EXHIBIT 10.1
PURCHASE AGREEMENT
THIS
PURCHASE AGREEMENT
(the "Agreement") is
entered into as of the 28th
day of October, 2005, by and among El Capitan
Precious Metals,
Inc., a Nevada
corporation (the "Company"), and Whitebox Intermarket Partners,
L.P., a British
Virgin Islands limited partnership (the
"Purchaser").
R E C I T A L S :
WHEREAS,
in consideration
of $750,000,
the Company proposes
to issue to
the Purchaser, and the Purchaser desires to purchase, a $750,000 secured
convertible promissory note in the form
attached as Exhibit A (the "Note") and a
warrant in the form of Exhibit B (the "Warrant") to purchase shares of the
Company's common stock, $0.001 par value
(the "Common Stock"); and
WHEREAS,
the Company
desires to grant to
Purchaser and it
affiliates an
option to purchase an additional secured convertible promissory note in the
aggregate principal amount of up to $550,000
("Additional
Note" and together
with the Note, the "Notes") and an
additional warrant to
purchase up to 366,667
shares of common stock ("Additional
Warrant" and together
with the Warrant, the
"Warrants").
NOW,
THEREFORE, in
consideration of the foregoing recitals and the mutual
promises hereinafter set forth, the parties
hereto agree as follows:
SECTION 1. AGREEMENT TO SELL AND
PURCHASE
1.1
Authorization
of Transactions. On or prior to the closing of the
transactions contemplated in this Agreement
(the "First Closing"),
the Company
shall have authorized the sale and issuance
to the Purchaser of the Notes, the
Warrants and the shares of Common Stock
issuable upon conversion of the Notes
and upon exercise of the Warrants
(collectively, the "Shares").
1.2
Sale and Purchase at First Closing. Subject to the terms and
conditions hereof, at the First Closing,
the Company hereby
agrees to issue and
sell to the Purchaser, and the Purchaser agrees to purchase from the
Company,
the Note and the Warrant for an aggregate
purchase price of $750,000.
1.3 Option
to Purchase
Additional
Note. The Company hereby grants to
Purchaser and its affiliates an option (the
"Option") to purchase the Additional
Note and the Additional Warrant at a second
closing (the "Second Closing"), for
an aggregate purchase price of $550,000. The Additional Note and Additional
Warrant shall have substantially the same terms and provisions as
those in the
Note and Warrant, respectively. To the fullest extent, the
Additional Note and
Additional Warrant will be covered by the
provisions of the Registration Rights
Agreement (as defined below) and the
Security Agreement (as
defined below). The
Purchaser may exercise all or a portion of
the Option by giving
written notice
(the "Option Notice") of its intention to
exercise the Option on or prior to the
expiration date of the Option. The Option
shall expire on April 28, 2006.
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SECTION 2. CLOSING, DELIVERY AND
PAYMENT
2.1 First
Closing. The First Closing shall take place at 10:00 a.m. on
the
date hereof at the offices of the
Purchaser's legal
counsel, Messerli
& Kramer
P.A., in Minneapolis, Minnesota, or at such other time or place as
the Company
and the Purchaser may mutually agree (the "First Closing
Date"). At the First
Closing, subject to the terms and
conditions
hereof, the Company will issue,
sell and deliver to the Purchaser the Note
and the Warrant,
against payment of
the $750,000 purchase price by certified
check or wire transfer
of immediately
available funds. At that time, the Company
shall also execute and deliver to the
Purchaser the Registration Rights Agreement in the form attached as
Exhibit C
(the "Registration Rights Agreement") and the Security
Agreement in the
form
attached as Exhibit D (the "Security
Agreement").
2.2 Second
Closing. If the
Purchase timely
exercises all or a portion of
the Option, the Second Closing shall take place at 10:00
a.m. on the date that
is within ten (10) business days after the Option Notice is given to the
Company. The date on which the Second Closing occurs is referred to as the
"Second Closing Date". The closing of the transactions contemplated at the
Second closing shall be conditioned
on each party
reconfirming
its respective
representations, warrants and agreements
contained herein, the Company's payment
to Whitebox Advisors, LLC of a $7,500 cash origination fee, and the
Company's
counsel providing a legal opinion covering the matters specified in Section
5.1(d). At the Second Closing, subject to the terms and
conditions hereof,
the
Company will issue, sell and deliver to the Purchaser
the Additional
Note and
the Additional Warrant against payment by
the Purchaser of the purchase price in
the aggregate amount of up to $550,000 by
certified check or
wire transfer of
immediately available funds.
SECTION 3. REPRESENTATIONS AND WARRANTIES
OF THE COMPANY
The
Company hereby
represents
and warrants to the Purchaser as of the
First Closing Date, and agrees, as
follows:
3.1
Organization,
Good Standing and Qualification. The Company is a
corporation duly organized, validly
existing and in good standing under the laws
of the State of Nevada. The Company's only active subsidiaries are the
subsidiaries listed on Schedule 3.1 (the
"Subsidiaries"). Except as indicated on
Schedule 3.1, each Subsidiary is duly organized,
validly existing and in good
standing under the laws of its jurisdiction
of organization. Each of the Company
and the Subsidiaries has all requisite
corporate power and
authority to own and
operate its respective properties and assets and to carry on its
respective
business as presented conducted and as presently
proposed to be conducted. The
Company has all requisite corporate power and authority to execute and
deliver
this Agreement, the Notes, the Warrants,
the Registration
Rights Agreement and
the Security Agreement (together,
the "Transaction
Documents"),
to pledge the
Company's assets as described in the Security Agreement as security for the
Notes (the "Collateral"), to issue and sell the Shares upon
conversion of and
payment on the Notes and upon exercise of the Warrants and to carry out the
provisions of the Transaction Documents. The Company is duly qualified and
is
authorized to do business and is in good standing in each U.S. and foreign
jurisdiction in which the nature of its respective activities and of its
respective properties (both owned and leased) makes such qualification
necessary, except for those jurisdictions in which failure to be so
qualified
would not have a materially adverse effect
on the Company or its business, taken
as a whole.
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3.2
Capitalization. The
Company is authorized to issue 300,000,000 shares
of Common Stock, par value $0.001 per share,
of which 70,313,980 shares were
issued and outstanding as of October 27,
2005, and 5,000,000 shares of preferred
stock, par value $0.001 per share, of which no shares were issued and
outstanding as of October 27, 2005. Except as set forth on Schedule
3.2 or in
the Company's current, quarterly, annual and other periodic filings
(the "SEC
Reports") with the U.S. Securities and Exchange
Commission (the
"Commission"),
the Company has no outstanding options,
warrants or other
rights to acquire any
capital stock, or securities convertible or exchangeable for capital stock or
for securities themselves convertible or exchangeable for capital stock
(together, "Convertible Securities"). Except
as set forth on Schedule 3.2 or in
the SEC Reports, the Company has no
agreement or commitment to sell or issue any
shares of capital stock or Convertible
Securities.
All issued and
outstanding
shares of the Company's capital stock (i) have been duly
authorized and validly
issued, (ii) are fully paid and nonassessable, (iii) are free from any
preemptive and cumulative voting rights and (iv) were issued
pursuant to an
effective registration statement filed with
the Commission and applicable state
securities authorities or pursuant to valid
exemptions under
federal and state
securities laws. Except as set forth on Schedule
3.2, there are no outstanding
rights of first refusal or proxy or
shareholder agreements
of any kind relating
to any of the Company's securities to which the Company or
any of its executive
officers and directors is a party or as to which the
Company otherwise has
knowledge of. When issued in compliance
with the provisions of the Notes and the
Warrants (and upon payment as provided by the Warrant), the Shares will be
validly issued, fully paid and nonassessable,
and will be free of
any liens or
encumbrances; provided, however, that the Shares
may be subject to restrictions
on transfer under state and/or federal
securities laws as set forth herein or as
otherwise required by such laws at the time
a transfer is proposed.
3.3
Authorization; Binding
Obligations. All
corporate action on the part
of the Company, its officers, directors and shareholders necessary for the
authorization of the Transaction
Documents,
the performance of all
obligations
of the Company hereunder and thereunder at
the Closing, including
the pledge of
the Collateral as security for the Notes,
and the authorization,
sale, issuance
and delivery of the Shares upon conversion
of the Notes and upon exercise of the
Warrants, has been taken. The Transaction Documents, when executed and
delivered, will be valid and binding
obligations of the
Company enforceable in
accordance with their terms, except (i) as limited by
applicable
bankruptcy,
insolvency, reorganization, moratorium or other laws of general application
affecting enforcement of creditors' rights,
(ii) according to general principles
of equity that restrict the availability of
equitable remedies and
(iii) to the
extent that the enforceability of the indemnification provisions of the
Registration Rights Agreement may be
limited by applicable laws. The sale of the
Shares upon exercise of the Warrants or upon
conversion of (or
payment on) the
Notes is not and will not be subject to any
preemptive rights or rights of first
refusal.
3.4
Financial Statements. Except as set forth on Schedule 3.4, the
Company's audited consolidated balance sheet at September 30, 2004 and the
audited consolidated statements of operations, cash flows and stockholders'
deficit of the Company for the year ended
September 30, 2004 and for the periods
from July 26, 2002 through September 30,
2004 (including the related notes), and
the Company's unaudited consolidated balance sheet at, and the unaudited
consolidated statements of operations and
cash flows of the Company for the nine
months ended June 30, 2005 (all of the foregoing together, the "Financial
Statements," with June 30, 2005 being the "Latest Statement Date" and the
consolidated financial statements at and
for the nine months ended June 30, 2005
being the "Latest Financial Statements"), as contained in the SEC Reports,
fairly present in all material respects the consolidated
financial condition,
results of operations and cash flows of the
Company as of the
respective dates
and for the respective periods covered thereby (subject, in the case of
unaudited consolidated financial statements, to normal year-end audit
adjustments) and have been prepared in accordance with generally accepted
accounting principles in the United States
applied on a consistent basis (except
as may be indicated in the notes
thereto) and comply in
all material
respects
with applicable accounting requirements and the rules and regulations of
the
Commission.
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<PAGE>
3.5
Liabilities.
Except as set forth on
Schedule 3.5, the Company has no
material liabilities and, to the best of
its knowledge, the
Company knows of no
material contingent liabilities, not disclosed in the Latest Financial
Statements or SEC Reports, except current liabilities
incurred in the
ordinary
course of business subsequent to the Latest
Statement Date that
have not been,
either in any individual case or in the
aggregate, materially adverse.
3.6
Certain Agreements and Actions. Except as disclosed in the SEC
Reports, the Company has not (i) declared
or paid any dividends,
or authorized
or made any distribution upon or with respect to any class or series of its
capital stock, (ii) since the Latest Statement
Date, incurred any
indebtedness
for money borrowed or any other material
liabilities out of the
ordinary course
of business, (iii) made any loans or
advances to any person, other than ordinary
advances for travel or entertainment expenses or (iv) sold, exchanged or
otherwise disposed of any of its assets or
rights, other than in
the ordinary
course of business.
3.7
Obligations of or to Related Parties. Except as disclosed in the SEC
Reports, there are no obligations of the Company to officers, directors,
shareholders, employees or consultants of the Company, or to any members of
their immediate families or other affiliates, other than (i) for payment of
salary for services rendered since the
commencement of the Company's most recent
payroll period, (ii) reimbursement for
expenses reasonably incurred on behalf of
the Company and (iii) for other standard employee benefits made generally
available to all employees (including stock
option agreements
outstanding under
any stock option plan approved by the Board
of Directors of the Company). Except
as disclosed in the SEC Reports, none of
the officers, directors, shareholders,
employees or consultants of the Company, or any members of their
immediate
families or other affiliates, are indebted to the Company or
have any direct or
indirect ownership interest in any firm,
corporation or other
entity with which
the Company is affiliated or with which the
Company has a business relationship,
or any firm, corporation or other entity
that competes with the Company, except
that such officers, directors, shareholders, employees or consultants, or
members of their immediate families or
other affiliates may own securities (with
beneficial ownership not exceeding 2%) in
publicly traded companies that compete
with the Company. Except as disclosed in
the SEC Reports, no officer, director,
shareholder, employee or consultant of the Company, or, to the Company's
knowledge, any member of their immediate families or other affiliates, is,
directly or indirectly, interested in or a party to any
material contract
with
the Company. Except as disclosed in the SEC Reports, the Company is not a
guarantor or indemnitor of any indebtedness of any other person, firm or
corporation.
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3.8
Changes. Since the
Latest Statement Date,
and except as disclosed in
the SEC Reports, there has not been, to the
Company's knowledge,
any event or
condition of any character that, either individually or cumulatively, has
materially and adversely affected the
business, assets,
liabilities,
financial
condition, operations or prospects of the
Company.
3.9 Title
to Properties and Assets; Liens. Except as set forth in the
SEC
Reports, the Company has good and
marketable title to its properties and assets,
including the properties and assets
reflected in the Latest Financial Statements
and mining claims rights (whether held directly or through a joint
venture
interest), and good title to its leasehold
estates, in each case
subject to no
mortgage, pledge, lien, lease, encumbrance or charge, other than (i) those
resulting from taxes that have not yet
become delinquent,
(ii) minor liens
and
encumbrances that do not materially detract from the value of the property
subject thereto or materially impair the operations of the Company and
(iii)
those that have otherwise arisen in the ordinary course of business. All
facilities, machinery, equipment, fixtures
and other properties owned, leased or
used by the Company are in good operating condition and repair and are
reasonably fit and usable for the purposes for which they are being used,
reasonable wear and tear excepted.
3.10
Patents and Trademarks. Except as set forth in the SEC
Reports, the
Company owns or licenses all patents,
trademarks,
service marks,
trade names,
copyrights, trade secrets, information and other proprietary rights and
processes necessary for its business as now conducted and as proposed to be
conducted, without any known infringement of the rights of
others. The Company
is not aware that any of its employees is obligated under any contract
(including licenses, covenants or
commitments of any nature) or other agreement,
or subject to any judgment, decree or order of any
court or administrative
agency, that would interfere with their duties to the Company or that would
conflict with the Company's business as proposed to be
conducted. None of
the
execution or delivery of, or the
performance of the
transactions
contemplated
by, the Transaction Documents, the pledge of the Collateral by
the Company to
secure the Note, the carrying on of the Company's
business by the
employees of
the Company nor the conduct of the
Company's business as currently conducted or
proposed will conflict with or result in a breach of the
terms, conditions
or
provisions of, or constitute a default under, any contract, covenant or
instrument under which any employee is now obligated. The Company does not
believe it is or will be necessary to
utilize any
inventions, trade
secrets or
proprietary information of any of its
employees made prior to their employment
by the Company, except for inventions,
trade secrets or
proprietary information
that have been assigned to the Company.
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<PAGE>
3.11
Compliance
with Other
Instruments.
Except as disclosed in
the SEC
Reports, the Company is not in violation or
default of any term of its Articles
of Incorporation or Bylaws, or of any provision of any
mortgage, indenture,
contract, agreement, instrument or contract to which it
is party or by which it
is bound or of any judgment, decree, order, writ or, to its knowledge, any
statute, rule or regulation applicable to
the Company that would materially and
adversely affect the business, assets, liabilities, financial condition,
operations or prospects of the Company.
The execution and
delivery of, and the
performance of and compliance with the transactions contemplated by, the
Transaction Documents, and the issuance and sale of the
Shares upon conversion
of or payment on the Notes or upon exercise
of the Warrants,
will not, with or
without the passage of time or giving of
notice, result in any
such material
violation, or be in conflict with or constitute a default under
any such term,
or result in the creation of any mortgage,
pledge, lien,
encumbrance or
charge
upon any of the properties or assets of the Company or the suspension,
revocation, impairment, forfeiture or nonrenewal of any permit, license,
authorization or approval applicable to the
Company, its business
or operations
or any of its assets or properties, except for such results that would not
materially and adversely affect the business, assets, liabilities, financial
condition, operations or prospects of the
Company.
3.12
Litigation.
Except as disclosed in the SEC Reports, there is no
action, suit, proceeding or investigation pending or, to the Company's
knowledge, currently threatened against the
Company that questions the validity
of this Agreement or the other agreements contemplated hereby or the right of
the Company to enter into any of such agreements, or to consummate the
transactions contemplated hereby or thereby. Except as disclosed in the SEC
Reports, there is no action, suit, proceeding or investigation or, to the
Company's knowledge, currently threatened
against the Company that might result,
either individually or in the aggregate,
in any material
adverse change in the
assets, condition, affairs or prospects of the
Company, financial or otherwise,
or any change in the current equity
ownership of the Company, nor is the Company
aware that there is any basis for the
foregoing. The foregoing includes, without
limitation, actions pending or threatened (or any basis therefor known to
the
Company) involving the prior employment of
any of the employees of the Company,
their use in connection with the Company's business of any information or
techniques allegedly proprietary to any of their former employers or their
obligations under any agreements with prior
employers.
Except as disclosed
in
the SEC Reports, the Company is not a party or
subject to the provisions of any
order, writ, injunction, judgment or decree
of any court or government agency or
instrumentality.
3.13 Tax
Returns and Payments.
Except as set forth on Schedule 3.13 or in
the SEC Reports, the Company has timely filed all
tax returns (federal,
state
and local) required to be filed by it. All
taxes shown to be due and payable on
such returns, any assessments imposed, and, to the Company's knowledge, all
other taxes due and payable by the Company on or before the Closing
have been
paid or will be paid prior to the time they
become delinquent.
The Company has
not been advised (i) that any of its
returns, federal, state or other, have been
or are being audited as of the date hereof or (ii) of any deficiency in
assessment or proposed judgment to its federal, state or other taxes. The
Company has no knowledge of any liability of any tax to be imposed
upon the
properties or assets of the Company as of
the date of this Agreement that is not
adequately provided for.
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3.14
Employees. The Company
has no collective
bargaining agreements with
any of its employees. There is no labor
union organizing activity pending or, to
the Company's knowledge, threatened with respect to the
Company. Except as
set
forth in the SEC Reports, no employee has
any agreement or contract, written or
verbal, regarding his employment.
Except as disclosed in
the SEC Reports,
the
Company is not a party to or bound by any currently effective employment
contract, deferred compensation
arrangement, bonus
plan, incentive plan, profit
sharing plan, ret
