As Filed with the Securities and Exchange Commission on August 8, 1996.
Registration No. 333-7779
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------
POST-EFFECTIVE AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933
-------------------------
CHAPARRAL RESOURCES, INC.
----------------------------------------------------
(Exact name of registrant as specified in its charter)
Colorado 1311 84-0630863
--------------------- --------------------------- -----------------
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction of Classification Code Number) Identification No.)
incorporation or
organization)
PAUL V. HOOVLER
621 Seventeenth Street, Suite 1301 621 Seventeenth Street, Suite 1301
Denver, Colorado 80293 Denver, Colorado 80293
(303) 293-2340 (303) 293-2340
----------------------------------------- -----------------------------------
(Address, including zip code, and (Name, address, including zip code,
telephone number, including area code, and telephone number, including
of registrant's principal executive area code, of agent for service)
offices)
With Copies to:
Thomas S. Smith, Esq.
Alan W. Peryam, Esq.
Hopper and Kanouff, P.C.
1610 Wynkoop Street, Suite 200
Denver, Colorado 80202
(303) 892-6000
<PAGE>
<TABLE>
<CAPTION>
CHAPARRAL RESOURCES, INC.
Cross Reference Sheet
PART I
INFORMATION REQUIRED IN THE PROSPECTUS
Item
Number Form S-1 Item Number Caption or Location in Prospectus
- ------ -------------------- ---------------------------------
<S> <C> <C>
1. Forepart of the Registration Statement and Front of Registration Statement and Outside
Outside Front Cover of Prospectus Front Cover of Prospectus
2. Inside Front and Outside Back Cover Pages Inside Front and Outside Back Cover Pages of
of Prospectus Prospectus
3. Summary Information, Risk Factors, and Prospectus Summary and Risk Factors
Ratio of Earnings to Fixed Charges
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Price Not Applicable
6. Dilution Not Applicable
7. Selling Security Holders Selling Securityholders
8. Plan of Distribution Front Cover and Plan of Distribution
9. Description of Securities to be Registered Front of Registration Statement, Outside Front
Cover of Prospectus and Description of
Securities
10. Interests of Named Experts and Counsel Not Applicable
11. Information With Repect to the Registrant
(a) Description of Business Business
(b) Description of Property Business--Properties
(c) Legal Proceedings Not Applicable
(d) Market Price of and Dividends on the Market Prices of Common Equity, Dividend
Registrant's Common Equity and Related Policy and Related Stockholder Matters
Stockholder Matters
(e) Financial Statements Financial Statements
(f) Selected Financial Data Prospectus Summary
(g) Supplementary Financial Information Management's Discussion and Analysis of
Financial Condition and Results of Operations`
(h) Management's Dicsussion and Analysius of Management's Discussion and Analysis of
Financial Condition and Results of Opera- Financial Condition and Results of Operations
tions
(i) Changes in and Disagreements with Accoun- Not Applicable
tants on Accounting and Financial Disclosure
(j) Directors and Executive Officers Management
(k) Executive Compensation Executive Compensation
(l) Security Ownership of Certain Beneficial Security Ownership of Certain Beneficial
Owners and Management Owners and Management
(m) Certain Relationships and Related Transac- Certain Transactions
tions
12. Disclosure of Commission Position on Not Applicable
Indemnification for Securities Act Liabilities
</TABLE>
ii
<PAGE>
PROSPECTUS
CHAPARRAL RESOURCES, INC.
20,585,325 Shares of Common Stock
This Prospectus relates to the resale by the holders (the "Selling
Securityholders") named herein of up to 20,585,325 shares of the $0.10 par value
common stock ("Common Stock") of Chaparral Resources, Inc. ("Company"), of which
18,783,325 shares are currently issued and outstanding and 1,802,000 shares are
issuable upon the exercise of outstanding warrants ("Warrants") to purchase
shares of Common Stock. The shares of Common Stock offered hereby for resale and
the shares of Common Stock issuable upon exercise of Warrants were, or will be,
issued in private transactions by the Company. See "Plan of Distribution" and
"Selling Securityholders."
The Company will not receive any proceeds from the sale of Common Stock by
the Selling Securityholders. If all of the Warrants are exercised, of which
there is no assurance, the Company would receive proceeds of up to approximately
$207,000. There is no assurance that all or any portion of the Warrants will be
exercised. However, the holders of the Warrants will have to exercise the
Warrants in order to sell the shares of Common Stock underlying the Warrants
which are offered for resale hereby.
-------------------------------------
FOR INFORMATION CONCERNING CERTAIN FACTORS WHICH SHOULD BE CONSIDERED BY
PURCHASERS OF THE COMMON STOCK OFFERED HEREBY, SEE "RISK FACTORS" COMMENCING ON
PAGE 8 OF THIS PROSPECTUS.
-------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is August 12, 1996
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934 (the "Exchange Act"), and in accordance with the Exchange
Act files periodic reports and other information with the Securities and
Exchange Commission (the "Commission"). Such reports, proxy and information
statements and other information filed by the Company with the Commission can be
inspected and copied (at prescribed rates) at the Commission's Public Reference
Section, Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D. C.
20549, and at the Regional Offices of the Commission located at Northwestern
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511
and 7 World Trade Center, Suite 1300, New York, New York 10048. The commission
maintains a Web site that contains reports, proxy and information statements and
other information regarding the Company. The address of such site is
http://www.sec.gov. In addition, reports, proxy statements and other information
concerning the Company can be inspected and copied at the office of the National
Association of Securities Dealers, Inc. 9513 Key West Avenue, Rockville,
Maryland 20850-3389.
The Company has filed with the Commission a registration statement (the
"Registration Statement") under the Securities Act of 1933 (the "Securities
Act") with respect to the securities offered hereby. This Prospectus, which is
part of the Registration Statement, does not contain all of the information set
forth in the Registration Statement and the exhibits and schedules thereto,
certain items of which are omitted in accordance with the rules and regulations
of the Commission. For further information with respect to the Company and the
securities offered hereby, reference is hereby made to the Registration
Statement and such exhibits and schedules.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements and related notes appearing elsewhere in
this Prospectus. Certain oil and gas terms used in this Prospectus are defined
in the Glossary at page 38.
The Company
Chaparral Resources, Inc. ("Company"), which was incorporated under the
laws of the state of Colorado in 1972, is an independent oil and gas exploration
and production company based in Denver, Colorado. Historically, the Company has
produced and sold crude oil and natural gas to oil and gas purchasers in the
immediate area where the oil and gas is produced. The Company owns, acquires and
sells oil and gas leases and other mineral interests and drills and participates
with others in drilling and operating oil and gas fields and wells. The Company
attempts to obtain outside development capital on a joint venture basis and to
share the risk of its drilling with others engaged in the oil and gas business
by arranging farmouts to and from others. Most of the wells from which the
Company currently is receiving production are owned only partially by the
Company.
Until 1994, the Company's oil and gas activities were concentrated solely
in the United States. During early 1994, the management of the Company made a
strategic decision to pursue international oil and gas projects, with initial
emphasis on the Commonwealth of Independent States (the former Soviet Union).
Due to its involvement in the Karakuduk Oil Field Project in Kazakstan
("Karakuduk Field" or "Karakuduk Project") described below, the Company divested
its domestic working interest oil and gas properties other than one property
located in western Colorado and various small overriding royalty interests in 85
producing wells located in Colorado, North Dakota and Wyoming, from which
limited future revenue is anticipated. See "Business--Markets."
The Company has completed the acquisition of a net 45% beneficial interest
in Karakuduk Munay, Inc. ("KKM"), a Kazakstan joint stock company which holds a
governmental license to develop the Karakuduk Oil Field, a 16,900 acre oil field
in the Republic of Kazakstan which was discovered in 1972 with the drilling of
22 exploratory and development wells by the former Soviet Union. The Karakuduk
Field has never been commercially produced. The Company plans to pursue the
development and commercial production of the reserves of oil in the Karakuduk
Field. See "Properties."
The Company's address is 621 Seventeenth Street, Suite 1301, Denver,
Colorado 80293 and its telephone number is (303) 293-2340.
3
<PAGE>
<TABLE>
<CAPTION>
The Offering
<S> <C>
Common Stock Outstanding Prior to the Offering ....................... 37,476,517 shares
Total Possible Shares of Common Stock Outstanding
After the Offering ................................................... 39,178,517 shares including 1,702,000 shares
issuable upon the exercise of various
outstanding Warrants
Use of proceeds ...................................................... Proceeds from any exercise of Warrants will be
used by the Company for general corporate purposes
Securities being offered for resale by Selling
Securityholders ...................................................... 20,585,325 shares of Common Stock;
NASDAQ symbol ........................................................ CHAP for Common Stock
- -------------------
</TABLE>
The securities offered hereby involve a high degree of risk and should be
considered only by persons who can afford the loss of their entire investment.
See "Risk Factors."
4
<PAGE>
Selected Consolidated Financial Information
The following selected consolidated financial information for the years
ended November 30, 1991 through November 30, 1995, for the six months ended May
31, 1995 and 1996, and as of November 30, 1995 and May 31, 1996, respectively,
for the Company are derived from the financial statements of the Company and
should be read in conjunction with the Consolidated Financial Statements
appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
Six Months Ended
May 31, Year Ended November 30,
------------------- ------------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Oil and gas sales .............. $ 81,000 $ 136,000 $ 255,000 $ 374,000 $ 414,000 $ 492,000 $ 523,000
Total revenue* ................. 81,000 136,000 255,000 374,000 414,000 492,000 607,000
Noncash write-down of oil
and gas properties ........... -- -- 619,000 416,000 230,000 -- --
Net (loss) ..................... (340,000) (10,000) (704,000) (474,000) (123,000) (121,000) (154,000)
Net (loss) per
common share ................. (0.01) (0.00) (0.04) (0.02) (0.01) (0.01) (0.01)
Present value of proved
reserves ..................... Not available Not available 427,000 1,084,000 1,360,000 1,429,000 1,643,000
Proved oil reserves (bbls) ..... Not available Not available 66,185 111,690 141,748 105,973 209,136
Proved gas reserrves (mcf) ..... Not available Not available 3,062,417 3,294,730 2,305,142 1,485,556 1,321,377
- -----------------------
</TABLE>
*Certain reclassifications have been made to conform prior years'
information with the current year presentation.
<TABLE>
<CAPTION>
May 31, November 30,
1996 1995
Balance Sheet Data: ---------- -----------
<S> <C> <C>
Working capital .................................. $ 574,000 $ 366,000
Total assets ..................................... 15,535,000 5,595,000
Purchase commitment .............................. 1,225,000 - 0 -
Long-term obligations and deferred items ......... - 0 - 461,000
Shareholders' equity ............................. 14,035,000 4,920,000
</TABLE>
5
<PAGE>
RISK FACTORS
An investment in the Company's Common Stock is speculative and involves a
high degree of risk. The Common Stock should be purchased only by persons who
are sophisticated in financial matters and business investments. The following
factors, in addition to those discussed elsewhere in this Prospectus, should be
considered carefully before purchasing Common Stock of the Company.
1. Financial Condition and Need for Additional Financing. The Company has
incurred operating losses for each of its last five fiscal years, including a
loss in excess of $700,000 for the fiscal year ended November 30, 1995, and a
loss of $340,000 for the six months ended May 31, 1996. The Company presently
lacks financial resources to meet its expected cash requirements for the balance
of the fiscal year. The Company does not have significant income-producing
properties and one of its principal assets, an interest in the Karakuduk Field,
is substantially undeveloped, and development will require substantial amounts
of additional capital. The license to KKM specifies that a minimum work plan of
approximately $10 million in 1996, $34 million in 1997 and $12 million in 1998
be established, which must be expended unless waivers or deferrals are obtained
from the licensing authority. The Company's subsidiary must provide funds
required by KKM to satisfy the work plan in order to maintain the Company's
interest in the Karakuduk Project. The Company will be required to raise
additional capital to finance the obligations under the license for the
Karakuduk Project, and to satisfy working capital needs. The Company may seek to
raise additional capital through debt or equity offerings, encumbering
properties or entering into arrangements whereby certain costs of exploration or
development will be paid by others to earn an interest in the properties. The
present environment for financing of small oil and gas companies, or the ongoing
obligations of an oil and gas business, or the acquisition of oil and gas
properties, is uncertain due, in part, to the substantial instability in oil and
gas prices in recent years. There can be no assurance that the additional debt
or equity financing expected to be necessary to fund the Company's operations
and obligations will be available to the Company on economically acceptable
terms. If sufficient funds cannot be raised to meet the Company's obligations
with respect to the Karakuduk Project, its interest in such property might be
adversely affected. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations of the Company" and "Properties."
2. Risks Inherent in Oil and Gas Exploration. There can be no assurance
that the Company, through KKM, will be able to discover, develop and produce
sufficient reserves in the Karakuduk Field, or elsewhere, to recover the
expenses incurred in connection with the exploration thereof and achieve
profitability. The odds against discovering commercially exploitable oil or gas
reserves are always substantial and, in the case of the Company, will be
increased as a result of the concentration of its activities in areas that have
not yet been significantly explored and where political or other unknown
developments could adversely affect commercialization. The Company, through KKM,
will be required to perform expensive geological and/or seismic surveys with
respect to its properties and, depending on the results of such surveys, only
subsequent drilling at substantial cost and high risk can determine whether
commercial development of the properties is feasible. Oil and gas drilling is
frequently marked by unprofitable efforts, not only from unproductive wells, but
also from productive wells which do not produce sufficient amounts to return a
profit on the amount expended, and from developed oil or natural gas reserves
which cannot be marketed. The Company will be subject to all of the risks
normally incident to drilling for and producing oil and gas, including such
events as blowouts, cratering, fires or accidents, any of which could result in
damage to or loss of life and property. In accordance with industry practice,
the Company is not fully insured against these risks, nor are all such risks
insurable.
3. Risks Inherent in Foreign Operations. Because of the Company's interest
in KKM and the Karakuduk Project, the Company will be subject to certain risks
inherent in the ownership and development of foreign properties, including
without limitation, cancellation or renegotiation of contracts, royalty
increases, tax increases, retroactive tax claims, expropriation, adverse changes
in currency values, foreign exchange controls, import and export regulations,
environmental controls, and other laws and regulations which may adversely
affect the Company's interest in the Karakuduk Project. The Company's operations
and agreements will also be governed by laws of the Republic of Kazakstan and
other foreign and international law. In the event of a dispute, the Company may
6
<PAGE>
be subject to the exclusive jurisdiction of foreign courts or arbitration
tribunals, or may not be successful in subjecting foreign persons to the
jurisdiction of courts in the United States. In addition, the Company might be
hindered or prevented from enforcing its rights with respect to a government
agency, instrumentality or other entity because of various foreign laws or
practices.
The Company has no prior experience operating in any foreign country,
including the Republic of Kazakstan, and may encounter unexpected difficulties
in conducting foreign operations. Although the Company believes that the recent
and continuing political, social and economic developments in Kazakstan have
created opportunities for foreign investment, uncertainty continues to exist
about the economic stability of the Commonwealth of Independent States,
including the Republic of Kazakstan.
The Company has endeavored to protect itself from certain risks by seeking
reasonable political risk insurance against certain political and commercial
risks, but there is no certainty that the steps taken will provide adequate
protection to the Company's endeavors in Kazakstan. See "Business--Risks of
Foreign Operation."
4. Risks of Joint Ventures; Risks Associated With Indirect Investments. The
exploration and development of the Company's Kazakstan property is governed by
the terms of an agreement (the "1995 Agreement") between KKM and the Ministry of
Oil and Gas Industry for Kazakstan, a license issued June 28, 1995 to KKM (the
"Kazakstan License") from the Republic of Kazakstan, and the terms of a joint
venture agreement between Central Asian Petroleum (Guernsey) Limited ("CAP-G")
and KKM. CAP-G is presently owned 90% by the Company and the Company has an
option to acquire the balance of CAP-G by December 1997. The 1995 Agreement
requires KKM to advance 100% of the costs required for development of the
Karakuduk Field and the joint venture agreement requires CAP-G to loan to KKM
all such costs. There can be no assurance that the minority stockholder of
CAP-G, or any successor, will contribute or will be in a position to contribute
his proportionate share of the costs and expenses for either entity. The Company
expects to assume all financing obligations or risk the forfeiture of the
property. The 1995 Agreement and the Kazakstan License include numerous
requirements which must be met to maintain the interest in the Karakuduk Field.
In addition, the Company's ability to utilize any revenue generated by the
successful development of the Karakuduk Field and marketing of any petroleum
produced, held indirectly and beneficially by the Company through CAP-G and KKM,
may be limited. Limitations may result from governmental or other restrictions
which may prevent or inhibit shipment or sale of petroleum products produced, or
the distribution of funds from KKM to CAP-G or from CAP-G to the Company. See
"Business--Karakuduk Project."
5. Competition. Oil and gas exploration is extremely competitive. The
Company must compete with many long-established oil companies and with
independent operators in acquiring properties both in and out of the United
States suitable for exploration, in contracting for drilling, equipment, such as
drilling rigs, and in securing trained personnel, particularly in Kazakstan.
There can be no assurance that the Company will be able successfully to compete
for the services and supplies necessary to develop its properties.
6. Markets. There is substantial uncertainty as to the prices at which
reserves of oil and gas produced by the Company, if any, may be sold. It is
possible that, under the market conditions prevailing in the future, the
production and sale of oil or natural gas from the Karakuduk Field may not be
commercially feasible. The availability of a ready market and the price obtained
for oil and gas produced depends upon numerous factors beyond the control of the
Company. The current market for oil and gas is characterized by instability
which has caused fluctuations in both oil and gas prices in recent years and
there can be no assurance of any price stability in the near future.
7. Limitations on Accuracy of Reserve Estimates. This Prospectus and the
Consolidated Financial Statements include unaudited information concerning the
Company's estimated oil and gas reserves. Estimates of reserves may vary
substantially depending, in part, on the assumptions made and may be subject to
adjustment either up or down in the future. The actual amounts of production,
revenue, taxes, development expenditures, operating expenses, and quantities of
recoverable oil and gas reserves to be encountered may vary substantially from
the estimates. Oil and gas reserve estimates are necessarily inexact and involve
matters of subjective engineering judgment. In addition, the Company's reserves
may be subject to downward or upward revision, based upon production history,
results of future exploration and development, prevailing oil and gas prices and
7
<PAGE>
other factors. If these estimates of quantities, prices and costs prove
inaccurate, the Company is unsuccessful in expanding its oil and gas reserves
base with its capital expenditure program, and/or declines in and instability of
oil and natural gas prices occur, then writedowns in the capitalized costs
associated with the Company's oil and gas assets may be required. Investors
should also note the different categories of reserves and that the category of
"proved undeveloped" reserves carries substantially more risk than the category
of "proved developed" reserves. In the case of the Karakuduk Field, the Company
does not consider any reserves of oil and gas to be proven and does not include
in its other estimates of proven reserves any amount attributable to the
Karakuduk Field.
8. Development Risks and Production. A portion of the Company's oil and gas
reserves are proved undeveloped reserves. Successful development and production
of such reserves, although they are categorized as "proved," cannot be assured.
Additional drilling will be necessary in future years both to determine
production, to maintain production levels and to define the extent and
recoverability of existing reserves. There is no assurance that the proposed oil
and gas wells of the Company will produce at anticipated rates of production,
that development drilling will be successful, that production of oil and gas
will commence when expected, that there will be favorable markets for oil and
gas which may be produced in the future or that production rates achieved in
early periods can be maintained.
9. Price Volatility. The revenues generated by the Company and estimated
future net revenue are highly dependent upon the prices of oil and natural gas.
The energy market makes it difficult to estimate future prices of oil and
natural gas. For instance, the price of oil dropped from approximately $18.00
per barrel as of November 30, 1992, to less than $12.00 per barrel as of
November 30, 1993. The Company's average collected prices for oil in 1994 was
$12.75 per barrel and for natural gas was $1.44 per thousand cubic feet ("mcf")
and for 1995 were $14.27 and $1.02, respectively. On June 1, 1996, the posted
price for oil near the Company's one domestic producing property was $20 per
barrel and for natural gas was approximately $1.05 per mcf. The reserve
valuations shown in the Prospectus are based on the November 30, 1995 prices of
$15.50 per barrel of oil and $1.00 per mcf of natural gas. Various factors
beyond the control of the Company affect prices of oil and natural gas,
including worldwide and domestic supplies, and demand for, oil and natural gas,
the ability of the members of the Organization of Petroleum Exporting Countries
("OPEC") to agree to and maintain oil price and production controls, political
instability or armed conflict in oil-producing regions, the price of foreign
imports, the level of consumer demand, the price and availability of alternative
fuels, the availability of pipeline capacity and changes in existing federal
regulation and price controls. As in the past, it is likely that oil and gas
prices will continue to fluctuate in the future which may adversely affect the
Company's business.
10. Government Regulation and Environmental Risks. The production and sale
of gas and oil are subject to a variety of federal, state and local government
regulations, including regulations concerning the prevention of waste, the
discharge of materials into the environment, the conservation of natural gas and
oil, pollution, permits for drilling operations, drilling bonds, reports
concerning operations, the spacing of wells, the unitization and pooling of
properties, and various other matters, including taxes. Many jurisdictions have
at various times imposed limitations on the production of gas and oil by
restricting the rate of flow for gas and oil wells below their actual capacity
to produce. In addition, many states have raised state taxes on energy sources
and additional increases may occur, although increases in state energy taxes
would have no predictable effect on natural gas and oil prices. In Kazakstan,
the Company expects to encounter a myriad of government and political
regulation. The Company believes it is in substantial compliance with applicable
environmental and other government laws and regulations, however, there can be
no assurance that significant costs for compliance will not be incurred in the
future. At present, it cannot be determined to what degree stricter regulations
would adversely impact the Company's operations.
11. Dependence On Management. The Company is dependent upon the expertise
and abilities of its current officers. If the Company loses the services of any
one of its officers as a result of disability, death, or otherwise, its business
could be adversely affected until a replacement could be found.
12. No Dividends. The Company has paid no cash dividends on its Common
Stock since incorporation. At the present time, the Company does not anticipate
paying any dividends on its Common Stock in the foreseeable future. Any future
dividends will depend upon the earnings, if any, of the Company, its financial
requirements and other factors.
13. Outstanding Warrants. As of August 8, 1996, the Company had outstanding
warrants entitling the holders to purchase a total of 2,702,000, shares of the
Company's Common Stock. The exercise prices of the outstanding warrants range
from $0.00001 per share to $0.40 per share. The holders of the outstanding
8
<PAGE>
warrants might have the opportunity to profit from a rise in the market price
(of which there is no assurance) of the shares of the Company's Common Stock
underlying the warrants, and their exercise may dilute the ownership interest in
the Company held by other shareholders. Shares of Common Stock underlying all
outstanding warrants have been registered for resale. Resales of Common Stock
issued upon exercise of warrants could adversely effect the market price for
Common Stock.
14. Risks Associated With Forward-Looking Statements. This Prospectus
contains certain forward-looking statements within the meaning of Section 27A of
the Securities Act and Section 21E of the Exchange Act and the Company intends
that such forward-looking statements be subject to the safe harbors for such
statements under such sections. The Company's forward-looking statements include
the plans and objective of management for future operations, including plans and
objectives relating to the Karakuduk Project and future performance of the
Company. The forward-looking statements and associated risks set forth in this
Prospectus include or relate to the (i) success of the Company in developing,
producing and selling expected reserves of oil in the Karakuduk Field, (ii)
success of the Company in raising required financing to meet the funding
obligations for KKM, (iii) success of the Company in producing and marketing
proven oil and natural gas reserves and (iv) success of the Company in improving
its overall financial operating results.
The forward-looking statements herein are based on current expectations
that involve a number of risks and uncertainties. Such forward-looking
statements are based on assumptions that the Company will have adequate
financial resources to fund the development of the Karakuduk Field, that
significant reserves of oil will be developed in the Karakuduk Field which can
be readily and profitably marketed, and that there will be no material adverse
change in the Company's operations or business. The foregoing assumptions are
based on judgment with respect to, among other things, oil and natural gas
reserve information available to the Company, future economic, competitive and
market conditions and future business decisions, all of which are difficult or
impossible to predict accurately and many of which are beyond the Company's
control. Accordingly, although the Company believes that the assumptions
underlying the forward-looking statements are reasonable, any such assumption
could prove to be inaccurate and therefore there can be no assurance that the
results contemplated in forward-looking statements will be realized. In
addition, as disclosed elsewhere in the "Risk Factors" section of this
Prospectus, there are a number of other risks presented by the Company's
business and operations which could cause the Company's financial performance to
vary markedly from prior results or results contemplated by the forward-looking
statements. Management decisions, including budgeting, are subjective in many
respects and periodic revisions must be made to reflect actual conditions and
business developments, the impact of which may cause the Company to alter its
capital investment and other expenditures, which may also adversely affect the
Company's results of operations. In light of significant uncertainties inherent
in forward-looking information included in this Prospectus, the inclusion of
such information should not be regarded as a representation by the Company or
any other person that the Company's objectives or plans will be achieved. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operation of the Company" and "Business."
USE OF PROCEEDS
The Company intends to use the net proceeds, if any, from exercise of the
Warrants for general corporate purposes. It is uncertain when, if ever, the
Company will receive proceeds from exercise of the Warrants. See "Selling
Securityholders," "Description of Securities" and "Plan of Distribution."
MARKET PRICES OF COMMON EQUITY, DIVIDEND POLICY AND
RELATED STOCKHOLDER MATTERS
The Company's $0.10 par value common stock trades on the Nasdaq Small-Cap
Market under the symbol CHAR.
At July 1, 1996, the Company had approximately 2,100 shareholders of record
of its $0.10 par value common stock. No dividend has been paid on the Company's
common stock, and there are no plans to pay dividends in the foreseeable future.
The following table shows the range of high and low "real-time" trade
prices for each fiscal quarter of the Company since December 1, 1993, as
reported by the National Association of Securities Dealers, Inc.
9
<PAGE>
<TABLE>
<CAPTION>
Price Range
Trading Range -------------
Fiscal Quarter Ended High Low
-------------------- ----- ----
<S> <C> <C>
February 28, 1994 .............. 11/32 1/4
May 31, 1994 ................... 9/32 1/4
August 31, 1994 ................ 15/32 9/32
November 30, 1994 .............. 29/32 11/32
February 28, 1995.............. 23/32 5/8
May 31, 1995 .................. 7/8 21/32
August 31, 1995................ 11/16 15/32
November 30, 1995.............. 1 1/2
February 28, 1996.............. 1 11/32 11/16
May 31, 1996................... 1 11/32 1 1/32
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS OF THE COMPANY
Liquidity and Capital Resources
The Company's primary source of capital historically has been from oil and
gas sales. The Company had working capital of approximately $574,000 at May 31,
1996, for a working capital ratio of 1.3 to 1, an increase from $366,000 at
November 30, 1995 (when the Company had a working capital ratio of 2.7 to 1).
Net cash and cash equivalents increased $1,856,000 from November 30, 1995
to May 31, 1996, primarily due to completion of a private placement of
14,000,000 shares of Common Stock for net proceeds of $6,978,000.
The Company completed purchases of an additional 55% of CAP-G which owns a
50% interest in KKM, the holder of oil and gas properties in Kazakstan. The
additional 55% of CAP-G includes the purchase of all of the CAP-G shares owned
by Darka Petrol Ticaret Limited Sirketi, a private Turkish company ("Darka") in
one transaction, all of the shares owned by Guntekin Koksal, an individual CAP-G
shareholder ("Koksal") in two separate transactions, each of which owned 25% of
the CAP-G shares outstanding, and all of the shares owned by a private
corporation in the United States which owned 5% of CAP-G. The Company paid a
total of $3,000,000 and 1,585,000 shares of the Company's common stock during
the six months ended May 31, 1996 to complete these transactions.
The Company paid $306,250 in June and has a remaining cash balance of
$918,750 due for the initial purchase of Koksal's 15% of CAP-G, which is to be
paid in three quarterly payments of $306,250 between September 11, 1996 and
March 11, 1997.
With the completion of the foregoing transactions the Company's beneficial
ownership interest in CAP-G increased to 90% and its beneficial ownership
interest in KKM and the Karakuduk Oil Field to 45%.
The Company also has an option to acquire the remaining 10% of CAP-G shares
owned by Koksal for an additional $1,625,000 and 200,000 shares of the Company's
common stock at any time following completion of the initial purchase and prior
to December 11, 1997. If the Company elects to exercise this option, the
Company's ownership in CAP-G will ultimately increase to 100%, thus increasing
to 50% the Company's beneficial ownership interest in KKM and the Karakuduk
Field.
10
<PAGE>
The Company does not have significant income producing properties and the
Karakuduk Field is substantially undeveloped. The development of the Karakuduk
Field, through KKM, will require substantial amounts of additional capital. The
terms of the license held by KKM require annual work plans of approximately $10
million in 1996, $34 million in 1997 and $12 million in 1998 which requirements
may be waived or modified only by the licensing authority. The Company's
subsidiary, CAP-G, must advance all of the amounts necessary to complete the
work plan for the Karakuduk Field development. Approximately $1.77 million has
been paid through June 1996, and the balance of amounts necessary to complete
the 1996 development work is to be paid by CAP-G during 1996. The Company is the
sole source of capital for CAP-G. The Company also expects substantial
additional annual expenditures of approximately $1.0 million per year or more
for political risk insurance for the Karakuduk Project. See "Business--Risks of
Foreign Operations." KKM will notify the Company of CAP-G's additional capital
requirements on an as needed basis.
In January 1996, the Company received $300,000 in proceeds from two private
unsecured loans from two private investors which were applied towards CAP-G
acquisition costs. In April 1996, the two note holders converted their
promissory notes into 600,000 shares of the Company's common stock.
The Company received net proceeds of $6,978,000 from a private placement of
14,000,000 shares of the Company's common stock during the six months ended May
31, 1996. In connection with the private placement, the Company issued a warrant
to purchase 1,022,000 shares of the Company's common stock for a nominal amount
to the placement agent and paid $22,000 of the placement agent's expenses. To
date, the Company has used the proceeds from the private placement to complete
the acquisitions of CAP-G described above, to repay borrowings and to pay a
portion of CAP-G's share of the second quarter budget for the Karakuduk Field.
The Company estimates that the balance of the net proceeds will be used to make
the 1996 payments due Mr. Koksal to complete the initial purchase of stock of
CAP-G, to pay the remaining portion of the second quarter budget for the
Karakuduk Field and for working capital and other corporate purpose. The
Company's present cash and other capital resources will not be sufficient to
fund the obligations of CAP-G to pay the Karakuduk Field development expenses
expected to be incurred by KKM.
The Company has raised capital to finance a portion of its obligations in
connection with the acquisition of its interest in CAP-G and the development of
the Karakuduk Field and to satisfy working capital needs in the short term. The
Company plans to meet its additional capital needs through debt or equity
offerings, encumbering properties or entering into arrangements whereby certain
costs of development will be paid by others to earn an interest in the
properties, or sale of a portion of the Company's interest in the Karakuduk
Project. The present environment for financing the acquisition of oil and gas
properties or the ongoing obligations of an oil and gas business is uncertain
due, in part, to the substantial instability in oil and gas prices in recent
years. The Company's small size and the early stage of development of the
Karakuduk Project may also increase the difficulty in raising needed financing.
There can be no assurance that the debt or equity financing expected to be
necessary to continue to fund the Company's operations and obligations will be
available to the Company on economically acceptable terms. If sufficient funds
cannot be raised to meet the continuing obligations with respect to the
Karakuduk Project, the Company's interest in such property might be adversely
affected.
The Company has no other material commitments for cash outlay and capital
expenditures other than for normal operations.
Results of Operations for the Six Months Ended May 31, 1996 and 1995
The Company's operations resulted in a net loss of $331,000 in 1996
compared to a net loss of $10,000 during the same period in 1995.
11
<PAGE>
Revenues from oil and gas sales decreased $55,000 or 40.4% due to lower
natural gas prices, certain producing properties being shut-in due to pricing
and sale or abandonment of certain producing properties during 1995.
Cost and expenses increased $199,000 or 105.9%. Production costs decreased
$59,000 or 88.1% due to reimbursement of production taxes from certain natural
gas producing properties which offset current costs, shut-in of certain
producing properties due to pricing and sale or abandonment of certain producing
properties during 1995. Depreciation and depletion decreased by 36.1% or $22,000
due to reduced depletion expenses as a result of the write-down of oil and gas
properties at fiscal year-end 1995. General and administrative expenses
increased $280,000 or 466.7% due to costs related to the operation of the
Company's interest in the Karakuduk Field.
Interest expense increased to $28,000 due to interest paid by the Company
on certain promissory notes.
Results of Operations Fiscal 1995 Compared with Fiscal 1994
The Company's operations during fiscal 1995 resulted in a loss of $719,000
primarily due to a noncash write-down of oil and gas properties of $619,000 for
fiscal 1995. Due to the noncash write-down, the net loss for fiscal 1995 was
$704,000 compared to a net loss of $474,000 during fiscal 1994. The noncash
write-down was primarily the result of the decreased value of estimated future
net values of proved reserves due to lower gas prices during the fourth quarter
of fiscal 1995 (see Note M, Notes to Consolidated Financial Statements), and the
sale of proved reserves during 1995.
Revenue from oil and gas sales decreased $119,000 or 31.8% from $374,000 in
fiscal 1994 due to lower production, lower crude oil and natural gas prices and
sale or abandonment of certain producing properties.
Costs and expenses increased $91,000, or 20.4% during fiscal 1995,
excluding the noncash write-down of oil and gas properties. Production costs
decreased by 50.4% to $115,000 in fiscal 1995 due to the sale of certain
properties and shut-in of certain properties due to lower natural gas prices.
Depreciation and depletion also decreased by 38.3% to $74,000 for the same
reasons that production decreased. General and administrative expenses increased
$72,000, or 76.6% in fiscal 1995 due to the costs related to the acquisition and
operation of the Company's interest in the Karakuduk Field.
Results of Operations Fiscal 1994 Compared with Fiscal 1993
The Company's operations resulted in a loss of $488,000 in fiscal 1994 due
to a noncash write-down of oil and gas properties of $416,000 for fiscal 1994.
Due to the noncash write-down, the net loss for fiscal 1994 was $474,000
compared to a net loss of $123,000 for fiscal 1993. The noncash write-down was
primarily the result of the decreased value of estimated future net values of
proved reserves due to lower gas prices during the fourth quarter of fiscal
1994. The charge will reduce future depletion expenses.
Revenues from oil and gas sales in fiscal 1994 decreased by $40,000 or 9.7%
from $414,000 in fiscal 1993 due to lower crude oil and natural gas prices.
In fiscal 1994 costs and expenses increased by $42,000, or 10.4% excluding
the $416,000 noncash write-down of oil and gas properties. Production costs
increased by 25.4% to $232,000 in fiscal 1994 due to additional production taxes
as a result of a federal audit and new wells placed on production. Depreciation
and depletion decreased by 4.0% to $120,000 in fiscal 1994 due to the
abandonment of certain producing oil and gas properties, sale of certain
producing oil and gas properties and the noncash write-down of oil and gas
properties. General and administrative expenses remained the same.
Inflation. The Company cannot control prices in its oil and gas sales and
to the extent the Company is unable to pass on increases in operating costs, it
may be affected by inflation.
12
<PAGE>
Quarterly Results
The following table presents selected unaudited quarterly operating results
for the second quarter of fiscal 1994 through the first quarter of fiscal 1996.
The Company believes that all necessary adjustments have been included in the
amounts stated below to present fairly the quarterly results when read in
conjunction with the Company consolidated financial statements and related notes
included elsewhere in this Prospectus. Results of operations in any particular
quarter are not necessarily indicative of results of operations for a full year
or predictive of future results.
<TABLE>
<CAPTION>
Fiscal 1996 Fiscal 1995 Fiscal 1994
------------- ----------------------------- ----------------------------
1st 2nd 1st 2nd 3rd 4th 1st 2nd 3rd 4th
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
(in thousands, except per share information)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue ............$ 34 $ 47 $84 $52 $64 $55 $103 $ 94 $ 95 $ 82
Income/(loss)
from
operations ....... (66) (249) (7) (45) 23 (71) (13) (107) 6 42
Income (loss)
before write-
down of oil
and gas
properties ....... (82) (258) (9) (1) 27 (102) (12) (66) 33 (13)
Write-down of
oil and gas
properties ....... 0 0 0 0 0 (619) 0 0 0 (416)
Net income/
(loss) ........... (82) (258) (9) (1) 27 (721) (12) (66) 33 (420)
Income/(loss)
per share ........ (.004) (.008) (.001) (.00) .001 (.04) (.001) (.004) .002 (.03)
</TABLE>
13
<PAGE>
BUSINESS OF THE COMPANY
Business
Chaparral Resources, Inc. ("Company"), which was incorporated under the
laws of the state of Colorado in 1972, is an independent oil and gas exploration
and production company based in Denver, Colorado. Historicall , the Company has
produced and sold crude oil and natural gas to oil and gas purchasers in the
immediate area where the oil and gas is produced. The Company owns, acquires and
sells oil and gas leases and other mineral interests and drills and participates
with others in drilling and operating oil and gas fields and wells. The Company
attempts to obtain outside development capital on a joint venture basis and to
share the risk of its drilling with others engaged in the oil and gas business
by arranging farmouts to and from others. Most of the wells from which the
Company currently is receiving production are owned only partially by the
Company.
Until 1994, the Company's oil and gas activities were concentrated solely
in the United States and the Company's remaining working interest property in
the United States is in the South Douglas Creek Field in the Piceance Creek
Basin of western Colorado, an area of multi-pay natural gas production. During
early 1994, the management of the Company made a strategic decision to pursue
international oil and gas projects, with initial emphasis on the Commonwealth of
Independent States (the former Soviet Union). Due to its involvement in the
Karakuduk Oil Field Project in Kazakstan ("Karakuduk Field" or "Karakuduk
Project") described below, the Company divested its domestic working interest
oil and gas properties other than one property located in western Colorado. The
Company also holds overriding royalty interests ranging from 0.03% to 10% in 85
producing wells located in Colorado, North Dakota and Wyoming, from which
revenue will be anticipated. See "Business--Markets."
The Company currently plans to continue to operate the South Douglas Creek
Field, incurring revenue and operating expenses, and continues to receive
revenue from producing wells. The South Douglas Creek Field contains 26
producing wells. During 1995 the combined flow rate of these wells has averaged
2,232 MCF of natural gas per day. The Company operates the 11,000 acre South
Douglas Creek Field and has an average of fifteen percent (15%) working interest
in the field area. The Company expects the South Douglas Creek Field to continue
to be a major area for development for the Company with more than 60 additional
locations in 10 sections (approximately 6,400 acres) identified for possible
drilling on 160-acre spacing. Drilling and gas gathering line construction are
limited to summer and fall months due to the rugged topography and high ground
elevations. Major natural gas pipeline systems are in place in the field and
multiple gas marketing opportunities exist to sell new production.
Karakuduk Project
In early September 1994, the Company signed a letter of intent with Central
Asian Petroleum, Inc., a Delaware corporation ("CAP-D"), and Overseas Consulting
Services Company, Inc. ("OCSCO"), both private companies based in Houston,
Texas, to jointly pursue the registration and development of the Karakuduk
Field, a shut-in oil field in the Republic of Kazakstan in central Asia,
discovered in the early 1970s but never placed on production.
In mid-September 1994, the Company acquired a 25% interest in Central Asian
Petroleum (Guernsey) Limited ("CAP-G"), with headquarters in Ankara, Turkey.
CAP-G has a 50% interest in Karakuduk Munay, Inc., a Kazakstan joint stock
company ("KKM"), which holds the right to develop the Karakuduk Field. In April
1995, the Company acquired all of the stock of CAP-D, which also owned an
interest in CAP-G, in exchange for 4,250,000 shares of the Company's Common
Stock, 1,250,000 of which are still held in an escrow account to be released
from time to time through June 30, 2000, upon the occurrence of certain events
related to development of the Karakuduk Field. See "Certain Relationships and
Related Transactions."
In April 1996, the Company completed transactions in which it acquired an
additional interest in CAP-G, bringing the Company's ownership in CAP-G to 90%
with the option to increase its ownership to 100% and thus increase to 50% the
Company's beneficial ownership in KKM and the Karakuduk Field. The other 50%
ownership in the Karakuduk Field is held by three Kazakstan government
controlled entities. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations of the Company."
14
<PAGE>
An agreement in 1993 with an agency of the Kazakstan government originally
gave KKM its rights to develop the Karakuduk Field. The 1993 agreement was
replaced with an agreement dated August 30, 1995 between KKM and the Kazakstan
Ministry of Oil and Gas Industry ("1995 Agreement"). In the meantime KKM had on
June 28, 1995 received a license from the Republic of Kazakstan to develop the
Karakuduk Field ("Kazakstan License").
CAP-G became a 50% owner of KKM in 1995 by agreeing to loan to KKM the
funding required to develop the Karakuduk Field and place it into production,
which agreements, among others, were set forth in the KKM Articles of
Association and a Founders Agreement in early 1995 (hereafter together referred
to as the "KKM Articles"). A portion of CAP-G's obligation is being satisfied by
furnishing certain consulting services to KKM for credit to the funding
obligation. The Company expects that it will be in a position to advance to
CAP-G all amounts required for KKM to complete the amount of work necessary to
maintain the Kazakstan License described below through 1996.
The Kazakstan License grants to KKM the right to use the subsurface for
exploration and production of hydrocarbons at the Karakuduk Field to a depth of
3,320 meters, the depth of the known petroleum reservoirs, and requires
evaluation and exploration through 1998 under work plans to expend $10 million
in 1996, $34 million in 1997 and $12 million in 1998. All amounts budgeted
through the second quarter of 1996 by KKM for such work plans have been
provided. It is not now known whether KKM will be in a position to meet the
minimum work plans requirements during the remainder of 1996 or during 1997 due
in substantial part to delays in obtaining all of the remaining governmental
permits, approvals, certificates and confirmations (hereafter "Government
Permits"), a majority of which have been obtained. The 1995 Agreement authorizes
KKM to defer the minimum work plan if KKM is unable to export production from
the Karakuduk Field, a provision which is not included in the Kazakstan License.
The Kazakstan 1995 Petroleum Law, adopted July 1, 1995, provides that provisions
of such contracts which contradict a license are invalid and the government of
Kazakstan may not permit a deferral based on that provision of the 1995
Agreement. However, assuming that KKM is continuing to take reasonable steps to
obtain the remaining necessary Government Permits to enable KKM to commence work
in the Karakuduk Field, the lack thereof should constitute force majeure and
allow deferral of at least a portion of the minimum work plan. However, there
are no assurances in this regard.
The 1995 Agreement provides that all production from the Karakuduk Field
shall go to KKM subject to an 8% royalty to the Republic of Kazakstan, an export
duty on exported petroleum products, applicable land taxes, usage payments to
surface right holders and similar obligations. The 1995 Agreement also clarifies
the right of CAP-G, a named third party beneficiary, to be repaid all amounts
loaned to KKM to fund the minimum work plan, together with interest, on a
quarterly basis, out of 65% of KKM's gross revenue after payment of government
royalties. The 1995 Agreement also establishes certain rights for KKM to operate
the Karakuduk Field, to use domestic and export transportation and pipeline
systems, obtain export quotas and licenses and credit against other value added
taxes from a portion of export sales prices received, the right to receive world
market prices for all Kazakstan domestic sales of production from the Karakuduk
Field, and other provisions common to such agreements. The term of the 1995
Agreement is 30 years, while the Kazakstan License has a 25 year term.
The KKM Articles set forth a number of provisions which establish that
CAP-G holds 50% of the shares of KKM, obligate CAP-G to loan to KKM all amounts
necessary to develop the Karakuduk Field which cannot be met by self-generated
income of KKM, and obligate KKM to repay CAP-G consistent with the provisions of
the 1995 Agreement. CAP-G is entitled to four (of a total of eight) members of
the KKM board and to control the work program and budget of KKM until amounts
loaned by CAP-G, together with interest, have been repaid, subject to KKM's
obligations to discharge its minimum work plan obligations under the Kazakstan
License. CAP-G has an effective veto on all other KKM business as the KKM
Articles require the vote of five board members or a majority of KKM shares to
approve matters presented to the board or KKM shareholders.
15
<PAGE>
Presently, the KKM Articles delegate to the board the right to determine
the payment of dividends to shareholders. The KKM Articles must be registered
with the Minister of Justice of Kazakstan prior to January 1, 1997, which may
require the KKM Articles to be revised to comply with certain Kazakstan
legislation, including delegation of determinations regarding dividends to
shareholders. The Company and CAP-G might, therefore, ultimately be unable to
require KKM to distribute profits, if any, earned by KKM from production from
the Karakuduk Field. Other changes to the KKM Articles could also be required to
properly register the KKM Articles under the legislation, some or all of which
could have an adverse affect on the rights of CAP-G. Under present law dividends
would be subject to a 15% dividend tax by the Republic of Kazakstan.
The 1995 Agreement, Kazakstan License and KKM Articles all contain
provisions requiring disputes to be resolved by arbitration in various
international arbitration forums.
The Kazakstan government has granted a license and entered into a contract
with another entity which might give the entity the exclusive rights to develop
a portion of the Karakuduk Field at depths below 3,320 meters, a depth which is
presently unexplored. The existence of such rights would limit any right of KKM
to explore for or develop any reserves below the depth set forth in its
Kazakstan License.
The exploration and development of the Karakuduk Field is also governed by
the 1995 Petroleum law and other legislation recently adopted or under
consideration in Kazakstan, and the terms of agreements with the other
shareholder of CAP-G and the joint venture agreement between CAP-G and KKM.
There can be no assurance that the CAP-G minority shareholder will contribute or
will be in a position to contribute his proportionate share of costs and
expenses for which he may be responsible. In addition, the Company's ability to
utilize any revenue generated by the successful development of the Karakuduk
Field held through CAP-G and KKM may be limited. Such limitations may result
from governmental restrictions which may prevent or inhibit the distribution of
funds from KKM to CAP-G or from CAP-G to the Company. See "Properties--Karakuduk
Field."
Uzbekistan Project
The Company has been negotiating an agreement pursuant to which the Company
would acquire 100% of the issued and outstanding capital stock of M-D
International Petroleum, Inc. ("MDI"), a private company of which the
shareholders include four directors of the Company (Messrs. Karren, Dilling,
Jeffs and McGee). At the time of the acquisition, the only asset of MDI would be
a 2% to 5% ownership interest in a joint venture that Enron Oil & Gas
Uzbekistan, Ltd. ("Enron") is attempting to negotiate for the development of
natural gas fields in Uzbekistan. It is currently contemplated that, if the
agreement is consummated, the Company would issue MDI's shareholders and Enron
approximately 6,000,000 shares of the Company's restricted common stock in
exchange for their MDI shares. Of these shares, the Company has committed to
issue 180,000 shares to Enron and the Company anticipates that approximately
1,000,000 shares would be issued at closing and the balance over a four to five
year period, depending upon the occurrence of certain events. There are no
assurances that the Company will be able to consummate the agreement to acquire
the shares of MDI or that Enron will be able to consummate a joint venture or
other arrangement for the natural gas fields in Uzbekistan. See "Certain
Relationships and Related Transactions."
Risks of Foreign Operations
Because of the Company's interest in KKM and the Karakuduk Field, the
Company will be subject to certain risks inherent in the ownership and
development of foreign properties, including without limitation, cancellation or
renegotiation of contracts, royalty increases, tax increases, retroactive tax
claims, expropriation, adverse changes in currency values, foreign exchange
controls, import and export regulations, environmental controls, and other laws
and regulations which may adversely affect the Company's interest in the
Karakuduk Field. The Company's operations and agreements will also be governed
by foreign laws. In the event of a dispute, the Company may be subject to the
exclusive jurisdiction of foreign courts or may not be successful in subjecting
16
<PAGE>
foreign persons to the jurisdiction of courts in the United States. In addition,
the Company might be hindered or prevented from enforcing its rights with
respect to a government instrumentality because of the doctrine of sovereign
immunity.
The Company has no prior experience operating in any foreign country,
including the Republic of Kazakstan, and may encounter unexpected difficulties
in conducting foreign operations. Although the recent and continuing political,
social and economic upheavals in Kazakstan have created opportunities for
foreign investment, substantial uncertainty exists about the stability of the
central Kazakstan government, the status of Kazakstan law and the autonomy of
the parties involved with the Company in Kazakstan.
The Company has endeavored to protect itself against the political and
commercial risks, but there is no certainty that the steps taken will provide
adequate protection. In this regard, the Company has applied with Overseas
Private Investment Corporation ("OPIC") for political risk insurance. OPIC
insurance has coverages for the following political risks, for the life of the
project:
o Currency Inconvertibility--deterioration of the investor's ability to
convert profits, debt service and other remittances from local
currency unto U.S. dollars;
o Expropriation--loss of an investment due to expropriation,
nationalization or confiscation by a foreign government;
o Political Violence--loss of assets or income due to war, revolution,
insurrection or politically motivated civil strife, terrorism and
sabotage; and
o Interference With Operations--loss of assets or income due to
cessation of operations lasting six months or more caused by political
violence.
The Company has applied with OPIC for all four political risk coverages on
the Company's investment in the Karakuduk Project in western Kazakstan. The
yearly premiums for each coverage will be determined once the actual contract of
insurance is issued to the Company, and would probably exceed $1 million per
year once the project is underway.
Under the terms of OPIC's Expropriation and Interference With Operations
insurance coverage, the Company must be able to transfer to OPIC the shares of
beneficial interests related to the insured investment, free and clear of all
encumbrances. There are certain restrictions on the transfer of shares and
assignment of the Company's beneficial interests in KKM. The Company is seeking
a waiver of the transfer restrictions from the shareholders of KKM and does not
anticipate problems in obtaining the waiver.
The Investment Committee of OPIC approved the Company's Karakuduk
operations for political risk insurance coverage by OPIC in December 1995. The
Company expects to receive the actual Contract of Insurance proposed by OPIC to
the Company during the summer of 1996. However, there are no assurances the
Company will ever receive political risk insurance coverage from OPIC or anyone
else, or that such issuance, if issued, will adequately protect the Company from
the risks insured.
Properties
The Karakuduk Field
The Karakuduk Field is located in the Mangistau Region of the Republic of
Kazakstan. KKM's 25 year license to develop the Karakuduk Field covers an area
of approximately 16,922.5 acres.
The Karakuduk Field is geographically located approximately 227 miles
northeast of the regional capital city of Aqtau, on the Ust-Yurt Plateau. The
closest settlement is the Say-Utes Railway Station approximately 38 miles
southeast of the field. The ground elevation varies between 590 and 656 feet
17
<PAGE>
above sea level. The region has a dry, continental climate, with fewer than 10
inches of rainfall per year. Mean temperatures range from -25 degrees Fahrenheit
in January to 100 degrees Fahrenheit in July. The operating environment is
similar to that found in northern Arizona and New Mexico in the United States.
The Karakuduk structure is an asymmetrical anticline located on the Aristan
Uplift in the North Ustyurt Basin. Oil was discovered on the structure in 1972,
when Kazakstan was a republic of the former Soviet Union, from Jurassic age
sediments between 8,500 and 10,000 feet. Twenty-two exploratory and development
wells were drilled to delineate the field, none of which was ever placed on
production. The productive area of the Karakuduk Field is 11,300 acres, with a
minimum of seven separate productive horizons present in the Jurassic formation.
Oil has been recovered in tests from all seven horizons within the Jurassic
formation with reported flow rates ranging from 3 to 966 barrels per day. The
Company estimates that the drilling of approximately 90 additional oil wells and
26 water injection wells will be required to fully develop the field. Peak oil
production from the field is expected to occur within seven years after
start-up, although the time or amount of development or production cannot
presently be assured.
The Karakuduk Field is approximately 19 miles north of the Mukat-Mangishlak
railroad, the Mangishlak- Astraghan water pipeline, the Beyneu-Uzen high voltage
utility lines, and the Uzen-Atrau-Samara oil and gas pipelines. KKM has the
right of priority to use the existing oil and gas pipeline facilities to
transport produced oil from the Karakuduk Field to the Baltic Sea ports of
Kainingrad and Vendsplis and/or the Black Sea port of Novorsiysk, thus offering
a potential world market for the produced crude oil. This priority use of
existing facilities is granted within the license issued by the Ministry of Oil
and Gas Industry of the Republic of Kazakstan. The planned development program
for the Karakuduk Field will include a secondary recovery operation that the
Company believes could result in additional recoverable reserves.
An international petroleum engineering group retained by the Company, has
reported to the Company after a review that an oil reserve report commissioned
by the Company which estimated that the Karakuduk Field has original oil in
place of 74 million barrels which could be considered proved, undeveloped, is
reasonable. However, neither the review or the reserve report considered the
potential adverse impact of marketability on price of any oil which might be
produced due to the remote location of the field or potential political
instability and, therefore, none of the reserves can presently be considered
proven. The production and marketing of the oil reserves will be subject to a
number of political, economic and other risks. See "--Karakuduk Project, --Risks
of Foreign Operations, --Markets and --Competition."
Because of uncertainties surrounding the prospect, no proved reserves have
been attributed to the field by the Company. The Karakuduk Project will require
significant development costs for which the financing is not complete. There can
be no assurance that the project will be adequately financed or that the field
will be successfully developed. The minimum work required by the Kazakstan
License, described above, if completed, is expected to be sufficient to
establish production and enable KKM to fund additional expenditures and to repay
advances from CAP-G.
The initial operating budget for KKM for 1995 required the Company, then a
minority owner of CAP-G, to pay $320,000 as its share of the budget for the
remainder of 1995. Through June 1996, the Company has advanced $1.77 million
toward 1996 budgeted expenditures.
The Karakuduk Field will be developed in phases. Work is to begin during
1996. Because of the uncertainty of the conditions of the existing wells, Phase
I expenditures are to include the recompletion of up to seven existing wells or
if, after work begins, it is determined that well conditions are unfavorable for
recompletions, new development wells will be drilled in the Karakuduk Field.
18
<PAGE>
The Company will be responsible for providing all of the funding necessary
for the completion of Phase I of the development, subject to the right of CAP-G,
which appoints one-half of the KKM governing board, to approve the budget.
The Company anticipates that produced crude oil will be transported by
tanker trucks over existing roads to the pumping station at the main pipeline
approximately 18 miles south of the Karakuduk Field. The oil would probably
either be sold to private international companies at this station or transported
via the Uzen-Atrau-Samara pipeline to world markets.
Management of the Company believes the risk-to-reward considerations
involved with the development of the Karakuduk Field are very positive and may
lead to substantial growth of the Company over the next several years. However,
the Company can provide no assurances that the Karakuduk Field will produce oil
in any amounts or that the Company will ever realize a profit as a result of the
Company's interest in the field.
All of the permits and licenses required to develop the field are not yet
in place and there is no assurance they will be obtained. No proved reserves
have been attributed to the field. The project will require significant
development costs for which the financing is not in place. There can be no
assurance that the project will be completed or that development will be
successful. Further, the Company will face all of the risks inherent in
attempting to develop an oil and gas property in a foreign country.
See also--"Management's Discussion and Analysis of Financial Condition and
Results of Operations of the Company."
Reserves. As detailed in "Disclosures About Oil and Gas Producing
Activities" following the Notes to Consolidated Financial Statements, estimated
quantities of the Company's proved oil reserves decreased 40.7% for the fiscal
year ended November 30, 1995, as compared to the previous fiscal year and
natural gas reserves decreased 7.1%. Reserves decreased due to production during
the year, the sale of certain producing properties and the abandonment of
certain properties which produced at uneconomic rates. The present value of the
Company's proved reserves decreased 60.9% at the fiscal year end November 30,
1995, as compared to the end of the previous fiscal year, due to lower natural
gas prices, production, the sale of proved reserves and abandonment of proved
reserves.
Production. The Company's production for the fiscal year ended November 30,
1995 was 8,224 barrels of oil and 132,924 MCF of natural gas. Oil production
decreased 27.1% from that during the fiscal year ended November 30, 1994.
Natural gas production decreased 16.4% from the previous fiscal year.
Productive Wells and Acreage. As of November 30, 1995, the Company had
interests in 65 gross productive oil wells (1.73 net oil wells) and 62 gross
productive gas wells (4.61 net gas wells). There are no multiple completion
wells. Production was from 45,775 gross (2,793 net) developed acres.
Undeveloped Acreage. The Company on November 30, 1995, held interests in
2,500 gross (690 net) undeveloped oil and gas leases, all located within the
State of Wyoming.
Drilling Activity. All of the Company's drilling activity has been in the
United States. During the three fiscal years ended November 30, 1995, the
Company participated in the drilling of the following productive exploratory and
development wells. This table does not include any wells in which the Company
had a carried or overriding royalty interest, nor any wells that were
recompleted.
19
<PAGE>
<TABLE>
<CAPTION>
Fiscal Year Exploratory Wells Development Wells
Ended ---------------------------------------- --------------------------------------------
November 30, Productive Dry Productive Dry
- ------------ --------------- ---------------- ----------------- ------------------
Gross Net Gross Net Gross Net Gross Net
----- ---- ----- ---- ----- ---- ----- ----
<C> <C> <C> <C> <C> <C> <C> <C> <C>
1995..................... 0 0 0 0 0 0 0 0
1994..................... 0 0 0 0 5 .81 1 .15
1993..................... 1 .11 0 0 3 .34 0 0
</TABLE>
As of the date of this Prospectus, the Company was not participating in the
drilling of any oil or natural gas wells.
Title to Properties
As is customary in the oil and gas industry, only a perfunctory title
examination is conducted at the time oil and gas leases are acquired by the
Company. Prior to the commencement of drilling operations, a thorough title
examination is conducted. The Company believes that title to its properties is
good and indefeasible in accordance with standards generally accepted in the oil
and gas industry, subject to such exceptions, which Management believes are not
so material as to detract substantially from the property economics. In
addition, some prospects may be burdened by customary royalty interests, liens
incident to oil and gas operations and liens for taxes and other governmental
charges as well as encumbrances, easements and restrictions. The Company does
not believe that any of these burdens will materially interfere with the use of
the property.
Estimated Proved Reserves
The oil and gas reserve and reserve value information set forth below and
in the consolidated financial statements included elsewhere in this Prospectus,
was prepared pursuant to Statement of Financial Accounting Standards No. 69,
which includes the estimated net quantities of the Company's "proved" oil and
gas reserves and the standardized measure of discounted future net cash flows.
See Supplemental Oil and Gas Disclosures, in the Notes to the Consolidated
Financial Statements included elsewhere in this Prospectus. The Company has not
filed any reports containing oil and gas reserve estimates with any federal
authority or agency other than the Securities and Exchange Commission and the
Department of Energy. There were no differences in the reserve estimates
reported to these two agencies.
The table below sets forth the Company's estimated quantities of proved
reserves all of which are located in the Continental United States, and the
present value of estimated future net revenues from these reserves on a
non-escalated basis using year-end prices ($15.50 per barrel and $1.00 per MCF
as of November 30, 1995) discounted by 10 percent per year as of the end of each
of the last three fiscal years:
<TABLE>
<CAPTION>
November 30,
------------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Estimated Proved Oil Reserves (Bbls) .......... 66,185 111,690 141,748
Estimated Proved Gas Reserves (Mcf) ........... 3,062,417 3,294,730 2,305,142
Estimated Total Future Cash Inflows ........... $3,449,000 $5,041,000 $4,980,000
Present Value of Estimated Future
Net Revenues (Before future income
tax expenses) ..................... $ 427,000 $1,084,000 $1,360,000
</TABLE>
There has been no major discovery or other favorable or adverse event that
is believed to have caused a significant change in the estimated proved reserves
subsequent to November 30, 1995.
20
<PAGE>
Net Quantities of Oil and Gas Produced
The Company's net oil and gas production for each of the last three years
(all of which was from properties located in the United States) was as follows:
<TABLE>
<CAPTION>
Year Ended November 30,
--------------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Oil (Bbls).................... 8,224 11,286 12,448
Gas (Mcf)..................... 132,924 159,041 155,786
</TABLE>
The average sales price per barrel of oil and Mcf of gas, and average
production costs per barrel of oil equivalent ("BOE") excluding depreciation,
depletion and amortization were as follows:
<TABLE>
<CAPTION>
Average Average Average
Year Ended Sales Price Sales Price Production
November 30, Oil (Bbls) Gas (Mcf) Cost Per BOE
------------ ----------- ----------- ------------
<S> <C> <C> <C>
1995 ........... 14.27 1.02 3.78
1994 ........... 12.75 1.44 6.06
1993 ........... 13.09 1.52 4.81
</TABLE>
The above table represents activities related only to oil and gas
production.
Markets
Overview - The principal products currently produced and marketed by the
Company are crude oil and natural gas. The Company does not currently use
commodity futures contracts and price swaps in the marketing of its natural gas
and crude oil. Total revenues from the sales of crude oil and natural gas which
are produced and/or marketed by the Company constituted 46%, and 54%,
respectively, of the Company's total revenues for the year ended November 30,
1995.
Domestic Production - The availability of ready markets for oil and gas and
the prices obtained for production depend upon a number of factors beyond the
Company's control. Such factors include the extent of domestic production and
imports of oil and natural gas, weather conditions, the availability of
pipelines and other means of transportation and federal and state regulations of
the production, transport and sale of oil and gas. The Company and other
producers are experiencing pipeline curtailment of gas production due to natural
gas prices and demand for natural gas.
In fiscal 1995, the only customer having purchases which accounted for 10%
or more of the Company's revenues was Conoco Inc. which accounted for 16.5% of
the Company's revenue.
The Company's business is not seasonal, except that severe weather
conditions could limit the Company's exploration and drilling activities.
However, severe cold weather increases the demand for oil and natural gas which
are used for heating purposes.
Crude Oil - Oil produced from the Company's properties is generally sold by
truck to unaffiliated third-party purchasers at the prevailing field price ("the
posted price"). The contracts are month-to-month and subject to change. The
Company does not believe that the loss of its primary purchaser would have a
material adverse effect on the Company's business because other arrangements
could be made to market the Company's crude oil products. The Company does not
anticipate problems in selling future oil production since purchases are made
21
<PAGE>
based on then current market conditions and pricing. However, oil prices are
subject to volatility due to several factors beyond the Company's control
including: political turmoil; domestic and foreign production levels; OPEC's
ability to adhere to production quotas; and possible governmental control or
regulation.
Natural Gas - The Company sells natural gas production at the wellhead to
various pipeline purchasers or natural gas marketing companies. The wellhead
contracts have various terms and conditions, including contract duration. Under
each wellhead contract the purchaser is generally responsible for gathering,
transporting, processing and selling the natural gas and natural gas liquids and
the Company receives a net price at the wellhead.
Foreign Production - There is substantial uncertainty as to the prices at
which any oil reserves produced by the Company from the Karakuduk Field could be
sold. It is possible that, under the market conditions prevailing in the future,
the production and sale of oil from the Karakuduk Field may not be commercially
feasible. The availability of ready markets and the price obtained for oil
produced depends upon numerous factors beyond the control of the Company. The
current market for oil is characterized by instability which has caused dramatic
declines in world oil prices in recent years and there can be no assurance of
any price stability. See also "Properties--The Karakuduk Field" below.
Competition
Both foreign and domestic oil and gas exploration and the acquisition of
producing and undeveloped properties is a highly competitive and speculative
business. In seeking suitable opportunities, the Company competes in all areas
of the oil and gas industry with a number of other companies, including large
multi-national oil and gas companies and other independent operators with
greater financial resources and, in some cases, with more experience than the
Company. The Company does not hold a significant competitive position in either
the foreign or domestic oil and gas industry.
Regulation
General - All aspects of the oil and gas industry are extensively regulated
by federal, state, and local governments in all areas in which the Company has
operations. Regulations govern such things as drilling permits, production
rates, environmental protection and pollution control, royalty rates, and
taxation rates. These regulations may substantially increase the cost of doing
business and sometimes prevent or delay the start or continuation of any given
exploration or development project.
Regulations are subject to future changes by legislative and administrative
action and by judicial decisions, which may adversely affect the petroleum
industry. At the present time, it is impossible to predict what effect current
and future proposals or changes in existing laws or regulations will have on the
Company's operations, estimates of oil and natural gas reserves, or future
revenues.
The Company believes that its operations comply with all applicable
legislation and regulations in all material respects, and that the existence of
such regulations has had no more restrictive effect on the Company's method of
operations than other similar companies in the industry.
Regulation of Production - In most areas which the Company may conduct
activities in the United States, there may be statutory provisions regulating
the production of oil and natural gas, and under which state administrative
agencies may promulgate rules in connection with the operation of both oil and
gas, and/or establish allowable rates of production. For wells in which the
Company owns an interest, such rules may restrict the oil and gas production
rate to below the rate such wells could be produced in the absence of such
regulations.
22
<PAGE>
Environmental Regulations - Operations of the Company are subject to
numerous laws and regulations governing the discharge of materials into the
environment or otherwise relating to environmental protection. These laws and
regulations may require the acquisition of a permit before drilling commences,
prohibit drilling activities on certain lands lying within wilderness areas or
where pollution arises, and/or impose substantial liabilities for pollution
resulting from drilling operations, particularly operations where underground
fresh water may be polluted or in offshore waters or submerged lands. Future
regulations may impose additional restrictions on the Company's activities. It
is impossible to predict if, or in what form, the regulations will be adopted
and hence their potential impact upon the Company's operations. Although the
Company does not believe its business operations presently impair environmental
quality, compliance with federal, state and local regulations which have been
enacted or adopted regulating the discharge of materials into the environment
could have an adverse effect upon the capital expenditures, earnings and
competitive position of the Company, the extent of which the Company now is
unable to assess. Since inception, the Company has not made any material capital
expenditures for environmental control facilities and is not currently aware of
any need to make any such expenditures in the future.
State Regulation - State regulatory authorities have established rules and
regulations requiring permits for drilling operations, drilling bonds and/or
reports concerning operations. All states in which the Company operates also
have statutes and regulations concerning spacing of wells, environmental matters
and conservation. In addition, state authorities have established regulations
that affect the unitization and pooling of properties and permit the state to
regulate the number of oil and gas wells in order to conserve oil and gas and
prevent waste.
Foreign Regulation - Kazakstan and other countries of the former Soviet
Union are developing and implementing an extensive regulatory framework,
including regulations affecting oil, natural gas and natural resource
development, production and export, environmental controls, fiscal matters and
other activities which could affect or limit the Company's operations in those
countries.
Administration
Offices. The Company's offices comprise 3,906 square feet and are rented
for $2,767 per month, under a lease which expires in March of 1997.
Employees
The Company employs four persons on a full-time basis, none of whom are
covered by a collective bargaining or other agreement.
23
<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the names and ages of the current directors
and executive officers of the Company, the principal offices and positions with
the Company held by each person and the date such person became a director or
executive officer of the Company. The executive officers of the Company are
elected annually by the Board of Directors. Executive officers serve terms of
one year or until their death, resignation or removal by the Board of Directors.
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
Name of Director and Executive Director Principal Occupation
Officer and Position, in the Company Since Age During the last Five Years
- ------------------------------------ -------- --- ---------------------------
<S> <C> <C>
Paul V. Hoovler.............................. 1972 69 President, Chief Executive Officer and director
(President and Chief Executive of the Company since 1972.
Officer since 1972)
Matthew R. Hoovler........................... 1987 44 Vice President of the Company since 1980; Trea-
(Vice President since 1980 and surer since 1982.
Treasurer since 1982)
Frank H. Gower, Jr........................... 1972 72 Director of the Company since 1972. Mr. Gower
and his wife are the sole owners of Gower Oil
Company, Denver, Colorado.
Barry W. Spector............................. 1995 44 Secretary of the Company since 1995. Attorney
(Secretary since 1995) engaged in the practice of law as a sole practi-
tioner emphasizing oil and gas and business law
since 1979.
Peter G. Dilling............................. 1995 46 President and a director of M-D International
Petroleum, Inc., an oil and gas company, since
September 1994. A partner of M-D International,
from March 1993 to the present.
James A. Jeffs............................... 1995 45 Chief Investment Officer for the Whittier Trust
Company since 1994. A director of M-D
International Petroleum, Inc., an oil and gas
company, since 1994. Senior Vice President of
Union Bank of Los Angeles from 1993 to 1994.
Chief Investment Officer for Northern Trust of
California, N.A., from 1991 to 1992. President
and chief executive officer of TSA Capital
Management, and Senior Vice President of Trust
Services of America, Capital Management Com-
panies, from 1988 to 1991.
Howard Karren................................ 1995 65 A consultant to Enron Oil & Gas International
(Chairman) Co., an oil and gas company, since 1994. Presi-
dent and Vice Chairman of Enron Oil & Gas
International Co. from 1984 until 1994.
24
<PAGE>
<CAPTION>
Name of Director and Executive Director Principal Occupation
Officer and Position, in the Company Since Age During the last Five Years
- ------------------------------------ -------- --- ---------------------------
<S> <C> <C>
Jay W. McGee................................. 1995 48
Director of M-D International Petroleum, Inc.,
an oil and gas company, since September 1994.
Manager of M-D International, an unincorpor-
ated oil and gas entity, from March 1993 to the
present. Vice President of Anglo Suisse L.P.,
an oil and gas company, from September 1990 to
February 1993. Prior thereto, Director of
Exploration of Anglo Suisse, Inc., an oil and
gas company.
</TABLE>
The present term of office of each director will expire at the next annual
meeting of shareholders.
Each executive officer will hold office until his successor duly is elected
and qualified, until his resignation or until he is removed in the manner
provided by the Company's Bylaws.
In connection with the Company's acquisition of all of the stock of CAP-D,
the former shareholders of CAP-D have certain rights to nominate directors of
their choosing for election to the Company's Board of Directors. Pursuant to
these rights, the former CAP-D shareholders caused the nomination of Jay W.
McGee, who was first elected a director at the 1995 annual meeting of
shareholders. If by June 30, 2000, the Karakuduk Field obtains 5,000 barrels of
oil production per day averaged over any sixty (60) day period, or the Company's
beneficial interest in the field is sold or the Company and the former
shareholders jointly participate in a new exploratory development project, the
former shareholders have the right to cause the Company to nominate one
additional director at the Company's 2000 annual meeting of shareholders.
In connection with a loan to the Company from the Brae Group, Inc.
("Brae"), in November 1995, the Company was required to appoint Messrs. Karren,
Dilling and Jeffs as directors of the Company and to appoint Mr. Karren as
Chairman of the Board of Directors of the Company. The Company borrowed $750,000
represented by an unsecured promissory note with interest at 8% per annum. The
note was repaid on April 30, 1995. As a result of the repayment of the note, the
Company is no longer required to continue to nominate such persons as directors.
There are no other arrangements or understandings between any executive
officer and any director or other person pursuant to which any person was
selected as a director or an executive officer.
Matthew R. Hoovler is the son of Paul V. Hoovler. There are no other family
relationships among the officers or directors.
No director of the Company is a director of any other entity that has its
securities registered pursuant to Section 12 of the Securities Exchange Act of
1934.
Paul V. Hoovler is the President and a shareholder of The Minnelusa Company
("Minnelusa"), a privately held Florida corporation, the sole business of which
is the operation of Deep Lagoon Marina located in Fort Myers, Florida. Minnelusa
filed for bankruptcy under Chapter 11 of the United States Bankruptcy Code on
January 18, 1994. The primary reason for the bankruptcy petition was the filing
of a lawsuit by three of the individual Minnelusa shareholders who demanded
payment on promissory notes made by Minnelusa to purchase their Minnelusa stock.
Prior to the filing of the bankruptcy, it was determined that the acquisition of
their stock, which placed Minnelusa in insolvency, was an illegal transaction
under the laws of Florida. Frank H. Gower, Jr., a director of the Company
25
<PAGE>
and a director and officer of Minnelusa, also filed personal bankruptcy in
August 1994, as Mr. Gower had personally guaranteed these same Minnelusa notes.
A Plan of Reorganization for Minnelusa was filed with the court in Florida and
this plan was approved at a confirmation hearing in February 1995, in the
District Court in Fort Myers, Florida. In March 1995 Minnelusa emerged from
bankruptcy. As a part of the Plan of Reorganization for Minnelusa, Minnelusa
agreed to pay the claims of the three individual Minnelusa shareholders who
originally filed a lawsuit ("claimants") against Minnelusa, on or before March
13, 1998. Mr. Gower also settled with the claimants and agreed to pay any amount
due to the claimants that is not timely paid by Minnelusa.
26
<PAGE>
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth for each of the Company's last three fiscal
years ended November 30, 1995, the compensation paid by the Company for services
rendered in all capacities to the Company to Paul V. Hoovler, who was the chief
executive officer of the Company during the Company's fiscal year ended November
30, 1995. No person who served as an executive officer of the Company during the
Company's fiscal year ended November 30, 1995, received total annual salary and
bonus in excess of $100,000 from the Company during the Company's fiscal year
ended November 30, 1995:
<TABLE>
<CAPTION>
Summary Compensation Table
Long Term
Compensation
Awards
Year ------------------------------------- ------------
Ended Other Securities All
Name and November Compensa- Underlying Other
Principal Position 30, Salary($) Bonus($) tion($) Options(#) Compensation($)
- ------------------ -------- -------- ------- ---------- ------------ --------------
<S> <C> <C> <C> <C>
Paul V. Hoovler..................... 1995 $60,000 -- $4,413(1) -- $40,000(3)
President and 1994 $60,000 -- $3,518(1) -- (2) $40,000(3)
Chief Executive Officer 1993 $60,000 -- $5,620(1) 37,500(2) $40,000(3)
- ----------------------
</TABLE>
(1) The Company has a Royalty Participation Plan which is intended to
provide incentive for the Company's employees and to enable the
Company to attract, motivate and retain its key employees. Each
employee of the Company becomes a participant in the plan upon
expiration of a 90-day probationary period after the date of
employment. The Company contributes to the plan certain oil, gas and
other nonproducing hydrocarbon royalty interests and the proceeds from
production received by the Company which are attributable to the
royalty interests. On the last day of the plan year, the Committee,
which currently consists of all of the directors of the Company,
allocates the net income of the plan for the plan year among those
participants employed by the Company on the last day of the plan year,
together with those participants whose interests are vested. The net
income of the plan is allocated by assigning each participant to a
group and by assigning a "multiplier" factor to each group. Each
participant is then assigned a percentage of division within the
group. The determination of the Committee as to placing participants
in a particular group and the multiplier to be assigned to each group
is solely within the discretion of the Committee.
The amount allocated to non-management employees vests during the
fiscal year after 60 months of employment and the amount allocated to
management employees vests during the fiscal year after 37 months of
employment. The plan has been extended by the Board of Directors to
December 31, 1997, and thereafter will be evaluated for continuance on
an annual basis. Paul V. Hoovler was distributed $4,413 from the plan
for the plan year ended December 31, 1995.
(2) Represents warrants to purchase 37,500 shares of the Company's common
stock that were acquired by Mr. Hoovler from the Company in March,
1993. The warrants were exercisable at a price of $.40 per share and
were acquired in a private offering by the Company on the same terms
as persons who were not affiliated with the Company acquired warrants.
On October 11, 1994, Mr. Hoovler exercised the warrants (37,500
shares) at $.40 per share for a total sum of $15,000.
(3) The Company has a Deferred Compensation and Death Benefit Plan for
Paul V. Hoovler. The plan allows for Mr. Hoovler to continue in active
employment of the Company until age 70.5. The Company pays Mr. Hoovler
$40,000 annually ($40,000) from this plan. If Mr. Hoovler voluntarily
terminates his employment prior to his retirement, disability, or
death, he or his estate will receive the remaining residual funds to
be disbursed from the plan. If Mr. Hoovler dies prior to retirement or
other termination of employment, Mr. Hoovler's estate will receive the
remaining residual funds to be disbursed from the plan. The plan is
funded by a life insurance policy on the life of Mr. Hoovler which
provides for the major portion of any costs to the Company. The plan
was fully funded when the Company paid the final payment of a premium
of $18,000 on a life insurance policy insuring the life of Paul V.
Hoovler.
27
<PAGE>
Option Grants in Fiscal Year Ended November 30, 1995
No options were granted by the Company to Paul V. Hoovler during the
Company's fiscal year ended November 30, 1995.
Fiscal Year-End Option Values
The following table sets forth information concerning the unexercised
options (warrants) held by Paul V. Hoovler at November 30, 1995:
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Options as of In-the-Money Options as of
November 30, 1995(#) November 30, 1995($)
---------------------------- -----------------------------
Name Exerciseable Unexercisable Exercisable Unexercisable
- ---- ------------ ------------- ----------- -------------
<S> <C> <C> <C> <C>
Paul V. Hoovler......... 500,000 - 0 - $274,062.50 - 0 -
- ----------------------
</TABLE>
(1) The value was determined by multiplying the number of shares
underlying the options (warrants) by the difference between the
exercise price and the average of the closing bid and asked price of
the Company's common stock on November 30, 1995. No options
(warrants) were exercised by Paul V. Hoovler during the Company's
fiscal year ended November 30, 1995.
Compensation of Directors
There were no standard or other arrangements for the compensation of the
Company's directors in effect for the Company's fiscal year ended November 30,
1995. Richard L. Zirbel, who resigned as a director in August 1995 after serving
as a director of the Company since 1974, received a cash bonus of $28,000 at the
time of his resignation which Mr. Zirbel used to purchase 100,000 shares of the
Company's Common Stock upon exercise of a stock purchase warrant held by him.
The Board of Directors also agreed to pay to Frank H. Gower, Jr., who has also
served as a director of the Company since 1972, a cash bonus of $28,000. The
bonus was paid in August 1996, and was used by Mr. Gower to purchase 100,000
shares of the Company's Common Stock upon exercise of a stock purchase warrant
held by him. Also, on April 17, 1995, the Company sold 3,000 shares of its
Common Stock to each of Messrs. Zirbel and Gower and 8,000 shares of its Common
Stock to Matthew R. Hoovler at $0.734 per share, the average of the reported bid
and asked prices for the Company's Common Stock on NASDAQ on the date of sale.
Concurrently, the Company awarded cash bonuses of $2,203 to Messrs. Zirbel and
Gower and $5,875 to Mr. Hoovler, which amounts were used to pay for the shares
purchased.
28
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock, its only class of outstanding voting
securities as of August 8, 1996, by (i) each person who is known to the Company
to own beneficially more than 5% of the 37,476,517 outstanding shares of Common
Stock with the address of each such person, (ii) each of the Company's directors
and officers, and (iii) all officers and directors as a group:
<TABLE>
<CAPTION>
Name and Address of
Beneficial Owner or Amount and Nature of Percent
Name of Officer or Director Beneficial Ownership(1) of Class
- --------------------------- ---------------------- --------
<S> <C> <C>
Drake and Company.................................. 3,000,000 8.0%
CitibankPerformance Portfolio S.A.
c/o Citibank, N.A.
153 E. 53rd Street, 21st Floor
New York, New York 10043
Allen & Company Incorporated....................... 2,962,000 (2) 7.7%
711 Fifth Avenue
New York, New York 10022
Crescent Investment................................ 2,000,000 5.3%
865 Figueroa Street, Suite 1500
Los Angeles, California 90017
Whittier Ventures, LLC............................. 2,000,000 5.3%
1600 Huntington Drive
So. Pasadena, California 91030
Paul V. Hoovler ................................... 1,590,952 (3) 4.2%
Matthew R. Hoovler ................................ 536,049 (4) 1.4%
Barry W. Spector ................................. 56,250 (5) 0.2%
Peter G. Dilling .................................. - 0 - --
Frank H. Gower, Jr. ............................... 593,080 (6) 1.6%
James A. Jeffs .................................... 913,447 (7) 2.4%
Howard Karren ..................................... 350,000 (8) 0.9%
Jay W. McGee ...................................... 918,626 (9) 2.5%
All Directors and Officers
as a Group (eight persons) ........................ 4,958,403(10) 13.2%
- -----------------
</TABLE>
(1) To the knowledge of the Company's management, the beneficial owners
listed have sole voting and investment power with respect to the
shares shown unless otherwise indicated.
(2) Includes 1,022,000 shares underlying unexercised warrants.
(3) Includes 725,485 shares and 500,000 shares underlying unexercised
warrants owned by Paul V. Hoovler and 365,466 shares held in trust
in the Company's 401(k) Plan & Trust. Paul V. Hoovler, trustee of
the 401(k) Plan & Trust, has sole voting and investment power over
the total 365,466 shares which are owned by the employees of the
Company, including Paul V. Hoovler, who beneficially owns 95,582 of
the shares.
29
<PAGE>
(4) The 536,049 shares include 52,000 shares and 250,000 shares
underlying unexercised warrants owned by Matthew R. Hoovler, 131,049
shares owned jointly by Mr. Hoovler and his wife, 97,000 shares
owned by Mr. Hoovler's wife and 6,000 shares owned by his daughter
over all of which shares Mr. Hoovler may be deemed to have shared
voting and investment power. Not included are 105,607 shares
beneficially owned by Matthew R. Hoovler but held in trust in the
Company's 401(k) Plan & Trust. Paul V. Hoovler, trustee of the
401(k) Plan & Trust, has sole voting and investment power over these
shares.
(5) Includes 37,500 shares owned by Barry W. Spector and 18,750 shares
owned by his minor children over all of which shares Mr. Spector may
be deemed to have sole voting and investment power.
(6) Includes 224,608 shares owned by Mr. Gower, 350,000 shares owned by
Gower Oil Company and 18,472 shares owned by Mr. Gower's wife, over
all of which shares Mr. Gower may be deemed to have shared voting
and investment power.
(7) Includes 272,205 of a total of 1,250,000 shares being held in escrow
in connection with the acquisition of Central Asian Petroleum, Inc.
as described under "Certain Transactions."
(8) The 350,000 shares are reserved to be issued to Mr. Karren in
connection with the possible acquisition by the Company of M-D
International Petroleum, Inc.("MDI"). See "Certain Relationships and
Related Transactions."
(9) Includes 272,205 of a total of 1,250,000 shares being held in escrow
in connection with the acquisition of Central Asian Petroleum, Inc.
as described under "Certain Transactions", and 5,178 shares owned
jointly with his wife.
(10) Includes the shares as described in notes (3) through (9) above.
Except to the extent the agreement relating to the acquisition of the
outstanding shares of Central Asian Petroleum, Inc. as described under "Certain
Transactions" could in the future result in a change in control, there are
presently no arrangements of any kind which may at a subsequent date result in a
change in control of the Company.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In early September 1994, the Company signed a letter of intent with Central
Asian Petroleum, Inc., a Delaware corporation ("CAP-D"), and Overseas Consulting
Services Company, Inc. ("OCSCO"), both private companies based in Houston,
Texas, to jointly pursue the registration and development of the Karakuduk
Field, a shut-in oil field in the central Asian Republic of Kazakstan, that was
discovered in the early 1970s but never placed on production.
In mid-September 1994, the Company acquired a 25% interest in Central Asian
Petroleum (Guernsey) Limited ("CAP-G"), with headquarters in Ankara, Turkey,
which holds a 50% interest in KKM. In April 1995, the Company acquired all of
the stock of CAP-D, which also owned an interest in CAP-G. Following the
acquisition of CAP-D, the Company's beneficial interest in CAP-G increased to
45%, giving the Company a 22.5% beneficial interest in KKM and the Karakuduk
Field. Under terms of the acquisition, the former shareholders of CAP-D have
certain rights to cause the Company to nominate persons selected by the former
shareholders to the Company's Board of Directors. Jay W. McGee, a former
shareholder of CAP-D, was first elected at the 1995 Company's Annual Meeting of
Shareholders under the arrangement. Additionally, in connection with the
acquisition, the Company may be required to pay a brokerage fee to Mr. McGee in
the amount of up to $175,000. The Company paid Mr. McGee $50,000 in 1995 and the
balance is payable upon the occurrence of certain milestones in development of
the Karakuduk Field. The Company issued 4,250,000 shares of restricted common
stock for CAP-D which will be held in escrow and released to the former
shareholders of CAP-D, including Messrs. Jeffs, McGee and Dilling, or affiliates
of them, from time to time in connection with development of the Karakuduk
Field. Of the shares held in escrow, 1,000,000 shares have qualified for release
and delivery to the former shareholders of CAP-D.
30
<PAGE>
The Company has agreed to issue a minimum of 350,000 shares of the
Company's restricted common stock to Howard Karren, a director of the Company.
Mr. Karren is or will be a shareholder and principal of M-D International
Petroleum, Inc. ("MDI"), a private corporation which holds certain rights in a
joint venture that is attempting to negotiate for the development of natural gas
fields in Uzbekistan. The shareholders of MDI also include Messrs. Dilling,
Jeffs and McGee, all of whom are directors of the Company. The Company is
negotiating to acquire MDI, and has committed to issue 180,000 shares of the
Company's restricted common stock to Enron to facilitate the participation of
MDI in the Uzbekistan Project. See "Business." If a satisfactory acquisition of
MDI is consummated by the Company as presently proposed, the Company would issue
up to 6,000,000 shares of its restricted common stock to the shareholders of
MDI, including the shares to Mr. Karren and the shares committed to Enron. If
the transaction is not consummated, the Company will issue the shares directly
to Mr. Karren or persons he designates. The Company has also agreed to pay to
Mr. Karren a fee of $4,000 per month for the four month period ending August 31,
1996, for providing services to the Company in connection with the Company's
efforts to satisfy its funding obligations for the Karakuduk Project.
In May 1996, the Company entered into a four month consulting agreement
with MDI pursuant to which the Company agreed to pay a base consulting fee of
$60,000 per month to MDI during the term of the agreement for assistance by MDI
in seeking means for meeting the Company's funding obligations for the Karakuduk
Project. In connection with the consulting agreement, the Company has assumed
obligations of MDI to pay up to $42,000 during the six month period ending
September 30, 1996 to two other unaffiliated consultants engaged to assist MDI
and the Company to acquire and review oil and natural gas exploration or
development projects in countries of the former Soviet Union.
Mr. Karren was appointed a director and chairman of the board of the
Company's Board of Directors, along with James A. Jeffs and Peter G. Dilling, in
connection with the loan of $750,000 to the Company from an unaffiliated party
in November 1995. The Company was required to keep Messrs. Karren, Jeffs, and
Dilling as directors until the loan was paid in full on April 19, 1996.
On April 5, 1996, the Company completed a private placement of 14,000,000
shares of the Company's common stock at $0.50 a share for gross proceeds of
$7,000,000. In connection with the private placement, the Company issued a five
year warrant to purchase 1,022,000 shares of the Company's common stock for, a
nominal amount, to Allen & Company Incorporated ("Allen") and paid $21,849
Allen's expenses. Allen also purchased shares of the Company's common stock in
the private placement on the same terms and conditions as other purchasers
thereof. The Company also issued Allen a three year warrant to purchase 200,000
shares of the Company's common stock at $0.25 per share, in connection with the
$750,000 loan referred to above. Drake and Company, Crescent Investment and
Whittier Ventures, LLC also purchased shares of the Company's common stock, in
the above described private placement on the same terms and conditions as other
purchasers thereof. See "Security Ownership of Certain Beneficial Owners and
Management" and "Selling Securityholders."
31
<PAGE>
SELLING SECURITYHOLDERS
The following table sets forth certain information regarding the shares of
Common Stock beneficially owned as of July 29, 1996, by each Selling
Securityholder herein as adjusted to reflect the sale by all Selling
Securityholders of the shares offered hereby by each Selling Securityholder.
This list indicates any position, office or other material relationship with the
Company that the Selling Securityholder had within the past three (3) years, the
number of Common Shares owned by such Selling Securityholder prior to the
offering, the maximum number of shares to be offered for such Selling
Securityholder's account and the amount of the class owned by the Selling
Securityholder after completion of the offering (assuming the Selling
Securityholder sold the maximum number of shares of Common Stock). The Selling
Securityholders are not required, and may choose not, to sell any of their
shares of Common Stock.
<TABLE>
<CAPTION>
Shares Owned Shares
Prior to Being Shares Owned
Name Offering Offered After Offering
- ---- ------------ ------- --------------
<S> <C> <C> <C>
Acikbas, Dursun .......................... 195,000 195,000 0
Allen & Company(1) ....................... 2,962,000 2,962,000 0
Allen, Bruce ............................. 200,000 200,000 0
Allen, Susan ............................. 400,000 400,000 0
Altrogge, R.C ............................ 37,500 37,500 0
Ambit & Company
Heritage Small Cap Fund .................. 400,000 400,000 0
Ard, Charles L ........................... 225,000 75,000 150,000
Awad & Associates L.P. ................... 200,000 200,000 0
Bailey, Jeffrey W ........................ 112,500 37,500 75,000
Bellus, Thomas H ......................... 18,750 9,375 9,375
Berkmen, Cetin ........................... 195,008 195,000 0
Berrard, Steven R ........................ 200,000 200,000 0
Boyd, Richard G .......................... 28,125 9,375 18,750
Braden, F.C .............................. 379,000 150,000 229,000
Brae Group, Inc.(2) ...................... 500,000 500,000 500,000
Church, P.E. & B.J ....................... 19,750 18,750 1,000
Cohig & Associates ....................... 56,700 56,700 0
Cooper, H. Howard ........................ 120,000 28,235 91,765
Crandall, E.C. & M.B ..................... 47,500 37,500 10,000
Crescent Investment Co. .................. 2,000,000 2,000,000 0
Cullen, Mary ............................. 50,000 50,000 0
Cullen, Richard P ........................ 28,125 9,375 18,750
Piper Jaffray Cust
Cummings, Kenneth F., IRA ................ 37,500 37,500 0
32
<PAGE>
<CAPTION>
Shares Owned Shares
Prior to Being Shares Owned
Name Offering Offered After Offering
- ---- ------------ ------- --------------
<S> <C> <C> <C>
Drake and Company
CitiPerformance Portfolio S.A............. 3,000,000 3,000,000 0
Gabelli Funds, Inc. ...................... 250,000 250,000 0
Gabelli Securities, Inc. ................. 150,000 150,000 0
Gilfillan, Michael T ..................... 20,000 20,000 0
Gould, Paul .............................. 300,000 300,000 0
Heglin, C.M. & J.A ....................... 37,500 37,500 0
Heritage Lincoln ......................... 226,700 90,000 136,700
Hoovler, D.W ............................. 133,250 54,450 78,800
Hoovler, M.M.(3) ......................... 97,000 15,000 82,000
Hoovler, M.R. & M.M.(3) .................. 189,049 37,500 151,549
Hoovler, P.V.(4) ......................... 725,486 37,500 687,986
Huizenga, H. Wayne ....................... 1,000,000 1,000,000 0
Jeffs, James A.(5) ....................... 915,593 208,858 707,913
Johnson, George .......................... 400,000 400,000 0
Keller, William(6) ....................... 802,750 448,882 353,868
Keough, Clark ............................ 100,000 100,000 0
Keough, Donald R ......................... 100,000 100,000 0
Khosrowshahi, Dara ....................... 20,000 20,000 0
Khosrowshahi, Kaveh ...................... 20,000 20,000 0
Koksal, Ayee Pinar ....................... 450,000 450,000 0
Koksal, Guntekin Huseyin ................. 450,000 450,000 0
Kramer, Terry Allen Trust ................ 200,000 200,000 0
Kuijper, Jacob P ......................... 24,300 24,300 0
Lockard, L.D ............................. 28,125 9,375 18,750
Longhi, Bert ............................. 154,000 37,500 116,500
Lorch, Frank ............................. 112,500 37,500 75,000
Smith Barney Cust
MacDougal, William D., IRA ............... 225,000 75,000 150,000
Mackie, Robert A ......................... 40,000 40,000 0
Marshall, Jerry .......................... 40,000 37,500 2,500
McGee, Jay W.(7) ......................... 921,772 208,859 712,913
McMillian, John .......................... 200,000 200,000 0
33
<PAGE>
<CAPTION>
Shares Owned Shares
Prior to Being Shares Owned
Name Offering Offered After Offering
- ---- ------------ ------- --------------
<S> <C> <C> <C>
Millison, Dan ............................ 28,900 9,375 19,525
Molitor, Elmer F ......................... 409,800 90,000 319,800
Morris, Paul ............................. 28,125 9,375 18,750
Murat Yazici ............................. 150,000 111,765 38,235
Murphy, Tom G ............................ 762,750 408,882 353,868
Murphy, Tom G., Pension Plan(8) .......... 40,000 40,000 0
Ogle, Morris E ........................... 28,125 9,375 18,750
Overseas Consulting Services
Company, Inc............................. 150,000 150,000 0
Ozdemir, Okan ............................ 195,000 195,000 0
Palmer, Arnold M ......................... 120,000 45,000 75,000
Pedigo, Gerald ........................... 112,500 37,500 75,000
Perry, Patrick S ......................... 10,000 10,000 0
Pierce, Ashley R ......................... 40,000 40,000 0
Pierce, John C ........................... 40,000 40,000 0
Popp, Thomas F ........................... 28,425 9,375 19,050
Prescher, Dennis ......................... 112,500 37,500 75,000
Prinz, Barbara C ......................... 24,375 24,375 0
Prinz, Christine B ....................... 9,375 9,375 0
Prinz, Patricia .......................... 3,750 3,750 0
PRP Profit Sharing ....................... 9,750 9,750 0
Rochon, Richard C ........................ 200,000 200,000 0
Schmacker, Jack .......................... 10,275 9,375 900
Schneider, John A ........................ 200,000 200,000 0
Shuman, Stanely S ........................ 200,000 200,000 0
Spector, Barry W.(9) ..................... 56,250 18,750 37,500
Spectrum Development, Inc................. 1,016,593 232,387 784,206
Stermole, F.J. & H.D ..................... 285,000 75,000 210,000
Stoddart, John A ......................... 304,720 92,132 212,588
Stone, Gerald W .......................... 180,000 60,000 120,000
Strauss, Robert S ........................ 200,000 200,000 0
vandenHeuvel, William J .................. 20,000 20,000 0
Whittier Ventures LLC .................... 2,000,000 2,000,000 0
34
<PAGE>
<CAPTION>
Shares Owned Shares
Prior to Being Shares Owned
Name Offering Offered After Offering
- ---- ------------ ------- --------------
<S> <C> <C> <C>
Wicklund, Rod ............................ 56,250 18,750 37,500
Wit, Harold M ............................ 100,000 100,000 0
- ----------------------
</TABLE>
(1) Includes 1,222,000 shares underlying Warrants, which shares are
registered for resale upon exercise.
(2) Includes 500,000 shares underlying exercisable Warrants, which shares
are registered for resale upon exercise.
(3) Matthew M. Hoovler is an officer and a director of the Company.
(4) Paul V. Hoovler is the President and a director of the Company.
(5) Mr. Jeffs is a director of the Company. See "Certain Relationships and
Related Transactions."
(6) Includes 40,000 shares underlying exercisable Warrants, which shares
are registered for resale.
(7) Mr. McGee is a director of the Company. See "Certain Relationships and
Related Transactions."
(8) Includes 40,000 shares underlying exercisable Warrants, which shares
are registered for resale.
(9) Mr. Spector is an officer and a director of the Company.
DESCRIPTION OF SECURITIES
The Company is authorized to issue 100,000,000 shares of $0.10 par value
Common Stock and 1,000,000 shares of Preferred Stock, without par value. As of
August 8, 1996, there were 37,476,517 shares of Common Stock and no Preferred
Stock outstanding. An additional 3,348,000 shares of Common Stock are reserved
for issuance upon exercise of outstanding warrants and other commitments.
Common Stock
Holders of shares of Common Stock are entitled to one vote per share on all
matters submitted to a vote of the shareholders of the Company. Except as may be
required by applicable law, holders of shares of Common Stock will not vote
separately as a class, but will vote together with the holders of outstanding
shares of other classes of capital stock. There is no right to cumulate votes in
the election of directors. A majority of the issued and outstanding Common Stock
constitutes a quorum at any meeting of shareholders and the vote by the holders
of a majority of the outstanding shares is required to effect certain
fundamental corporate changes such as liquidation, merger or amendment of the
Articles of Incorporation.
Holders of shares of Common Stock are entitled to receive dividends, if,
as, and when declared by the Board of Directors out of funds available therefor,
after payment of dividends required to be paid on outstanding shares of
preferred stock. Upon liquidation of the Company, holders of shares of Common
Stock are entitled to share ratably in all assets of the Company remaining after
payment of liabilities, subject to the liquidation preference rights of any
outstanding shares of preferred stock. Holders of shares of Common Stock have no
35
<PAGE>
conversion, redemption or preemptive rights. The rights of the holders of Common
Stock will be subject to, and may be adversely affected by, the rights of the
holders of any outstanding preferred stock. The outstanding shares of Common
Stock are, and all shares of Common Stock issued upon exercise of warrants
described in this Prospectus and payment therefor will be, validly issued, fully
paid and nonassessable.
Preferred Stock
Under the Company's Articles of Incorporation, as amended, the Board of
Directors has the power, without further action by the holders of the Common
Stock, to designate the relative rights and preferences of the one or more
classes of Preferred Stock of the Company, when and if issued. Such rights and
preferences could include preferences as to liquidation, redemption and
conversion rights, voting rights, dividends or other preferences, any of which
may be dilutive of the interest of the holders of the Common Stock. The Board of
Directors' ability to issue shares of Preferred Stock and to determine the
rights, preferences, privileges, designations and limitations of such stock,
including the dividend rights, dividend rate, conversion rights, voting rights,
terms of redemption and other terms of conditions of such stock, could make it
more difficult for a person to engage in, or discourage a person from engaging
in, a change in control transaction without the cooperation of management. No
class of Preferred Stock has been designated by the Company and there is no
present intention by the Company to do so or to issue Preferred Stock.
Certain Provisions of Articles of Incorporation
The Company's Articles of Incorporation contain a provision, authorized
under Colorado law, which limits the liability of directors of the Company for
monetary damages for breach of fiduciary duty as an officer or director other
than for intentional misconduct, fraud or a knowing violation of law or for
payment of a dividend in violation of Colorado law. Such provision limits
recourse for money damages which might otherwise be available to the Company or
shareholders for negligence by individuals while acting as officers of the
Company. Although this provision would not prohibit injunctive or similar
actions against directors, the practical effect of such relief would be limited.
This limitation of liability under state law does not apply to any liabilities
which may exist under federal securities laws.
Transfer Agent
American Securities Transfer & Trust, Inc., Denver, Colorado, is the
transfer agent for the Common Stock.
PLAN OF DISTRIBUTION
The Selling Securityholders intend to sell their shares directly, through
agents, dealers, or underwriters, in the over-the-counter market, or otherwise,
on terms and conditions determined at the time of sale by the Selling
Securityholders or as a result of private negotiations between buyer and seller.
Sales of the shares of Common Stock may be made pursuant to this Prospectus,
pursuant to Rule 144 or Regulation S adopted under the Securities Act of 1933,
as amended. No underwriting arrangements exist as of the date of this Prospectus
for the Selling Securityholders to sell their shares. Upon being advised of any
underwriting arrangements that may be entered into by a Selling Securityholder
after the date of this Prospectus, the Company will prepare a supplement to this
Prospectus to disclose such arrangements. It is anticipated that the per share
selling price for the shares will be at/or between the "bid" and "asked" prices
of the Company's Common Stock as quoted in the over-the-counter market
immediately preceding the sale. Expenses of any such sale will be borne by the
parties as they may agree.
36
<PAGE>
LEGAL MATTERS
The legality of the issuance of the Common Stock offered by this Prospectus
has been passed upon for the Company by Hopper and Kanouff, P.C., Denver,
Colorado.
EXPERTS
The consolidated financial statements of the Company included in this
Prospectus and elsewhere in the registration statement, to the extent and for
the periods indicated in their report, have been audited by Grant Thornton LLP,
independent certified public accountants, and are included herein in reliance
upon the authority of said firm as experts in accounting and auditing.
37
<PAGE>
GLOSSARY
The italicized terms in this section (which are used in this Prospectus)
have the meanings given them in this section.
Bbl. or barrel. Forty-two U.S. gallons liquid volume, usually used herein
in reference to crude oil or other liquid hydrocarbons.
BOE or barrels of oil equivalent. Converts gas to oil in a ratio of 6
million cubic feet of gas equals 1 barrel of oil, usually. Then oil and gas are
added together for total BOE.
BTU (British Thermal Unit). The amount of heat necessary to raise the
temperature of one pound of water one degree Fahrenheit. This is the standard
measure of gas in terms of heating potential.
Decline. The decrease in yield of oil and gas from a well, lease, pool or
field. The first yield is the "flush production" and for awhile decline is
rapid, then slows down to a steady rate. Decline curves are plotted against time
to show graphically the rate of production.
Depletion. The act of emptying, reducing, or exhausting, such as depletion
of a natural resource like oil and gas. Also means a reduction in income
reflecting the exhaustion of mineral deposits.
Developed Acreage. The number of acres of oil and gas leases held by, or if
owned, which are allocated or assignable to, producing wells or wells capable of
production.
Development Well. A well which is drilled to and completed in a known
producing formation adjacent to a producing well in a previously discovered
field and in a stratigraphic horizon known to be productive.
Dry hole. Generally refers to any well that does not produce oil or gas in
commercial quantities.
Exploration. The search for economic deposits of minerals, petroleum and
other natural earth resources by any geological, geophysical, or geochemical
technique.
Field. A geographical area in which a number of oil or gas wells produce
from a continuous reservoir.
Gross Acres and Gross Wells. The total acres or wells, as the case may be,
in which an entity has an interest, either directly or through an affiliate.
Infill well. A well drilled within an existing oil or gas field.
Injection well (water injector). A well that is used to pump water (or gas)
into a formation to maintain formation pressure which enables the operator to
pump more of the hydrocarbons out of the formation and up to the surface.
Location. The actual geographic spot on which a well is to be drilled.
Mcf. One thousand cubic feet of natural gas.
Net Acres or Net Wells. A "net acre" or "net well" is deemed to exist when
the sum of fractional ownership working interests in gross acres or gross wells
equals one.
38
<PAGE>
Oil Wells or Gas Wells. Oil wells are those wells which generate revenue
from oil production; gas wells are those wells which generate nearly all revenue
from gas production.
Proved Reserves. The estimated quantities of crude oil, natural gas and
natural gas liquids which geological and engineering data demonstrate with
reasonable certainty to be recoverable in future years from known oil and gas
reservoirs under existing economic and operating conditions, that is, on the
basis of prices and costs as of the date the estimate is made and any price
changes provided for by existing contracts.
Proved Developed Reserves Behind Pipe. Producing reserves which are
developed (drilled) but not producing because the zone is behind pipe and has
not been opened up for actual volume testing or for production.
Proved Developed Reserves. Proved Reserves which can be expected to be
recovered through existing wells with existing equipment and operating methods.
Proved Undeveloped Reserves. Proved Reserves which can be expected to be
recovered from new wells on undrilled acreage, or from existing wells where a
relatively major expenditure is required for recompletion.
Structure. Folding and dislocation of rock layers which can form traps for
hydrocarbons.
Unitization. An agreement under which two or more persons owning operating
mineral properties agree to have the properties operated on a unified basis and
further agree to share in production from all of the properties on a stipulated
percentage or fractional basis regardless of from which property the oil or gas
is produced. All owners of the economic interests in the property should be
involved in the agreement.
Undeveloped Acreage or Properties. Oil and gas acreage (including, in
applicable instances, rights in one or more horizons thereunder, which may be
penetrated by existing well bores, but which have not been tested) or properties
to which Proved Reserves have not been assigned by independent petroleum
engineers.
39
<PAGE>
FINANCIAL STATEMENTS AND REPORT OF
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
CHAPARRAL RESOURCES, INC. AND SUBSIDIARY
November 30, 1995, 1994 and 1993
C O N T E N T S
Page
REPORT OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS F-2
FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS F-3
CONSOLIDATED STATEMENTS OF OPERATIONS F-5
CONSOLIDATED STATEMENTS OF CASH FLOWS F-6
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY F-8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-9
SUPPLEMENTARY INFORMATION
DISCLOSURE ABOUT OIL AND GAS PRODUCING
ACTIVITIES - UNAUDITED F-24
<PAGE>
REPORT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors and Stockholders
Chaparral Resources, Inc. and Subsidiary
We have audited the accompanying consolidated balance sheets of Chaparral
Resources, Inc. and Subsidiary as of November 30, 1995 and 1994, and the related
consolidated statements of operations, cash flows and changes in stockholders'
equity for each of the three years in the period ended November 30, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Chaparral
Resources, Inc. and Subsidiary as of November 30, 1995 and 1994, and the
consolidated results of their operations and their consolidated cash flows for
each of the three years in the period ended November 30, 1995 in conformity with
generally accepted accounting principles.
F-2
<PAGE>
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As shown in the financial statements, the
Company incurred a net loss of $704,000 during the year ended November 30, 1995.
As discussed in note B to the financial statements, the Company requires
significant additional financing to meet its financial requirements through
fiscal 1996. These factors raise substantial doubt about the
Company's ability to continue as a going concern. Management's plans in regard
to these matters are also described in note B. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
/s/ Grant Thornton LLP
GRANT THORNTON LLP
Denver, Colorado
January 19, 1996 (except for note N, as to
which the date is March 8, 1996)
F-3
<PAGE>
<TABLE>
<CAPTION>
Chaparral Resources, Inc. and Subsidiary
CONSOLIDATED BALANCE SHEETS
May 31, November 30,
1996 --------------------------
---------- 1995 1994
(Unaudited) ----------- ---------
ASSETS
<S> <C> <C> <C>
CURRENT ASSETS
Cash and cash equivalents .......... $ 2,357,000 $ 501,000 $ 318,000
Certificates of deposit ............ -- -- 20,000
Investments in U.S. Treasury
securities (at cost) ............. -- -- 199,000
Accounts receivable
Joint interest participants ...... 15,000 31,000 231,000
Oil and gas purchasers ........... 50,000 46,000 64,000
Prepaid expenses ................... 2,000 2,000 2,000
------------ ------------ ------------
Total current assets 2,424,000 580,000 834,000
PROPERTY AND EQUIPMENT - AT COST
Oil and gas properties - full cost
United States
Subject to depletion ........... 16,161,000 16,149,000 16,115,000
Not subject to depletion ....... 54,000 40,000 40,000
Less accumulated depletion and
depreciation and impairment ...... (15,760,000) (15,722,000) (15,032,000)
------------ ------------ ------------
455,000 467,000 1,123,000
Furniture, fixtures and equipment .. 202,000 197,000 ,000
Less accumulated depreciation ...... (179,000) (177,000) (324,000)
------------ ------------ ------------
23,000 20,000 ,000
------------ ------------ ------------
478,000 487,000 1,136,000
OTHER ASSETS
Investment in and advances to
affiliate ........................ 12,649,000 4,507,000 256,000
Long-term investments in U.S. ......
Treasury securities (at cost) .... -- -- 100,000
Other .............................. 384,000 21,000 62,000
------------ ------------ ------------
13,033,000 4,528,000 418,000
------------ ------------ ------------
$ 15,935,000 $ 5,595,000 $ 2,388,000
============ ============ ============
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
<CAPTION>
Chaparral Resources, Inc. and Subsidiary
CONSOLIDATED BALANCE SHEETS (CONTINUED)
May 31 November 30,
1996 --------------------------
--------- 1995 1994
(Unaudited) ----------- ---------
LIABILITIES AND
STOCKHOLDERS' EQUITY
<S> <C> <C> <C>
CURRENT LIABILITIES
Purchase commitment ..................... $ 1,225,000 -- --
Accounts payable
Trade ................................. 529,000 $ 102,000 $ 151,000
Joint interest participants -
revenue ............................. 42,000 26,000 41,000
Accrued liabilities ..................... 54,000 86,000 145,000
------------ ------------ ------------
Total current liabilities 1,850,000 214,000 337,000
LONG-TERM OBLIGATIONS
Note payable ............................ -- 461,000 --
MINORITY INTEREST ......................... 50,000 -- 16,000
STOCKHOLDERS' EQUITY
Common stock - authorized,
50,000,000 shares and
25,000,000 shares at
November 30, 1995 and 1994,
respectively, of $.10 par
value; issued and outstanding,
37,376,517 at May 31, 1996 and
20,484,192 and 15,782,317
shares at November 30, 1995
and 1994, respectively ................ 3,738,000 2,048,000 1,572,000
Capital in excess of par value .......... 20,343,000 12,577,000 9,464,000
Preferred stock - authorized, 1,000,000
shares, no shares issued or
outstanding ........................... -- -- --
Retained earnings (deficit) ............. (10,046,000) (9,705,000) (9,001,000)
------------ ------------ ------------
14,035,000 4,920,000 2,035,000
------------ ------------ ------------
$ 15,935,000 $ 5,595,000 $ 2,388,000
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
Chaparral Resources, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF OPERATIONS
Six months ended
---------------------------- November 30,
May 31, May 31, ----------------------------------------
1996 1995 1995 1994 1993
------------ ------------ --------- --------- ---------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Revenue
Oil and gas sales ....... 81,000 $ 136,000 $ 255,000 $ 374,000 $ 414,000
Costs and expenses
Production costs ........ 8,000 67,000 115,000 232,000 185,000
Write down of oil and
gas properties ........ - 0 - - 0 - 619,000 416,000 230,000
Depreciation and
depletion ............. 39,000 61,000 74,000 120,000 125,000
General and
administrative ........ 349,000 60,000 166,000 94,000 94,000
----------- ------------ ------------ ------------ ------------
396,000 188,000 974,000 862,000 634,000
----------- ------------ ------------ ------------ ------------
(Loss) from
operations.... (315,000) (52,000) (719,000) (488,000) (220,000)
Other income (expense)
Interest income ......... 2,000 3,000 25,000 13,000 20,000
Interest expense ........ (28,000) -- (17,000) (4,000) (8,000)
Other - net ............. 1,000 39,000 7,000 5,000) 85,000
----------- ------------ ------------ ------------ ------------
(25,000) 42,000 15,000 14,000) 97,000
----------- ------------ ------------ ------------ ------------
NET (LOSS) ..... (340,000) $ (10,000) $ (704,000) $ (474,000) (123,000)
=========== ============ ============ ============ ============
Net (loss) per share ...... (.01) $ (.00) $ (.04) $ (.02) $ (.01)
Weighted average number
of shares outstanding.... 26,711,246 17,331,380 18,865,454 15,064,856 13,319,893
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE>
<TABLE>
<CAPTION>
Chaparral Resources, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended November 30,
Six months ended
---------------------------- November 30,
May 31 May 31, ----------------------------------------
1996 1995 1995 1994 1993
----------- ----------- ---------- --------- ---------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Increase (decrease) in cash
and cash equivalents
Cash flows from operating activities
Net (loss) ........................ $ (340,000) $ (10,000) $ (704,000) $ (474,000) $ (123,000)
Adjustments to reconcile net
(loss) to net cash provided by
operating activities
Depreciation and depletion ...... 38,000 61,000 74,000 120,000 125,000
(Decrease) in deferred
compensation .................. -- -- -- (40,000) (20,000)
Write down of oil and
gas property .................. -- -- 619,000 416,000 230,000
Stock issued for services
and bonuses ................... -- -- 27,000 8,000 --
Amortization of note discount ... -- -- 17,000 -- --
Changes in assets and liabilities,
net of effects of acquisition
(Increase) decrease in
Accounts receivable ......... 12,000 185,000 218,000 22,000 (165,000)
Prepaid expenses ............ -- 1,000 -- -- (1,000)
Other assets ................ -- 140,000 -- -- --
Equipment inventory ......... -- 1,000 -- -- --
Increase (decrease) in
Accounts payable ............ (67,000) (102,000) (64,000) 47,000 62,000
Accrued liabilities ......... (40,000) (73,000) (59,000) (9,000) (27,000)
----------- ----------- ----------- ----------- -----------
Net cash provided from
(used in) operating
activities ........... (397,000) 203,000 128,000 90,000 81,000
Cash flows from investing activities
Additions to property and equipment (48,000) (193,000) (86,000) (255,000) (310,000)
Investment in foreign oil and gas
properties ...................... (1,631,000) (3,383,000) (1,088,000) (256,000) --
Payments for acquisition, net of
cash acquired ................... (2,889,000) -- -- -- --
Proceeds from sale of interest
in oil and gas properties ....... 19,000 -- 41,000 71,000 2,000
Decrease in cash value of
insurance and annuities ......... -- -- 40,000 40,000 39,000
Increase (decrease) in minority
interest ........................ -- -- (16,000) (1,000) 1,000
Decrease in equipment inventory ... -- 1,000 1,000 -- --
Sale (purchase) of bonds .......... -- -- 299,000 (299,000) --
Redemption of certificates of
deposit ......................... -- 1,000 20,000 146,000 --
Purchase of certificates of deposit -- -- -- -- (2,000)
----------- ----------- ----------- ----------- -----------
Net cash provided by
(used in) investing
activities ........... (4,549,000) (3,575,000) (789,000) (554,000) (270,000)
The accompanying notes are an integral part of these statements.
F-7
<PAGE>
<CAPTION>
Chaparral Resources, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended November 30,
Six months ended
---------------------------- November 30,
May 31, May 31, ---------------------------------
1996 1995 1995 1994 1993
----------- ----------- --------- --------- ---------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from financing
activities
Payment of note ........................... $ (750,000) $ -- $ -- $ -- $ --
Proceeds from stock acquisition of CAP(D).. -- 3,198,000 -- -- --
Proceeds from note payable ................ -- -- 750,000 -- --
Proceeds from sale of stock ............... 7,552,000 -- 94,000 260,000 410,000
---------- -------- ---------- ---------- ---------
Net cash provided from
(used in) financing
activities .................... 6,802,000 3,198,000 844,000 260,000 410,000
Net (increase) decrease
in cash andd cash
equivalents ................... 1,856,000 (174,000) 183,000 (204,000) 221,000
Cash and cash equivalents at
beginning of year ........................... 501,000 318,000 318,000 522,000 301,000
---------- -------- ---------- ---------- ---------
Cash and cash equivalents at end of 2nd quarter
and end of years 1995, 1994 and 1993......... $2,357,000 $ 144,000 $ 501,000 $ 318,000 $ 522,000
========== ========== ========= ========== =========
Supplemental Cash Flow Information:
Cash paid during the year
Interest .................................. $ 28,000 $ -- $ 5,000 $ 4,000 $ 8,000
Income taxes .............................. -- -- -- -- --
Supplemental schedules of noncash investing and
financing activities
To retire notes payable ................... $ 300,000 $ -- $ -- $ -- $ --
Common stock issued for
investment in affiliate ................. 1,903,000 -- 3,162,000 -- --
Discount recognized for note
issued with detachable stock
warrants .............................. -- -- 306,000 -- --
Purchase commitment ....................... 1,225,000 -- -- -- --
Common stock issued upon
conversion of debentures .............. -- -- -- 75,000 --
</TABLE>
Note: The company recognized a purchase commitment of $1,225,000 for the
initial purchase of a 15% interest in affiliate to be paid between
June 11, 1996 and March 11, 1997 during the six months ended May 31,
1996.
The accompanying notes are an integral part of these statements.
F-8
<PAGE>
<TABLE>
<CAPTION>
Chaparral Resources, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Years ended November 30, 1995, 1994 and 1993
and the six months ended May 31, 1996 (Unaudited)
Capital
Common stock in excess Retained
--------------------------------- of par earnings
Shares Amount value (deficit)
---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Balance at November 30,
1992 .................................. $12,237,875 $ 1,223,000 $ 9,061,000 $(8,404,000)
Issuance of capital
stock ................................... 2,685,750 269,000 141,000 --
Net loss .................................. -- -- -- (123,000)
----------- ----------- ----------- -----------
Balance at November 30,
1993 ................................... 14,923,625 1,492,000 9,202,000 (8,527,000)
Warrants exercised for
capital stock ........................... 650,625 65,000 195,000 --
Conversion of debentures
for capital stock ....................... 200,067 20,000 55,000 --
Capital stock issued for
services ................................ 8,000 1,000 6,000 --
Net loss .................................. -- -- -- (474,000)
----------- ----------- ----------- -----------
Balance at November 30,
1994 ................................... 15,782,317 1,578,000 9,458,000 (9,001,000)
Warrants exercised for
capital stock ........................... 265,375 27,000 67,000 --
Capital stock issued
for investment in
affiliate ............................... 4,400,000 440,000 2,722,000 --
Capital stock issued for
services ................................ 12,500 1,000 9,000 --
Capital stock issued for
employee and director
bonuses ................................. 24,000 2,000 15,000 --
Debt issuance costs -
stock warrants issued ................... -- -- 306,000 --
Net loss .................................. -- -- -- (704,000)
----------- ----------- ----------- -----------
Balance at November 30,
1995 ................................... 20,484,192 $ 2,048,000 $12,577,000 $(9,705,000)
Capital stock issued
(unaudited) ............................. 16,892,325 1,690,000 7,766,000 --
Net loss (unaudited) ...................... -- -- -- (340,000)
----------- ----------- ----------- -----------
Balance at May 31,
1996 (unaudited) ........................ 37,376,517 $ 3,738,000 $20,343,000 $(10,045,000)
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-9
<PAGE>
Chaparral Resources, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The summary of significant accounting policies consistently applied in the
preparation of the accompanying consolidated financial statements follows:
1. History and Business Activity
Chaparral Resources, Inc. was incorporated in the State of Colorado on
January 13, 1972, principally to engage in the exploration, development
and production of oil and gas properties.
2. Principles of Consolidation
The November 30, 1994 consolidated financial statements include the
accounts of the Company and its 87% owned joint venture, Reservoir
Creek Gathering System. All significant intercompany transactions have
been eliminated. On April 15, 1995, the Company sold its 87% ownership
interest in this joint venture. At May 31, 1996, the consolidated
financial statements include the accounts of CAP-G (see note N).
3. Cash Equivalents
For purposes of the statement of cash flows, cash equivalents are
defined as highly liquid investments purchased with an original maturity
of three months or less.
4. Investments in Debt and Equity Securities
The Company accounts for investments in debt and equity securities under
the provision of Financial Accounting Standards No. 115, "Accounting for
Certain Investments in Debt and Equity Securities." This statement
requires that, at acquisition, the Company classify debt and equity
securities into one of three categories: held-to-maturity,
available-for-sale, or trading. At each reporting date, the
appropriateness of the classification shall be reassessed.
F-10
<PAGE>
Chaparral Resources, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
5. Oil and Gas Property and Equipment
The Company uses the full cost method of accounting for its oil and gas
properties. All costs incurred in the acquisition, exploration and
development of properties (including costs of surrendered and abandoned
leaseholds, delay lease rentals, dry hole costs, geological and
geophysical costs and overhead related to exploration and development
activities) are capitalized on a country by country basis. The
limitation on such capitalized costs is determined in accordance with
rules specified by the Securities and Exchange Commission. Capitalized
costs are depleted using the units of production method. All of the
Company's proved reserves are in the United States.
6. Sales of Proved Oil and Gas Property
Sales of oil and gas properties, whether or not being amortized
currently, are accounted for as adjustments of capitalized costs, with
no gain or loss recognized, unless such adjustments significantly alter
the relationship between capitalized costs and proved reserves of oil
and gas. A significant alteration would not ordinarily be expected to
occur for sales involving less than 25% of the reserve quantities of a
given cost center. If gain or loss is recognized on such a sale, total
capitalized costs within the cost center are allocated between the
reserves sold and reserves retained on the same basis used to compute
amortization, unless there are substantial economic differences between
the properties sold and those retained, in which case capitalized costs
are allocated on the basis of the relative fair values of the
properties.
7. Costs Not Subject to Depletion
Costs associated with acquisition and evaluation of unproved properties
are excluded from the amortization computation until it is determined if
proved reserves can be attributed to the properties. These unevaluated
properties are assessed annually for possible impairment and the amount
impaired, if any, is added to the amortization base. Costs of
exploratory dry holes and geological and geophysical costs not directly
associated with specific unevaluated properties are added to the
amortization base as incurred.
F-11
<PAGE>
Chaparral Resources, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
8. Sales of Unproved Properties
Proceeds received from drilling arrangements are credited to the
appropriate cost center and recognized as a lower amortization provision
as reserves are produced.
9. Other Property and Equipment
Furniture, fixtures and equipment are depreciated using straight-line
and accelerated methods over estimated useful lives which range from
three to ten years.
Gains or losses on sales of property and equipment, other than oil and
gas exploration and development costs, are recognized as part of
operations. Expenditures for renewals and betterments are capitalized,
while expenditures for maintenance and repairs are charged to operations
as incurred.
10. Administrative Overhead Reimbursement
The Company, as operator of drilling and/or producing properties, is
reimbursed by the nonoperators for administration, supervision, office
services and warehousing costs on an annually adjusted fixed rate basis
per well per month. These charges are applied as a reduction of general
and administrative expenses for purposes of the statement of operations.
11. Income Taxes
The Company accounts for income taxes on the liability method based upon
the tax rate at which items of income and expense are expected to be
settled in the Company's tax return.
12. (Loss) Per Common Share
Earnings (loss) per common and common equivalent share is based on the
weighted average number of shares outstanding. The potential dilution
from the exercise of stock warrants is not material.
F-12
<PAGE>
Chaparral Resources, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
13. Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
14. Reclassifications
Certain reclassifications have been made to conform prior years'
information with the current year presentation.
15. Interim Financial Statements
Information in the accompanying consolidated financial statements and
notes to the consolidated financial statements for the interim periods
is unaudited. The accompanying unaudited condensed financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information and Article 10 of
Regulation S-X. Accordingly, they do not include all the information and
footnotes required by generally accepted accounting principles for
complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results
for the interim periods are not necessarily indicative of the results
that may be expected for the full year.
NOTE B - GOING CONCERN
The Company's financial statements have been presented on the basis that it
is a going concern, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. The Company
has over 80% of its assets invested in entities that are pursuing the
development of the Karakuduk Field, a shut in oil field in the central Asian
Republic of Kazakstan, which will require significant additional funding
(note D).
F-13
<PAGE>
Chaparral Resources, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE B - GOING CONCERN (CONTINUED)
The Company has commenced a private placement of common stock (note N).
However, the Company does not anticipate that the net proceeds from the sale
of the shares offered, together with the Company's current cash reserves and
cash flow from operations, will be sufficient to meet the Company's capital
requirements through fiscal 1996. While the Company believes that additional
funds will be available from additional financing, there can be no assurance
that such will be the case. There is also no assurance that additional
financing, if available, can be obtained on terms favorable or affordable to
the Company.
The Company's continued existence as a going concern in its present form is
dependent upon the success of future operations, which is, in the near term,
dependent on the successful financing and development of the Karakuduk
Field, of which there is no assurance.
NOTE C - INVESTMENTS IN DEBT AND EQUITY SECURITIES
The Company classifies its investments in U.S. Treasury securities as
held-to-maturity securities. Held-to-maturity securities are carried at
amortized cost.
As of November 30, 1995, the Company did not own any investments in debt and
equity securities. The amortized cost, unrealized gains and losses, and fair
values of the Company's held-to-maturity securities held at November 30,
1994 are summarized as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized unrealized unrealized Fair
cost gains losses value
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
U.S. government
securities ......... $299,000 $ 4,000 $-- $303,000
======== ======== ==== ========
</TABLE>
The following table lists the maturities of debt securities held at November
30, 1994 classified as held-to-maturity.
<TABLE>
<CAPTION>
Within One to five More than
one yes years five years Total
------- ----------- ---------- -------
<S> <C> <C> <C> <C>
Held-to-maturity
securities .......... $ 199,000 $ 100,000 $-- $ 299,000
======= ======= === =======
</TABLE>
F-14
<PAGE>
Chaparral Resources, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE D - INVESTMENT IN AND ADVANCES TO AFFILIATE
In September, 1994, the Company acquired a 25% interest in Central Asian
Petroleum Guernsey Limited ("CAP-G"), with headquarters in Ankara, Turkey.
CAP-G has a 50% interest in Karakuduk Munay, Inc. ("KKM"), which owns 100%
of the right to develop the Karakuduk Field, a shut-in oil field in the
central Asian Republic of Kazakstan. As a result of the acquisition of the
25% interest in CAP-G, the Company had a 12.5% beneficial interest in KKM
and the Karakuduk Field. In April, 1995, the Company acquired all of the
stock of Central Asian Petroleum, Inc. ("CAP-D"), in exchange for shares of
the Company's common stock (note F - shares in escrow). As a result of the
acquisition, the Company's beneficial interest in CAP-G increased to 45%,
giving the Company a 22.5% beneficial interest in KKM and the Karakuduk
Field (see note N).
Since the Company and its affiliates are in the acquisition and evaluation
phase related to the Karakuduk Field, all costs incurred by the Company
related to the Field have been capitalized and are not subject to depletion.
All of the permits and licenses required to develop the field are not yet in
place and there is no assurance that they will be obtained.
Because of uncertainties surrounding the prospect, no proved reserves have
been attributed to the field. The project will require significant
development costs for which the financing is not complete. There can be no
assurance that the project will be adequately financed or that the field
will be successfully developed. The license requires a minimum work plan of
approximately $10,000,000 in 1996, $34,000,000 in 1997 and $12,000,000 in
1998. The agreement provides KKM with the right to defer the minimum work
program under certain conditions. As part of the minimum work plan,
Chaparral is committed to loan CAP-G sufficient funds up to a total amount
of $4,000,000 to enable CAP-G to loan KKM sufficient funds to place
existing wells in the Karakuduk Field on production.
In addition to the normal risks associated with domestic oil and gas
exploration and development, this project is subject to other risks such as
political instability, war, expropriation, language barriers, government
bureaucracy, uncertain markets, fluctuation in currency exchange rates,
limitations on currency repatriation, foreign taxes, duties and tariffs,
renegotiation or modification of contracts and the availability of oil
gathering systems and pipelines.
F-15
<PAGE>
Chaparral Resources, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE E - LONG-TERM DEBT
Long-term obligations at November 30, 1995 consisted of a note payable to a
private corporation in the amount of $750,000. The note is due on the
earlier of April 30, 1997 or the third business day following the receipt by
Chaparral of any proceeds from one of the following sources: 1) the sale or
issuance of its securities, or 2) any debt financing provided or guaranteed
by the Overseas Private Investment Corporation or other governmental entity.
Interest is payable monthly at a rate of 8%.
As additional consideration for this note, Chaparral issued to the holder
warrants to purchase 500,000 shares of Chaparral's common stock, and to a
private corporation, as a finders fee, warrants to purchase 200,000 shares,
at $0.25 per share, exercisable at any time, but no later than October 30,
1998.
The note has been discounted by the difference between the market value of
the Company's common stock on the date of issuance and the exercise price of
the warrants. The discount will be amortized over the life of the note (18
months). The following is a summary of the note payable at November 30,
1995:
Note payable ...........................$ 750,000
Less unamortized discount
based on imputed interest
rate of 24% ........................... (289,000)
-------
$ 461,000
=======
Under the terms of the note, Chaparral was required to elect three people
affiliated with the holder to its Board of Directors, with one of these
people being named the Chairman of the Board.
The note is subject to a provision whereby, if the note is not repaid by
specific dates (before April 30, 1997), Chaparral will issue additional
warrants to the holder.
Aggregate maturities of long-term debt as of November 30, 1995 are as
follows:
1996 .................... $ --
1997 .................... 750,000
F-16
<PAGE>
Chaparral Resources, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE F - COMMON STOCK AND STOCK WARRANTS
Stock Warrant Plan
During 1989, the Board of Directors approved a stock warrant plan for key
employees and directors. The Company has reserved 1,175,000 shares of its
common stock for issuance under the plan. Warrants must be granted and
exercised within a 10 year period ending April 30, 1999. The exercise price
must equal the fair market value of the Company's common stock on the date
of grant.
Immediately following approval of the plan by the Board of Directors,
warrants for 1,175,000 shares were granted with an exercise price of $.28
per share. The plan was approved in 1990 by the Company's shareholders.
During 1995, 100,000 of the warrants were exercised for the purchase of
common stock. The exercise price was $.28 per share for a total of $28,000.
Stock Offering
During 1993, the Company sold a total of 1,790.5 units in a private
placement consisting of 2,685,750 shares of common stock and 1,342,875
warrants to purchase stock with an exercise price of $.40. An additional
105,540 warrants were issued as commission.
During 1994, 650,625 of the warrants issued in the private placement were
exercised for the purchase of shares of common stock. The exercise price was
$.40 per share for a total of $260,000.
During 1995, 165,375 of the warrants issued in the private placement were
exercised for the purchase of shares of common stock. The exercise price was
$.40 per share for a total of $66,000.
Stock Warrants Related to Debt Issuance (note E)
As consideration for the issuance of a $750,000 note, the Company issued
warrants for a total of 700,000 shares of the Company's common stock, at
$.25 per share, exercisable at any time, but no later than October 30, 1998.
F-17
<PAGE>
Chaparral Resources, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE F - COMMON STOCK AND STOCK WARRANTS (CONTINUED)
Shares in Escrow
The Company issued 4,400,000 shares of common stock to acquire an interest
in CAP-G (see note D). 150,000 of these shares were issued during the year
ended November 30, 1995 for the first 25% interest. For the remaining 20%
interest, 4,250,000 shares were held in escrow at the date of this
transaction with delivery authorized upon the occurrence of several events.
The first 1,000,000 shares were delivered in September, 1995 upon
registration of the Karakuduk Munay Agreement by the government of the
Republic of Kazakstan. Additional shares will be delivered based upon
future events including completion of financing for the Karakuduk field,
minimum production quantities and project financing.
NOTE G - INCOME TAXES
The following is a summary of the provision for income taxes:
<TABLE>
<CAPTION>
November 30,
-------------------------------------
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Income taxes (benefit)
computed at Federal
statutory rate ............... $(241,000) $(161,000) $ (42,000)
Change in asset valuation
allowance .................... 298,000 256,000 65,000
Other .......................... (57,000) (95,000) (23,000)
--------- --------- ---------
Income taxes ................... $ -- $ -- $ --
========= ========= =========
</TABLE>
F-18
<PAGE>
Chaparral Resources, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE G - INCOME TAXES (CONTINUED)
The components of the Company's deferred tax assets and
liabilities under SFAS No. 109 are as follows:
<TABLE>
<CAPTION>
Year ended
November 30,
-----------------------------------------
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Deferred tax assets
Net operating loss
carryforwards ........ $ 4,131,000 $ 3,934,000 $ 3,777,000
Full cost pool
capitalization ....... 246,000 145,000 46,000
Valuation allowance ...... (4,377,000) (4,079,000) (3,823,000)
----------- ----------- -----------
Deferred tax assets ...... $ -- $ -- $ --
=========== =========== ===========
</TABLE>
There were no deferred tax assets or income tax benefits recorded in the
financial statements for net deductible temporary differences or net
operating loss carryforwards due to the fact that the realization of the
related tax benefits is not considered likely.
At November 30, 1995, the Company has tax loss carryforwards of
approximately $12,149,000 available to offset future taxable income. These
carryforwards will expire at various times between 1996 and 2011. The
Company has issued a significant number of shares of common stock during the
year ended November 30, 1995 and has also issued warrants. The Company is
also currently negotiating for the infusion of additional capital which, if
successful, will require additional shares of stock to be issued. The
changes in ownership may significantly restrict the use of net operating
loss carryforwards. At November 30, 1995, unused statutory depletion
carryforwards, which have unlimited duration, are approximately $567,000.
The unused investment tax credit carryover was approximately $86,000 at
November 30, 1995 and expires through 2000. The loss carryforward at
November 30, 1995 for financial reporting purposes is approximately
$11,264,000. The difference between the loss carryforward for financial
reporting and income tax purposes results principally from the difference in
book and tax basis of oil and gas properties.
F-19
<PAGE>
Chaparral Resources, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE H - RELATED PARTY TRANSACTIONS
The Company paid a director $24,000 during 1995 and 1994 and $20,000 during
1993, for public relations consulting services.
NOTE I - MAJOR CUSTOMERS
The Company is presently engaged in exploration for and development of oil
and gas. The Company sells its production under contracts with various
purchasers, with certain domestic purchasers accounting for sales of 10% or
more per year as follows:
1995 .......................... 16%
1994 .......................... 15%, 13% and 11%
1993 .......................... 13%, 11% and 11%
NOTE J - LEASE
The Company leases office space under a noncancellable operating lease,
expiring in March, 1997. The following is a schedule of future minimum
rental payments:
Year ending November 30,
------------------------
1996 .......................... $ 33,000
1997 .......................... 11,000
-------
$ 44,000
Net rent expense was $36,000 for 1995, $37,000 for 1994, and $34,000 for
1993. Related party sublease income included in rent expense was $6,000 for
1994 and 1993, there was no sublease income in 1995.
NOTE K - DEFERRED COMPENSATION PLANS
Royalty Participation Plan
During 1982, the Company adopted a Royalty Participation Plan for the
employees of the Company. Under the plan, the Company may contribute to a
trust fund, royalty interests acquired by the Company together with any
proceeds of production received by the Company which are attributable to
such royalty interests. The net income of the trust fund will be distributed
yearly to the participants based on years of service and position in the
Company. Distributions were $12,000 for 1995, $10,000 for 1994 and $10,000
for 1993.
F-20
<PAGE>
Chaparral Resources, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE K - DEFERRED COMPENSATION PLANS (CONTINUED)
Deferred Compensation Agreement
In 1991, the Company amended its deferred compensation plan for its
president to provide for payments of $20,000 annually for 5 years, a total
of $100,000, beginning in 1991. Prior to the amendment, the plan called for
payments of $18,000 annually, a total of $180,000, for 10 years beginning
upon termination. At November 30, 1994, the Company has no remaining
obligation under the Plan.
NOTE L - DEFINED CONTRIBUTION PLANS
Effective December 31, 1990, the Company adopted a new defined contribution
plan which covers all full-time eligible employees. Contributions are
determined as a percent of each covered employee's salary and are funded as
accrued. Plan contributions for the Company were $27,000 in 1995, $26,000 in
1994, and $29,000 in 1993, of which $20,000 in 1995, $20,000 in 1994, and
$23,000 in 1993 was attributable to the president of the Company.
The Company also adopted a 401(k) plan covering all full time employees,
effective January 1, 1991. Employee contributions are in the form of salary
reductions up to the maximum percentage allowable under IRS codes. There are
no employer matching contributions.
NOTE M - FOURTH QUARTER ADJUSTMENTS
During the fourth quarter of the year ended November 30, 1995, the Company
recognized a write down of its oil and gas properties of $619,000, as a
result of a full cost ceiling limitation.
F-21
<PAGE>
Chaparral Resources, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE N - EVENTS SUBSEQUENT TO NOVEMBER 30, 1995
In January and February, 1996, the Company entered into agreements to
acquire, for a total of $5,850,000 cash and 1,785,000 shares of the
Company's common stock, an additional 55% interest in CAP-G. If consummated,
the acquisitions would increase the Company's ownership in CAP-G to 100%,
thus increasing to 50% the Company's beneficial ownership of KKM and the
Karakuduk Field.
The additional 55% of CAP-G is to be acquired in three separate
transactions, the first two of which include the purchase of all of the
CAP-G shares owned by a private Turkish company ("Darka") and by an
individual CAP-G shareholder ("Koksal"), each of which owns 25% of the
CAP-G shares outstanding.
The Company would pay $2,000,000 in cash plus issue 685,000 shares of the
Company's common stock to Darka for all of its CAP-G shares. The cash
payment includes an initial $300,000 paid by the Company on March 4, 1996,
following the Company's review of Darka. An additional $300,000 and 625,000
shares of Company stock were delivered March 8, 1996, with the balance of
cash and stock due at closing on April 1, 1996.
The Company would pay $1,975,000 in cash and issue 900,000 shares of the
Company's common stock to Koksal for 60% of Koksal's CAP-G shares, with an
option, after completion of the initial purchase, to purchase the remaining
40% of his CAP-G shares for an additional $1,625,000 and 200,000 shares of
the Company's common stock. The cash payment on the initial purchase from
Koksal includes $150,000 paid by the Company into an escrow account during
the Company's 60-day due diligence review. If the initial purchase is
consummated from Koksal, the escrowed funds would be released and an
additional $600,000 cash and 900,000 shares of the Company's common stock
delivered to Koksal on or before March 11, 1996. The remaining cash balance
of $1,225,000 for the initial purchase will be paid in four equal quarterly
payments of $306,250 between June 11, 1996 and March 11, 1997. The Company
has the option to acquire the remaining 40% of Koksal's CAP-G shares at
any time following completion of the initial purchase and prior to December
11, 1997.
Under a third agreement, the Company would acquire the remaining 5% of the
outstanding CAP-G shares from a private corporation ("OCSCO") for $250,000
to be paid at the earlier of April 14, 1996 or 15 days after completion of a
private placement of common stock described below.
F-22
<PAGE>
Chaparral Resources, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE N - EVENTS SUBSEQUENT TO NOVEMBER 30, 1995 (CONTINUED)
In March, 1996, the Company commenced a private offering of common stock,
whereby the Company is offering 12,000,000 shares at $.50 per share. The
Company reserved the right to increase the offering to 14,000,000 shares.
There is no minimum amount in the offering, and proceeds from the sale of
the shares will be used by the Company as subscriptions are accepted without
any escrow.
If all shares offered are sold, the net proceeds from the offering are
estimated to be approximately $5,500,000 after deducting Placement Agent
fees and estimated offering expenses of $500,000.
During the six months ended May 31, 1996 and subsequent thereto, several of
the above transactions were completed or partially completed. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations of the Company--Liquidity and Capital Resources" (Unaudited).
F-23
<PAGE>
SUPPLEMENTAL INFORMATION - DISCLOSURES ABOUT OIL AND GAS
PRODUCING ACTIVITIES - UNAUDITED
The following estimates of proved and unproved developed reserve quantities and
related standardized measure of discounted net cash flow are estimates only, and
do not purport to reflect realizable values or fair market values of the
Company's reserves. The Company emphasizes that reserve estimates are inherently
imprecise and that estimates of new discoveries are more imprecise than those of
producing oil and gas properties. Additionally, the price of oil has been very
volatile and downward changes in prices can significantly effect quantities that
are economically recoverable. Accordingly, these estimates are expected to
change as future information becomes available and the changes may be
significant. All of the Company's reserves are located in the United States.
Proved reserves are estimated reserves of crude oil and natural gas that
geological and engineering data demonstrate with reasonable certainty to be
recoverable in future years from known reservoirs under existing economic and
operating conditions. Proved developed reserves are those expected to be
recovered through existing wells, equipment and operating methods.
The standardized measure of discounted future net cash flows is computed by
applying year-end prices of oil and gas (with consideration of price changes
only to the extent provided by contractual arrangements) to the estimated future
production of proved oil and gas reserves, less estimated future expenditures
(based on year-end costs) to be incurred in developing and producing the proved
reserves, less estimated future income tax expenses. The estimated future net
cash flows are then discounted using a rate of 10% a year to reflect the
estimated timing of the future cash flows.
F-24
<PAGE>
<TABLE>
<CAPTION>
SUPPLEMENTAL INFORMATION - DISCLOSURES ABOUT OIL AND GAS
PRODUCING ACTIVITIES - UNAUDITED (CONTINUED)
PROVED OIL AND GAS RESERVE QUANTITIES
(All within the United States)
Oil Gas
reserves reserves
(bbls.) (Mcf.)
-------- ---------
<S> <C> <C>
Balance December 1, 1992 ..................... 105,973 1,485,556
Revisions of previous estimates .......... (10,970) (200,049)
Extensions, discoveries and
other additions ........................ 59,193 1,175,421
Production ............................... (12,448) (155,786)
------- ---------
Balance November 30, 1993 .................... 141,748 2,305,142
Revisions of previous estimates .......... (125) (455,946)
Sales of reserves ........................ (20,392) (95,714)
Extensions, discoveries and
other additions ........................ 1,745 1,700,289
Production ............................... (11,286) (159,041)
------- ---------
Balance November 30, 1994 .................... 111,690 3,294,730
Revisions of previous estimates .......... (1,438) (98,536)
Sales of reserves ........................ (36,425) (10,228)
Extensions, discoveries and
other additions ........................ 582 9,375
Production ............................... (8,224) (132,924)
------- ---------
Balance November 30, 1995 .................... 66,185 3,062,417
======= =========
Proved developed reserves
November 30, 1993 ........................ 82,798 1,155,946
November 30, 1994 ........................ 52,740 1,103,203
November 30, 1995 ........................ 7,235 870,890
</TABLE>
F-25
<PAGE>
<TABLE>
<CAPTION>
SUPPLEMENTAL INFORMATION - DISCLOSURES ABOUT OIL AND GAS
PRODUCING ACTIVITIES - UNAUDITED (CONTINUED)
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS
AND CHANGES THEREIN RELATING TO PROVED OIL AND GAS RESERVES
Year ended November 30,
------------------------------------------
1995 1994 1993
---------- ---------- -----------
<S> <C> <C> <C>
Future cash inflows $ 3,449,000 $ 5,041,000 $ 4,980,000
Future production and
development costs (2,478,000) (3,051,000) (2,661,000)
Future income tax expenses -- -- --
--------- --------- ----------
Future net cash flows 971,000 1,990,000 2,319,000
10% annual discount for
estimated timing of cash
flows (544,000) (907,000) (959,000)
--------- --------- ---------
Standardized measure of
discounted future net cash
flows $ 427,000 $ 1,083,000 $ 1,360,000
========= ========= =========
The following are the principal sources of changes in the standardized measure
of discounted future net cash flows:
<CAPTION>
Year ended November 30,
----------------------------------------
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Beginning balance ................. $ 1,084,000 $ 1,360,000 $ 1,429,000
Expenditures which reduced
future development costs ........ (3,000) (146,000) (67,000)
Acquisition of proved reserves .... -- -- --
Sale of proved reserves ........... (81,000) (102,000) --
Sales and transfers of oil
and gas produced, net of
production costs ................ (140,000) (143,000) (229,000)
Net increase (decrease) in
price ........................... (593,000) (568,000) (485,000)
Net (increase) decrease in
costs ........................... 247,000 3,000 94,000
Extensions and discoveries ........ 165,000 526,000 631,000
Revisions of previous
quantity estimates .............. (38,000) (214,000) (140,000)
Accretion of discount ............. 108,000 136,000 143,000
Effect of change in timing
and other ....................... (322,000) 231,000 (16,000)
----------- ----------- -----------
Ending balance .................... $ 427,000 $ 1,083,000 $ 1,360,000
=========== =========== ===========
F-26
<PAGE>
SUPPLEMENTAL INFORMATION - DISCLOSURES ABOUT OIL AND GAS
PRODUCING ACTIVITIES - UNAUDITED (CONTINUED)
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET
CASH FLOWS AND CHANGES THEREIN RELATING TO
PROVED OIL AND GAS RESERVES (CONTINUED)
<CAPTION>
Costs Incurred
Year ended November 30,
-------------------------------------
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Property acquisition costs -
unproved leases .................... $ -- $ 7,000 $ 12,000
Property acquisition costs -
proved properties .................. 30,000 37,000 228,000
Exploration costs .................... -- -- 2,000
Development costs .................... 30,000 146,000 67,000
(1) Net of lease sale proceeds of $169,000
<CAPTION>
Production Costs
Year ended November 30,
-------------------------------------
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Lease operating expense .............. $ 95,000 $ 176,000 $ 155,000
Production tax ....................... 20,000 56,000 30,000
----------- ----------- -----------
$ 115,000 $ 232,000 $ 185,000
=========== =========== ===========
<CAPTION>
Other Information
Year ended November 30,
-------------------------------------
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Net revenue (revenue less production
costs, ad valorem and severance
taxes) ............................. $ 140,000 $ 142,000 $ 299,000
Amortization per equivalent barrel
of production* ..................... 2.33 3.18 3.14
Price per bbl. (oil) ................. 14.27 12.75 14.09
Production cost per bbl. (oil) ....... 6.34 8.21 7.91
Price per Mcf. (gas) ................. 1.02 1.44 1.52
Production cost per Mcf. (gas) ....... .47 .86 .55
Price per net equivalent bbl.* ....... 8.33 9.86 10.74
Production cost
per net equivalent bbl.* .......... 3.78 6.06 4.81
* Natural gas converted to equivalent barrels using conversion
ratio of 6:1.
F-27
<PAGE>
SUPPLEMENTAL INFORMATION - DISCLOSURES ABOUT OIL AND GAS
PRODUCING ACTIVITIES - UNAUDITED (CONTINUED)
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET
CASH FLOWS AND CHANGES THEREIN RELATING TO
PROVED OIL AND GAS RESERVES (CONTINUED)
<CAPTION>
Year ended November 30,
-------------------------------------
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Present value of proved
reserves
Proved developed .............. $ 266,000 $ 650,000 $ 785,000
Proved undeveloped ............ 161,000 433,000 575,000
---------- ---------- ----------
Total ........................... $ 427,000 $1,083,000 $1,360,000
========== ========== ==========
Future net revenues of proved
reserves
Proved developed .............. $ 383,000 $ 950,000 $1,129,000
Proved undeveloped ............ 588,000 1,040,000 1,190,000
---------- ---------- ----------
Total ........................... $ 971,000 $1,990,000 $2,319,000
========== ========== ==========
</TABLE>
F-28
<PAGE>
- -------------------------------------------------------------------------------
CHAPARRAL RESOURCES, INC.
No person has been authorized to give any
information or to make any representation in
connection with the Offering being made
hereby not contained in this Prospectus, and,
if given or made, such information or
representation must not be relied upon as
having been authorized. This Prospectus does
not constitute an offer to sell or
solicitation of an offer to buy any of the
securities offered hereby in any jurisdiction 20,585,325 Shares
in which it is unlawful to make such offer or of Common Stock
solicitation in such jurisdiction. Neither
the delivery of this Prospectus nor any sale
made hereunder shall under any circumstances
create an implication that information
contained herein is correct as of any time
subsequent to the date hereof.
-------------------------
Page No.
AVAILABLE INFORMATION................... 2
PROSPECTUS SUMMARY...................... 3
RISK FACTORS............................ 6
USE OF PROCEEDS......................... 10
MARKET PRICES OF COMMON EQUITY,
DIVIDEND POLICY AND
RELATED STOCKHOLDER MATTERS........... 10 ----------
MANAGEMENT'S DISCUSSION AND PROSPECTUS
ANALYSIS OF FINANCIAL CONDITION ----------
AND RESULTS OF OPERATIONS OF
THE COMPANY........................... 11
BUSINESS OF THE COMPANY................. 15
DIRECTORS AND EXECUTIVE OFFICERS........ 25
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT...... 30
CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS........................... 31
SELLING SECURITYHOLDERS................. 33
DESCRIPTION OF SECURITIES............... 36
PLAN OF DISTRIBUTION.................... 37
LEGAL MATTERS........................... 37
EXPERTS................................. 37
GLOSSARY................................ 38
FINANCIAL STATEMENTS....................F-1
August 12, 1996
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
Expenses payable by Registrant in connection with the issuance and
distribution of the securities being registered hereby are as follows:
SEC Registration Fee................. $ 10,741
Accounting Fees and Expenses......... 10,000*
Legal Fees and Expenses.............. 25,000*
Blue Sky Fees and Expenses........... 5,000*
Printing, Freight and Engraving...... 2,000*
Miscellaneous........................ 2,259*
------
Total.................... $ 55,000
======
- -------------------
*Estimated.
Item 14. Indemnification of Directors and Officers.
Section 7-109-101 of the Colorado Business Corporation Act permits a
Colorado corporation to indemnify any director against liability if such person
acted in good faith and, in the case of conduct in an official capacity wit the
corporation, that the director's conduct was in the corporation's best interests
and, in all other cases, that the director's conduct was at least not opposed to
the best interests of the corporation or, with regard to criminal proceedings,
if the director had no reasonable cause to believe the director's conduct was
unlawful.
Article Twelfth of the Company's Restated Articles of Incorporation +
Amendments filed as Exhibits 3.1, 3.2, 3.4 and 3.5 provides that the Company
shall indemnify each director and each officer, his heirs, executors and
administrators, against expenses reasonably incurred or liability incurred by
him in connection with any action, suit or proceeding to which he may be made a
party be reason of his being or having been a director or officer of the
Company, except in relation to matters as to which he or she shall be finally
adjudged in such action, suit or proceeding to be liable for fraud or
misconduct, which right of indemnification shall not exclude other rights to
which such person may be entitled.
Article V of the Bylaws of the Company, filed as Exhibit 3.3 hereto,
includes provisions requiring the Company to indemnify any person who was or is
a party or is threatening to be made a party to any threatened, pending, or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, and whether formal or informal, by reason of the fact that he is
or was a director, officer, employee, fiduciary or agent of the Company, or is
or was serving at the request of the Company as a director, officer, partner,
trustee, employee, fiduciary or agent of any foreign or domestic profit or
nonprofit corporation or of any partnership, joint venture, trust, profit or
nonprofit unincorporated association, limited liability company or other
enterprise or an employee benefit plan against reasonably incurred expenses
(including attorneys' fees), judgement, penalties, fines (including any excise
tax assessed with respect to an employee benefit plan) and amounts paid in
settlement reasonably incurred by him in connection with such action, suit or
proceeding if it is determined by disinterested directors that such person
conducted himself in good faith and that he reasonably believed (i) in the case
of conduct in his official capacity with the Company, that his conduct was in
the Company's best interest, or (ii) in all other cases (except criminal cases)
that his conduct was at least not opposed to the Company's best interest, or
(iii) in the case of any criminal proceeding, that he had no reasonable cause to
believe his conduct was unlawful. No indemnification shall be made with respect
to any claim, issue or matter in connection with a proceeding by or in the right
of a corporation in which the person being indemnified is adjudged liable to the
corporation or in connection with any proceeding charging that the person being
indemnified derived an improper personal benefit, whether or not involving
acting in an official capacity, in which he was adjudged liable on the basis
that he derived an improper personal benefit. Further, indemnification in
connection with a proceeding brought by or in the right of the Company shall be
II-1
<PAGE>
limited to reasonable expenses, including attorneys' fees, incurred in
connection with the proceeding. Reasonable expenses (including attorneys' fees)
incurred in defending an action, suit or proceeding) may be paid by the Company
to any person being indemnified in advance of the final disposition of the
action, suit or proceeding upon receipt of (i) a written affirmation by the
person being indemnified as to his good faith and belief that he met the
standards of conduct described by the Bylaws, (ii) a written undertaking,
executed personally or on behalf of the person being indemnified, to repay such
advances if it is ultimately determined that he did not meet the prescribed
standards of conduct, and (iii) a determination is made by a disinterested
director of the Company (as described in the Bylaws) that the facts then known
to a disinterested director would not preclude indemnification. The Bylaws
require that the Company report in writing to shareholders with or before notice
of the next meeting of shareholders of any indemnification of or advance of
expenses to any director under the indemnification provisions of the Bylaws.
Item 15. Recent Sales of Unregistered Securities
The following is information as to all securities of the Registrant sold by
the Registrant within the past three years which were not registered under the
Securities Act of 1933, as amended ("Securities Act").
(a) Between September 13, 1994 and June 1, 1996, the Registrant issued
1,448,325 shares of its Common Stock to 37 persons which exercised Stock
Purchase Warrants issued by the Registrant in a private offering completed on
May 31, 1993. The exercise price of the Warrants was $0.40 per share, paid at
the time of exercise. The certificates evidencing the shares issued bear
appropriate restrictive legends under the Securities Act and stop transfer
instructions have been placed with the Registrant's stock transfer agent. No
underwriter was involved in the transaction. The Registrant issued the shares in
reliance upon exemptions from registration under Section 4(2) of the Securities
Act and Regulation D thereunder. All of such persons had available to them
material information concerning the Registrant. A Form D was filed in connection
with the issuances.
(b) Between March 8, 1996 and April 5, 1996, Registrant issued 14,000,000
shares of its Common Stock to 32 persons in a private placement. The purchase
price for the shares was $0.50 per share. Allen & Company Incorporated served as
placement agent in the private offering and received the compensation described
in (m) below. The Registrant issued the shares in reliance upon exemptions from
registration provided by Regulation D and Section 4(2) of the Securities Act.
All of such persons had available to them material information concerning the
Registrant. A Form D was filed in connection with the issuances. All purchasers
represented that they were accredited investors as defined in Regulation D, and
that the shares were being acquired for the investors' own account and not with
a view to distribution. The certificates evidencing the shares issued bear
appropriate restrictive legends under the Securities Act and stop transfer
instructions have been placed with the Registrant's stock transfer agent.
(c) On April 5, 1996, Registrant issued 600,000 shares of its Common Stock
to two persons upon conversion of two outstanding unsecured promissory notes of
the Registrant in the total principal amount of $300,000. Allen & Company
Incorporated assisted the Registrant in connection with the conversion and
received the compensation described in (m below. The Registrant relied upon
exemptions from registration under Section 4(2) of the Securities Act. All of
such persons had available to them material information concerning the
Registrant. Each of the persons represented that such person acquired the shares
for the person's account and not with a view to distribution and that the
investor is an accredited investor. The certificates evidencing the shares
issued bear appropriate restrictive legends under the Securities Act and stop
transfer instructions have been placed with the Registrant's stock transfer
agent.
(d) On November 15, 1994, the Registrant issued 8,000 shares of its Common
Stock to P&M Petroleum Management for services rendered to the Registrant. The
Registrant issued the shares in reliance upon the exemption from registration
under Section 4(2) of the Securities Act. P&M Petroleum Management represented
to the Registrant that it acquired the shares for its own account and not with a
view to distribution. P&M Petroleum Management had available to it all material
information concerning the Registrant. The certificates evidencing the shares
issued bear appropriate restrictive legends under the Securities Act and stop
transfer instructions have been placed with the Registrant's stock transfer
agent. No underwriter was involved in the transaction.
II-2
<PAGE>
(e) On February 27, 1995, the Registrant issued 100,000 shares of its
Common Stock to Overseas Consulting Services Company, Inc. ("OCSCO") as partial
consideration for the acquisition by the Registrant of an interest in Central
Asian Petroleum (Guernsey), Limited ("CAP-G"). The Registrant issued the shares
in reliance upon the exemption from registration under Section 4(2) of the
Securities Act. OCSCO represented to the Registrant that it acquired the shares
for its own account and not with a view to distribution. OCSCO had available to
it all material information concerning the Registrant. The certificates
evidencing the shares issued bear appropriate restrictive legends under the
Securities Act and stop transfer instructions have been placed with the
Registrant's stock transfer agent. No underwriter was involved in the
transaction.
(f) On September 13, 1994, the Registrant issued 200,067 shares of its
Common Stock to Siedler Amdec Securities ("SAS") upon conversion of a debenture
of the Registrant in the total principal amount as of the date of conversion of
$75,025. The Registrant issued the shares in reliance upon the exemption from
registration under Section 4(2) of the Securities Act. SAS represented to the
Registrant that it acquired the shares for its own account and not with a view
to distribution. SAS had available to it all material information concerning the
Registrant. The certificates evidencing the shares issued bear appropriate
restrictive legends under the Securities Act and stop transfer instructions have
been placed with the Registrant's stock transfer agent. No underwriter was
involved in the transaction.
(g) On April 12, 1995, the Registrant issued 4,250,000 shares of its Common
Stock to seven persons in exchange for acquisition by the Registrant of all the
outstanding stock of Central Asian Petroleum Delaware, Inc. ("CAP-D"). In
consideration for the issuance of the shares the Registrant acquired 100% of the
issued and outstanding stock of CAP-D. No underwriter was involved in the
transaction. The Registrant issued the shares in reliance upon the exemptions
from registration under Section 4(2) of the Securities Act. The persons to whom
the shares were issued represented to the Registrant that they are accredited
investors as defined under the Securities Act and that they acquired the shares
for their own accounts and not with a view to distribution. Such persons had
available to them all material information concerning the business and affairs
of the Registrant. The certificates evidencing the shares issued bear
appropriate restrictive legends under the Securities Act and stop transfer
instructions have been placed with the Registrant's stock transfer agent.
(h) On April 17, 1995, the Registrant issued 24,000 shares of its Common
Stock to six individuals, three of whom were directors of the Registrant and
four of whom (including one director) were employees of the Registrant as stock
bonuses. The Registrant issued the shares in reliance upon the exemption from
registration under Section 4(2) of the Securities Act. The individuals
represented to the Registrant that they acquired the shares for their own
accounts and not with a view to distribution. Such persons had available to them
all material information concerning the Registrant. The certificates evidencing
the shares issued bear appropriate restrictive legends under the Securities Act
and stop transfer instructions have been placed with the Registrant's stock
transfer agent. No underwriter was involved in the transaction.
(i) On April 24, 1995, the Registrant issued 12,500 shares of its Common
Stock to Frank C. Alexander, Jr. for services rendered to the Company. The
Registrant issued the shares in reliance upon the exemption from registration
under Section 4(2) of the Securities Act. The individual represented to the
Registrant that he acquired the shares for his own account and not with a view
to distribution. Mr. Alexander had available to him all material information
concerning the Registrant. The certificates evidencing the shares issued bear
appropriate restrictive legends under the Securities Act and stop transfer
instructions have been placed with the Registrant's stock transfer agent. No
underwriter was involved in the transaction.
(j) On November 20, 1995, the Registrant issued 50,000 shares of its Common
Stock to OCSCO as partial consideration for the acquisition by the Registrant of
an interest in Central Asian Petroleum Guernsey, Limited ("CAP-G"). The
Registrant issued the shares in reliance upon the exemption from registration
under Section 4(2) of the Securities Act. OCSCO represented to the Registrant
that it acquired the shares for its own account and not with a view to
distribution. OCSCO had available to it all material information concerning the
Registrant. The certificates evidencing the shares issued bear appropriate
restrictive legends under the Securities Act and stop transfer instructions have
been placed with the Registrant's stock transfer agent. No underwriter was
involved in the transaction.
II-3
<PAGE>
(k) On March 4, 1996, the Registrant issued 625,000 shares and on March 21,
1996, the Registrant issued an additional 60,000 shares to four persons in
consideration for 25% of the outstanding shares of CAP-G owned byDarka Petrol
Ticaret Ltd. Sti. ("DARKA"), controlled by the persons. The Registrant issued
the shares in reliance upon the exemption from registration under Section 4(2)
of the Securities Act. The persons represented to the Registrant that they
acquired the shares for their own accounts and not with a view to distribution.
Such persons had available to them material information concerning the
Registrant. The certificates evidencing the shares issued bear appropriate
restrictive legends under the Securities Act and stop transfer instructions have
been placed with the Registrant's stock transfer agent. No underwriter was
involved in the transaction.
(l) On March 6, 1996, the Registrant issued 900,000 shares to two persons
in consideration for the acquisition by the Registrant of 15% of the outstanding
shares of CAP-G owned by the persons. The Registrant issued the shares in
reliance upon the exemption from registration under Section 4(2) of the
Securities Act. The persons represented to the Registrant that they acquired the
shares for their own accounts and not with a view to distribution. Such persons
had available to them all material information concerning the Registrant. The
certificates evidencing the shares issued bear appropriate restrictive legends
under the Securities Act and stop transfer instructions have been placed with
the Registrant's stock transfer agent. No underwriter was involved in the
transaction.
(m) Effective April 8, 1996, the Registrant issued its Stock Purchase
Warrants entitling the holder to purchase 1,022,000 shares of the Registrant's
Common Stock for $10.00 consideration to Allen & Company Incorporated, the
placement agent in the Registrant's 1996 private placement described above and
as compensation for assistance by the placement agent in the conversion of
$300,000 of the Registrant's outstanding promissory note described above. The
Registrant issued the warrants in reliance upon the exemption from registration
under Section 4(2) of the Securities Act. Allen & Company Incorporated
represented to the Registrant that it acquired the warrants for its own account
and not with a view to distribution. Such person had available to it all
material information concerning the Registrant. The certificate evidencing the
warrants bears an appropriate restrictive legend under the Securities Act. No
underwriter was involved in the transaction.
(n) Between December 1995 and January 1996, the Registrant issued its Stock
Purchase Warrants entitling the holders to purchase up to 780,000 shares of the
Registrant's Common Stock at an exercise price of $0.25 per share to one
individual, one pension plan, Brae Group, Inc., and Allen & Company,
Incorporated in consideration for the making of loans to the Registrant by the
individual, the plan and Brae and Company totaling $1,050,000 in November and
December 1995. The Registrant issued the warrants in reliance upon the exemption
from registration under Section 4(2) of the Securities Act. The persons
represented to the Registrant that they acquired the warrants for their own
accounts and not with a view to distribution. Such persons had available to them
all material information concerning the Registrant. The certificates evidencing
the warrants bears an appropriate restrictive legend under the Securities Act.
Item 16. Exhibits and Financial Statement Schedules.
The following is a list of all exhibits filed as part of this Registration
Statement or, as noted, incorporated by reference to this Registration
Statement:
Exhibit No. Description and Method of Filing
- ----------- ---------------------------------
2.1 Stock Acquisition Agreement and Plan of Reorganization
dated April 12, 1995 between Chaparral Resources, Inc.,
and the Shareholders of Central Asian Petroleum, Inc.,
incorporated by reference to Exhibit 2.1 to the
Company's Quarterly Report on Form 10-Q for the quarter
ended May 31, 1995.
II-4
<PAGE>
2.2 Escrow Agreement dated April 12, 1995 between Chaparral
Resources, Inc., the Shareholders of Central Asian
Petroleum, Inc. and Barry W. Spector, incorporated by
reference to Exhibit 2.2 to the Company's Quarterly
Report on Form 10-Q for the quarter ended May 31, 1995.
2.3 Amendment to Stock Acquisition Agreement and Plan of
Reorganization dated March 10, 1996 between Chaparral
Resources, Inc., and the Shareholders of Central Asian
Petroleum, Inc.,
3.1 Restated Articles of Incorporation + Amendments,
incorporated by reference to Exhibit 3.1 to the
Company's Annual Report on Form 10-K for the fiscal
year ended November 30, 1993.
3.2 Articles of Amendment to the Restated Articles of
Incorporation + Amendments dated April 20, 1988,
incorporated by reference to Exhibit 3.2 to the
Company's Annual Report on Form 10-K for the fiscal
year ended November 30, 1993.
3.3 Bylaws, as amended through December 5, 1995,
incorporated by reference to Exhibit 3.3 to the
Company's Annual Report on Form 10-K for the fiscal year
ended November 30, 1995.
3.4 Articles of Amendment to the Restated Articles of
Incorporation + Amendments dated June 21, 1995,
incorporated by reference to Exhibit B to the Company's
Quarterly Report on Form 10-Q for the quarter ended May
31, 1995.
3.5 Articles of Amendment to the Restated Articles of Incor-
poration + Amendments dated July 17, 1996.
5.1 Opinion of Hopper and Kanouff, P.C. on legality of
shares of Common Stock.
10.1 Royalty Participation Plan dated June 15, 1982,
incorporated by reference to Exhibit 10.1 to the
Company's Annual Report on Form 10-K for the fiscal
year ended November 30, 1993.
10.2 Chaparral Resources, Inc. 1989 Stock Warrant Plan
effective May 1, 1989, incorporated by reference to
Exhibit 10.3 to the Company's Annual Report on Form
10-K for the fiscal year ended November 30, 1993.
10.3 Target Benefit Plan effective December 1, 1990
incorporated by reference to Exhibit 10.9 to the
Company's Annual Report on Form 10-K for the fiscal
year ended November 30, 1991.
10.4 Deferred Compensation and Death Benefit Plan as amended
November 15, 1991, incorporated by reference to Exhibit
10.10 to the Company's Annual Report on Form 10-K for
the fiscal year ended November 30, 1991.
10.5 Promissory Note dated November 1, 1995 from Chaparral
Resources, Inc. to Brae Group, Inc., incorporated by
reference to Exhibit 10.1 to the Company's Current
Report on Form 8-K dated November 1, 1995.
10.6 Purchase Agreement, dated effective January 12, 1996,
between the Company and Guntekin Koksal (purchase of
CAP-G shares) incorporated by reference to Exhibit 10.6
to the Company's Annual Report on Form 10-K for the
fiscal year ended November 30, 1995.
10.7 Letter Agreement, dated January 3, 1996, between the
Company and certain stockholders of Darka Petrol Ticaret
Ltd. Sti., together with Exhibits A--E, incorporated by
reference to Exhibit 10.7 to the Company's Annual Report
on Form 10-K for the fiscal year ended November 30,
1995.
II-5
<PAGE>
10.8 Amendment, effective March 4, 1996, to the Letter
Agreement revising the terms pursuant to which the
Company is to acquire all shares of CAP(G) stock owned
by Darka Petrol Ticaret Ltd. Sti., incorporated by
reference to Exhibit 10.8 to the Company's Annual Report
on Form 10-K for the fiscal year ended November 30,
1995.
10.9 Warrant Certificate entitling Allen & Company to
purchase up to 1,022,000 shares of Common Stock of
Chaparral Resources, Inc., incorporated by reference to
Exhibit 10.1 to the Company's Current Report on Form 8-K
dated April 1, 1996.
10.10 Consulting Agreement dated May 14, 1996 with M-D
International Petroleum, Inc.
16 Letter dated July 23, 1996 from Grant Thornton LLP
confirming the circumstances pursuant to which Grant
Thornton resigned as Registrant's principal independent
accountants, incorporated by reference to Exhibit 16 to
the Company's Current Report on Form 8-K dated July 23,
1996.
21 Subsidiaries of the Registrant, incorporated by
reference to Exhibit 21 to the Company's Annual Report
on Form 10-K for the fiscal year ended November 30,
1995.
23 Consent of Grant Thornton LLP.
23.1 Consent of Hopper and Kanouff, P.C. (included in
Exhibit 5.1)
24 Power of Attorney.
27 Financial Data Schedule (not required).
Item 17. Undertakings
The undersigned Registrant hereby undertakes:
(1) to file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1993;
(ii) to reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement; and
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change in such information in the registration statement.
II-6
<PAGE>
(2) That for purposes of determining liability under the Securities Act of
1933, each such post-effective amendment shall be deemed a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-7
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City and County of Denver, State
of Colorado on August 7, 1996.
CHAPARRAL RESOURCES, INC.
By:/s/ Paul V. Hoovler
--------------------------------------------------
Paul V. Hoovler,
President and Chief Executive Officer
By:/s/ Matthew R. Hoovler
--------------------------------------------------
Matthew R. Hoovler, Principal Financial Officer and
Principal Accounting Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
Signature Title Date
- --------- ----- ----
/s/ Paul V. Hoovler Director August 7, 1996
- -----------------------
Paul V. Hoovler
/s/ Matthew R. Hoovler* Director August 7, 1996
- -----------------------
Matthew R. Hoovler
/s/ Frank H. Gower, Jr.* Director August 7, 1996
- -----------------------
Frank H. Gower, Jr.
/s/ Barry W. Spector* Director August 7, 1996
- -----------------------
Barry W. Spector
II-8
<PAGE>
Signature Title Date
- --------- ----- ----
/s/ Peter G. Dilling* Director August 7, 1996
- -----------------------
Peter G. Dilling
/s/ James A. Jeffs* Director August 7, 1996
- -----------------------
James A. Jeffs
/s/ Howard Karren* Director August 7, 1996
- -----------------------
Howard Karren
/s/ Jay W. McGee* Director August 7, 1996
- -----------------------
Jay W. McGee
*by /s/ Paul V. Hoovler
- -----------------------
Attorney-In-Fact
II-9
<PAGE>
EXHIBIT INDEX
Exhibit Description Page No.
- ------- ----------- --------
2.1 Stock Acquisition Agreement and Plan of Reorganization dated N/A
April 12, 1995 between Chaparral Resources, Inc., and the
Shareholders of Central Asian Petroleum, Inc., incorporated by
reference to Exhibit 2.1 to the Company's Quarterly Report on
Form 10-Q for the quarter ended May 31, 1995.
2.2 Escrow Agreement dated April 12, 1995 between Chaparral N/A
Resources, Inc., the Shareholders of Central Asian Petroleum,
Inc. and Barry W. Spector, incorporated by reference to Exhibit
2.2 to the Company's Quarterly Report on Form 10-Q for the
quarter ended May 31, 1995.
2.3 Amendment to Stock Acquisition Agreement and Plan of N/A
Reorganization dated March 10, 1996 between Chaparral Resources,
Inc., and the Shareholders of Central Asian Petroleum, Inc.,
3.1 Restated Articles of Incorporation + Amendments, incorporated N/A
by reference to Exhibit 3.1 to the Company's Annual Report on
Form 10-K for the fiscal year ended November 30, 1993.
3.2 Articles of Amendment to the Restated Articles of Incorporation + N/A
Amendments dated April 20, 1988, incorporated by reference to
Exhibit 3.2 to the Company's Annual Report on Form 10-K for the
fiscal year ended November 30, 1993.
3.3 Bylaws, as amended through December 5, 1995, incorporated by N/A
reference to Exhibit 3.3 to the Company's Annual Report on Form
10-K for the fiscal year ended November 30, 1995.
3.4 Articles of Amendment to the Restated Articles of Incorporation N/A
+ Amendments dated June 21, 1995, incorporated by reference to
Exhibit B to the Company's Quarterly Report on Form 10-Q for the
quarter ended May 31, 1995.
3.5 Articles of Amendment to the Restated Articles of Incorporation N/A
+ Amendments dated July 17, 1996.
5.1 Opinion of Hopper and Kanouff, P.C. on legality of shares of N/A
Common Stock.
10.1 Royalty Participation Plan dated June 15, 1982, incorporated by N/A
reference to Exhibit 10.1 to the Company's Annual Report on Form
10-K for the fiscal year ended November 30, 1993.
10.2 Chaparral Resources, Inc. 1989 Stock Warrant Plan effective May N/A
1, 1989, incorporated by reference to Exhibit 10.3 to the
Company's Annual Report on Form 10-K for the fiscal year ended
November 30, 1993.
10.3 Target Benefit Plan effective December 1, 1990 incorporated by N/A
reference to Exhibit 10.9 to the Company's Annual Report on Form
10-K for the fiscal year ended November 30, 1991.
10.4 Deferred Compensation and Death Benefit Plan as amended November N/A
15, 1991, incorporated by reference to Exhibit 10.10 to the
Company's Annual Report on Form 10-K for the fiscal year ended
November 30, 1991.
10.5 Promissory Note dated November 1, 1995 from Chaparral Resources, N/A
Inc. to Brae Group, Inc., incorporated by reference to Exhibit
10.1 to the Company's Current Report on Form 8-K dated November
1, 1995.
10.6 Purchase Agreement, dated effective January 12, 1996, between the N/A
Company and Guntekin Koksal (purchase of CAP-G shares)
incorporated by reference to Exhibit 10.6 to the Company's Annual
Report on Form 10-K for the fiscal year ended November 30, 1995.
10.7 Letter Agreement, dated January 3, 1996, between the Company and N/A
certain stockholders of Darka Petrol Ticaret Ltd. Sti., together
with Exhibits A--E, incorporated by reference to Exhibit 10.7 to
the Company's Annual Report on Form 10-K for the fiscal year
ended November 30, 1995.
II-10
<PAGE>
10.8 Amendment, effective March 4, 1996, to the Letter Agreement N/A
revising the terms pursuant to which the Company is to acquire
all shares of CAP(G) stock owned by Darka Petrol Ticaret Ltd.
Sti., incorporated by reference to Exhibit 10.8 to the Company's
Annual Report on Form 10-K for the fiscal year ended November 30,
1995.
10.9 Warrant Certificate entitling Allen & Company to purchase up to N/A
1,022,000 shares of Common Stock of Chaparral Resources, Inc.,
incorporated by reference to Exhibit 10.1 to the Company's
Current Report on Form 8-K dated April 1, 1996.
10.10 Consulting Agreement dated May 14, 1996 with M-D International N/A
Petroleum, Inc.
16 Letter dated July 23, 1996 from Grant Thornton LLP confirming the N/A
circumstances pursuant to which Grant Thornton resigned as
Registrant's principal independent accountants, incorporated by
reference to Exhibit 16 to the Company's Current Report on Form
8-K dated July 23, 1996.
21 Subsidiaries of the Registrant, incorporated by reference to N/A
Exhibit 21 to the Company's Annual Report on Form 10-K for the
fiscal year ended November 30, 1995.
23 Consent of Grant Thornton LLP.
23.1 Consent of Hopper and Kanouff, P.C. (included in Exhibit 5.1) N/A
24 Power of Attorney. (Included on Signature Page to Form S-1, N/A
page II-7 as filed July 8, 1996)
27 Financial Data Schedule (not required). N/A
II-11
We have issued our report dated January 19, 1996 (except for note N, as to which
the date is March 8, 1996), accompanying the financial statements of Chaparral
Resources, Inc. contained in the Registration Statement and Prospectus. We
consent to the use of the aforementioned report in the Registration Statement
and Prospectus, and to the use of our name as it appears under the caption
"Experts."
/s/ Grant Thornton LLP
GRANT THORNTON LLP
Denver, Colorado
August 7, 1996
