SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) November 22, 1996
CHAPARRAL RESOURCES, INC.
----------------------------------------------------
(Exact name of registrant as specified in its charter)
Colorado 0-7261 84-0630863
--------------------------- ------------------- ---------------
(State or other jurisdiction (Commission File No.) (I.R.S. Employer
of incorporation) Identification No.)
621 Seventeenth Street, Suite 1301, Denver, Colorado 80293
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code: (303) 293-2340
53 Total Pages
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Item 5. Other Events
The Company has borrowed $1,850,000 for interim financing pursuant to
unsecured convertible promissory notes that bear interest at 8% per annum, which
is payable monthly, and that are due and payable on or before May 31, 1998. The
promissory notes are convertible into the Company's common stock at the lower of
$0.75 per share or 75% of the market price of the common stock on the date of
the conversion if the market price is less than $1.00 per share on such date.
The proceeds from the first of such loans was received on November 22, 1996.
In connection with such borrowings, the Company agreed to issue the lenders
warrants that terminate on November 30, 1999, to purchase a total of 462,500
shares of the Company's common stock at $0.25 per share and agreed to add two
directors selected by two of the lenders, Whittier Ventures LLC and Whittier
Energy Company (collectively "Whittiers"), to the Company's Board of Directors.
The Company further agreed that the Company would issue the lenders warrants to
purchase an additional 185,000 shares of the Company's common stock if the
promissory notes are not paid or converted by May 31, 1997, and warrants to
purchase an additional 370,000 shares of the Company's common stock if the
promissory notes are not paid or converted by November 30, 1997. Such warrants
would be exercisable for a period of three years at $0.25 per share.
In connection with the transactions, James A. Jeffs resigned from the
Company's Board of Directors. At the request of the Whittiers, on December 2,
1996, Arlo G. Sorensen replaced Mr. Jeffs on the Company's Board of Directors.
Arlo G. Sorensen, age 56, has been the president of M. H. Whittier Corporation,
an oil and gas production company, since 1985. Mr. Sorensen also has served as
Chairman of the Board and a Director of Whittier Trust Company, a trust company,
since 1988. Mr. Sorensen is a member of the National Petroleum Council and a
member and the Chief Financial Officer of Western States Petroleum Association.
The Company has not been notified as to the name of the second director
that the Whittiers have the right to select to serve on the Company's Board of
Directors. The Whittiers will have the right to have their two representatives
nominated for directors of the Company until their promissory notes are paid in
full or until the time the Whittiers no longer have any investment in the
Company.
Prior to making a loan to the Company, Whittier Ventures LLC beneficially
owned 2,000,000 shares or 5.3 percent of the Company's outstanding common stock.
The $750,000 loan of Whittier Ventures LLC is convertible into 1,000,000 shares
of the Company's common stock and the initial warrants to be received by
Whittier Ventures LLC in connection with such loan are exercisable for 187,500
shares of the Company's common stock. As a result, Whittier Ventures LLC now
beneficially owns 3,187,500 shares of the Company's common stock or
approximately 8.2 percent of the Company's outstanding common stock, assuming
the promissory note is converted and the warrants are exercised.
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The Company will use the funds from the loans primarily for the Company's
obligation to provide financing for the Company's Karakuduk Project in Kazakstan
and to make a payment of $200,000 due in connection with the Company's previous
purchase of 15% of the outstanding shares of Central Asian Petroleum Guernsey
Limited ("CAP-G") from one individual. CAP-G owns a 50% interest in the
Karakuduk Project and the Company owns 90% of the outstanding CAP-G shares.
The Company has established oil production from the first well to be
re-entered in the Karakuduk Oil Field. The well is one of 22 wells drilled
between 1972 and 1992 to delineate the Karakuduk Oil Field. None of such wells
were then placed on production. Production now has been established from one of
six zones in the first well to be reentered and the remaining five zones will be
tested at a later date, when additional oil storage and upgraded workover
equipment have been provided. The well is now shut in and operations have been
suspended because of winter conditions and lack of ability to market the test
oil. It is currently planned that recommencement of work-over operations and
infrastructure construction will begin in April, 1997.
Item 7. Financial Statements and Exhibits
(a) Financial Statements of Businesses Acquired
None
(b) Pro Forma Financial Information
(c) Exhibits
(3) Promissory Notes and Modifications of Promissory Notes
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: December 9, 1996
CHAPARRAL RESOURCES, INC.
By: /s/ Paul V. Hoovler
---------------------------------
Paul V. Hoovler, President
4
MODIFICATION TO PROMISSORY NOTE
On November 19, 1996, John A. Schneider ("Payee") made a loan in the amount
of $100,000 to Chaparral Resources, Inc. ("Maker") pursuant to a Promissory Note
dated November 19, 1996.
Paragraph 1(i) of such Promissory Note sets forth provisions whereby the
Principal Amount of the Promissory Note will be payable prior to May 31, 1998.
The Maker and the Payee hereby agree that the figure of the $1,350,000 that
appears in paragraph 1(I) of the Promissory Note be and hereby is changed to
$1,850,000 wherever it appears therein.
Except as provided herein, the Promissory Note shall remain in full force
and effect.
MAKER:
CHAPARRAL RESOURCES, INC.
By: /s/ Paul V. Hoovler
-----------------------------
Name: Paul V. Hoovler
Title: President
PAYEE:
JOHN A. SCHNEIDER
By: /s/ John A. Schneider
----------------------------
<PAGE>
THIS PROMISSORY NOTE AND THE SECURITIES ISSUED UPON CONVERSION HEREOF, MAY NOT
BE OFFERED FOR SALE, SOLD, OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT FILED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE ACT
WHICH SHALL BE ESTABLISHED TO THE SATISFACTION OF THE MAKER.
PROMISSORY NOTE
November 19, 1996 $100,000.00
New York, New York
FOR VALUE RECEIVED, CHAPARRAL RESOURCES, INC. a Colorado corporation with
offices at 621 Seventeenth Street, Suite 1301, Denver, Colorado 80293 ("Maker"),
DOES HEREBY PROMISE to pay to the order of JOHN A. SCHNEIDER, an Individual
("Payee"), the principal amount (the "Principal Amount") of ONE HUNDRED THOUSAND
DOLLARS ($100,000.00), together with interest thereon at eight percent (8%) per
annum, from the date hereof to and including the day on which the indebtedness
evidence by this Promissory Note (this "Note") is paid in full.
The following additional terms shall govern this Note:
1. The entire Principal Amount of and accrued and unpaid interest on this
Note shall be due and payable on the day (the "Repayment Date") which shall be
the earlier to occur of:
(i) the third business day following the receipt by Maker of net
proceeds of $1,350,000 from (A) the sale or issuance after the date
hereof, by Maker, of Maker's equity or debt securities (including
without limitation any securities convertible into or exchangeable for
Maker's equity securities), whether in one or more public or private
transactions, or (B) any debt financing provided or guaranteed by the
Overseas Private Investment Corporation or other governmental or
quasi-governmental organization or entity, or (C) the sale or farmout
by the Maker of assets held by the Maker which results in cash to the
Maker, or any combination of (A), (B) or (C) above (each, a
"Financing"), provided, that in the event that the net proceeds of any
such Financing are less than $1,350,000, then the amount of principal
and interest that becomes due by operation of this clause (i) shall be
determined by dividing the principal and interest due on this Note by
$1,350,000 and multiplying the result thereof by the amount of such
net proceeds and this clause (i) shall remain in effect with respect
to each subsequent Financing; providing further that Maker shall
immediately upon the happening of such event give Payee written notice
thereof in accordance with the provisions of Section 21 hereof and
that, unless waived by Payee, repayment may be rejected by Payee if it
has not received at least two (2) business day advance notice prior to
said payment; or
<PAGE>
(ii) May 31, 1998.
2. Interest and principal in respect of this Note shall be paid in lawful
currency of the United States, in immediately available funds, at the principal
executive offices of Payee, c/o Allen & Company, 711 Fifth Avenue, New York, New
York 10022, or at such other place as Payee may designate in a written notice to
Maker.
3. Payee shall have the ability to convert all and not less than all the
interest and principal in respect of this Note into shares of the Maker's common
stock at $0.75 per share or at a 25% discount of the market price of the Maker's
common stock as quoted on NASDAQ, should the last sale price of the Maker's
common stock as quoted on NASDAQ be less than $1.00 per share on the date Payee
elects such conversion. Payee's conversion shall terminate on the earlier of the
date this Note has been paid in full or on May 31, 1998.
Payee may exercise the conversion right provided in this Section 3 by
giving written notice (the "Conversion Notice") to the Maker of the exercise
right and stating the name or names in which the stock certificate or stock
certificates for the shares of Maker's common stock are to be issued and the
address to which such certificates shall be delivered.
Conversion shall be deemed to have been effected on the date the Conversion
Notice is given (the "Conversion Date"). Within 10 business days after receipt
of the Conversion Notice, the Maker shall issue and deliver by hand against a
signed receipt therefor or by United States registered mail, return receipt
requested, to the address designated by the Payee in the Conversion Notice, a
stock certificate or stock certificates of the Maker representing the number of
shares of common stock to which such Payee is entitled and Payee shall return
this Note to Maker.
Any such conversion shall mean that this Note has been paid in full for all
purposes.
4. All interest hereunder shall be computed on the basis of the actual
number of days elapsed over a year of 360 days and shall be payable monthly in
arrears on the first day of each month beginning January 1, 1997.
5. (a) As additional consideration for the loan evidenced by this Note,
Maker shall issue to Payee warrants (the "Initial Warrants") to purchase for
$0.25 per share, 25,000 shares of Maker's common stock, exercisable at any time
and from time to time not later than November 30, 1999.
(b) In the event that this Note has not been repaid in full (including
principal and accrued interest) on or before May 31, 1997, Maker shall issue to
Payee additional warrants to purchase for $0.25 per share, 10,000 shares of
Maker's common stock (subject to adjustment in the manner provided in subsection
(d) of Section 5), exercisable at any time and from time to time not later than
May 31, 2000.
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(c) In the event that this Note has not been repaid in full (including
principal and accrued interest) on or before November 30, 1997, Maker shall
issue to Payee additional warrants to purchase for $0.25 per share, 20,000
shares of Maker's common stock (subject to adjustment in the manner provided in
subsection (d) of Section 5), exercisable at any time and from time to time not
later than November 30, 2000.
(d) The warrants issuable to Payee pursuant to this Section 5 (the
"Warrants") shall be on such other terms and in such form (including
representations, warranties and covenants) as shall be mutually agreeable to
Payee and Maker. Without limiting the generality of the foregoing, the terms of
such Warrants shall include (i) economic dilution provisions such that in the
event that any shares of Maker's common stock, or securities exchangeable for or
convertible into common stock, are issued for a price of less than $0.25 per
share, the exercise price of the Warrants shall be proportionately decreased and
the number of shares issuable under such Warrants shall be increased accordingly
and also provisions for adjustment for stock splits, stock dividends, reverse
stock splits and similar changes; and (ii) registration rights permitting Payee
(or its assigns) to participate in any future registrations of Maker's common
stock ("piggyback" registration rights) and permitting Payee (or its assigns)
not less than one demand registration. With respect to such registration rights,
it is understood and agreed that in the event that not later than November 30,
1997, Maker completes a private offering of its equity securities in which Maker
raises gross proceeds of not less than $1,000,000 and in which the purchasers
are granted registration rights, Payee's registration rights with respect to
shares issuable under the Warrants shall be substantially the same as the most
favorable rights granted to purchasers in the private placement rather than the
registration rights set forth above; provided, however, that the exercise of
Payee's registration rights shall not be subject to any requirement that any
other holders of registration rights join Payee in any request to participate in
or to demand a registration, and any participation in or demand for a
registration by any other holder of registration rights shall not affect Payee's
right to participate in or demand a registration on any future occasion.
6. In the event that either the Warrants to be issued to Payee pursuant to
Section 5 hereof are not issued (i) in the case of the Initial Warrants, not
later than January 31, 1997, and (ii) in the case of the remaining Warrants, not
later than thirty (30) days following the respective dates set forth in such
Section 5 as the dates on which such Warrants are to be issued, and in each case
on such terms and in such form as may be acceptable to Payee and Maker, then
notwithstanding the provisions of Section 1 hereof, this Note shall
automatically and without any further notice or action on the part of Maker or
Payee, become a demand note and shall upon written demand made by Payee to Maker
become immediately due and payable.
7. The obligations of Maker hereunder are absolute and unconditional and
payment of the Principal Amount and all interest accrued thereon shall not be
subject to any defense, counterclaim or right of set-off.
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8. Maker represents, warrants, covenants and agrees with Payee as follows:
(a) From and after the date of this Note and until this Note has been
satisfied in full, Maker will furnish to Payee such reports and other
information with respect to Maker, Maker's business and Maker's financial
condition as Payee may from time to time request.
(b) This Note has been duly authorized by all necessary corporate
action on the part of Maker. This Note has been duly executed and delivered by
Maker and constitutes the valid and binding agreement of Maker, enforceable
against Maker in accordance with its terms, except as the enforceability hereof
may be subject to applicable bankruptcy, insolvency, reorganization, or other
similar laws affecting creditors' rights generally and to general principles of
equity.
(c) Neither the execution and delivery by Maker of this Note, nor the
consummation by Maker of the transactions contemplated hereby, nor compliance by
Maker with any of the provisions hereof will (i) violate or conflict with any
provision of the Certificate or Articles of Incorporation or By-laws of the
Maker, (ii) result in a violation of any order, writ, injunction, decree,
judgment, ruling, law, rule, or regulation, of any court or governmental
authority, applicable to Maker, (iii) result in the breach of or otherwise
affect any of the terms, conditions, or provisions of, any note, bond, mortgage,
indenture, deed of trust, license, franchise, permit, contract, agreement, or
other instrument or commitment or obligation of Maker, or (iv) except for
filings that may be made under the securities laws and with NASDAQ, require any
consent, approval, or authorization of, or notice to, or declaration, filing, or
registration with, any governmental or regulatory authority or any other person,
except for such consents, approvals, authorizations, notices, declarations,
filings or registrations which have been obtained, given or made, as the case
may be, and which are unconditional and in full force and effect.
(d) Maker is a corporation duly organized, validly existing, and in
good standing under the laws of the State of Colorado and is qualified to do
business in the jurisdictions where the nature of its business or properties
makes such qualification necessary. Maker has all requisite corporate power and
authority to own, operate, and lease its properties and to carry on its business
as now being conducted.
(e) As of the date hereof, there are issued and outstanding not more
than 40,825,000 shares of Maker's common stock (including as if issued shares
issuable under outstanding warrants, options, convertible debt and other
securities and rights convertible into or exchangeable for Maker's equity
securities) and such shares are the only shares of Maker's equity securities of
any class or series that are issued and outstanding on the date hereof.
(f) Maker is not in default (and no event of default has occurred
which with notice or lapse of time, or both, will result in a default) under any
material agreements, mortgages, deeds of trust, leases, franchises, indentures
or other instruments to which maker is a party or by which either or any of its
properties may be bound. Maker is not in default on any of its material
obligations.
4
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(g) There is no litigation or proceeding pending, or to Maker's
knowledge, threatened against Maker or any of its property, nor any reasonable
grounds for any such litigation, the results of which, if decided adversely,
might materially affect the financial condition, property or business of Maker.
9. The following shall constitute an "Event of Default" within the meaning
of this Note:
(a) Maker shall fail or refuse to make any payment of principal or
interest with respect to this Note when the same shall become due; or
(b) Any of the representations or warranties of Maker made or deemed
to be made in this Note or in any written agreement between Maker and Payee
(including without limitation the Warrants) shall prove to have been false or
misleading in any material respect when so made or deemed to be made; or
(c) Maker shall default in the due observance or performance of any of
the covenants or conditions contained in this Note or in respect of any of its
obligations under the terms of any written agreement between Maker and Payee
(including without limitation the Warrants) and such default shall continue for
10 days following written notice thereof to Maker; or
(d) an event shall occur which constitutes, or, upon the sending of
notice or the passage of time or both, would constitute, a breach or default
with respect to the payment of principal or interest under any other
indebtedness of Maker; or
(e) an event shall occur which constitutes a breach or default (after
any applicable grace periods), other than with respect to the payment of
principal or interest, under any other indebtedness of Maker; or
(f) an event shall occur which constitutes a breach or default (after
any applicable grace periods) under the terms of any agreement or instrument
between Maker and any third party as a result of which Maker is rendered liable
for an amount in excess of $25,000 or giving such third party rights of
acceleration or similar rights (whether or not exercised) with respect to any
indebtedness in an amount of excess of $25,000; or
(g) Maker shall make a general assignment for the benefit of its
creditors, the adjudication in bankruptcy of the Maker, or the filing of a
voluntary petition by the Maker under any of the provisions of the United States
Bankruptcy Code; the filing of any answer or other pleading admitting the
material allegations of any petition filed against the Maker in any bankruptcy ,
insolvency or other such proceeding; the filing of a petition against the Maker
under any of the provisions of any bankruptcy laws of the United States or
similar laws of any jurisdiction and the failure of such petition to be
dismissed within thirty days; or the petition for, or the appointment of, or
possession by, a custodian, receiver, liquidator, assignee, trustee or
sequestrator (or other similar official) of the Maker or any substantial part of
its properties or assets.
5
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10. In the event of the occurrence of an Event of Default described in
paragraphs (a), (b), (c), (d), (e), or (f) of Section 9 hereof, Payee may, by
notice in writing to Maker, declare the principal of this Note and all interest
accrued thereon to be immediately due and payable; and in the event of the
occurrence of an Event of Default described in paragraph (g) of Section 9
hereof, the principal of this Note and all interest accrued thereon shall
automatically become immediately due and payable, in each case without
presentment, demand, protest or any notice of any kind, all of which are hereby
waived.
11. Maker shall pay all out-of-pocket expenses (including reasonable
attorneys' fees and expenses) incurred by Payee in connection with the
enforcement or protection of Payee's rights hereunder and under any documents or
agreements entered into between Maker and Payee in connection herewith,
including without limitation those expenses and fees which may be incurred in
connection with appellate proceedings and/or with the appointment of a receiver
and all appearances in bankruptcy, reorganization, arrangement or similar
insolvency proceedings.
12. This Note shall remain in full force and effect and continue to be
effective should any petition be filed by or against Maker for liquidation or
reorganization, should Maker become insolvent or make an assignment for the
benefit of creditors or should a receiver or trustee be appointed for all or any
significant part of Maker's assets, and shall continue to be effective or be
reinstated, if at any time payment and performance of Maker's obligations
hereunder, or any part thereof, is, pursuant to applicable law, rescinded or
reduced in amount, or must otherwise be restored or returned by any obligee of
Maker's obligations hereunder, whether as a "voidable preference," "fraudulent
conveyance," or otherwise, all as though such payment or performance had not
been made. In the event that any payment, or any part thereof, is rescinded,
reduced, restored or returned, Maker's obligations hereunder shall be reinstated
and deemed reduced only by such amount paid and not so rescinded, reduced,
restored or returned.
13. This note shall in all respects be governed by the laws of the State of
Texas applicable to contracts made and to be performed entirely within such
State. This Note may not be altered or amended, except by a writing duly signed
by the party against whom such alteration or amendment is sought to be enforced.
14. From and after the date of this Note, the outstanding Principal Amount
may be prepaid by Maker, in whole or in part, on written notice given by Maker
to Payee specifying the date of prepayment ("Prepayment Date"), which shall be
not less than three (3) business days following receipt of notice (determined in
accordance with Section 21 hereof). On the Prepayment Date, Maker shall pay to
Payee the Principal Amount to be prepaid plus accrued and unpaid interest
thereon to and including the prepayment Date and Payee shall return this Note to
Maker. In the event of a prepayment hereunder of less than the entire Principal
Amount then outstanding, then promptly upon such partial prepayment, Maker shall
issue and deliver to Payee a new Note, of like tenor hereto, equal in principal
amount to the unpaid Principal Amount of this Note.
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15. Any waiver by Payee of any right or remedy hereunder on any one
occasion shall not be construed as a bar to any right or remedy which Payee
would otherwise have had on any future occasion. No failure to exercise nor any
delay in exercising on the part of Payee, any right, power or privilege
hereunder, shall operate as a waiver thereof, nor shall any single or partial
exercise of any right, power or privilege hereunder preclude any other or future
exercise thereof or the exercise of any other right, power or privilege. The
rights and remedies hereunder provided are cumulative and may be exercised
singly or concurrently, and are not exclusive of any rights and remedies
provided by law. In the event of any litigation with respect to this Note, Maker
hereby waives (to the extent permitted by law) the right to trial by jury.
16. This Note and all obligations of Maker hereunder shall be binding upon
the successors and assigns of Maker, and shall, together with the rights and
remedies of Payee hereunder, inure to the benefit of Payee, and its successors
and assigns.
17. Any provision of this Note which is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or enforceability without invalidating the remaining provisions
hereof, and any such prohibition or unenforceability of such provision in any
jurisdiction shall not affect the validity or enforceability of such provision
in any other jurisdiction.
18. This Note and all obligations of Maker hereunder shall be binding upon
the successors and assigns of Maker, and shall, together with the rights and
remedies of Payee hereunder, inure to the benefit of payee, and its successors
and assigns.
19. Maker hereby agrees that it will execute and deliver to Payee any and
all documents, in addition to those expressly provided for in this Note, all in
form and substance satisfactory to payee in Payee's sole discretion, that may be
reasonably necessary or appropriate to carry out the purposes of this Note and
the transactions contemplated hereby.
20. Maker hereby waives presentment for payment, demand, notice of
dishonor, notice of protest and protest and diligence in taking any action to
collect amounts due hereunder.
21. All notices hereunder shall be sent via Federal Express or similar
overnight courier providing for "next day" delivery, and notices shall be deemed
delivered on the day following deposit with such service. Either party may, by
written notice to the other, change the address to which notices and other
communications should be sent.
CHAPARRAL RESOURCES, INC.
By: /s/ Paul V. Hoovler
---------------------------------
Name: Paul V. Hoovler
Title: President
7
MODIFICATION TO PROMISSORY NOTE
On November 20, 1996, Whittier Ventures LLC ("Payee") made a loan in the
amount of $750,000 to Chaparral Resources, Inc. ("Maker") pursuant to a
Promissory Note dated November 20, 1996.
Paragraph 1(i) of such Promissory Note sets forth provisions whereby the
Principal Amount of the Promissory Note will be payable prior to May 31, 1998.
The Maker and the Payee hereby agree that the figure of the $1,350,000 that
appears in paragraph 1(I) of the Promissory Note be and hereby is changed to
$1,850,000 wherever it appears therein.
Except as provided herein, the Promissory Note shall remain in full force
and effect.
MAKER:
CHAPARRAL RESOURCES, INC.
By: /s/ Paul V. Hoovler
-----------------------------
Name: Paul V. Hoovler
Title: President
PAYEE:
WHITTIER VENTURES LLC
By: /s/ David A. Dahl
----------------------------
David A. Dahl
President
<PAGE>
THIS PROMISSORY NOTE AND THE SECURITIES ISSUED UPON CONVERSION HEREOF, MAY NOT
BE OFFERED FOR SALE, SOLD, OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT FILED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE ACT
WHICH SHALL BE ESTABLISHED TO THE SATISFACTION OF THE MAKER.
PROMISSORY NOTE
November 20, 1996 $750,000.00
South Pasadena, California
FOR VALUE RECEIVED, CHAPARRAL RESOURCES, INC. a Colorado corporation with
offices at 621 Seventeenth Street, Suite 1301, Denver, Colorado 80293 ("Maker"),
DOES HEREBY PROMISE to pay to the order of WHITTIER VENTURES LLC., a Delaware
limited liability company ("Payee"), the principal amount (the "Principal
Amount") of SEVEN HUNDRED FIFTY THOUSAND DOLLARS ($750,000.00), together with
interest thereon at eight percent (8%) per annum, from the date hereof to and
including the day on which the indebtedness evidence by this Promissory Note
(this "Note") is paid in full.
The following additional terms shall govern this Note:
1. The entire Principal Amount of and accrued and unpaid interest on this
Note shall be due and payable on the day (the "Repayment Date") which shall be
the earlier to occur of:
(i) the third business day following the receipt by Maker of net
proceeds of $1,350,000 from (A) the sale or issuance after the date
hereof, by Maker, of Maker's equity or debt securities (including
without limitation any securities convertible into or exchangeable for
Maker's equity securities), whether in one or more public or private
transactions, or (B) any debt financing provided or guaranteed by the
Overseas Private Investment Corporation or other governmental or
quasi-governmental organization or entity, or (C) the sale or farmout
by the Maker of assets held by the Maker which results in cash to the
Maker, or any combination of (A), (B) or (C) above (each, a
"Financing"), provided, that in the event that the net proceeds of any
such Financing are less than $1,350,000, then the amount of principal
and interest that becomes due by operation of this clause (i) shall be
determined by dividing the principal and interest due on this Note by
$1,350,000 and multiplying the result thereof by the amount of such
net proceeds and this clause (i) shall remain in effect with respect
to each subsequent Financing; providing further that Maker shall
immediately upon the happening of such event give Payee written notice
thereof in accordance with the provisions of Section 23 hereof and
that, unless waived by Payee, repayment may be rejected by Payee if it
has not received at least two (2) business day advance notice prior to
said payment; or
<PAGE>
(ii) May 31, 1998.
2. Interest and principal in respect of this Note shall be paid in lawful
currency of the United States, in immediately available funds, at the principal
executive offices of Payee, 1600 Huntington Drive, South Pasadena, California
91030, or at such other place as Payee may designate in a written notice to
Maker.
3. Payee shall have the ability to convert all and not less than all the
interest and principal in respect of this Note into shares of the Maker's common
stock at $0.75 per share or at a 25% discount of the market price of the Maker's
common stock as quoted on NASDAQ, should the last sale price of the Maker's
common stock as quoted on NASDAQ be less than $1.00 per share on the date Payee
elects such conversion. Payee's conversion right shall terminate on the earlier
of the date this Note has been paid in full or on May 31, 1998.
Payee may exercise the conversion right provided in this Section 3 by
giving written notice (the "Conversion Notice") to the Maker of the exercise
right and stating the name or names in which the stock certificate or stock
certificates for the shares of Maker's common stock are to be issued and the
address to which such certificates shall be delivered.
Conversion shall be deemed to have been effected on the date the Conversion
Notice is given (the "Conversion Date"). Within 10 business days after receipt
of the Conversion Notice, the Maker shall issue and deliver by hand against a
signed receipt therefor or by United States registered mail, return receipt
requested, to the address designated by the Payee in the Conversion Notice, a
stock certificate or stock certificates of the Maker representing the number of
shares of common stock to which such Payee is entitled and Payee shall return
this Note to Maker.
Any such conversion shall mean that this Note has been paid in full for all
purposes.
4. All interest hereunder shall be computed on the basis of the actual
number of days elapsed over a year of 360 days and shall be payable monthly in
arrears on the first day of each month beginning January 1, 1997.
5. (a) As additional consideration for the loan evidenced by this Note,
Maker shall issue to Payee warrants (the "Initial Warrants") to purchase for
$0.25 per share, 187,500 shares of Maker's common stock, exercisable at any time
and from time to time not later than November 30, 1999.
(b) In the event that this Note has not been repaid in full (including
principal and accrued interest) on or before May 31, 1997, Maker shall issue to
Payee additional warrants to purchase for $0.25 per share, 75,000 shares of
Maker's common stock (subject to adjustment in the manner provided in subsection
(d) of Section 5), exercisable at any time and from time to time not later than
May 31, 2000.
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<PAGE>
(c) In the event that this Note has not been repaid in full (including
principal and accrued interest) on or before November 30, 1997, Maker shall
issue to Payee additional warrants to purchase for $0.25 per share, 150,000
shares of Maker's common stock (subject to adjustment in the manner provided in
subsection (d) of Section 5), exercisable at any time and from time to time not
later than November 30, 2000.
(d) The warrants issuable to Payee pursuant to this Section 5 (the
"Warrants") shall be on such other terms and in such form (including
representations, warranties and covenants) as shall be mutually agreeable to
Payee and Maker. Without limiting the generality of the foregoing, the terms of
such Warrants shall include (i) economic dilution provisions such that in the
event that any shares of Maker's common stock, or securities exchangeable for or
convertible into common stock, are issued for a price of less than $0.25 per
share, the exercise price of the Warrants shall be proportionately decreased and
the number of shares issuable under such Warrants shall be increased accordingly
and also provisions for adjustment for stock splits, stock dividends, reverse
stock splits and similar changes; and (ii) registration rights permitting Payee
(or its assigns) to participate in any future registrations of Maker's common
stock ("piggyback" registration rights) and permitting Payee (or its assigns)
not less than one demand registration. With respect to such registration rights,
it is understood and agreed that in the event that not later than November 30,
1997, Maker completes a private offering of its equity securities in which Maker
raises gross proceeds of not less than $1,000,000 and in which the purchasers
are granted registration rights, Payee's registration rights with respect to
shares issuable under the Warrants shall be substantially the same as the most
favorable rights granted to purchasers in the private placement rather than the
registration rights set forth above; provided, however, that the exercise of
Payee's registration rights shall not be subject to any requirement that any
other holders of registration rights join Payee in any request to participate in
or to demand a registration, and any participation in or demand for a
registration by any other holder of registration rights shall not affect Payee's
right to participate in or demand a registration on any future occasion.
6. Effective immediately, Payee and Whittier Energy Company acting jointly
shall have the right to be represented by a director, who shall be designated by
them and elected to Maker's Board of Directors. Subject to receiving the
requisite vote of Maker's shareholders pursuant to Colorado law, Maker shall
cause said designee to be nominated, elected and removed, as the case may be, in
accordance with the instructions of Payee and Whittier Energy Company.
Initially, James A. Jeffs shall serve as such designee. Upon his resignation
(which is contemplated to occur in the near future), Arlo G. Sorensen will serve
as designee.
Effective on the first to occur of January 31, 1997 and the date on which
the size of Maker's Board of Directors is increased, and thereafter for so long
as (i) any principal, accrued interest or fees remain unpaid under this Note or
(ii) Payee and/or Whittier Energy Company holds any other investment interest in
Maker, Payee and Whittier Energy Company acting jointly shall have the right to
be represented by two directors, who shall be designated by them and elected to
Maker's Board of Directors. Subject to receiving the requisite vote of Maker's
shareholders pursuant to Colorado law, Maker shall cause said designees to be
nominated, elected and removed, as the case may be, in accordance with the
instructions of Payee and Whittier Energy Company.
3
<PAGE>
7. In the event that either the Warrants to be issued to Payee pursuant to
Section 5 hereof are not issued (i) in the case of the Initial Warrants, not
later than January 31, 1997, and (ii) in the case of the remaining Warrants, not
later than thirty (30) days following the respective dates set forth in such
Section 5 as the dates on which such Warrants are to be issued, and in each case
on such terms and in such form as may be acceptable to Payee and Maker, then
notwithstanding the provisions of Section 1 hereof, this Note shall
automatically and without any further notice or action on the part of Maker or
Payee, become a demand note and shall upon written demand made by Payee to Maker
become immediately due and payable.
8. The obligations of Maker hereunder are absolute and unconditional and
payment of the Principal Amount and all interest accrued thereon shall not be
subject to any defense, counterclaim or right of set-off.
9. Maker represents, warrants, covenants and agrees with Payee as follows:
(a) From and after the date of this Note and until this Note has been
satisfied in full, Maker will furnish to Payee such reports and other
information with respect to Maker, Maker's business and Maker's financial
condition as Payee may from time to time request.
(b) This Note has been duly authorized by all necessary corporate
action on the part of Maker. This Note has been duly executed and delivered by
Maker and constitutes the valid and binding agreement of Maker, enforceable
against Maker in accordance with its terms, except as the enforceability hereof
may be subject to applicable bankruptcy, insolvency, reorganization, or other
similar laws affecting creditors' rights generally and to general principles of
equity.
(c) Neither the execution and delivery by Maker of this Note, nor the
consummation by Maker of the transactions contemplated hereby, nor compliance by
Maker with any of the provisions hereof will (i) violate or conflict with any
provision of the Certificate or Articles of Incorporation or By-laws of the
Maker, (ii) result in a violation of any order, writ, injunction, decree,
judgment, ruling, law, rule, or regulation, of any court or governmental
authority, applicable to Maker, (iii) result in the breach of or otherwise
affect any of the terms, conditions, or provisions of, any note, bond, mortgage,
indenture, deed of trust, license, franchise, permit, contract, agreement, or
other instrument or commitment or obligation of Maker, or (iv) except for
filings that may be made under the securities laws and with NASDAQ, require any
consent, approval, or authorization of, or notice to, or declaration, filing, or
registration with, any governmental or regulatory authority or any other person,
except for such consents, approvals, authorizations, notices, declarations,
filings or registrations which have been obtained, given or made, as the case
may be, and which are unconditional and in full force and effect.
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<PAGE>
(d) Maker is a corporation duly organized, validly existing, and in
good standing under the laws of the State of Colorado and is qualified to do
business in the jurisdictions where the nature of its business or properties
makes such qualification necessary. Maker has all requisite corporate power and
authority to own, operate, and lease its properties and to carry on its business
as now being conducted.
(e) As of the date hereof, there are issued and outstanding not more
than 40,825,000 shares of Maker's common stock (including as if issued shares
issuable under outstanding warrants, options, convertible debt and other
securities and rights convertible into or exchangeable for Maker's equity
securities) and such shares are the only shares of Maker's equity securities of
any class or series that are issued and outstanding on the date hereof.
(f) Maker is not in default (and no event of default has occurred
which with notice or lapse of time, or both, will result in a default) under any
material agreements, mortgages, deeds of trust, leases, franchises, indentures
or other instruments to which maker is a party or by which either or any of its
properties may be bound. Maker is not in default on any of its material
obligations.
(g) There is no litigation or proceeding pending, or to Maker's
knowledge, threatened against Maker or any of its property, nor any reasonable
grounds for any such litigation, the results of which, if decided adversely,
might materially affect the financial condition, property or business of Maker.
10. The following shall constitute an "Event of Default" within the meaning
of this Note:
(a) Maker shall fail or refuse to make any payment of principal or
interest with respect to this Note when the same shall become due; or
(b) Any of the representations or warranties of Maker made or deemed
to be made in this Note or in any written agreement between Maker and Payee
(including without limitation the Warrants) shall prove to have been false or
misleading in any material respect when so made or deemed to be made; or
(c) Maker shall default in the due observance or performance of any of
the covenants or conditions contained in this Note or in respect of any of its
obligations under the terms of any written agreement between Maker and Payee
(including without limitation the Warrants) and such default shall continue for
10 days following written notice thereof to Maker; or
(d) an event shall occur which constitutes, or, upon the sending of
notice or the passage of time or both, would constitute, a breach or default
with respect to the payment of principal or interest under any other
indebtedness of Maker; or
(e) an event shall occur which constitutes a breach or default (after
any applicable grace periods), other than with respect to the payment of
principal or interest, under any other indebtedness of Maker; or
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<PAGE>
(f) an event shall occur which constitutes a breach or default (after
any applicable grace periods) under the terms of any agreement or instrument
between Maker and any third party as a result of which Maker is rendered liable
for an amount in excess of $25,000 or giving such third party rights of
acceleration or similar rights (whether or not exercised) with respect to any
indebtedness in an amount of excess of $25,000; or
(g) Maker shall make a general assignment for the benefit of its
creditors, the adjudication in bankruptcy of the Maker, or the filing of a
voluntary petition by the Maker under any of the provisions of the United States
Bankruptcy Code; the filing of any answer or other pleading admitting the
material allegations of any petition filed against the Maker in any bankruptcy ,
insolvency or other such proceeding; the filing of a petition against the Maker
under any of the provisions of any bankruptcy laws of the United States or
similar laws of any jurisdiction and the failure of such petition to be
dismissed within thirty days; or the petition for, or the appointment of, or
possession by, a custodian, receiver, liquidator, assignee, trustee or
sequestrator (or other similar official) of the Maker or any substantial part of
its properties or assets.
11. In the event of the occurrence of an Event of Default described in
paragraphs (a), (b), (c), (d), (e), or (f) of Section 10 hereof, Payee may, by
notice in writing to Maker, declare the principal of this Note and all interest
accrued thereon to be immediately due and payable; and in the event of the
occurrence of an Event of Default described in paragraph (g) of Section 10
hereof, the principal of this Note and all interest accrued thereon shall
automatically become immediately due and payable, in each case without
presentment, demand, protest or any notice of any kind, all of which are hereby
waived.
12. In the event that any payment hereunder shall not be made within
fifteen (15) days of the date due, the interest rate hereunder shall increase to
the maximum rate permitted under California law (i.e., the greater of ten
percent (10%) per annum or the rate which is five percent (5%) in excess of the
then applicable federal discount rate). Interest not paid within fifteen (15)
days of the date due shall bear interest from the date due as said rate.
13. Maker shall pay all out-of-pocket expenses (including reasonable
attorneys' fees and expenses) incurred by Payee in connection with the
enforcement or protection of Payee's rights hereunder and under any documents or
agreements entered into between Maker and Payee in connection herewith,
including without limitation those expenses and fees which may be incurred in
connection with appellate proceedings and/or with the appointment of a receiver
and all appearances in bankruptcy, reorganization, arrangement or similar
insolvency proceedings.
14. This Note shall remain in full force and effect and continue to be
effective should any petition be filed by or against Maker for liquidation or
reorganization, should Maker become insolvent or make an assignment for the
benefit of creditors or should a receiver or trustee be appointed for all or any
significant part of Maker's assets, and shall continue to be effective or be
reinstated, if at any time payment and performance of Maker's obligations
hereunder, or any part thereof, is, pursuant to applicable law, rescinded or
reduced in amount, or must otherwise be restored or returned by any obligee of
Maker's obligations hereunder, whether as a "voidable preference," "fraudulent
conveyance," or otherwise, all as though such payment or performance had not
been made. In the event that any payment, or any part thereof, is rescinded,
reduced, restored or returned, Maker's obligations hereunder shall be reinstated
and deemed reduced only by such amount paid and not so rescinded, reduced,
restored or returned.
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<PAGE>
15. This note shall in all respects be governed by the laws of the State of
California applicable to contracts made and to be performed entirely within such
State. This Note may not be altered or amended, except by a writing duly signed
by the party against whom such alteration or amendment is sought to be enforced.
16. From and after the date of this Note, the outstanding Principal Amount
may be prepaid by Maker, in whole or in part, on written notice given by Maker
to Payee specifying the date of prepayment ("Prepayment Date"), which shall be
not less than three (3) business days following receipt of notice (determined in
accordance with Section 23 hereof). On the Prepayment Date, Maker shall pay to
Payee the Principal Amount to be prepaid plus accrued and unpaid interest
thereon to and including the prepayment Date and Payee shall return this Note to
Maker. In the event of a prepayment hereunder of less than the entire Principal
Amount then outstanding, then promptly upon such partial prepayment, Maker shall
issue and deliver to Payee a new Note, of like tenor hereto, equal in principal
amount to the unpaid Principal Amount of this Note.
17. Any waiver by Payee of any right or remedy hereunder on any one
occasion shall not be construed as a bar to any right or remedy which Payee
would otherwise have had on any future occasion. No failure to exercise nor any
delay in exercising on the part of Payee, any right, power or privilege
hereunder, shall operate as a waiver thereof, nor shall any single or partial
exercise of any right, power or privilege hereunder preclude any other or future
exercise thereof or the exercise of any other right, power or privilege. The
rights and remedies hereunder provided are cumulative and may be exercised
singly or concurrently, and are not exclusive of any rights and remedies
provided by law. In the event of any litigation with respect to this Note, Maker
hereby waives (to the extent permitted by law) the right to trial by jury.
18. This Note and all obligations of Maker hereunder shall be binding upon
the successors and assigns of Maker, and shall, together with the rights and
remedies of Payee hereunder, inure to the benefit of Payee, and its successors
and assigns.
19. Any provision of this Note which is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or enforceability without invalidating the remaining provisions
hereof, and any such prohibition or unenforceability of such provision in any
jurisdiction shall not affect the validity or enforceability of such provision
in any other jurisdiction.
20. This Note and all obligations of Maker hereunder shall be binding upon
the successors and assigns of Maker, and shall, together with the rights and
remedies of Payee hereunder, inure to the benefit of payee, and its successors
and assigns.
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<PAGE>
21. Maker hereby agrees that it will execute and deliver to Payee any and
all documents, in addition to those expressly provided for in this Note, all in
form and substance satisfactory to payee in Payee's sole discretion, that may be
reasonably necessary or appropriate to carry out the purposes of this Note and
the transactions contemplated hereby.
22. Maker hereby waives presentment for payment, demand, notice of
dishonor, notice of protest and protest and diligence in taking any action to
collect amounts due hereunder.
23. All notices hereunder shall be sent via Federal Express or similar
overnight courier providing for "next day" delivery, and notices shall be deemed
delivered on the day following deposit with such service. Either party may, by
written notice to the other, change the address to which notices and other
communications should be sent.
CHAPARRAL RESOURCES, INC.
By: /s/ Paul V. Hoovler
------------------------------
Name: Paul V. Hoovler
Title: President
MODIFICATION TO PROMISSORY NOTE
On November 20, 1996, Whittier Energy Company ("Payee") made a loan in the
amount of $250,000 to Chaparral Resources, Inc. ("Maker") pursuant to a
Promissory Note dated November 20, 1996.
Paragraph 1(i) of such Promissory Note sets forth provisions whereby the
Principal Amount of the Promissory Note will be payable prior to May 31, 1998.
The Maker and the Payee hereby agree that the figure of the $1,350,000 that
appears in paragraph 1(I) of the Promissory Note be and hereby is changed to
$1,850,000 wherever it appears therein.
Except as provided herein, the Promissory Note shall remain in full force
and effect.
MAKER:
CHAPARRAL RESOURCES, INC.
By: /s/ Paul V. Hoovler
-----------------------------
Name: Paul V. Hoovler
Title: President
PAYEE:
WHITTIER ENERGY COMPANY
By: /s/ Arlo Sorensen
----------------------------
Arlo Sorensen
President
<PAGE>
THIS PROMISSORY NOTE AND THE SECURITIES ISSUED UPON CONVERSION HEREOF, MAY NOT
BE OFFERED FOR SALE, SOLD, OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT FILED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE ACT
WHICH SHALL BE ESTABLISHED TO THE SATISFACTION OF THE MAKER.
PROMISSORY NOTE
November 20, 1996 $250,000.00
South Pasadena, California
FOR VALUE RECEIVED, CHAPARRAL RESOURCES, INC. a Colorado corporation with
offices at 621 Seventeenth Street, Suite 1301, Denver, Colorado 80293 ("Maker"),
DOES HEREBY PROMISE to pay to the order of. WHITTIER ENERGY COMPANY, a Nevada
corporation ("Payee"), the principal amount (the "Principal Amount") of TWO
HUNDRED FIFTY THOUSAND ($250,000.00), together with interest thereon at eight
percent (8%) per annum, from the date hereof to and including the day on which
the indebtedness evidence by this Promissory Note (this "Note") is paid in full.
The following additional terms shall govern this Note:
1. The entire Principal Amount of and accrued and unpaid interest on this
Note shall be due and payable on the day (the "Repayment Date") which shall be
the earlier to occur of:
(i) the third business day following the receipt by Maker of net
proceeds of $1,350,000 from (A) the sale or issuance after the date
hereof, by Maker, of Maker's equity or debt securities (including
without limitation any securities convertible into or exchangeable for
Maker's equity securities), whether in one or more public or private
transactions, or (B) any debt financing provided or guaranteed by the
Overseas Private Investment Corporation or other governmental or
quasi-governmental organization or entity, or (C) the sale or farmout
by the Maker of assets held by the Maker which results in cash to the
Maker, or any combination of (A), (B) or (C) above (each, a
"Financing"), provided, that in the event that the net proceeds of any
such Financing are less than $1,350,000, then the amount of principal
and interest that becomes due by operation of this clause (i) shall be
determined by dividing the principal and interest due on this Note by
$1,350,000 and multiplying the result thereof by the amount of such
net proceeds and this clause (i) shall remain in effect with respect
to each subsequent Financing; providing further that Maker shall
immediately upon the happening of such event give payee written notice
thereof in accordance with the provisions of Section 23 hereof and
that, unless waived by Payee, repayment may be rejected by Payee if it
has not received at least two (2) business day advance notice prior to
said payment; or
<PAGE>
(ii) May 31, 1998.
2. Interest and principal in respect of this Note shall be paid in lawful
currency of the United States, in immediately available funds, at the principal
executive offices of Payee, 1600 Huntington Drive, South Pasadena, California
91030, or at such other place as Payee may designate in a written notice to
Maker.
3. Payee shall have the ability to convert all and not less than all the
interest and principal in respect of this Note into shares of the Maker's common
stock at $0.75 per share or at a 25% discount of the market price of the Maker's
common stock as quoted on NASDAQ, should the last sale price of the Maker's
common stock as quoted on NASDAQ be less than $1.00 per share on the date Payee
elects such conversion. Payee's conversion right shall terminate on the earlier
of the date this Note has been paid in full or May 31, 1998.
Payee may exercise the conversion right provided in this Section 3 by
giving written notice (the "Conversion Notice") to the Maker of the exercise
right and stating the name or names in which the stock certificate or stock
certificates for the shares of Maker's common stock are to be issued and the
address to which such certificates shall be delivered.
Conversion shall be deemed to have been effected on the date the Conversion
Notice is given (the "Conversion Date"). Within 10 business days after receipt
of the Conversion Notice, the Maker shall issue and deliver by hand against a
signed receipt therefor or by United States registered mail, return receipt
requested, to the address designated by the Payee in the Conversion Notice, a
stock certificate or stock certificates of the Maker representing the number of
shares of common stock to which such Payee is entitled and Payee shall return
this Note to Maker.
Any such conversion shall mean that this Note has been paid in full for all
purposes.
4. All interest hereunder shall be computed on the basis of the actual
number of days elapsed over a year of 360 days and shall be payable monthly in
arrears on the first day of each month beginning January 1, 1997.
5. (a) As additional consideration for the loan evidenced by this Note,
Maker shall issue to Payee warrants (the "Initial Warrants") to purchase for
$0.25 per share, 62,500 shares of Maker's common stock, exercisable at any time
and from time to time not later than November 30, 1999.
(b) In the event that this Note has not been repaid in full (including
principal and accrued interest) on or before May 31, 1997, Maker shall issue to
Payee additional warrants to purchase for $0.25 per share, 25,000 shares of
Maker's common stock (subject to adjustment in the manner provided in subsection
(d) of Section 5), exercisable at any time and from time to time not later than
May 31, 2000.
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<PAGE>
(c) In the event that this Note has not been repaid in full (including
principal and accrued interest) on or before November 30, 1997, Maker shall
issue to Payee additional warrants to purchase for $0.25 per share, 50,000
shares of Maker's common stock (subject to adjustment in the manner provided in
subsection (d) of Section 5), exercisable at any time and from time to time not
later than November 30, 2000.
(d) The warrants issuable to Payee pursuant to this Section 5 (the
"Warrants") shall be on such other terms and in such form (including
representations, warranties and covenants) as shall be mutually agreeable to
Payee and Maker. Without limiting the generality of the foregoing, the terms of
such Warrants shall include (i) economic dilution provisions such that in the
event that any shares of Maker's common stock, or securities exchangeable for or
convertible into common stock, are issued for a price of less than $0.25 per
share, the exercise price of the Warrants shall be proportionately decreased and
the number of shares issuable under such Warrants shall be increased accordingly
and also provisions for adjustment for stock splits, stock dividends, reverse
stock splits and similar changes; and (ii) registration rights permitting Payee
(or its assigns) to participate in any future registrations of Maker's common
stock ("piggyback" registration rights) and permitting Payee (or its assigns)
not less than one demand registration. With respect to such registration rights,
it is understood and agreed that in the event that not later than November 30,
1997, Maker completes a private offering of its equity securities in which Maker
raises gross proceeds of not less than $1,000,000 and in which the purchasers
are granted registration rights, Payee's registration rights with respect to
shares issuable under the Warrants shall be substantially the same as the most
favorable rights granted to purchasers in the private placement rather than the
registration rights set forth above; provided, however, that the exercise of
Payee's registration rights shall not be subject to any requirement that any
other holders of registration rights join Payee in any request to participate in
or to demand a registration, and any participation in or demand for a
registration by any other holder of registration rights shall not affect Payee's
right to participate in or demand a registration on any future occasion.
6. Effective immediately, Payee and Whittier Ventures LLC acting jointly
shall have the right to be represented by a director, who shall be designated by
them and elected to Maker's Board of Directors. Subject to receiving the
requisite vote of Maker's shareholders pursuant to Colorado law, Maker shall
cause said designee to be nominated, elected and removed, as the case may be, in
accordance with the instructions of Payee and Whittier Ventures LLC. Initially,
James A. Jeffs shall serve as such designee. Upon his resignation (which is
contemplated to occur in the near future), Arlo G. Sorensen will serve as
designee.
Effective on the first to occur of January 31, 1997 and the date on which
the size of Maker's Board of Directors is increased, and thereafter for so long
as (i) any principal, accrued interest or fees remain unpaid under this Note or
(ii) Payee and/or Whittier Ventures LLC holds any other investment interest in
Maker, Payee and Whittier Energy Company acting jointly shall have the right to
be represented by two directors, who shall be designated by them and elected to
Maker's Board of Directors. Subject to receiving the requisite vote of Maker's
shareholders pursuant to Colorado law, Maker shall cause said designees to be
nominated, elected and removed, as the case may be, in accordance with the
instructions of Payee and Whittier Ventures LLC.
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<PAGE>
7. In the event that either the Warrants to be issued to Payee pursuant to
Section 5 hereof are not issued (i) in the case of the Initial Warrants, not
later than January 31, 1997, and (ii) in the case of the remaining Warrants, not
later than thirty (30) days following the respective dates set forth in such
Section 5 as the dates on which such Warrants are to be issued, and in each case
on such terms and in such form as may be acceptable to Payee and Maker, then
notwithstanding the provisions of Section 1 hereof, this Note shall
automatically and without any further notice or action on the part of Maker or
Payee, become a demand note and shall upon written demand made by Payee to Maker
become immediately due and payable.
8. The obligations of Maker hereunder are absolute and unconditional and
payment of the Principal Amount and all interest accrued thereon shall not be
subject to any defense, counterclaim or right of set-off.
9. Maker represents, warrants, covenants and agrees with Payee as follows:
(a) From and after the date of this Note and until this Note has been
satisfied in full, Maker will furnish to Payee such reports and other
information with respect to Maker, Maker's business and Maker's financial
condition as Payee may from time to time request.
(b) This Note has been duly authorized by all necessary corporate
action on the part of Maker. This Note has been duly executed and delivered by
Maker and constitutes the valid and binding agreement of Maker, enforceable
against Maker in accordance with its terms, except as the enforceability hereof
may be subject to applicable bankruptcy, insolvency, reorganization, or other
similar laws affecting creditors' rights generally and to general principles of
equity.
(c) Neither the execution and delivery by Maker of this Note, nor the
consummation by Maker of the transactions contemplated hereby, nor compliance by
Maker with any of the provisions hereof will (i) violate or conflict with any
provision of the Certificate or Articles of Incorporation or By-laws of the
Maker, (ii) result in a violation of any order, writ, injunction, decree,
judgment, ruling, law, rule, or regulation, of any court or governmental
authority, applicable to Maker, (iii) result in the breach of or otherwise
affect any of the terms, conditions, or provisions of, any note, bond, mortgage,
indenture, deed of trust, license, franchise, permit, contract, agreement, or
other instrument or commitment or obligation of Maker, or (iv) except for
filings that may be made under the securities laws and with NASDAQ, require any
consent, approval, or authorization of, or notice to, or declaration, filing, or
registration with, any governmental or regulatory authority or any other person,
except for such consents, approvals, authorizations, notices, declarations,
filings or registrations which have been obtained, given or made, as the case
may be, and which are unconditional and in full force and effect.
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<PAGE>
(d) Maker is a corporation duly organized, validly existing, and in
good standing under the laws of the State of Colorado and is qualified to do
business in the jurisdictions where the nature of its business or properties
makes such qualification necessary. Maker has all requisite corporate power and
authority to own, operate, and lease its properties and to carry on its business
as now being conducted.
(e) As of the date hereof, there are issued and outstanding not more
than 40,825,000 shares of Maker's common stock (including as if issued shares
issuable under outstanding warrants, options, convertible debt and other
securities and rights convertible into or exchangeable for Maker's equity
securities) and such shares are the only shares of Maker's equity securities of
any class or series that are issued and outstanding on the date hereof.
(f) Maker is not in default (and no event of default has occurred
which with notice or lapse of time, or both, will result in a default) under any
material agreements, mortgages, deeds of trust, leases, franchises, indentures
or other instruments to which maker is a party or by which either or any of its
properties may be bound. Maker is not in default on any of its material
obligations.
(g) There is no litigation or proceeding pending, or to Maker's
knowledge, threatened against Maker or any of its property, nor any reasonable
grounds for any such litigation, the results of which, if decided adversely,
might materially affect the financial condition, property or business of Maker.
10. The following shall constitute an "Event of Default" within the meaning
of this Note:
(a) Maker shall fail or refuse to make any payment of principal or
interest with respect to this Note when the same shall become due; or
(b) Any of the representations or warranties of Maker made or deemed
to be made in this Note or in any written agreement between Maker and Payee
(including without limitation the Warrants) shall prove to have been false or
misleading in any material respect when so made or deemed to be made; or
(c) Maker shall default in the due observance or performance of any of
the covenants or conditions contained in this Note or in respect of any of its
obligations under the terms of any written agreement between Maker and Payee
(including without limitation the Warrants) and such default shall continue for
10 days following written notice thereof to Maker; or
(d) an event shall occur which constitutes, or, upon the sending of
notice or the passage of time or both, would constitute, a breach or default
with respect to the payment of principal or interest under any other
indebtedness of Maker; or
5
<PAGE>
(e) an event shall occur which constitutes a breach or default (after
any applicable grace periods), other than with respect to the payment of
principal or interest, under any other indebtedness of Maker; or
(f) an event shall occur which constitutes a breach or default (after
any applicable grace periods) under the terms of any agreement or instrument
between Maker and any third party as a result of which Maker is rendered liable
for an amount in excess of $25,000 or giving such third party rights of
acceleration or similar rights (whether or not exercised) with respect to any
indebtedness in an amount of excess of $25,000; or
(g) Maker shall make a general assignment for the benefit of its
creditors, the adjudication in bankruptcy of the Maker, or the filing of a
voluntary petition by the Maker under any of the provisions of the United States
Bankruptcy Code; the filing of any answer or other pleading admitting the
material allegations of any petition filed against the Maker in any bankruptcy ,
insolvency or other such proceeding; the filing of a petition against the Maker
under any of the provisions of any bankruptcy laws of the United States or
similar laws of any jurisdiction and the failure of such petition to be
dismissed within thirty days; or the petition for, or the appointment of, or
possession by, a custodian, receiver, liquidator, assignee, trustee or
sequestrator (or other similar official) of the Maker or any substantial part of
its properties or assets.
11. In the event of the occurrence of an Event of Default described in
paragraphs (a), (b), (c), (d), (e), or (f) of Section 10 hereof, Payee may, by
notice in writing to Maker, declare the principal of this Note and all interest
accrued thereon to be immediately due and payable; and in the event of the
occurrence of an Event of Default described in paragraph (g) of Section 10
hereof, the principal of this Note and all interest accrued thereon shall
automatically become immediately due and payable, in each case without
presentment, demand, protest or any notice of any kind, all of which are hereby
waived.
12. In the event that any payment hereunder shall not be made within
fifteen (15) days of the date due, the interest rate hereunder shall increase to
the maximum rate permitted under California law (i.e., the greater of ten
percent (10%) per annum or the rate which is five percent (5%) in excess of the
then applicable federal discount rate). Interest not paid within fifteen (15)
days of the date due shall bear interest from the date due as said rate.
13. Maker shall pay all out-of-pocket expenses (including reasonable
attorneys' fees and expenses) incurred by Payee in connection with the
enforcement or protection of Payee's rights hereunder and under any documents or
agreements entered into between Maker and Payee in connection herewith,
including without limitation those expenses and fees which may be incurred in
connection with appellate proceedings and/or with the appointment of a receiver
and all appearances in bankruptcy, reorganization, arrangement or similar
insolvency proceedings.
6
<PAGE>
14. This Note shall remain in full force and effect and continue to be
effective should any petition be filed by or against Maker for liquidation or
reorganization, should Maker become insolvent or make an assignment for the
benefit of creditors or should a receiver or trustee be appointed for all or any
significant part of Maker's assets, and shall continue to be effective or be
reinstated, if at any time payment and performance of Maker's obligations
hereunder, or any part thereof, is, pursuant to applicable law, rescinded or
reduced in amount, or must otherwise be restored or returned by any obligee of
Maker's obligations hereunder, whether as a "voidable preference," "fraudulent
conveyance," or otherwise, all as though such payment or performance had not
been made. In the event that any payment, or any part thereof, is rescinded,
reduced, restored or returned, Maker's obligations hereunder shall be reinstated
and deemed reduced only by such amount paid and not so rescinded, reduced,
restored or returned.
15. This note shall in all respects be governed by the laws of the State of
California applicable to contracts made and to be performed entirely within such
State. This Note may not be altered or amended, except by a writing duly signed
by the party against whom such alteration or amendment is sought to be enforced.
16. From and after the date of this Note, the outstanding Principal Amount
may be prepaid by Maker, in whole or in part, on written notice given by Maker
to Payee specifying the date of prepayment ("Prepayment Date"), which shall be
not less than three (3) business days following receipt of notice (determined in
accordance with Section 23 hereof). On the Prepayment Date, Maker shall pay to
Payee the Principal Amount to be prepaid plus accrued and unpaid interest
thereon to and including the prepayment Date and Payee shall return this Note to
Maker. In the event of a prepayment hereunder of less than the entire Principal
Amount then outstanding, then promptly upon such partial prepayment, Maker shall
issue and deliver to Payee a new Note, of like tenor hereto, equal in principal
amount to the unpaid Principal Amount of this Note.
17. Any waiver by Payee of any right or remedy hereunder on any one
occasion shall not be construed as a bar to any right or remedy which Payee
would otherwise have had on any future occasion. No failure to exercise nor any
delay in exercising on the part of Payee, any right, power or privilege
hereunder, shall operate as a waiver thereof, nor shall any single or partial
exercise of any right, power or privilege hereunder preclude any other or future
exercise thereof or the exercise of any other right, power or privilege. The
rights and remedies hereunder provided are cumulative and may be exercised
singly or concurrently, and are not exclusive of any rights and remedies
provided by law. In the event of any litigation with respect to this Note, Maker
hereby waives (to the extent permitted by law) the right to trial by jury.
18. This Note and all obligations of Maker hereunder shall be binding upon
the successors and assigns of Maker, and shall, together with the rights and
remedies of Payee hereunder, inure to the benefit of Payee, and its successors
and assigns.
19. Any provision of this Note which is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or enforceability without invalidating the remaining provisions
hereof, and any such prohibition or unenforceability of such provision in any
jurisdiction shall not affect the validity or enforceability of such provision
in any other jurisdiction.
7
<PAGE>
20. This Note and all obligations of Maker hereunder shall be binding upon
the successors and assigns of Maker, and shall, together with the rights and
remedies of Payee hereunder, inure to the benefit of payee, and its successors
and assigns.
21. Maker hereby agrees that it will execute and deliver to Payee any and
all documents, in addition to those expressly provided for in this Note, all in
form and substance satisfactory to payee in Payee's sole discretion, that may be
reasonably necessary or appropriate to carry out the purposes of this Note and
the transactions contemplated hereby.
22. Maker hereby waives presentment for payment, demand, notice of
dishonor, notice of protest and protest and diligence in taking any action to
collect amounts due hereunder.
23. All notices hereunder shall be sent via Federal Express or similar
overnight courier providing for "next day" delivery, and notices shall be deemed
delivered on the day following deposit with such service. Either party may, by
written notice to the other, change the address to which notices and other
communications should be sent.
CHAPARRAL RESOURCES, INC.
By: /s/ Paul V. Hoovler
-------------------------------
Name: Paul V. Hoovler
Title: President
MODIFICATION TO PROMISSORY NOTE
On November 25, 1996, Black Diamond Partners LP ("Payee") made a loan in
the amount of $150,000 to Chaparral Resources, Inc. ("Maker") pursuant to a
Promissory Note dated November 25, 1996.
Paragraph 1(i) of such Promissory Note sets forth provisions whereby the
Principal Amount of the Promissory Note will be payable prior to May 31, 1998.
The Maker and the Payee hereby agree that the figure of the $1,350,000 that
appears in paragraph 1(I) of the Promissory Note be and hereby is changed to
$1,850,000 wherever it appears therein.
Except as provided herein, the Promissory Note shall remain in full force
and effect.
MAKER:
CHAPARRAL RESOURCES, INC.
By: /s/ Paul V. Hoovler
-----------------------------
Name: Paul V. Hoovler
Title: President
PAYEE:
BLACK DIAMOND PARTNERS LP
By: /s/ Clint D. Carlson
----------------------------
Clint D. Carlson
<PAGE>
THIS PROMISSORY NOTE AND THE SECURITIES ISSUED UPON CONVERSION HEREOF, MAY NOT
BE OFFERED FOR SALE, SOLD, OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT FILED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE ACT
WHICH SHALL BE ESTABLISHED TO THE SATISFACTION OF THE MAKER.
PROMISSORY NOTE
November 25, 1996 $150,000.00
Ft. Worth, Texas
FOR VALUE RECEIVED, CHAPARRAL RESOURCES, INC. a Colorado corporation with
offices at 621 Seventeenth Street, Suite 1301, Denver, Colorado 80293 ("Maker"),
DOES HEREBY PROMISE to pay to the order of BLACK DIAMOND PARTNERS LP, a Texas
limited partnership ("Payee"), the principal amount (the "Principal Amount") of
ONE HUNDRED FIFTY THOUSAND DOLLARS ($150,000.00), together with interest thereon
at eight percent (8%) per annum, from the date hereof to and including the day
on which the indebtedness evidence by this Promissory Note (this "Note") is paid
in full.
The following additional terms shall govern this Note:
1. The entire Principal Amount of and accrued and unpaid interest on this
Note shall be due and payable on the day (the "Repayment Date") which shall be
the earlier to occur of:
(i) the third business day following the receipt by Maker of net
proceeds of $1,350,000 from (A) the sale or issuance after the date
hereof, by Maker, of Maker's equity or debt securities (including
without limitation any securities convertible into or exchangeable for
Maker's equity securities), whether in one or more public or private
transactions, or (B) any debt financing provided or guaranteed by the
Overseas Private Investment Corporation or other governmental or
quasi-governmental organization or entity, or (C) the sale or farmout
by the Maker of assets held by the Maker which results in cash to the
Maker, or any combination of (A), (B) or (C) above (each, a
"Financing"), provided, that in the event that the net proceeds of any
such Financing are less than $1,350,000, then the amount of principal
and interest that becomes due by operation of this clause (i) shall be
determined by dividing the principal and interest due on this Note by
$1,350,000 and multiplying the result thereof by the amount of such
net proceeds and this clause (i) shall remain in effect with respect
to each subsequent Financing; providing further that Maker shall
immediately upon the happening of such event give Payee written notice
thereof in accordance with the provisions of Section 21 hereof and
that, unless waived by Payee, repayment may be rejected by Payee if it
has not received at least two (2) business day advance notice prior to
said payment; or
<PAGE>
(ii) May 31, 1998.
2. Interest and principal in respect of this Note shall be paid in lawful
currency of the United States, in immediately available funds, at the principal
executive offices of Payee, c/o Carlson Capital LP, 301 Commerce Street, Suite
3300, Ft. Worth, Texas 76102, or at such other place as Payee may designate in a
written notice to Maker.
3. Payee shall have the ability to convert all and not less than all the
interest and principal in respect of this Note into shares of the Maker's common
stock at $0.75 per share or at a 25% discount of the market price of the Maker's
common stock as quoted on NASDAQ, should the last sale price of the Maker's
common stock as quoted on NASDAQ be less than $1.00 per share on the date Payee
elects such conversion. Payee's conversion shall terminate on the earlier of the
date this Note has been paid in full or on May 31, 1998.
Payee may exercise the conversion right provided in this Section 3 by
giving written notice (the "Conversion Notice") to the Maker of the exercise
right and stating the name or names in which the stock certificate or stock
certificates for the shares of Maker's common stock are to be issued and the
address to which such certificates shall be delivered.
Conversion shall be deemed to have been effected on the date the Conversion
Notice is given (the "Conversion Date"). Within 10 business days after receipt
of the Conversion Notice, the Maker shall issue and deliver by hand against a
signed receipt therefor or by United States registered mail, return receipt
requested, to the address designated by the Payee in the Conversion Notice, a
stock certificate or stock certificates of the Maker representing the number of
shares of common stock to which such Payee is entitled and Payee shall return
this Note to Maker.
Any such conversion shall mean that this Note has been paid in full for all
purposes.
4. All interest hereunder shall be computed on the basis of the actual
number of days elapsed over a year of 360 days and shall be payable monthly in
arrears on the first day of each month beginning January 1, 1997.
5. (a) As additional consideration for the loan evidenced by this Note,
Maker shall issue to Payee warrants (the "Initial Warrants") to purchase for
$0.25 per share, 37,500 shares of Maker's common stock, exercisable at any time
and from time to time not later than November 30, 1999.
(b) In the event that this Note has not been repaid in full (including
principal and accrued interest) on or before May 31, 1997, Maker shall issue to
Payee additional warrants to purchase for $0.25 per share, 15,000 shares of
Maker's common stock (subject to adjustment in the manner provided in subsection
(d) of Section 5), exercisable at any time and from time to time not later than
May 31, 2000.
2
<PAGE>
(c) In the event that this Note has not been repaid in full (including
principal and accrued interest) on or before November 30, 1997, Maker shall
issue to Payee additional warrants to purchase for $0.25 per share, 30,000
shares of Maker's common stock (subject to adjustment in the manner provided in
subsection (d) of Section 5), exercisable at any time and from time to time not
later than November 30, 2000.
(d) The warrants issuable to Payee pursuant to this Section 5 (the
"Warrants") shall be on such other terms and in such form (including
representations, warranties and covenants) as shall be reasonably agreeable to
Payee and Maker. Without limiting the generality of the foregoing, the terms of
such Warrants shall include (i) economic dilution provisions such that in the
event that any shares of Maker's common stock, or securities exchangeable for or
convertible into common stock, are issued for a price of less than $0.25 per
share, the exercise price of the Warrants shall be proportionately decreased and
the number of shares issuable under such Warrants shall be increased accordingly
and also provisions for adjustment for stock splits, stock dividends, reverse
stock splits and similar changes; and (ii) registration rights permitting Payee
(or its assigns) to participate in any future registrations of Maker's common
stock ("piggyback" registration rights) and permitting Payee (or its assigns)
not less than one demand registration. With respect to such registration rights,
it is understood and agreed that in the event that not later than November 30,
1997, Maker completes a private offering of its equity securities in which Maker
raises gross proceeds of not less than $1,000,000 and in which the purchasers
are granted registration rights, Payee's registration rights with respect to
shares issuable under the Warrants shall be substantially the same as the most
favorable rights granted to purchasers in the private placement rather than the
registration rights set forth above; provided, however, that the exercise of
Payee's registration rights shall not be subject to any requirement that any
other holders of registration rights join Payee in any request to participate in
or to demand a registration, and any participation in or demand for a
registration by any other holder of registration rights shall not affect Payee's
right to participate in or demand a registration on any future occasion.
6. In the event that either the Warrants to be issued to Payee pursuant to
Section 5 hereof are not issued (i) in the case of the Initial Warrants, not
later than January 31, 1997, and (ii) in the case of the remaining Warrants, not
later than thirty (30) days following the respective dates set forth in such
Section 5 as the dates on which such Warrants are to be issued, and in each case
on such terms and in such form as may be reasonably acceptable to Payee and
Maker, then notwithstanding the provisions of Section 1 hereof, and in addition
to any other remedy available to Payee, this Note shall automatically and
without any further notice or action on the part of Maker or Payee, become a
demand note and shall upon written demand made by Payee to Maker become
immediately due and payable.
7. The obligations of Maker hereunder are absolute and unconditional and
payment of the Principal Amount and all interest accrued thereon shall not be
subject to any defense, counterclaim or right of set-off.
3
<PAGE>
8. Maker represents, warrants, covenants and agrees with Payee as follows:
(a) From and after the date of this Note and until this Note has been
satisfied in full, Maker will furnish to Payee such reports and other
information with respect to Maker, Maker's business and Maker's financial
condition as Payee may from time to time request.
(b) This Note has been duly authorized by all necessary corporate
action on the part of Maker. This Note has been duly executed and delivered by
Maker and constitutes the valid and binding agreement of Maker, enforceable
against Maker in accordance with its terms, except as the enforceability hereof
may be subject to applicable bankruptcy, insolvency, reorganization, or other
similar laws affecting creditors' rights generally and to general principles of
equity.
(c) Neither the execution and delivery by Maker of this Note, nor the
consummation by Maker of the transactions contemplated hereby, nor compliance by
Maker with any of the provisions hereof will (i) violate or conflict with any
provision of the Certificate or Articles of Incorporation or By-laws of the
Maker, (ii) result in a violation of any order, writ, injunction, decree,
judgment, ruling, law, rule, or regulation, of any court or governmental
authority, applicable to Maker, (iii) result in the breach of or otherwise
affect any of the terms, conditions, or provisions of, any note, bond, mortgage,
indenture, deed of trust, license, franchise, permit, contract, agreement, or
other instrument or commitment or obligation of Maker, or (iv) except for
filings that may be made under the securities laws and with NASDAQ, require any
consent, approval, or authorization of, or notice to, or declaration, filing, or
registration with, any governmental or regulatory authority or any other person,
except for such consents, approvals, authorizations, notices, declarations,
filings or registrations which have been obtained, given or made, as the case
may be, and which are unconditional and in full force and effect.
(d) Maker is a corporation duly organized, validly existing, and in
good standing under the laws of the State of Colorado and is qualified to do
business in the jurisdictions where the nature of its business or properties
makes such qualification necessary. Maker has all requisite corporate power and
authority to own, operate, and lease its properties and to carry on its business
as now being conducted.
(e) As of the date hereof, there are issued and outstanding not more
than 40,825,000 shares of Maker's common stock (including as if issued shares
issuable under outstanding warrants, options, convertible debt and other
securities and rights convertible into or exchangeable for Maker's equity
securities) and such shares are the only shares of Maker's equity securities of
any class or series that are issued and outstanding on the date hereof.
(f) Maker is not in default (and no event of default has occurred
which with notice or lapse of time, or both, will result in a default) under any
material agreements, mortgages, deeds of trust, leases, franchises, indentures
or other instruments to which maker is a party or by which either or any of its
properties may be bound. Maker is not in default on any of its material
obligations.
4
<PAGE>
(g) There is no litigation or proceeding pending, or to Maker's
knowledge, threatened against Maker or any of its property, nor any reasonable
grounds for any such litigation, the results of which, if decided adversely,
might materially affect the financial condition, property or business of Maker.
9. The following shall constitute an "Event of Default" within the meaning
of this Note:
(a) Maker shall fail or refuse to make any payment of principal or
interest with respect to this Note when the same shall become due; or
(b) Any of the representations or warranties of Maker made or deemed
to be made in this Note or in any written agreement between Maker and Payee
(including without limitation the Warrants) shall prove to have been false or
misleading in any material respect when so made or deemed to be made; or
(c) Maker shall default in the due observance or performance of any of
the covenants or conditions contained in this Note or in respect of any of its
obligations under the terms of any written agreement between Maker and Payee
(including without limitation the Warrants) and such default shall continue for
10 days following written notice thereof to Maker; or
(d) an event shall occur which constitutes, or, upon the sending of
notice or the passage of time or both, would constitute, a breach or default
with respect to the payment of principal or interest under any other
indebtedness of Maker; or
(e) an event shall occur which constitutes a breach or default (after
any applicable grace periods), other than with respect to the payment of
principal or interest, under any other indebtedness of Maker; or
(f) an event shall occur which constitutes a breach or default (after
any applicable grace periods) under the terms of any agreement or instrument
between Maker and any third party as a result of which Maker is rendered liable
for an amount in excess of $25,000 or giving such third party rights of
acceleration or similar rights (whether or not exercised) with respect to any
indebtedness in an amount of excess of $25,000; or
(g) Maker shall make a general assignment for the benefit of its
creditors, the adjudication in bankruptcy of the Maker, or the filing of a
voluntary petition by the Maker under any of the provisions of the United States
Bankruptcy Code; the filing of any answer or other pleading admitting the
material allegations of any petition filed against the Maker in any bankruptcy ,
insolvency or other such proceeding; the filing of a petition against the Maker
under any of the provisions of any bankruptcy laws of the United States or
similar laws of any jurisdiction and the failure of such petition to be
dismissed within thirty days; or the petition for, or the appointment of, or
possession by, a custodian, receiver, liquidator, assignee, trustee or
sequestrator (or other similar official) of the Maker or any substantial part of
its properties or assets.
5
<PAGE>
10. In the event of the occurrence of an Event of Default described in
paragraphs (a), (b), (c), (d), (e), or (f) of Section 9 hereof, Payee may, by
notice in writing to Maker, declare the principal of this Note and all interest
accrued thereon to be immediately due and payable; and in the event of the
occurrence of an Event of Default described in paragraph (g) of Section 9
hereof, the principal of this Note and all interest accrued thereon shall
automatically become immediately due and payable, in each case without
presentment, demand, protest or any notice of any kind, all of which are hereby
waived.
11. Maker shall pay all out-of-pocket expenses (including reasonable
attorneys' fees and expenses) incurred by Payee in connection with the
enforcement or protection of Payee's rights hereunder and under any documents or
agreements entered into between Maker and Payee in connection herewith,
including without limitation those expenses and fees which may be incurred in
connection with appellate proceedings and/or with the appointment of a receiver
and all appearances in bankruptcy, reorganization, arrangement or similar
insolvency proceedings.
12. This Note shall remain in full force and effect and continue to be
effective should any petition be filed by or against Maker for liquidation or
reorganization, should Maker become insolvent or make an assignment for the
benefit of creditors or should a receiver or trustee be appointed for all or any
significant part of Maker's assets, and shall continue to be effective or be
reinstated, if at any time payment and performance of Maker's obligations
hereunder, or any part thereof, is, pursuant to applicable law, rescinded or
reduced in amount, or must otherwise be restored or returned by any obligee of
Maker's obligations hereunder, whether as a "voidable preference," "fraudulent
conveyance," or otherwise, all as though such payment or performance had not
been made. In the event that any payment, or any part thereof, is rescinded,
reduced, restored or returned, Maker's obligations hereunder shall be reinstated
and deemed reduced only by such amount paid and not so rescinded, reduced,
restored or returned.
13. This note shall in all respects be governed by the laws of the State of
Texas applicable to contracts made and to be performed entirely within such
State. This Note may not be altered or amended, except by a writing duly signed
by the party against whom such alteration or amendment is sought to be enforced.
14. From and after the date of this Note, the outstanding Principal Amount
may be prepaid by Maker, in whole or in part, on written notice given by Maker
to Payee specifying the date of prepayment ("Prepayment Date"), which shall be
not less than three (3) business days following receipt of notice (determined in
accordance with Section 21 hereof). On the Prepayment Date, Maker shall pay to
Payee the Principal Amount to be prepaid plus accrued and unpaid interest
thereon to and including the prepayment Date and Payee shall return this Note to
Maker. In the event of a prepayment hereunder of less than the entire Principal
Amount then outstanding, then promptly upon such partial prepayment, Maker shall
issue and deliver to Payee a new Note, of like tenor hereto, equal in principal
amount to the unpaid Principal Amount of this Note.
6
<PAGE>
15. Any waiver by Payee of any right or remedy hereunder on any one
occasion shall not be construed as a bar to any right or remedy which Payee
would otherwise have had on any future occasion. No failure to exercise nor any
delay in exercising on the part of Payee, any right, power or privilege
hereunder, shall operate as a waiver thereof, nor shall any single or partial
exercise of any right, power or privilege hereunder preclude any other or future
exercise thereof or the exercise of any other right, power or privilege. The
rights and remedies hereunder provided are cumulative and may be exercised
singly or concurrently, and are not exclusive of any rights and remedies
provided by law. In the event of any litigation with respect to this Note, Maker
hereby waives (to the extent permitted by law) the right to trial by jury.
16. This Note and all obligations of Maker hereunder shall be binding upon
the successors and assigns of Maker, and shall, together with the rights and
remedies of Payee hereunder, inure to the benefit of Payee, and its successors
and assigns.
17. Any provision of this Note which is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or enforceability without invalidating the remaining provisions
hereof, and any such prohibition or unenforceability of such provision in any
jurisdiction shall not affect the validity or enforceability of such provision
in any other jurisdiction.
18. This Note and all obligations of Maker hereunder shall be binding upon
the successors and assigns of Maker, and shall, together with the rights and
remedies of Payee hereunder, inure to the benefit of payee, and its successors
and assigns.
19. Maker hereby agrees that it will execute and deliver to Payee any and
all documents, in addition to those expressly provided for in this Note, all in
form and substance satisfactory to payee in Payee's sole discretion, that may be
reasonably necessary or appropriate to carry out the purposes of this Note and
the transactions contemplated hereby.
20. Maker hereby waives presentment for payment, demand, notice of
dishonor, notice of protest and protest and diligence in taking any action to
collect amounts due hereunder.
21. All notices hereunder shall be sent via Federal Express or similar
overnight courier providing for "next day" delivery, and notices shall be deemed
delivered on the day following deposit with such service. Either party may, by
written notice to the other, change the address to which notices and other
communications should be sent.
CHAPARRAL RESOURCES, INC.
By: /s/ Paul V. Hoovler
---------------------------
Name: Paul V. Hoovler
Title: President
7
MODIFICATION TO PROMISSORY NOTE
On November 25, 1996, Clint D. Carlson ("Payee") made a loan in the amount
of $100,000 to Chaparral Resources, Inc. ("Maker") pursuant to a Promissory Note
dated November 25, 1996.
Paragraph 1(i) of such Promissory Note sets forth provisions whereby the
Principal Amount of the Promissory Note will be payable prior to May 31, 1998.
The Maker and the Payee hereby agree that the figure of the $1,350,000 that
appears in paragraph 1(I) of the Promissory Note be and hereby is changed to
$1,850,000 wherever it appears therein.
Except as provided herein, the Promissory Note shall remain in full force
and effect.
MAKER:
CHAPARRAL RESOURCES, INC.
By: /s/ Paul V. Hoovler
-----------------------------
Name: Paul V. Hoovler
Title: President
PAYEE:
CLINT D. CARLSON
By: /s/ Clint D. Carlson
----------------------------
Clint D. Carlson
<PAGE>
THIS PROMISSORY NOTE AND THE SECURITIES ISSUED UPON CONVERSION HEREOF, MAY NOT
BE OFFERED FOR SALE, SOLD, OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT FILED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE ACT
WHICH SHALL BE ESTABLISHED TO THE SATISFACTION OF THE MAKER.
PROMISSORY NOTE
November 25, 1996 $100,000.00
Ft. Worth, Texas
FOR VALUE RECEIVED, CHAPARRAL RESOURCES, INC. a Colorado corporation with
offices at 621 Seventeenth Street, Suite 1301, Denver, Colorado 80293 ("Maker"),
DOES HEREBY PROMISE to pay to the order of CLINT D. CARLSON, an Individual
("Payee"), the principal amount (the "Principal Amount") of ONE HUNDRED THOUSAND
DOLLARS ($100,000.00), together with interest thereon at eight percent (8%) per
annum, from the date hereof to and including the day on which the indebtedness
evidence by this Promissory Note (this "Note") is paid in full.
The following additional terms shall govern this Note:
1. The entire Principal Amount of and accrued and unpaid interest on this
Note shall be due and payable on the day (the "Repayment Date") which shall be
the earlier to occur of:
(i) the third business day following the receipt by Maker of net
proceeds of $1,350,000 from (A) the sale or issuance after the date
hereof, by Maker, of Maker's equity or debt securities (including
without limitation any securities convertible into or exchangeable for
Maker's equity securities), whether in one or more public or private
transactions, or (B) any debt financing provided or guaranteed by the
Overseas Private Investment Corporation or other governmental or
quasi-governmental organization or entity, or (C) the sale or farmout
by the Maker of assets held by the Maker which results in cash to the
Maker, or any combination of (A), (B) or (C) above (each, a
"Financing"), provided, that in the event that the net proceeds of any
such Financing are less than $1,350,000, then the amount of principal
and interest that becomes due by operation of this clause (i) shall be
determined by dividing the principal and interest due on this Note by
$1,350,000 and multiplying the result thereof by the amount of such
net proceeds and this clause (i) shall remain in effect with respect
to each subsequent Financing; providing further that Maker shall
immediately upon the happening of such event give Payee written notice
thereof in accordance with the provisions of Section 21 hereof and
that, unless waived by Payee, repayment may be rejected by Payee if it
has not received at least two (2) business day advance notice prior to
said payment; or
<PAGE>
(ii) May 31, 1998.
2. Interest and principal in respect of this Note shall be paid in lawful
currency of the United States, in immediately available funds, at the principal
executive offices of Payee, c/o Carlson Capital LP, 301 Commerce Street, Suite
3300, Ft. Worth, Texas 76102, or at such other place as Payee may designate in a
written notice to Maker.
3. Payee shall have the ability to convert all and not less than all the
interest and principal in respect of this Note into shares of the Maker's common
stock at $0.75 per share or at a 25% discount of the market price of the Maker's
common stock as quoted on NASDAQ, should the last sale price of the Maker's
common stock as quoted on NASDAQ be less than $1.00 per share on the date Payee
elects such conversion. Payee's conversion shall terminate on the earlier of the
date this Note has been paid in full or on May 31, 1998.
Payee may exercise the conversion right provided in this Section 3 by
giving written notice (the "Conversion Notice") to the Maker of the exercise
right and stating the name or names in which the stock certificate or stock
certificates for the shares of Maker's common stock are to be issued and the
address to which such certificates shall be delivered.
Conversion shall be deemed to have been effected on the date the Conversion
Notice is given (the "Conversion Date"). Within 10 business days after receipt
of the Conversion Notice, the Maker shall issue and deliver by hand against a
signed receipt therefor or by United States registered mail, return receipt
requested, to the address designated by the Payee in the Conversion Notice, a
stock certificate or stock certificates of the Maker representing the number of
shares of common stock to which such Payee is entitled and Payee shall return
this Note to Maker.
Any such conversion shall mean that this Note has been paid in full for all
purposes.
4. All interest hereunder shall be computed on the basis of the actual
number of days elapsed over a year of 360 days and shall be payable monthly in
arrears on the first day of each month beginning January 1, 1997.
5. (a) As additional consideration for the loan evidenced by this Note,
Maker shall issue to Payee warrants (the "Initial Warrants") to purchase for
$0.25 per share, 25,000 shares of Maker's common stock, exercisable at any time
and from time to time not later than November 30, 1999.
(b) In the event that this Note has not been repaid in full (including
principal and accrued interest) on or before May 31, 1997, Maker shall issue to
Payee additional warrants to purchase for $0.25 per share, 10,000 shares of
Maker's common stock (subject to adjustment in the manner provided in subsection
(d) of Section 5), exercisable at any time and from time to time not later than
May 31, 2000.
2
<PAGE>
(c) In the event that this Note has not been repaid in full (including
principal and accrued interest) on or before November 30, 1997, Maker shall
issue to Payee additional warrants to purchase for $0.25 per share, 20,000
shares of Maker's common stock (subject to adjustment in the manner provided in
subsection (d) of Section 5), exercisable at any time and from time to time not
later than November 30, 2000.
(d) The warrants issuable to Payee pursuant to this Section 5 (the
"Warrants") shall be on such other terms and in such form (including
representations, warranties and covenants) as shall be reasonably agreeable to
Payee and Maker. Without limiting the generality of the foregoing, the terms of
such Warrants shall include (i) economic dilution provisions such that in the
event that any shares of Maker's common stock, or securities exchangeable for or
convertible into common stock, are issued for a price of less than $0.25 per
share, the exercise price of the Warrants shall be proportionately decreased and
the number of shares issuable under such Warrants shall be increased accordingly
and also provisions for adjustment for stock splits, stock dividends, reverse
stock splits and similar changes; and (ii) registration rights permitting Payee
(or its assigns) to participate in any future registrations of Maker's common
stock ("piggyback" registration rights) and permitting Payee (or its assigns)
not less than one demand registration. With respect to such registration rights,
it is understood and agreed that in the event that not later than November 30,
1997, Maker completes a private offering of its equity securities in which Maker
raises gross proceeds of not less than $1,000,000 and in which the purchasers
are granted registration rights, Payee's registration rights with respect to
shares issuable under the Warrants shall be substantially the same as the most
favorable rights granted to purchasers in the private placement rather than the
registration rights set forth above; provided, however, that the exercise of
Payee's registration rights shall not be subject to any requirement that any
other holders of registration rights join Payee in any request to participate in
or to demand a registration, and any participation in or demand for a
registration by any other holder of registration rights shall not affect Payee's
right to participate in or demand a registration on any future occasion.
6. In the event that either the Warrants to be issued to Payee pursuant to
Section 5 hereof are not issued (i) in the case of the Initial Warrants, not
later than January 31, 1997, and (ii) in the case of the remaining Warrants, not
later than thirty (30) days following the respective dates set forth in such
Section 5 as the dates on which such Warrants are to be issued, and in each case
on such terms and in such form as may be reasonably acceptable to Payee and
Maker, then notwithstanding the provisions of Section 1 hereof, and in addition
to any other remedy available to Payee, this Note shall automatically and
without any further notice or action on the part of Maker or Payee, become a
demand note and shall upon written demand made by Payee to Maker become
immediately due and payable.
7. The obligations of Maker hereunder are absolute and unconditional and
payment of the Principal Amount and all interest accrued thereon shall not be
subject to any defense, counterclaim or right of set-off.
3
<PAGE>
8. Maker represents, warrants, covenants and agrees with Payee as follows:
(a) From and after the date of this Note and until this Note has been
satisfied in full, Maker will furnish to Payee such reports and other
information with respect to Maker, Maker's business and Maker's financial
condition as Payee may from time to time request.
(b) This Note has been duly authorized by all necessary corporate
action on the part of Maker. This Note has been duly executed and delivered by
Maker and constitutes the valid and binding agreement of Maker, enforceable
against Maker in accordance with its terms, except as the enforceability hereof
may be subject to applicable bankruptcy, insolvency, reorganization, or other
similar laws affecting creditors' rights generally and to general principles of
equity.
(c) Neither the execution and delivery by Maker of this Note, nor the
consummation by Maker of the transactions contemplated hereby, nor compliance by
Maker with any of the provisions hereof will (i) violate or conflict with any
provision of the Certificate or Articles of Incorporation or By-laws of the
Maker, (ii) result in a violation of any order, writ, injunction, decree,
judgment, ruling, law, rule, or regulation, of any court or governmental
authority, applicable to Maker, (iii) result in the breach of or otherwise
affect any of the terms, conditions, or provisions of, any note, bond, mortgage,
indenture, deed of trust, license, franchise, permit, contract, agreement, or
other instrument or commitment or obligation of Maker, or (iv) except for
filings that may be made under the securities laws and with NASDAQ, require any
consent, approval, or authorization of, or notice to, or declaration, filing, or
registration with, any governmental or regulatory authority or any other person,
except for such consents, approvals, authorizations, notices, declarations,
filings or registrations which have been obtained, given or made, as the case
may be, and which are unconditional and in full force and effect.
(d) Maker is a corporation duly organized, validly existing, and in
good standing under the laws of the State of Colorado and is qualified to do
business in the jurisdictions where the nature of its business or properties
makes such qualification necessary. Maker has all requisite corporate power and
authority to own, operate, and lease its properties and to carry on its business
as now being conducted.
(e) As of the date hereof, there are issued and outstanding not more
than 40,825,000 shares of Maker's common stock (including as if issued shares
issuable under outstanding warrants, options, convertible debt and other
securities and rights convertible into or exchangeable for Maker's equity
securities) and such shares are the only shares of Maker's equity securities of
any class or series that are issued and outstanding on the date hereof.
(f) Maker is not in default (and no event of default has occurred
which with notice or lapse of time, or both, will result in a default) under any
material agreements, mortgages, deeds of trust, leases, franchises, indentures
or other instruments to which maker is a party or by which either or any of its
properties may be bound. Maker is not in default on any of its material
obligations.
4
<PAGE>
(g) There is no litigation or proceeding pending, or to Maker's
knowledge, threatened against Maker or any of its property, nor any reasonable
grounds for any such litigation, the results of which, if decided adversely,
might materially affect the financial condition, property or business of Maker.
9. The following shall constitute an "Event of Default" within the meaning
of this Note:
(a) Maker shall fail or refuse to make any payment of principal or
interest with respect to this Note when the same shall become due; or
(b) Any of the representations or warranties of Maker made or deemed
to be made in this Note or in any written agreement between Maker and Payee
(including without limitation the Warrants) shall prove to have been false or
misleading in any material respect when so made or deemed to be made; or
(c) Maker shall default in the due observance or performance of any of
the covenants or conditions contained in this Note or in respect of any of its
obligations under the terms of any written agreement between Maker and Payee
(including without limitation the Warrants) and such default shall continue for
10 days following written notice thereof to Maker; or
(d) an event shall occur which constitutes, or, upon the sending of
notice or the passage of time or both, would constitute, a breach or default
with respect to the payment of principal or interest under any other
indebtedness of Maker; or
(e) an event shall occur which constitutes a breach or default (after
any applicable grace periods), other than with respect to the payment of
principal or interest, under any other indebtedness of Maker; or
(f) an event shall occur which constitutes a breach or default (after
any applicable grace periods) under the terms of any agreement or instrument
between Maker and any third party as a result of which Maker is rendered liable
for an amount in excess of $25,000 or giving such third party rights of
acceleration or similar rights (whether or not exercised) with respect to any
indebtedness in an amount of excess of $25,000; or
(g) Maker shall make a general assignment for the benefit of its
creditors, the adjudication in bankruptcy of the Maker, or the filing of a
voluntary petition by the Maker under any of the provisions of the United States
Bankruptcy Code; the filing of any answer or other pleading admitting the
material allegations of any petition filed against the Maker in any bankruptcy ,
insolvency or other such proceeding; the filing of a petition against the Maker
under any of the provisions of any bankruptcy laws of the United States or
similar laws of any jurisdiction and the failure of such petition to be
dismissed within thirty days; or the petition for, or the appointment of, or
possession by, a custodian, receiver, liquidator, assignee, trustee or
sequestrator (or other similar official) of the Maker or any substantial part of
its properties or assets.
5
<PAGE>
10. In the event of the occurrence of an Event of Default described in
paragraphs (a), (b), (c), (d), (e), or (f) of Section 9 hereof, Payee may, by
notice in writing to Maker, declare the principal of this Note and all interest
accrued thereon to be immediately due and payable; and in the event of the
occurrence of an Event of Default described in paragraph (g) of Section 9
hereof, the principal of this Note and all interest accrued thereon shall
automatically become immediately due and payable, in each case without
presentment, demand, protest or any notice of any kind, all of which are hereby
waived.
11. Maker shall pay all out-of-pocket expenses (including reasonable
attorneys' fees and expenses) incurred by Payee in connection with the
enforcement or protection of Payee's rights hereunder and under any documents or
agreements entered into between Maker and Payee in connection herewith,
including without limitation those expenses and fees which may be incurred in
connection with appellate proceedings and/or with the appointment of a receiver
and all appearances in bankruptcy, reorganization, arrangement or similar
insolvency proceedings.
12. This Note shall remain in full force and effect and continue to be
effective should any petition be filed by or against Maker for liquidation or
reorganization, should Maker become insolvent or make an assignment for the
benefit of creditors or should a receiver or trustee be appointed for all or any
significant part of Maker's assets, and shall continue to be effective or be
reinstated, if at any time payment and performance of Maker's obligations
hereunder, or any part thereof, is, pursuant to applicable law, rescinded or
reduced in amount, or must otherwise be restored or returned by any obligee of
Maker's obligations hereunder, whether as a "voidable preference," "fraudulent
conveyance," or otherwise, all as though such payment or performance had not
been made. In the event that any payment, or any part thereof, is rescinded,
reduced, restored or returned, Maker's obligations hereunder shall be reinstated
and deemed reduced only by such amount paid and not so rescinded, reduced,
restored or returned.
13. This note shall in all respects be governed by the laws of the State of
Texas applicable to contracts made and to be performed entirely within such
State. This Note may not be altered or amended, except by a writing duly signed
by the party against whom such alteration or amendment is sought to be enforced.
14. From and after the date of this Note, the outstanding Principal Amount
may be prepaid by Maker, in whole or in part, on written notice given by Maker
to Payee specifying the date of prepayment ("Prepayment Date"), which shall be
not less than three (3) business days following receipt of notice (determined in
accordance with Section 21 hereof). On the Prepayment Date, Maker shall pay to
Payee the Principal Amount to be prepaid plus accrued and unpaid interest
thereon to and including the prepayment Date and Payee shall return this Note to
Maker. In the event of a prepayment hereunder of less than the entire Principal
Amount then outstanding, then promptly upon such partial prepayment, Maker shall
issue and deliver to Payee a new Note, of like tenor hereto, equal in principal
amount to the unpaid Principal Amount of this Note.
6
<PAGE>
15. Any waiver by Payee of any right or remedy hereunder on any one
occasion shall not be construed as a bar to any right or remedy which Payee
would otherwise have had on any future occasion. No failure to exercise nor any
delay in exercising on the part of Payee, any right, power or privilege
hereunder, shall operate as a waiver thereof, nor shall any single or partial
exercise of any right, power or privilege hereunder preclude any other or future
exercise thereof or the exercise of any other right, power or privilege. The
rights and remedies hereunder provided are cumulative and may be exercised
singly or concurrently, and are not exclusive of any rights and remedies
provided by law. In the event of any litigation with respect to this Note, Maker
hereby waives (to the extent permitted by law) the right to trial by jury.
16. This Note and all obligations of Maker hereunder shall be binding upon
the successors and assigns of Maker, and shall, together with the rights and
remedies of Payee hereunder, inure to the benefit of Payee, and its successors
and assigns.
17. Any provision of this Note which is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or enforceability without invalidating the remaining provisions
hereof, and any such prohibition or unenforceability of such provision in any
jurisdiction shall not affect the validity or enforceability of such provision
in any other jurisdiction.
18. This Note and all obligations of Maker hereunder shall be binding upon
the successors and assigns of Maker, and shall, together with the rights and
remedies of Payee hereunder, inure to the benefit of payee, and its successors
and assigns.
19. Maker hereby agrees that it will execute and deliver to Payee any and
all documents, in addition to those expressly provided for in this Note, all in
form and substance satisfactory to payee in Payee's sole discretion, that may be
reasonably necessary or appropriate to carry out the purposes of this Note and
the transactions contemplated hereby.
20. Maker hereby waives presentment for payment, demand, notice of
dishonor, notice of protest and protest and diligence in taking any action to
collect amounts due hereunder.
21. All notices hereunder shall be sent via Federal Express or similar
overnight courier providing for "next day" delivery, and notices shall be deemed
delivered on the day following deposit with such service. Either party may, by
written notice to the other, change the address to which notices and other
communications should be sent.
CHAPARRAL RESOURCES, INC.
By: /s/ Paul V. Hoovler
----------------------------
Name: Paul V. Hoovler
Title: President
THIS PROMISSORY NOTE AND THE SECURITIES ISSUED UPON CONVERSION HEREOF, MAY NOT
BE OFFERED FOR SALE, SOLD, OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT FILED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE ACT
WHICH SHALL BE ESTABLISHED, IF REQUIRED AT THE SOLE DISCRETION OF THE MAKER BY
AN OPINION OF COUNSEL SATISFACTORY TO THE MAKER.
8% CONVERTIBLE PROMISSORY NOTE
December 6, 1996 $500,000.00
New York, New York
FOR VALUE RECEIVED, CHAPARRAL RESOURCES, INC. a Colorado corporation with
offices at 621 Seventeenth Street, Suite 1301, Denver, Colorado 80293 ("Maker"),
DOES HEREBY PROMISE to pay to the order of VICTORY VENTURES LLC, a Delaware
limited liability company, or its successors and assigns ("Payee"), the
principal amount (the "Principal Amount") of FIVE HUNDRED THOUSAND DOLLARS
($500,000.00), together with interest thereon at eight percent (8%) per annum,
from the date hereof to and including the day on which the indebtedness evidence
by this Promissory Note (this "Note") is paid in full.
The following additional terms shall govern this Note:
1. The entire Principal Amount of and accrued and unpaid interest on this
Note shall be due and payable on the day (the "Repayment Date") which shall be
the earlier to occur of:
(i) the third business day following the receipt by Maker of net
proceeds of a minimum of $1,850,000 from (A) the sale or issuance
after the date hereof, by Maker, of Maker's equity or debt securities
(including without limitation any securities convertible into or
exchangeable for Maker's equity securities), whether in one or more
public or private transactions, or (B) any debt financing provided or
guaranteed by the Overseas Private Investment Corporation or other
governmental or quasi-governmental organization or entity, or (C) the
sale or farmout by the Maker of assets held by the Maker which results
in cash to the Maker, or (D) any other financing, or any combination
of (A), (B), (C) or (D) above (each, a "Financing"), provided, that in
the event that the net proceeds of any such Financing are less than
$1,850,000, then the amount of principal and interest that becomes due
by operation of this clause (i) shall be determined by dividing the
principal and interest due on this Note by $1,850,000 and multiplying
the result thereof by the amount of such net proceeds and this clause
(i) shall remain in effect with respect to each subsequent Financing;
providing further that Maker shall immediately upon the happening of
such event give Payee written notice thereof in accordance with the
provisions of Section 21 hereof and that, unless waived by Payee,
repayment may be rejected by Payee if it has not received at least two
(2) business day advance notice prior to said payment; or
<PAGE>
(ii) May 29, 1998.
2. Interest and principal in respect of this Note shall be paid in lawful
currency of the United States, in immediately available funds, at the principal
executive offices of Payee, 645 Madison Avenue, New York, New York 10022, or at
such other place as Payee may designate in a written notice to Maker.
3. Payee shall have the ability to convert any, but not less than $100,000,
or all of the interest and principal in respect of this Note into shares of the
Maker's common stock at $0.75 per share or at a 25% discount of the market price
of the Maker's common stock as quoted on NASDAQ, should the last sale price of
the Maker's common stock as quoted on NASDAQ be less than $1.00 per share on the
date Payee elects such conversion. Payee's conversion shall terminate on the
earlier of the date this Note has been paid in full or on May 29, 1998.
Payee may exercise the conversion right provided in this Section 3 by
giving written notice (the "Conversion Notice") to the Maker of such exercise
and stating the name or names in which the stock certificate or stock
certificates for the shares of Maker's common stock are to be issued and the
address to which such certificates shall be delivered.
Conversion shall be deemed to have been effected on the date the Conversion
Notice is given (the "Conversion Date"). Within 10 business days after receipt
of the Conversion Notice, the Maker shall issue and deliver by hand against a
signed receipt therefor or by United States registered mail, return receipt
requested, to the address designated by the Payee in the Conversion Notice, a
stock certificate or stock certificates of the Maker representing the number of
shares of common stock to which such Payee is entitled and Payee shall return
this Note to Maker.
Any such conversion shall mean that this Note has been paid in full or in
part, as the case may be for all purposes.
4. All interest hereunder shall be computed on the basis of the actual
number of days elapsed over a year of 360 days and shall be payable monthly in
arrears on the first day of each month beginning January 1, 1997.
5. (a) As additional consideration for the loan evidenced by this Note,
Maker shall issue to Payee warrants (the "Initial Warrants") to purchase for
$0.25 per share, 125,000 shares of Maker's common stock, exercisable at any time
and from time to time not later than November 30, 1999.
(b) In the event that this Note has not been repaid in full (including
principal and accrued interest) on or before May 31, 1997, Maker shall issue to
Payee additional warrants to purchase for $0.25 per share, 50,000 shares of
Maker's common stock (subject to adjustment in the manner provided in subsection
(d) of Section 5), exercisable at any time and from time to time not later than
May 31, 2000.
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<PAGE>
(c) In the event that this Note has not been repaid in full (including
principal and accrued interest) on or before November 30, 1997, Maker shall
issue to Payee additional warrants to purchase for $0.25 per share, 100,000
shares of Maker's common stock (subject to adjustment in the manner provided in
subsection (d) of Section 5), exercisable at any time and from time to time not
later than November 30, 2000.
(d) The warrants issuable to Payee pursuant to this Section 5 (the
"Warrants") shall be on such other terms and in such form (including
representations, warranties and covenants) as shall be mutually agreeable to
Payee and Maker. Without limiting the generality of the foregoing, the terms of
such Warrants shall include (i) economic dilution provisions such that in the
event that any shares of Maker's common stock, or securities exchangeable for or
convertible into common stock, are issued for a price of less than $0.25 per
share, the exercise price of the Warrants shall be proportionately decreased and
the number of shares issuable under such Warrants shall be increased accordingly
and also provisions for adjustment for stock splits, stock dividends, reverse
stock splits and similar changes; and (ii) registration rights permitting Payee
(or its assigns) to participate in any future registrations of Maker's common
stock ("piggyback" registration rights) and permitting Payee (or its assigns)
not less than one demand registration. With respect to such registration rights,
it is understood and agreed that in the event that not later than November 30,
1997, Maker completes a private offering of its equity securities in which Maker
raises gross proceeds of not less than $1,000,000 and in which the purchasers
are granted registration rights, Payee's registration rights with respect to
shares issuable under the Warrants shall be substantially the same as the most
favorable rights granted to purchasers in the private placement rather than the
registration rights set forth above; provided, however, that the exercise of
Payee's registration rights shall not be subject to any requirement that any
other holders of registration rights join Payee in any request to participate in
or to demand a registration, and any participation in or demand for a
registration by any other holder of registration rights shall not affect Payee's
right to participate in or demand a registration on any future occasion.
6. In the event that either the Warrants to be issued to Payee pursuant to
Section 5 hereof are not issued (i) in the case of the Initial Warrants, prior
to January 31, 1997, and (ii) in the case of the remaining Warrants, not later
than thirty (30) days following the respective dates set forth in such Section 5
as the dates on which such Warrants are to be issued, and in each case on such
terms and in such form as may be acceptable to Payee and Maker, then
notwithstanding the provisions of Section 1 hereof, this Note shall
automatically and without any further notice or action on the part of Maker or
Payee, become a demand note and shall upon written demand made by Payee to Maker
become immediately due and payable.
7. The obligations of Maker hereunder are absolute and unconditional and
payment of the Principal Amount and all interest accrued thereon shall not be
subject to any defense, counterclaim or right of set-off.
3
<PAGE>
8. Maker represents, warrants, covenants and agrees with Payee as follows:
(a) From and after the date of this Note and until this Note has been
satisfied in full, Maker will furnish to Payee within three (3) business days of
request therefor, such reports and other information with respect to Maker,
Maker's business and Maker's financial condition as Payee may from time to time
request.
(b) This Note has been duly authorized by all necessary corporate
action on the part of Maker. This Note has been duly executed and delivered by
Maker and constitutes the valid and binding agreement of Maker, enforceable
against Maker in accordance with its terms, except as the enforceability hereof
may be subject to applicable bankruptcy, insolvency, reorganization, or other
similar laws affecting creditors' rights generally and to general principles of
equity.
(c) Neither the execution and delivery by Maker of this Note, nor the
consummation by Maker of the transactions contemplated hereby, nor compliance by
Maker with any of the provisions hereof will (i) violate or conflict with any
provision of the Certificate or Articles of Incorporation or By-laws of the
Maker, (ii) result in a violation of any order, writ, injunction, decree,
judgment, ruling, law, rule, or regulation, of any court or governmental
authority, applicable to Maker, (iii) result in the breach of or otherwise
affect any of the terms, conditions, or provisions of, any note, bond, mortgage,
indenture, deed of trust, license, franchise, permit, contract, agreement, or
other instrument or commitment or obligation of Maker, or (iv) except for
filings that may be made under the securities laws and with NASDAQ, require any
consent, approval, or authorization of, or notice to, or declaration, filing, or
registration with, any governmental or regulatory authority or any other person,
except for such consents, approvals, authorizations, notices, declarations,
filings or registrations which have been obtained, given or made, as the case
may be, and which are unconditional and in full force and effect.
(d) Maker is a corporation duly organized, validly existing, and in
good standing under the laws of the State of Colorado and is qualified to do
business in the jurisdictions where the nature of its business or properties
makes such qualification necessary. Maker has all requisite corporate power and
authority to own, operate, and lease its properties and to carry on its business
as now being conducted.
(e) As of the date hereof, there are issued and outstanding not more
than 41,850,000 shares of Maker's common stock on a fully diluted basis
(including as if issued shares issuable under outstanding warrants, options,
convertible debt and other securities and rights convertible into or
exchangeable for Maker's equity securities) and such shares are the only shares
of Maker's equity securities of any class or series that are issued and
outstanding on the date hereof.
(f) Maker is not in default (and no event of default has occurred
which with notice or lapse of time, or both, will result in a default) under any
material agreements, mortgages, deeds of trust, leases, franchises, indentures
or other instruments to which maker is a party or by which either or any of its
properties may be bound. Maker is not in default on any of its material
obligations.
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(g) There is no litigation, governmental investigation or proceeding
pending, or to Maker's knowledge, threatened against Maker or any of its
property, nor any reasonable grounds for any such litigation, the results of
which, if decided adversely, might materially affect the financial condition,
property or business of Maker.
9. The following shall constitute an "Event of Default" within the meaning
of this Note:
(a) Maker shall fail or refuse to make any payment of principal or
interest with respect to this Note when the same shall become due; or
(b) Any of the representations or warranties of Maker made or deemed
to be made in this Note or in any written agreement between Maker and Payee
(including without limitation the Warrants) shall prove to have been false or
misleading in any material respect when so made or deemed to be made; or
(c) Maker shall default in the due observance or performance of any of
the covenants or conditions contained in this Note or in respect of any of its
obligations under the terms of any written agreement between Maker and Payee
(including without limitation the Warrants) and such default shall continue for
10 days following written notice thereof to Maker; or
(d) an event shall occur which constitutes, or, upon the sending of
notice or the passage of time or both, would constitute, a breach or default
with respect to the payment of principal or interest under any other
indebtedness of Maker; or
(e) an event shall occur which constitutes a breach or default (after
any applicable grace periods), other than with respect to the payment of
principal or interest, under any other indebtedness of Maker; or
(f) an event shall occur which constitutes a breach or default (after
any applicable grace periods) under the terms of any agreement or instrument
between Maker and any third party as a result of which Maker is rendered
potentially liable for an amount in excess of $25,000 or giving such third party
rights of acceleration or similar rights (whether or not exercised) against
Maker or its property with respect to any indebtedness in an amount of excess of
$25,000; or
(g) Maker shall make a general assignment for the benefit of its
creditors, the adjudication in bankruptcy of the Maker; the admission in writing
of its inablity to pay its debts as they become due or the filing of a voluntary
petition by the Maker under any of the provisions of the United States
Bankruptcy Code; the filing of any answer or other pleading admitting the
material allegations of any petition filed against the Maker in any bankruptcy ,
insolvency or other such proceeding; the filing of a petition against the Maker
under any of the provisions of any bankruptcy laws of the United States or
similar laws of any jurisdiction and the failure of such petition to be
dismissed within thirty days; or the petition for, or the appointment of, or
possession by, a custodian, receiver, liquidator, assignee, trustee or
sequestrator (or other similar official) of the Maker or any substantial part of
its properties or assets.
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10. In the event of the occurrence of an Event of Default described in
paragraphs (a), (b), (c), (d), (e), or (f) of Section 9 hereof, Payee may, by
notice in writing to Maker, declare the principal of this Note and all interest
accrued thereon to be immediately due and payable; and in the event of the
occurrence of an Event of Default described in paragraph (g) of Section 9
hereof, the principal of this Note and all interest accrued thereon shall
automatically become immediately due and payable, in each case without
presentment, demand, protest or any notice of any kind, all of which are hereby
waived.
11. Maker shall pay all out-of-pocket expenses (including reasonable
attorneys' fees and expenses) incurred by Payee in connection with the
enforcement or protection of Payee's rights hereunder and under any documents or
agreements entered into between Maker and Payee in connection herewith,
including without limitation those expenses and fees which may be incurred in
connection with appellate proceedings and/or with the appointment of a receiver
and all appearances in bankruptcy, reorganization, arrangement or similar
insolvency proceedings.
12. This Note shall remain in full force and effect and continue to be
effective should any petition be filed by or against Maker for liquidation or
reorganization, should Maker become insolvent or make an assignment for the
benefit of creditors or should a receiver or trustee be appointed for all or any
significant part of Maker's assets, and shall continue to be effective or be
reinstated, as the case may be, if at any time payment and performance of
Maker's obligations hereunder, or any part thereof, is, pursuant to applicable
law, rescinded or reduced in amount, or must otherwise be restored or returned
by any obligee of Maker's obligations hereunder, whether as a "voidable
preference," "fraudulent conveyance," or otherwise, all as though such payment
or performance had not been made. In the event that any payment, or any part
thereof, is rescinded, reduced, restored or returned, Maker's obligations
hereunder shall be reinstated and deemed reduced only by such amount paid and
not so rescinded, reduced, restored or returned.
13. This note shall in all respects be governed by the laws of the State of
New York applicable to contracts made and to be performed entirely within such
State. This Note may not be altered or amended, except by a writing duly signed
by the party against whom such alteration or amendment is sought to be enforced.
14. From and after the date of this Note, the outstanding Principal Amount
may be prepaid by Maker, in whole or in part, on written notice given by Maker
to Payee specifying the date of prepayment ("Prepayment Date"), which shall be
not less than three (3) business days following receipt of notice (determined in
accordance with Section 21 hereof). On the Prepayment Date, Maker shall pay to
Payee the Principal Amount to be prepaid plus accrued and unpaid interest
thereon to and including the prepayment Date and Payee shall return this Note to
Maker. In the event of a prepayment hereunder of less than the entire Principal
Amount then outstanding, then promptly upon such partial prepayment, Maker shall
issue and deliver to Payee a new Note, of like tenor hereto, equal in principal
amount to the unpaid Principal Amount of this Note.
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15. Any waiver by the holder hereof of any right or remedy hereunder on any
one occasion shall not be construed as a bar to any right or remedy which the
holder hereof would otherwise have had on any future occasion. No failure to
exercise nor any delay in exercising on the part of the holder hereof, any
right, power or privilege hereunder, shall operate as a waiver thereof, nor
shall any single or partial exercise of any right, power or privilege hereunder
preclude any other or future exercise thereof or the exercise of any other
right, power or privilege. The rights and remedies hereunder provided are
cumulative and may be exercised singly or concurrently, and are not exclusive of
any rights and remedies provided by law. In the event of any litigation with
respect to this Note, Maker hereby waives (to the extent permitted by law) the
right to trial by jury.
16. This Note and all obligations of Maker hereunder shall be binding upon
the successors and assigns of Maker, and shall, together with the rights and
remedies of holder hereunder, inure to the benefit of holder, and its successors
and assigns.
17. Any provision of this Note which is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or enforceability without invalidating the remaining provisions
hereof, and any such prohibition or unenforceability of such provision in any
jurisdiction shall not affect the validity or enforceability of such provision
in any other jurisdiction.
18. Maker hereby agrees that it will execute and deliver to Payee any and
all documents, in addition to those expressly provided for in this Note, all in
form and substance satisfactory to payee in Payee's sole discretion, that may be
reasonably necessary or appropriate to carry out the purposes of this Note and
the transactions contemplated hereby.
19. Maker hereby waives presentment for payment, demand, notice of
dishonor, notice of protest and protest and diligence in taking any action to
collect amounts due hereunder.
20. All notices hereunder shall be sent via Federal Express or similar
overnight courier providing for "next day" delivery, and notices shall be deemed
delivered on the day following deposit with such service. Either party may, by
written notice to the other, change the address to which notices and other
communications should be sent.
CHAPARRAL RESOURCES, INC.
By: /s/ Paul V. Hoovler
-----------------------------
Name: Paul V. Hoovler
Title: President
