate the grade of the surrounding topography. Upon completion of the required grading, the surface shall be reseeded with a seed mixture approved by the COMMISSIONER. Should this obligation not be met by the end of the term of this lease, it shall nevertheless survive and continue beyond the term of this lease and shall be an obligation owed to the state. This obligation is owed by LESSEE in addition to any other obligation imposed upon LESSEE by this lease, including, but not limited to, the requirements of Section 6 hereof and LESSEE'S plan of operations.

16 .            TRANSFERS (E.G. ASSIGNMENTS): After obtaining written approval by the COMMISSIONER, which shall not unreasonably be withheld, this lease may be transferred at any time. All transfers must reference the lease by the file number and must be recorded in any county in which any portion of the leased premises is located, and each Such recorded transfer or a certified copy of each such recorded transfer stall be filed in the General Land Office within ninety (90) days after the execution of the transfer, as provided by Texas Natural Resources Code §52.026, accompanied by the appropriate filing fee. A transfer is not effective until these required documents are properly filed in the General Land Office. Failure to properly file these required documents in the General Land Office shall subject this lease to forfeiture. The filing fee due under this section shall be determined by the applicable statute and/or administrative rule in effect at the time the transfer is filed in the General Land Office.
 
Upon any assignment of  this lease, in whole or in part, the assignee will succeed to all rights and be subject to all liabilities, claims, obligations, penalties, and the like, theretofore incurred by the assignor, including any liabilities to the State for unpaid royalties. However, such assignment will not have the effect of releasing the assignor from any liability, claim, obligation, penalty, or the like, theretofore accrued in favor of the State, in addition, upon any assignment of this lease, the assignee assumes, for the benefit of the State, the obligation to fulfill all provisions and covenants of this lease, both expressed and implied. Assignee, as used in this section, shall also include any successor, devisee, legal representative or heir of an assignee who acquires any right or obligation initially held by that assignee under this lease.
 
Upon assignment of any divided part of this lease, whether divided by acreage, zone, horizon, vein, mineral or Other similar method, said assigned interest shall become segregated from the remaining portion of this lease SO that from the dale of such assignment or assignments, the provisions hereof shall extend and be applicable severally and separately to each segregated portion of the land covered hereby and so assigned, so that performance or lack of performance of the provisions hereof as to any segregated portion of this lease shall not benefit or prejudice any other segregated portion, to the same extent as if each segregated portion of the lands covered hereby are under separate leases. It is understood and agreed that the effect of such an assignment is to create two separate leases, both of which must comply with (heir lease terms in order to keep their leases in force.
 
In the case of Ownership or assignment of any undivided interest in this lease, no covenant or condition thereof, implied or expressed, is divisible. Anything less than complete compliance with said covenants or conditions shall render this lease Subject to forfeiture and/or termination as provided by the tease's provisions.
 
17.           RELEASES: The LESSEE may release all or any portion of this lease to the State at any time, to release this lease, LESSEE must record the relevant instrument or instruments evidencing such release in each county where the leased premises are located and mail a certified copy of each such recorded release to the General Land Office, accompanied by the appropriate filing fee. Any release will not have the effect of releasing LESSEE from any liability, claim, obligation, penalty, or the like, theretofore accrued in favor of the State nor will it have the effect of reducing any amount due under this lease. A release is not effective until the required certified copies of that release are filed in the General Land Office, Failure to file the required certified copies of a release in the General Land Office shall subject this lease to forfeiture. The filing fee due under this section shall be determined by the applicable statute and/or administrative rule in effect at the time the release is filed with the General Land Office.
 
18.            AUTHORITY OF MANAGER OR AGENT: When required by the COMMISSIONER, the authority of a manager or agent to act for LESSEE must be filed in the General Land Office.

19.           FORFEITURE: If LESSEE shall fail or refuse to make payment of any sum due, or if LESSEE or LESSEE'S agent should refuse the COMMISSIONER or his authorized representative access to the records or other data pertaining to the operations under this lease, or if LESSEE or LESSEE'S agent should knowingly make any false return or false report concerning this lease, or if any of the material terms of this lease should be violated, then this lease and all rights hereunder shall be subject to forfeiture by the COMMISSIONER, and the COMMISSIONER may declare this forfeiture when sufficiently informed of the facts which authorize a forfeiture, and, in such event, the COMMISSIONER shall write on the wrapper containing file papers relating to this lease words declaring the forfeiture and sign it officially; and this lease, and all rights under this lease, together with all payments made under it, shall thereupon be forfeited. Notice of the forfeiture shall be mailed forthwith to the person or persons shown by the records of the General Land Office to be the owner of the forfeited lease at their last known addresses as shown by said records. However, nothing herein shall be construed as waiving the automatic termination of this lease by operation of law or by reason of any term or condition arising hereunder.
 
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COUNTY COURT
HUDSPETH COUNTY, TEXAS
A CERTIFIED COPY
ABIGAIL ORTEGA, COUNTY CLERK
HUDSPETH COUNTY, TEXAS
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20.           REINSTATEMENT: A forfeiture may be set aside and all rights under this lease may be reinstated before the rights of another party intervene, upon satisfactory evidence to the COMMISSIONER of future compliance with the provisions of the law, this lease, and any rules adopted applicable to this lease and with any conditions placed upon the reinstatement, LESSEE shall offer the evidence required for reinstatement within 30 days after the date the notice of forfeiture was mailed and after such 30 days, LESSEE shall have no future opportunity for reinstatement

21.            FORCE MAJEURE: When, after effort is made in good faith, LESSEE is prevented from complying with any express or implied covenant of this lease or from producing and mining the named material from the leased premises by reason of storm, flood, or other acts of God, fire, war, rebellion, insurrection, riot, strikes, or as result of any valid order, rule or regulation of any court or governmental authority having jurisdiction, or litigation required to gain access to the lands described in this lease under the power of eminent domain as provided in §11.079, Texas Natural Resources Code, effective September 1, 1987 (for the period beginning with the filing of the action in a court of competent jurisdiction until a. final non-appealable order is entered in such action but not including periods of pre-filing discussions or negotiations), then upon written application by LESSEE and upon written approval thereof by the COMMISSIONER, LESSEE'S obligation to comply with such covenant shall be suspended while LESSEE is so prevented; and LESSEE shall not be liable for damages for failure to comply with such covenant while LESSEE is so prevented; and this lease shall be extended while and so long as LESSEE is so prevented from producing and mining the named material from the leased premises, p rovided, however, that nothing in this section shall be construed to suspend the condition of paying delay rentals as set out in Section 3 hereof. As   dictated by 31 Texas Administrative Code §10.3(d) (1),  the term of this lease may not be extended by this Section to exceed twenty (20) years.

22.            USE OF WATER: LESSEE shall have the right to use water produced during operations under this lease as is reasonably necessary for operations under this lease except water from wells or tanks of the surface owner or any surface lessee; provided, however, LESSEE shall not use potable water Of water suitable for livestock or irrigation purposes for operations without the prior written consent of the COMMISSIONER.

23.           D AMAGE PAYMENTS FOR PERSONAL PROPERTY, IMPROVEMENTS, LIVESTOCK AND CROPS: LESSEE shall pay damages caused by its operations to all personal property, improvements, livestock and crops on said land to the owner of said items.

24.            SURFACE USE:   Subject to the obligation to pay surface damages as set out in Section 33 of this lease, and to any reservation in favor of LESSOR, LESSEE shall have the right to occupy within the limits of this lease so much of the surface as may be reasonably necessary for the development of leased minerals; and shall have the right of ingress and egress over and across the area embraced herein,

25.            SURFACE USE LIMITATIONS:   LESSEE shall not drill or mine, erect buildings or conduct any mining operations within three hundred (300) feet of improvements without reasonably compensating the owner of said improvements.

26.            REMOVAL OF EQUIPMENT AND FIXTURES:   LESSEE shall not be permitted to remove any casing or wellhead from any well or bore hole during the life of this lease or after the termination, expiration, or forfeiture of this lease without the written consent of the COMMISSIONER or his authorized representative, LESSEE shall have the right to remove all equipment, machinery, tools, supplies, and installations, excluding the casing and wellhead, placed by LESSEE on the leased premises during the life of this lease and for a period of three hundred sixty-five (355) days after the termination, expiration or forfeiture of this lease, unless an extension in writing of such three hundred sixty-five (365) day period has been obtained from the COMMISSIONER or some other written agreement is reached between all parties to this lease.

27.            FILING REQUIREMENTS: LESSEE shall record this executed lease in each county in which the lease premises is located. After such retardation, LESSEE shall obtain a certified copy of the recorded lease from the county clerk. LESSEE shall send such certified copies to the General Land Office within ninety days of the date of recordation.