Item
2.03 Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant.
On
February 25, 2019 U.S. Rare Earth Minerals, Inc. (the “Company”) entered into a $250,000 Senior Secured Promissory
Note, dated February 25, 2019 at an interest rate of 8% per annum, maturing on October 24, 2019 (the “Maturity Date”).
The Note is convertible into common stock of the Company, par value $.001 per share (the “Common Stock”) at any time
after the earlier of: (i) 180 days from the date of the Note or (ii) upon effective date of a registration statement. The conversion
price of the Note is equal to the lesser of : (i) the lowest trading price for the twenty-day period prior to the date of the
Note or (ii) 65% of the average of the three lowest trading prices during the twenty days prior to a conversion notice on the
applicable trading market or the closing bid price on the applicable trading market. The Company may prepay the Note at any time
at a rate of 120% of outstanding principal and interest during the first 90 days it is outstanding and 130% of outstanding principal
and interest for the next 90 days thereafter. Thereafter the prepayment amount increases 5% for each thirty-day period until 270
days from the issue date at which time it is fixed at 150% of the outstanding principal and interest on the Note.
The
Note was issued to Auctus Fund, LLC (the “Lender”) pursuant to a Securities Purchase Agreement, dated February 25,
2019, between the Lender and the Company (the “Purchase Agreement”). The Purchase Agreement contains provisions for
additional borrowing of up to $250,000, a due diligence fee of $25,000 due on each funding and customary representations, warranties
and covenants including limitations on additional debt, a right of first refusal for 18 months, Common Stock reserve coverage,
and pricing resets for offerings by the Company at a lower conversion price per share.
The
Note is secured pursuant to a Security Agreement between the Company and Lender, dated February 25, 2019 (the “Security
Agreement”), securing all of the assets of the Company and its subsidiaries until such time as a registration statement
registering the Common Stock underlying the Warrant and Note of the Lender becomes effective and eligible for resale at prevailing
market prices, at which time it terminates.
The
Company issued the Lender a five-year warrant (the “Warrant”) to purchase 208,333 shares of Common Stock of the Company
at an exercise price of $.60 per share, as adjusted for reorganizations, dividends, and offerings at prices lower than the exercise
price. The Warrant contains cashless exercise provisions at the option of the Lender.
The
Lender is limited to holding a total of 4.99% of the issued and outstanding Common Stock of the Company under terms of the Note
and Warrant.
The
Common Stock underlying the Warrant and the Note, when issued, shall bear a restrictive legend unless otherwise registered, eligible
for resale under Rule 144 promulgated by the Securities and Exchange Commission (the “Commission”) or by another resale
exemption from registration.
The
Company granted the Lender demand and piggyback registration rights pursuant to a Registration Rights Agreement, dated February
25, 2019 (the “Registration Rights Agreement”) whereby the Common Stock underlying the Note and the Warrant is required
be included in a registration statement filed with the Commission no later than 45 days, and become effective 180 days, from the
date Registration Rights Agreement, subject to any limitation under Rule 415.
The issuance of the Note, Warrant and Common
Stock issuable thereunder was exempt from the registration requirements of the Securities Act of 1933, as amended (the “Securities
Act”), pursuant to the exemption for transactions by an issuer not involving any public offering under Section 4(a)(2) of
the Securities Act and Rule 506 of Regulation D under the Securities Act and in reliance on similar exemptions under applicable
state laws. The represented that it is an accredited investor within the meaning of Rule 501 of Regulation D under the Securities
Act, and acquired the Company’s common shares for investment only and not with a view towards, or for resale in connection with,
the public sale or distribution thereof. The Company’s common shares were offered without any general solicitation by the Company
or its representatives.
The
foregoing descriptions of the Purchase Agreement, the Note, the Security Agreement, the Warrant and the Registration Rights Agreement
do not purport to be complete and are qualified in their entirety by reference to the full text of the form of each of such document
which are filed as Exhibits 10.17 through 10.121 to this Current Report on Form 8-K and incorporated herein by reference.
Item
3.02. Unregistered Sales
Item
2.03 is incorporated by reference herein.