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Item 1.01
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Entry into a Material Definitive Agreement
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Convertible
Note and Warrant Financing Transaction
On February 21, 2017, El Capitan Precious Metals,
Inc. (the “Company”) entered into a Securities Purchase Agreement pursuant to which the Company issued a convertible
note (the “Note”) to an accredited investor in the aggregate principal amount of $550,000, or such lesser amounts based
on actual advances thereunder. In order to reflect an agreed upon original issue discount, the outstanding principal amount of
the Note attributable to each advance is 110% of the amount of the corresponding advance (i.e., a $100,000 advance results in outstanding
principal attributable to the advance of $110,000). Upon issuance of the Note, the investor made a $100,000 initial advance. The
Company and the investor must mutually agree upon any future advances under the Note. Amounts advanced under the Note will accrue
interest at seven percent per annum. Except to the extent converted into common stock of the Company, as discussed below, outstanding
principal and interest will become due and payable on August 21, 2017. Amounts outstanding under the Note are convertible at the
election of the investor into common stock of the Company at a conversion price equal to $0.0913 (the volume weighted average price
of the Company’s common stock on the day prior to the issuance date). The Note provides for various events of default upon
which amounts outstanding under the Note will immediately increase by 140% and the conversion price will be permanently redefined
to equal 60% of the average of the three lowest traded prices during the 14 consecutive trading days preceding the conversion date.
As additional consideration for the initial advance, the Company issued the investor a three year warrant to purchase up to 602,406
shares of the Company’s common stock at an exercise price equal to $0.3652 per share (which price is subject to anti-dilution
adjustment in the event the Company issues additional convertible securities with lower conversion prices). In conjunction with
any future advances under the Note, the Company will issue additional three year warrants to purchase a number of shares equal
to 50% of the conversion shares issuable upon conversion of the amount advanced.
The Securities Purchase Agreement contains covenants,
representations and warranties of the Company and the investor that are typical for transactions of this type.
The foregoing description of the terms of the
Securities Purchase Agreement, Note and the warrants does not purport to be complete and is subject to and qualified in its entirety
by reference to the agreements and instruments themselves, copies of which are filed as Exhibits 10.1, 10.2 and 10.3, respectively,
to this report, and the terms of which are incorporated herein by reference. The benefits and representations and warranties set
forth in such agreements and instruments are not intended to and do not constitute continuing representations and warranties of
the Company or any other party to persons not a party thereto.
Termination of River North Purchase Agreement; Entry into
L2 Purchase Agreement
The Company and River North Equity, LLC (“River
North”) have been parties to an Equity Purchase Agreement dated March 16, 2016, as amended by Amendment No. 1 dated December
9, 2016 (as so amended, the “River North Purchase Agreement”). Under the River North Purchase Agreement, the Company
had the right from time to time, in its discretion, to sell shares of its common stock to River North for aggregate gross proceeds
of up to $5,000,000.
On February 21, 2017, the Company and River
North terminated the River North Purchase Agreement and a related registration rights agreement and the Company entered into a
new Equity Purchase Agreement (the “L2 Purchase Agreement”) with L2 Capital, LLC (”L2 Capital”), an affiliate
of River North. Under the L2 Purchase Agreement, the Company may from time to time, in its discretion, sell shares of its common
stock to L2 Capital for aggregate gross proceeds of up to $5,000,000. Unless terminated earlier, L2 Capital’s purchase commitment
will automatically terminate on the earlier of the date on which L2 Capital shall have purchased Company shares pursuant to the
Purchase Agreement for an aggregate purchase price of $5,000,000, or February 21, 2020. The Company has no obligation to sell any
shares under the L2 Purchase Agreement.
As provided in the L2 Purchase Agreement, the
Company may require L2 Capital to purchase shares of common stock from time to time by delivering a put notice to L2 Capital specifying
the total number of shares to be purchased (such number of shares multiplied by the purchase price described below, the “Investment
Amount”); provided there must be a minimum of ten trading days between delivery of each put notice. The Company may determine
the Investment Amount, provided that such amount may not be more than the average daily trading volume in dollar amount for the
Company’s common stock during the 10 trading days preceding the date on which the Company delivers the applicable put notice.
Additionally, such amount may not be lower than $5,000 or higher than $150,000. L2 Capital will have no obligation to purchase
shares under the L2 Purchase Agreement to the extent that such purchase would cause L2 Capital to own more than 9.99% of the Company’s
common stock.
For each share of the Company’s common
stock purchased under the L2 Purchase Agreement, L2 Capital will pay a purchase price equal to 85% of the Market Price, which is
defined as the average of the two lowest closing bid prices on the OTCQB Marketplace, as reported by Bloomberg Finance L.P., during
the five consecutive Trading Days including and immediately prior to the settlement date of the sale, which in most circumstances
will be the trading day immediately following the “Put Date,” or the date that a put notice is delivered to L2 Capital
(the “Pricing Period”). The purchase price will be adjusted as follows: (i) an additional 10% discount to the Market
Price will be applied if either (A) the Closing Price of the Common Stock on the Put Date is less than $0.10 per share, or (B)
the average daily trading volume in dollar amount for the Common Stock during the ten Trading Days including and immediately preceding
the Put Date is less than $50,000; (ii) an additional 5% discount to the Market Price will be applied if the Company is not deposit/withdrawal
at custodian (“DWAC”) eligible; and (iii) an additional 10% discount to the Marker Price will be applied if the Company
is under DTC “chill” status. L2 Capital’s obligation to purchase shares on any settlement date is subject to
customary closing conditions, including without limitation a requirement that a registration statement remain effective registering
the resale by L2 Capital of the shares to be issued. The L2 Purchase Agreement is not transferable and any benefits attached thereto
may not be assigned.
The L2 Purchase Agreement contains covenants,
representations and warranties of the Company and L2 Capital that are typical for transactions of this type. In addition, the Company
and L2 Capital have granted each other customary indemnification rights in connection with the L2 Purchase Agreement. The L2 Purchase
Agreement may be terminated by the Company at any time.
In connection with the L2 Purchase Agreement,
the Company also entered into Registration Rights Agreement with L2 Capital requiring the Company to prepare and file, within 45
days, a registration statement registering the resale by L2 Capital of shares to be issued under the L2 Purchase Agreement, to
use commercially reasonable efforts to cause such registration statement to become effective, and to keep such registration statement
effective until (i) three months after the last closing of a sale of shares under the L2 Purchase Agreement, (ii) the date when
L2 Capital may sell all the shares under Rule 144 without volume limitations, or (iii) the date L2 Capital no longer owns any of
the shares.
The foregoing description of the terms of the
Termination with River North and the L2 Purchase Agreement and corresponding Registration Rights Agreement does not purport to
be complete and is subject to and qualified in its entirety by reference to the agreements themselves, copies of which are filed
as Exhibits 10.4, 10.5 and 10.6, respectively, to this report, and the terms of which are incorporated herein by reference. The
benefits and representations and warranties set forth in such documents (if any) are not intended to and do not constitute continuing
representations and warranties of the Company or any other party to persons not a party thereto.
