EXHIBIT 10.5

 

 

NEITHER THIS SECURITY NOR THE SECURITIES ISSUABLE UPON CONVERSION HEREOF HAVE
BEEN REGISTERED WITH THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION OR THE
SECURITIES COMMISSION OF ANY STATE OR UNDER THE SECURITIES ACT OF 1933, AS
AMENDED.  THE SECURITIES ARE RESTRICTED AND MAY NOT BE OFFERED, RESOLD, PLEDGED
OR TRANSFERRED EXCEPT AS PERMITTED UNDER THE ACT PURSUANT TO REGISTRATION OR
EXEMPTION OR SAFE HARBOR THEREFROM.

 

ISSUE DATE: March 16, 2016

PRINCIPAL AMOUNT: $90,000

INTEREST RATE: 10%

Original Issue Discount (OID): 10%

 

EL CAPITAN PRECIOUS METALS, INC.

 

CONVERTIBLE PROMISSORY NOTE DUE MARCH 16, 2017

 

 

FOR VALUE RECEIVED, the Company promises to pay to RIVER NORTH EQUITY LLC, the
registered holder hereof (the "Holder"), the principal sum of ninety thousand
and 00/100 Dollars ($90,000) on March 16, 2017 (the “Maturity Date”).  The
principal of this Note is payable in United States dollars, at the address last
appearing on the Note Register of the Company as designated in writing by the
Holder. The Company will pay the outstanding principal amount of this Note in
cash on the Maturity Date to the registered holder of this Note.  The forwarding
of such wire transfer shall constitute a payment hereunder and shall satisfy and
discharge the liability for principal on this Note to the extent of the sum
represented by such check or wire transfer plus any amounts so deducted. This
Note may be prepaid in full or in part at any time, or from time to time, at the
sole option of the Company.

 

This Note is subject to the following additional provisions:

 

1.       The Note is exchangeable for an equal aggregate principal amount of
Notes of different authorized denominations, as requested by the Holder
surrendering the same.  No service charge will be made for such registration or
transfer or exchange.

 

2.       Subject to Section 3 and the other terms and conditions set forth in
this Note, at any time after 180 days following the date of the Note, or earlier
upon the occurrence of an Event of Default that remains uncured, the Holder of
this Note shall be entitled, any time thereafter to convert all or a portion of
the principal amount of this Note into shares (the “Shares”) of the Company’s
common stock, par value $0.001 per share (the “Common Stock”) at a conversion
price for each share of Common Stock equal to sixty percent (60%) of the Current
Market Price (the “Conversion Price”). “Current Market Price” means the lowest
closing bid price for the Common Stock as reported by Bloomberg, LP for the ten
(10) trading days ending on the trading day immediately before the relevant
Conversion Date (as defined below). The number of Shares issuable pursuant to a
conversion shall equal the principal amount (or portion thereof) of the Note to
be converted, divided by the Conversion Price.

 

3.       Conversion shall be effectuated by surrendering the Note to the
Company, accompanied by or preceded by email or other delivery to the Company of
the form of conversion notice attached hereto as Exhibit A (a “Conversion
Notice”), executed by the Holder evidencing such Holder's intention to convert a
specified portion hereof.  No fractional shares of Common Stock or scrip
representing fractions of shares will be issued on conversion, but the number of
shares issuable shall be rounded to the nearest whole share.  The date on which
Conversion Notice is given (the "Conversion Date") shall be deemed to be the
date on which the Holder emails or otherwise delivers the Conversion Notice,
duly executed, to the Company. Certificates representing Common Stock upon
conversion will be delivered within three (3) business days from the Conversion
Date (“Delivery Date”).

 

1

 

 

At least two (2) Trading Days (as such term is defined in that certain Equity
Purchase Agreement (the “Equity Purchase Agreement”) prior to delivering a
Conversion Notice to the Transfer Agent, Holder shall provide written notice to
the Company of its intention to do so (a “Preliminary Notice”) that specifies
the portion of the outstanding principal amount of the Note to be converted (the
“Proposed Conversion Amount”). Holder shall not deliver a Conversion Notice to
the Transfer Agent, and shall not convert any portion of this Note, if prior to
the expiration of such two (2) Trading Day period the Company either (i) prepays
the Proposed Conversion Amount, or (ii) delivers a Put Notice to Holder in the
amount of sixty percent (60%) of the Proposed Conversion Amount and agrees to
use fifteen percent (15%) of the proceeds from the sale of the corresponding Put
Shares to prepay a portion of the outstanding principal amount of the Note.
Holder may not deliver a Preliminary Notice within twelve (12) Trading Days
following any Put Date (as such term is defined in the Equity Purchase
Agreement).

 

The Company shall pay any payments required under this Section in immediately
available funds upon demand as the Holder’s remedy for such delay.  Furthermore,
in addition to any other remedies which may be available to the Holder, in the
event that the Company fails for any reason to effect delivery of the Shares by
close of business on the Delivery Date, unless such failure is due to causes
beyond the Company’s reasonable control or that of its Transfer Agent, the
Holder will be entitled to revoke the relevant Conversion Notice by delivering a
notice to such effect to the Company, whereupon the Company and the Holder shall
each be restored to their respective positions immediately prior to delivery of
such Conversion Notice; provided, however, that an amount equal to any payments
contemplated by this Section which have accrued through the date of such
revocation notice shall remain due and owing to the Converting Holder
notwithstanding such revocation.  

 

If, by the relevant Delivery Date, the Company fails, unless such failure is due
to causes beyond the Company’s reasonable control or that of its Transfer Agent,
for any reason to deliver the Shares and after such Delivery Date, the Holder of
the Note being converted (a “Converting Holder”) purchases, in an arm’s-length
open market transaction, shares of Common Stock (the “Covering Shares”) in order
to make delivery in satisfaction of a sale of Common Stock by the Converting
Holder (the “Sold Shares”), which delivery such Converting Holder anticipated to
make using the Shares to be issued upon such conversion (a “Buy-In”), the
Converting Holder shall have the right, to require the Company to pay to the
Converting Holder, in addition to and not in lieu of the amounts due hereunder
(but in addition to all other amounts contemplated in other provisions of the
Transaction Agreements, and not in lieu of any such other amounts), the Buy-In
Adjustment Amount (as defined below).  The “Buy-In Adjustment Amount” is the
amount equal to the excess, if any, of (x) the Converting Holder's total
purchase price (including brokerage commissions, if any) for the Covering Shares
over (y) the net proceeds  (after brokerage commissions, if any) received by the
Converting Holder from the sale of the  Sold Shares.  The Company shall pay the
Buy-In Adjustment Amount to the Company in immediately available funds
immediately upon demand by the Converting Holder.  By way of illustration and
not in limitation of the foregoing, if the Converting Holder purchases shares of
Common Stock having a total purchase price (including brokerage commissions) of
$11,000 to cover a Buy-In with respect to shares of Common Stock it sold for net
proceeds of $10,000, the Buy-In Adjustment Amount which Company will be required
to pay to the Converting Holder will be $1,000.

 

In lieu of delivering physical certificates representing the Shares issuable
upon conversion, provided the Company’s Transfer Agent is participating in the
Depository Trust Company (“DTC”) Fast Automated Securities Transfer program,
upon request of the Holder and its compliance with the provisions contained in
this paragraph, so long as the certificates therefor do not bear a legend and
the Holder thereof is not obligated to return such certificate for the placement
of a legend thereon, the Company shall use its best efforts to cause its
transfer agent to electronically transmit the Common Stock issuable upon
conversion to the Holder by crediting the account of Holder’s Prime Broker with
DTC through its Deposit Withdrawal Agent Commission system.

 

2

 

 

The Holder of the Note shall be entitled to exercise its conversion privilege
with respect to the Note notwithstanding the commencement of any case under 11
U.S.C. §101 et seq. (the “Bankruptcy Code”).  In the event the Company is a
debtor under the Bankruptcy Code, the Company hereby waives, to the fullest
extent permitted, any rights to relief it may have under 11 U.S.C. §362 in
respect of such holder’s conversion privilege.  The Company hereby waives, to
the fullest extent permitted, any rights to relief it may have under 11 U.S.C.
§362 in respect of the conversion of the Note. This Note has been issued subject
to investment representations of the original purchaser hereof and may be
transferred or exchanged only in compliance with the Securities Act of 1933, as
amended (the "Act"), and other applicable state and foreign securities laws. In
the event of any proposed transfer of this Note, the Company may require, prior
to issuance of a new Note in the name of such other person, that it receive
reasonable transfer documentation including legal opinions that the issuance of
the Note in such other name does not and will not cause a violation of the Act
or any applicable state or foreign securities laws. Prior to due presentment for
transfer of this Note, the Company and any agent of the Company may treat the
person in whose name this Note is duly registered on the Company's Note Register
as the owner hereof for the purpose of receiving payment as herein provided and
for all other purposes, whether or not this Note be overdue, and neither the
Company nor any such agent shall be affected by notice to the contrary.

 

4.       No provision of this Note shall alter or impair the obligation of the
Company, which is absolute and unconditional, to pay the principal of this Note
at the time, place, and rate, and in the coin or currency, herein prescribed.
 This Note is a direct obligation of the Company.

 

5.       The Holder of the Note, by acceptance hereof, agrees that this Note is
being acquired for investment and that such Holder will not offer, sell or
otherwise dispose of this Note or the shares of Common Stock issuable upon
conversion thereof except under circumstances which will not result in a
violation of the Act or any applicable state Blue Sky or foreign laws or similar
laws relating to the sale of securities.

 

6.       This Note shall be governed by and construed in accordance with the
laws of the State of Illinois. Each of the parties consents to the jurisdiction
of the federal courts whose districts encompass any part of the City of Chicago
or the state courts of the State of Illinois sitting in the City of Chicago in
connection with any dispute arising under this Note and hereby waives, to the
maximum extent permitted by law, any objection, including any objection based on
forum non coveniens, to the bringing of any such proceeding in such
jurisdictions. Each of the parties hereby waives the right to a trial by jury in
connection with any dispute arising under this Note.

 

7.       The following shall constitute an "Event of Default":

 

a.       The Company shall default in the payment of principal on this Note and
same shall continue for a period of five (5) days; or

 

b.       Any of the representations or warranties made by the Company herein, in
any certificate or financial or other written statements heretofore or hereafter
furnished by the Company in connection with the execution and delivery of this
Note shall be false or misleading in any material respect at the time made; or

 

3

 

 

 

c.       The Company shall fail to perform or observe, in any material respect,
any other covenant, term, provision, condition, agreement or obligation of any
Note and such failure shall continue uncured for a period of five (5) days after
written notice from the Holder of such failure; or

 

d.       The Company shall fail to use at least 15% of the proceeds from each
sale of Put Shares (as such term is defined in the Equity Purchase Agreement
dated as of the date hereof by and between the Company and the Holder) to prepay
this Note; or

 

e.       The Company shall (1) make an assignment for the benefit of creditors
or commence proceedings for its dissolution; or (2) apply for or consent to the
appointment of a trustee, liquidator or receiver for its or for a substantial
part of its property or business; or

 

f.       A trustee, liquidator or receiver shall be appointed for the Company or
for a substantial part of its property or business without its consent and shall
not be discharged within sixty (60) days after such appointment; or

 

g.       Any governmental agency or any court of competent jurisdiction at the
instance of any governmental agency shall assume custody or control of the whole
or any substantial portion of the properties or assets of the Company and shall
not be dismissed within sixty (60) days thereafter; or

 

h.       Any money judgment, writ or warrant of attachment, or similar process
in excess of one hundred thousand ($100,000) dollars in the aggregate shall be
entered or filed against the Company or any of its properties or other assets
and shall remain unpaid, unvacated, unbonded or unstayed for a period of thirty
(30) days or in any event later than five (5) days prior to the date of any
proposed sale thereunder; or

 

i.       Bankruptcy, reorganization, insolvency or liquidation proceedings or
other proceedings for relief under any bankruptcy law or any law for the relief
of debtors shall be instituted by or against the Company and, if instituted
against the Company, shall not be dismissed within sixty (60) days after such
institution or the Company shall by any action or answer approve of, consent to,
or acquiesce in any such proceedings or admit the material allegations of, or
default in answering a petition filed in any such proceeding; or

 

j.       The Company shall have its Common Stock suspended from trading or
delisted such that it is no longer listed or quoted on any securities exchange
or quotation system, in either event for in excess of fifteen consecutive
trading days.

 

k.       The Company shall fail to file a registration statement with the
Securities and Exchange Commission registering the resale of the Put Shares by
the forty-fifth (45th) day following the date of this Note.

 

Then, or at any time thereafter, and in each and every such case, unless such
Event of Default shall have been waived in writing by the Holder (which waiver
shall not be deemed to be a waiver of any subsequent default) at the option of
the Holder and in the Holder's sole discretion, the Holder may consider all
obligations under this Note immediately due and payable within five (5) days of
notice, without presentment, demand, protest or notice of any kinds, all of
which are hereby expressly waived, anything herein or in any note or other
instruments contained to the contrary notwithstanding, and the Holder may
immediately enforce any and all of the Holder's rights and remedies provided
herein or any other rights or remedies afforded by law.

 

4

 

 

8.       The Holder may not convert this Note to the extent such conversion
would result in the Holder, together with any affiliate thereof, beneficially
owning (as determined in accordance with Section 13(d) of the Exchange Act and
the rules promulgated thereunder) in excess of 9.99% of the then issued and
outstanding shares of Common Stock held by such Holder after application of this
Section.  Since the Holder will not be obligated to report to the Company the
number of shares of Common Stock it may hold at the time of a conversion
hereunder, unless the conversion at issue would result in the issuance of shares
of Common Stock in excess of 9.99% of the then outstanding shares of Common
Stock without regard to any other shares which may be beneficially owned by the
Holder or an affiliate thereof, the Holder shall have the authority and
obligation to determine whether the restriction contained in this Section will
limit any particular conversion hereunder and to the extent that the Holder
determines that the limitation contained in this Section applies, the
determination of which portion of the principal amount of Note are convertible
shall be the responsibility and obligation of the Holder.  If the Holder has
delivered a Conversion Notice for a principal amount of Note that would result
in the issuance of in excess of the permitted amount hereunder, without regard
to any other shares that the Holder or its affiliates may beneficially own, the
Company shall notify the Holder of this fact and shall honor the conversion for
the maximum principal amount permitted to be converted on such Conversion Date
and, at the option of the Holder, either retain any principal amount tendered
for conversion in excess of the permitted amount hereunder for future
conversions or return such excess principal amount to the Holder.  The
provisions of this Section may be waived by a Holder (but only as to itself and
not to any other Holder) upon not less than thirty (30) days prior notice to the
Company. Other Holders shall be unaffected by any such waiver.

 

9.       Nothing contained in this Note shall be construed as conferring upon
the Holder the right to vote or to receive dividends or to consent or receive
notice as a shareholder in respect of any meeting of shareholders or any rights
whatsoever as a shareholder of the Company, unless and to the extent converted
in accordance with the terms hereof.

 

IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed
by an officer thereunto duly authorized.

 

Dated: March 16, 2016

 

EL CAPITAN PRECIOUS METALS, INC.               By: /s/ Charles C. Mottley  

 

 

ATTESTOR

            By: /s/ Steve Antol  

 

5

 

 

EXHIBIT A – CONVERSION NOTICE

 

The undersigned hereby elects to convert principal under the Note due March 16,
2017 of EL CAPITAN PRECIOUS METALS, INC., a Nevada corporation (the “Company”),
into shares of common stock (the “Common Stock”), of the Company according to
the conditions hereof, as of the date written below.  If shares of Common Stock
are to be issued in the name of a person other than the undersigned, the
undersigned will pay all transfer taxes payable with respect thereto and is
delivering herewith such certificates and opinions as reasonably requested by
the Company to ensure that the issuance of shares, and any transfer thereof, is
and has been made in compliance with the United Stated federal and state
securities laws.  No fee will be charged to the holder for any conversion,
except for such transfer taxes, if any.

 

By the delivery of this Conversion Notice the undersigned represents and
warrants to the Company that its ownership of the Common Stock does not exceed
the amounts specified under Section 8 of this Note, as determined in accordance
with Section 13(d) of the Exchange Act.

 

 

 

Conversion Calculations: ______________________________________________________
    Date to Effect Conversion:
______________________________________________________     Principal Amount of
Debenture to be converted:

 

______________________________________________________

    Signature: ______________________________________________________     Name:
______________________________________________________     Shares to be issued
to: ______________________________________________________     EIN:
______________________________________________________     Address for Delivery
of Common Stock Certificate(s):

 

______________________________________________________

    OR       DWAC Instructions:
______________________________________________________     Broker Number:
______________________________________________________     Account Number:
______________________________________________________