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.
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, ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇
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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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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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, retirement agreement or other employee compensation plan or
agreement. To the Company's knowledge, no employee of the Company, nor any
consultant with whom the Company has contracted, is in violation of any material
term of any employment contract, proprietary information agreement or any other
agreement relating to the right of any such individual to be employed by, or to
contract with, the Company because of the nature of the business to be conducted
by the Company; and, to the Company's knowledge, the continued employment by the
Company of its present employees, and the performance of the Company's contracts
with its independent contractors, will not result in any such violation. The
Company has not received any notice alleging that any such violation has
occurred. Except as disclosed in the SEC Reports, no employee of the Company has
been granted the right to continued employment by the Company or to any material
compensation following termination of employment with the Company. The Company
is not aware that any officer or key employee, or that any group of key
employees, intends to terminate their employment with the Company, nor does the
Company have a present intention to terminate the employment of any officer, key
employee or group of key employees.
3.15 Registration Rights. Except as disclosed on Schedule 3.15 or in the
SEC Reports or required pursuant to the Registration Rights Agreement, the
Company is presently not under any obligation, and has not granted any rights,
to register (as defined in the Registration Rights Agreement) any of the
Company's presently outstanding securities or any of its securities that may
hereafter be issued.
3.16 Compliance with Laws; Permits. Except as disclosed in the SEC
Reports, the Company is not in violation of any applicable statute, rule,
regulation, order or restriction of any domestic or foreign government or any
instrumentality or agency thereof in respect of the conduct of its business or
the ownership of its properties that would materially and adversely affect the
business, assets, liabilities, financial condition, operations or prospects of
the Company. No governmental orders, permissions, consents, approvals or
authorizations are required to be obtained and no registrations or declarations
are required to be filed in connection with the execution and delivery of, and
the performance of the transactions contemplated by, the Transaction Documents,
the pledge of the Collateral to secure the Notes or the issuance of the Shares
upon conversion of the Notes, payment on the Notes or exercise of the Warrants,
except such as has been duly and validly obtained or filed, or with respect to
any filings that must be made after the Closing, as will be filed in a timely
manner. The Company has all franchises, permits, licenses and any similar
authority necessary for the conduct of its business as now being conducted by
it, the lack of which could materially and adversely affect the business,
properties, prospects or financial condition of the Company and the Company
believes it can (and covenants to Purchaser that it will) obtain any similar
authority for the conduct of its business as planned to be conducted.
3.17 Environmental and Safety Laws. Except as disclosed in the SEC
Reports, to the Company's knowledge, the Company is not in violation of any
applicable statute, law or regulation relating to the environment or
occupational health and safety, and to the Company's knowledge, no material
expenditures are or will be required in order to comply with any such existing
statute, law or regulation. Without limiting the foregoing, and except as
disclosed in the SEC Reports:
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(a) with respect to any real property owned, leased or otherwise utilized
by the Company ("Real Property"), the Company is not or has not in the past been
in violation of any Hazardous Substance Law which violation could reasonably be
expected to result in a material liability to the Company or its properties and
assets;
(b) the Company nor, to the knowledge of the Company, any third party has
used, Released, generated, manufactured, produced or stored, in, on, under, or
about any Real Property, or transported thereto or therefrom, any Hazardous
Substances that could reasonably be expected to subject the Company to material
liability, under any Hazardous Substance Law;
(c) to the knowledge of the Company, there are no underground tanks,
whether operative or temporarily or permanently closed, located on any Real
Property that could reasonably be expected to subject the Company to material
liability under any Hazardous Substance Law;
(d) there are no Hazardous Substances used, stored or present at, or on,
or to the knowledge of the Company that could reasonably be expected to migrate
onto any Real Property, except in compliance with Hazardous Substance Laws; and
(e) to the knowledge of the Company, there neither is nor has been any
condition, circumstance, action, activity or event that could reasonably be
expected to be a material violation by the Company of any Hazardous Substance
Law, or to result in liability to the Company under any Hazardous Substance Law.
For purposes hereof, "Hazardous Substances" means (statutory acronyms and
abbreviations having the meaning given them in the definition below of
"Hazardous Substances Laws") substances defined as "hazardous substances,"
"pollutants" or "contaminants" in Section 101 of the CERCLA; those substances
defined as "hazardous waste," "hazardous materials" or "regulated substances" by
the RCRA; those substances designated as a "hazardous substance" pursuant to
Section 311 of the CWA; those substances defined as "hazardous materials" in
Section 103 of the HMTA; those substances regulated as a hazardous chemical
substance or mixture or as an imminently hazardous chemical substance or mixture
pursuant to Sections 6 or 7 of the TSCA; those substances defined as
"contaminants" by Section 1401 of the SDWA, if present in excess of permissible
levels; those substances regulated by the Oil Pollution Act; those substances
defined as a pesticide pursuant to Section 2(u) of the FIFRA; those substances
defined as a source, special nuclear or by-product material by Section 11 of the
AEA; those substances defined as "residual radioactive material" by Section 101
of the UMTRCA; those substances defined as "toxic materials" or "harmful
physical agents" pursuant to Section 6 of the OSHA; those substances defined as
hazardous wastes in 40 C.F.R. Part 261.3; those substances defined as hazardous
waste constituents in 40 C.F.R. Part 260.10, specifically including Appendix VII
and VIII of Subpart D of 40 C.F.R. Part 261; those substances designated as
hazardous substances in 40 C.F.R. Parts 116.4 and 302.4; those substances
defined as hazardous substances or hazardous materials in 49 C.F.R. Part 171.8;
those substances regulated as hazardous materials, hazardous substances, or
toxic substances in 40 C.F.R. Part 1910; any chemical, material, toxin,
pollutant, or waste regulated by or in any other Hazardous Substances Laws; and
in the regulations adopted and publications promulgated pursuant to said laws,
whether or not such regulations or publications are specifically referenced
herein.
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"Hazardous Substances Law" means any of:
(i) the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, as amended (42 U.S.C. Section 9601 et seq.)
("CERCLA");
(ii) the Federal Water Pollution Control Act (33 U.S.C. Section 1251 et
seq.) ("Clean Water Act" or "CWA");
(iii) the Solid Waste Disposal Act, as amended (42 U.S.C. Section 6901 et
seq.) ("RCRA");
(iv) the Atomic Energy Act of 1954 (42 U.S.C. Section 2011 et seq.)
("AEA");
(v) the Clean Air Act (42 U.S.C. Section 7401 et seq.) ("CAA");
(vi) the Emergency Planning and Community Right to Know Act (42 U.S.C.
Section 11001 et seq.) ("EPCRA");
(vii) the Federal Insecticide, Fungicide, and Rodenticide Act (7 U.S.C.
Section 136 et seq.) ("FIFRA");
(viii) the Oil Pollution Act of 1990 (33 U.S.C.A. Section 2701 et seq.);
(ix) the Safe Drinking Water Act (42 U.S.C. Sections 300f et seq.)
("SDWA");
(x) the Surface Mining Control and Reclamation Act of 1974 (30 U.S.C.
Sections 1201 et seq.) ("SMCRA");
(xi) the Toxic Substances Control Act (15 U.S.C. Section 2601 et seq.)
("TSCA");
(xii) the Hazardous Materials Transportation Act (49 U.S.C. Section 5101
et seq.) ("HMTA");
(xiii) the Uranium Mill Tailings Radiation Control Act of 1978 (42 U.S.C.
Section 7901 et seq.) ("UMTRCA");
(xiv) the Occupational Safety and Health Act (29 U.S.C. Section 651 et
seq.) ("OSHA"); and
(xv) all other federal, state and local governmental rules which govern
Hazardous Substances, and the regulations adopted and publications
promulgated pursuant to all such foregoing laws.
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3.18 Private Offering. Assuming the truth and accuracy of the
representations and warranties of the Purchaser contained in Section 4, the
offer, sale and issuance of the Note and the Warrant (and the Shares issuable
upon conversion of, or payment on, the Note or upon exercise of the Warrant)
will be exempt from the registration requirements of the Securities Act of 1933,
as amended (the "Securities Act"), and will have been registered or qualified
(or are exempt from registration and qualification) under the registration,
permit or qualification requirements of the State of Minnesota.
3.19 Full Disclosure. None of the Transaction Documents nor the SEC
Reports contain any untrue statement of a material fact nor, to the Company's
knowledge and belief, omit to state a material fact necessary in order to make
the statements contained herein or therein not misleading. There are no facts
that (individually or in the aggregate) materially adversely affect the
business, assets, liabilities, financial condition or operations of the Company
that have not been set forth in the Transaction Documents, the SEC Reports or in
other documents delivered to the Purchaser or its attorneys or agents in
connection herewith.
3.20 Insurance. The Company has fire and casualty insurance policies with
coverage customary for companies similarly situated to the Company.
3.21 Investment Company Act. The Company is not, and will not use the
proceeds from the Notes in a manner so as to become, an "investment company," or
a company "controlled" by an "investment company," within the meaning of the
Investment Company Act of 1940, as amended.
3.22 Security Interest in Collateral. Except for a priority security
interest in 1,000,000 shares of U.S. Canadian Minerals, Inc. ("UCAD") in favor
of a third party as disclosed in the SEC Reports (the "UCAD Security Interest"),
the Company owns the Collateral free and clear of all claims, liens or
encumbrances of any kind. Upon consummation of the transactions as contemplated
hereby, the Purchaser will have a first priority security interest in the
Collateral, except for the UCAD Security Interest. The Purchaser shall have a
secondary security interest in the 1,000,000 shares of UCAD pledged to such
third party.
3.23 NASDAQ Compliance. The Company's Common Stock is registered pursuant
to Section 12(g) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and is listed on the Over-the-Counter Bulletin Board
administered by The Nasdaq Stock Market, Inc. (the "OTCBB"). The Company has
taken no action designed to, or likely to have the effect of, and the
transactions contemplated by this Agreement will not have the effect of,
terminating the registration of the Common Stock under the Exchange Act or
de-listing of the Common Stock from the OTCBB. The Company has not received any
notification that the Commission, the National Association of Securities
Dealers, Inc., the OTCBB or any other self-regulatory organizational body is
contemplating terminating such registration or listing. Without limiting the
foregoing, the Transaction Documents and the transactions contemplated by them
require no shareholder approval under the rules or interpretations of the OTCBB.
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3.24 Reporting Status. The Company has filed in a timely manner all
documents that the Company was required to file under the Exchange Act during
the 12 months preceding the date of this Agreement. The SEC Reports complied in
all material respects with the applicable requirements of the Securities Act or
the Exchange Act, as the case may be, and the applicable rules and regulations
promulgated thereunder as of their respective filing dates, and the information
contained therein as of the date thereof did not contain an untrue statement of
a material fact or omit to state a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. The Company maintains disclosure controls
and procedures required by Rule 13a-15 under the Exchange Act and such controls
and procedures are effective to ensure that all material information concerning
the Company is made known on a timely basis to the individuals responsible for
the preparation of the Company's filings with the Commission and other public
disclosure documents. As of the date hereof, the Company satisfies the
eligibility requirements for the use of Form SB-2 under the Securities Act.
3.25 No Manipulation of Stock. Neither the Company, nor any of its
directors, officers or controlling persons, has taken or will, in violation of
applicable law, take, any action designed to or that might reasonably be
expected to cause or result in, or which has constituted, stabilization or
manipulation of the price of the Common Stock to facilitate the sale or resale
of the securities issued or issuable in connection with the transactions
contemplated hereunder.
3.26 Foreign Corrupt Practices; ▇▇▇▇▇▇▇▇-▇▇▇▇▇.
(a) Neither the Company, nor to the knowledge of the Company, any agent or
other person acting on behalf of the Company, has (i) directly or indirectly,
used any corrupt funds for unlawful contributions, gifts, entertainment or other
unlawful expenses related to foreign or domestic political activity, (ii) made
any unlawful payment to foreign or domestic government officials or employees or
to any foreign or domestic political parties or campaigns from corporate funds,
(iii) failed to disclose fully any contribution made by the Company (or made by
any person acting on its behalf of which the Company is aware) which is in
violation of law, or (iv) violated in any material respect any provision of the
Foreign Corrupt Practices Act of 1977, as amended.
(b) The Company is in compliance in all material respects with all
provisions of the ▇▇▇▇▇▇▇▇-▇▇▇▇▇ Act of 2002 (and related rules of the
Commission) that are applicable to it as of the Closing Date.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser hereby represents and warrants to the Company as of the
First Closing Date, and agrees, as follows:
4.1 Authorization. The Purchaser has full power and authority to enter
into this Agreement and each of the Transaction Documents, and each such
agreement, when executed and delivered by the Purchaser, will constitute the
valid and binding obligation of the Purchaser enforceable in accordance with its
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.
11
4.2 Investment Representations. The Purchaser understands that neither the
offer nor the sale of the Note, the Warrant or the Shares has been registered
under the Securities Act. The Purchaser also understands that the Note and
Warrant are being offered and sold pursuant to an exemption from registration
contained in the Securities Act based in part upon the Purchaser's
representations contained in the Agreement. The Purchaser hereby represents and
warrants as follows:
(a) Purchaser Bears Economic Risk. The Purchaser has substantial
experience in evaluating and investing in private placement transactions of
securities in companies similar to the Company so that it is capable of
evaluating the merits and risks of its investment in the Company and has the
capacity to protect its own interests. The Purchaser must bear the economic risk
of this investment indefinitely unless the Note or Warrant (or the Shares) are
registered pursuant to the Securities Act, or an exemption from registration is
available. Except as contemplated by the Registration Rights Agreement, the
Purchaser has no present intention of selling or otherwise transferring the
Note, the Warrant or the Shares, or any interest therein. The Purchaser also
understands that there is no assurance that any exemption from registration
under the Securities Act will be available and that, even if available, such
exemption may not allow the Purchaser to transfer all or any portion of the
Note, the Warrant or the Shares under the circumstances, in the amounts or at
the times the Purchaser might propose.
(b) Acquisition for Own Account. Except as contemplated by the
Registration Rights Agreement, the Purchaser is acquiring the Note, the Warrant
and the Shares for the Purchaser's own account for investment only, and not with
a view towards their public distribution.
(c) Purchaser Can Protect Its Interest. The Purchaser represents that by
reason of its, or of its management's, business or financial experience, the
Purchaser has the capacity to protect its own interests in connection with the
transactions contemplated in this Agreement, the Note, the Warrant and the
Registration Rights Agreement. Further, the Purchaser is aware of no publication
of any advertisement in connection with the transactions contemplated in the
Agreement.
(d) Accredited Investor. The Purchaser represents that it is an accredited
investor within the meaning of Regulation D of the Securities Act.
(e) Residence. The Purchaser represents that it is organized under the
laws of the British Virgin Islands and that its principal office is located in
the State of Minnesota.
(f) Rule 144. The Purchaser acknowledges and agrees that the Note and
Warrant, and, if issued, the Shares, must be held indefinitely unless they are
subsequently registered under the Securities Act or an exemption from such
registration is available. The Purchaser has been advised or is aware of the
provisions of Rule 144 promulgated under the Securities Act, which permits
limited resale of shares purchased in a private placement subject to the
satisfaction of certain conditions, including, among other things: the
availability of certain current public information about the Company, the resale
occurring not less than one year after a party has purchased and paid for the
security to be sold, the sale being through an unsolicited "broker's
transaction" or in transactions directly with a market maker (as such term is
defined under the Exchange Act) and the number of shares being sold during any
three-month period not exceeding specified limitations.
12
4.3 Transfer Restrictions. The Purchaser acknowledges and agrees that the
Note and Warrant and, if issued, the Shares, are subject to restrictions on
transfer and will bear restrictive legends.
4.4 Material Non-Public Information. The Purchaser acknowledges that it
may have received from a consultant to the Company material non-public
information relating to the Company and its business and hereby agrees not to
transact in the purchase or sale of the Company's securities with any third
party until November 4, 2005, by which time such information will be publicly
disclosed by the Company; provided that, in the event the Company discloses such
information prior to November 4, 2005, this representation and warranty shall
terminate at such time.
SECTION 5. CONDITIONS FOR CLOSING
5.1 Conditions for the Company to Satisfy at First Closing. The obligation
of the Purchaser to purchase the Note and Warrant as contemplated by this
Agreement is subject to satisfaction of the following contingencies at or prior
to the First Closing:
(a) The Company shall have obtained all third party consents required in
connection herewith, including consents to pledge the Collateral to the
Purchaser as security for the Note.
(b) The Company shall have executed and delivered to the Purchaser the
Note, the Warrant, the Registration Rights Agreement and the Security Agreement,
including all stock certificates evidencing the stock pledged to the Purchaser
pursuant to the Security Agreement, together with duly executed in blank undated
stock powers attached thereto.
(c) The Company shall have paid Whitebox Advisors, LLC a $22,500 cash
origination fee related to the transactions contemplated hereby. The Company
shall pay an additional $7,500 cash origination fee if the Purchaser elects to
acquire the Additional Note and Additional Warrant.
(d) ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ & Brand, LLP, legal counsel to the Company,
shall have delivered an opinion to the Purchaser with respect to the following
matters (which opinion may contain customary exclusions and limitations that are
reasonably acceptable to counsel for Purchaser):
(i) The Company is a corporation duly organized, validly existing
and in good standing under the laws of the State of Nevada. To
such firm's knowledge, the Subsidiaries are the only operating
subsidiaries of the Company. 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 presently
conducted and as presently proposed to be conducted. The
Company has all requisite corporate power and authority to
execute and deliver the Transaction Documents, to pledge the
Collateral as security for the Notes, to issue and sell the
Shares, and to carry out the provisions of the Transaction
Documents. Each of the Company and the Subsidiaries 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.
13
(ii) The Company is authorized to issue 300,000,000 shares of
Common Stock, par value $0.001 per share, of which, to the
firm's knowledge, 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, to the
firm's knowledge, no shares were issued and outstanding as of
October 27, 2005. To the firm's knowledge, the Company has no
outstanding Convertible Securities or any agreement or
commitment to sell or issue any shares of capital stock or
Convertible Securities, except as described in the Agreement.
All issued and outstanding shares of the Company's capital
stock (a) have been duly authorized and validly issued, (b)
are fully paid and nonassessable, (c) are free from any
preemptive and cumulative voting rights and (d) 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. To the firm's knowledge, 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. When issued in compliance
with the provisions of the Note and the Warrant (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.
(iii) 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 under the Transaction Documents 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 or 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 (a) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general
application affecting enforcement of creditors' rights, (b)
according to general principles of equity that restrict the
availability of equitable remedies; and (c) 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 Warrant or
upon conversion of (or payment on) the Note is not and will
not be subject to any preemptive rights or rights of first
refusal.
14
(iv) The execution and delivery to the Purchaser of the Transaction
Documents does not violate or constitute a default under the
Articles of Incorporation or Bylaws, as amended, of the
Company, or under any agreement known to such firm to which
the Company or the Subsidiary is a party or by which any of
their respective properties or assets are bound.
(v) To such firm's knowledge, except as disclosed in the SEC
Reports, there is no action, suit, proceeding or investigation
pending or currently threatened against the Company, including
any that questions the validity of the Agreement or the other
agreements contemplated thereby or the right of the Company to
enter into any of such agreements, or to consummate the
transactions contemplated thereby. To such firm's knowledge,
except as disclosed in the SEC Reports, there is no action,
suit, proceeding or investigation or, to such firm'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
such firm aware that there is any basis for the foregoing. To
such firm's knowledge, and 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.
(vi) Upon tender of the funds by the Purchaser to the Company as
contemplated by the Agreement and filing of a UCC Financing
Statement covering the Collateral, a security interest in the
Collateral will attach in favor of the Purchaser.
SECTION 6. MISCELLANEOUS
6.1 Governing Law. This Agreement shall be governed by the laws of the
State of Minnesota as such laws are applied to agreements between Minnesota
residents entered into and performed entirely in Minnesota.
15
6.2 Survival. The representations, warranties, covenants and agreements
made herein shall survive any investigation made by the parties and the closing
of the transactions contemplated hereby. All statements as to factual matters
contained in any certificate or other instrument delivered by or on behalf of
the Company pursuant hereto in connection with the transactions contemplated
hereby shall be deemed to be representations and warranties by the Company
hereunder solely as of the date of such certificate or instrument.
6.3 Successors and Assigns. Except as otherwise expressly provided herein,
the provisions hereof shall inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors and administrators of the parties hereto
and shall inure to the benefit of and be enforceable by each person who shall be
a holder of the Notes, the Warrants or the Shares from time to time.
6.4 Entire Agreement. The Transaction Documents and the other documents
delivered pursuant hereto constitute the full and entire understanding and
agreement between the parties with regard to the subjects hereof and no party
shall be liable or bound to any other in any manner by any representations,
warranties, covenants and agreements except as specifically set forth herein and
therein.
6.5 Severability. In case any provision of the Agreement shall be invalid,
illegal or unenforceable, the validity, legality and enforceability of the
remaining provisions shall not in any way be affected or impaired thereby.
6.6 Amendment and Waiver. This Agreement may be amended or modified, and
any provision hereunder may be waived, only upon the written consent of the
Company and the Purchaser.
6.7 Notices. All notices, requests, consents, and other communications
hereunder shall be made in writing and shall be deemed given (i) when made if
made by hand delivery, (ii) one business day after being deposited with an
overnight courier if made by courier guaranteeing overnight delivery, (iii) on
the date indicated on the notice of receipt if made by first-class mail, return
receipt requested, or (iv) upon confirmation if made by telecopier, addressed as
follows:
(a) if to the Company, at
El Capitan Precious Metals, Inc.
▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, President and Chief Executive Officer
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ & Brand, LLP
▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇, Esq.
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
16
(b) if to the Purchaser, in care of:
Whitebox Advisors, LLC
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇▇ ▇▇▇▇, Chief Financial Officer
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇ P.A.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇.
6.8 Indemnification by the Company. The Company agrees to indemnify and
hold the Purchaser harmless against any loss, liability, damage or expense
(including reasonable legal fees and costs) that the Purchaser may suffer,
sustain or become subject to as a result of or in connection with the breach by
the Company of any representation, warranty, covenant or agreement of the
Company contained in any of the Transaction Documents.
6.9 Expenses. At Closing, the Company shall pay the Purchaser's counsel,
▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇ P.A., $10,000 for its legal fees and expenses in representing
the Purchaser in connection with the transactions contemplated hereby. In
addition, the Company agrees to pay or reimburse the Purchaser for its
reasonable legal fees and expenses that it may incur after the date hereof in
connection with the granting of any waiver with respect to, the modification of
any of the terms or provisions of, or the enforcement of any of the Transaction
Documents.
6.10 Post-Closing Covenant. For a period of 45 days after the date hereof,
the Company agrees to execute and deliver such other agreements, instruments or
other documents to Purchaser as may be necessary or requested by Purchaser to
obtain a first priority lien, mortgage or security interest in and to all of the
Collateral.
6.11 Titles and Subtitles. The titles of the sections and subsections of
the Agreement are for convenience of reference only and are not to be considered
in construing this Agreement.
6.12 Counterparts. This Agreement may be delivered via facsimile or other
means of electronic communication, and may be executed in counterparts, each of
which shall be an original, but all of which together shall constitute one
instrument.
[Signature page follows]
17
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Purchase Agreement as of the date first above written.
El Capitan Precious Metals, Inc. Whitebox Intermarket Partners, L.P.
By /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ By /s/ ▇▇▇▇▇▇▇▇ ▇▇▇▇
---------------------------------- -----------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, President and
Chief Executive Officer Its CFO/Director
-----------------------------