SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss. 240.14a-11(c) or ss. 240.14a-12
CHAPARRAL RESOURCES, INC.
(Name of Registrant as Specified in its Charter)
_____________________________________________________________________
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1. Title of each class of securities to which transaction applies:
2. Aggregate number of securities to which transaction applies:
3. Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
4. Proposed maximum aggregate value of transaction:
5. Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1. Amount Previously Paid:
2. Form, Schedule or Registration Statement No.:
3. Filing Party:
4. Date Filed:
<PAGE>
CHAPARRAL RESOURCES, INC.
3400 Bissonnet Street, Suite 135
Houston, Texas 77005
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JULY 17, 1997
NOTICE IS HEREBY GIVEN that an Annual Meeting of Stockholders (the
"Meeting") of Chaparral Resources, Inc., a Colorado corporation (the "Company"),
will be held at the Petroleum Club, 800 Bell Street, Houston, Texas 77002, on
Thursday, July 17, 1997, at 2:00 p.m. Central Time, for the purpose of
considering and voting upon proposals to:
(1) Elect eight directors to serve until the next Annual Meeting of
Stockholders;
(2) Adopt the 1997 Incentive Stock Plan;
(3) Adopt the 1997 Nonemployee Directors' Stock Option Plan; and
(4) Transact such other business as may lawfully come before the Meeting
or any adjournment thereof.
Only stockholders of record at the close of business on May 22, 1997, are
entitled to notice of and to vote at the Meeting, and at any adjournment
thereof.
The enclosed Proxy is solicited by and on behalf of the Board of Directors of
the Company. All stockholders are cordially invited to attend the Meeting in
person. Whether you plan to attend or not, please date, sign and return the
accompanying proxy in the enclosed return envelope. No postage is required if
mailed in the United States. The giving of a proxy will not affect your right to
vote in person if you attend the Meeting.
BY ORDER OF THE BOARD OF DIRECTORS
ALAN D. BERLIN, SECRETARY
Houston, Texas
June 20, 1997
<PAGE>
CHAPARRAL RESOURCES, INC.
3400 Bissonnet Street, Suite 135
Houston, Texas 77005
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JULY 17, 1997
This proxy statement ("Proxy Statement") is being furnished in connection
with the solicitation of proxies by the Board of Directors of Chaparral
Resources, Inc. (the "Company") to be used at the Annual Meeting of Stockholders
(the "Meeting") to be held at the Petroleum Club, 800 Bell Street, Houston,
Texas 77002, on Thursday, July 17, 1997, at 2:00 p.m. Central Time, and at any
adjournment thereof.
It is planned that this Proxy Statement and the accompanying Proxy will be
mailed to the Company's stockholders on or about June 20, 1997.
Any person signing and mailing the enclosed Proxy may revoke it at any
time before it is voted by (i) giving written notice of the revocation to the
Company's corporate secretary at the Company's principal executive offices; (ii)
voting in person at the Meeting; or (iii) voting again by submitting a new proxy
card. Only the latest dated proxy card, including one which a person may vote in
person at the Meeting, will count.
ACTIONS TO BE TAKEN AT MEETING
The Meeting is called by the Board of Directors of the Company to consider
and act upon the following matters:
(1) The election of eight directors of the Company;
(2) The adoption of the 1997 Incentive Stock Plan;
(3) The adoption of the 1997 Nonemployee Directors' Stock Option Plan;
and
(4) Such other business as may properly come before the Meeting or any
adjournment thereof.
The holders of one-third of the outstanding shares of Common Stock of the
Company, present at the Meeting in person or represented by proxy, shall
constitute a quorum. If a quorum is present, directors are elected by a
plurality of the vote, i.e., the candidates receiving the highest number of
votes cast in favor of their election will be elected to the Board of Directors.
As to all other matters voted on at the Meeting, the matter is approved if the
votes
<PAGE>
cast in favor of the matter exceed the votes cast opposing the matter. Where
brokers have not received any instruction from their clients on how to vote on a
particular proposal, brokers are permitted to vote on routine proposals but not
on nonroutine matters. The absence of votes on nonroutine matters are "broker
nonvotes." Abstentions and broker nonvotes will be counted as present for
purposes of establishing a quorum, but will have no effect on the election of
directors. Abstentions and broker nonvotes on proposals other than the election
of directors will be counted as present for purposes of the proposal and will
have the effect of a vote against the proposal.
VOTING SECURITIES
Voting rights at the meeting are vested in the holders of the Company's
$0.10 par value common stock (the "Common Stock") with each share entitled to
one vote. Cumulative voting in the election of directors is not permitted. Only
holders of record of the Common Stock at the close of business on May 22, 1997,
are entitled to notice of and to vote at the Meeting or any adjournments
thereof. On May 22, 1997, the Company had 41,930,748 shares of Common Stock
outstanding.
PROPOSAL NUMBER ONE
ELECTION OF DIRECTORS
The number of directors on the Company's Board of Directors has been
established by the bylaws of the Company as eight directors. To be elected, the
nominees for director must receive the affirmative vote of a majority of the
shares of the Company's common stock represented in person or by proxy at the
Annual Meeting of Shareholders. The votes withheld in the election of directors
will be counted as being present at the Annual Meeting of Shareholders for
purposes of determining a quorum and will have the effect of a vote against the
directors.
The persons named in the enclosed form of Proxy will vote the shares
represented by proxies received by them for the election of the nine nominees
for director named below. If, at the time of the Meeting, any of these nominees
shall become unavailable for any reason, which event is not expected to occur,
the persons entitled to vote the proxies will vote for such substitute nominee
or nominees, if any, as they determine in their sole discretion. If elected, the
nominees for director will hold office until the next annual meeting of
stockholders or until their successors are duly elected or appointed. The
nominees for director, each of whom has consented to serve if elected, are as
follows:
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DIRECTOR PRINCIPAL OCCUPATION
NAME OF NOMINEE SINCE AGE FOR LAST FIVE YEARS
- --------------- -------- ---- --------------------
Howard Karren 1996 66 Chairman of the Board of the Company
since 1996; Chief Executive Officer
of the Compa- ny since January 1997
and President since February 1997.
Senior Advisor to the Chair- man and
Chief Executive Officer of Enron Oil
& Gas Co., an oil and gas company,
from 1994 to 1996. President and Vice
Chairman of Enron Oil & Gas
International Co. from 1984 until
1994.
Peter G. Dilling 1995 47 Vice Chairman of the Board of the
Company since March 1997; President
and a director of M-D International
Petroleum, Inc., an oil and gas
company, since September 1994. A
partner of M-D International, an
unincorporat- ed oil and gas
business, from March 1993 to the
present.
Jay W. McGee 1995 49 Executive Vice President of
Exploration and Production of the
Company since March 1997; Director of
M-D International Petroleum, Inc., an
oil and gas company, since September
1994. Manager of M-D International,
an unincorporated 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 com-
pany.
Alan D. Berlin 1997 57 A partner of Aitken Irvin Lewin
Berlin Vrooman & Cohn, LLP since
1995. Engaged in the private practice
of law for over five years prior to
joining Aitken Irvin Lewin Berlin
Vrooman & Cohn LLP. President of the
International Division of Belco
Petroleum Corp. from 1985 to 1987 and
held various other positions with
Belco Petroleum Corp. from 1977 to
1985. Currently a director of Belco
Oil & Gas Corp.
3
<PAGE>
Walter A. Carozza 1997 42 President of Victory Ventures, LLC, a
private equity reinvestment firm,
since 1997. Manager of and investor
in East River Ventures, LP, and M3
Partners, LC, venture capital funds,
since 1996 and 1994, respectively.
Involved in the financing and
management of companies since 1986. A
director of ETEX, Inc., Caring
Technologies, Inc., Interlink Health
Services, Inc. and The Rock Island
Group, Inc.
David A. Dahl 1997 35 President of Whittier Energy Company,
an oil and gas exploration and
production company, since 1997,
President of Whittier Ventures, LLC,
a private investment entity, since
Janu- ary 1996, and a Vice President
of Whittier Trust Company, a trust
company, since April 1993, a Vice
President of Merus Capital
Management, an investment manager,
from 1990 to 1993.
John G. McMillian 1997 70 Retired since 1995. Chairman and
Chief Executive Officer of Allegheny
& Western Energy Corporation, an oil
and gas company, from 1987 to 1995;
founder and former Chairman and Chief
Executive Officer of Northwest Energy
Company and owner and Chairman and
Chief Executive Officer of Burger
Board Company. A director of Sun
Trust/Miami, N.A., Marker
International and Excalibur
Technologies.
Arlo G. Sorensen 1996 56 Chief Financial Officer and Principal
Ac- counting Officer of the Company
since March 1997. Trustee of M.H.
Whittier Corporation, a private
investment entity, since 1985.
Chairman of the Board and a director
of Whittier Trust Company, a trust
company since 1988.
4
<PAGE>
THE BOARD RECOMMENDS A VOTE IN FAVOR OF THE ELECTION OF THE NOMINEES.
DIRECTORS MEETINGS AND COMMITTEES
During the fiscal year ended November 30, 1996, the Company held 13
directors' meetings, nine of which consisted of directors' minutes signed by all
directors. The consent directors' minutes reflect decisions reached by all of
the directors following discussions among the directors. None of the Company's
directors who were directors at the time attended in person or by telephone less
than 75% of the four directors' meetings which actually were held. The Company's
Board of Directors has no standing nominating committee.
On March 28, 1997, the Board of Directors of the Company established a
Compensation Committee, an Audit Committee and a Stock Option Committee and
appointed David A. Dahl and Arlo G. Sorensen the members of the Compensation
Committee, Alan D. Berlin and David A. Dahl the members of the Audit Committee
and Alan D. Berlin and Arlo G. Sorensen the members of the Stock Option
Committee.
The Compensation Committee will recommend to the Board of Directors cash
and noncash compensation for Company executives and will administer the 1997
Incentive Stock Plan. See "Proposal Number 2--Adoption of the 1997 Incentive
Stock Plan." It also will review senior management development programs and
evaluate senior management's performance against the Company's business plans
and budgets.
The Audit Committee will represent the Board of Directors in discharging
its responsibilities relating to the accounting, reporting and financial control
practices of the Company and its subsidiaries. The Audit Committee has general
responsibility for reviewing with management the financial controls, accounting,
and audit and reporting activities of the Company and its subsidiaries. The
Audit Committee will annually review the qualifications and objectivity of the
Company's independent auditors, make recommendations to the Board of Directors
as to their selection, review the scope, fees and results of their audit, review
their- non-audit services and related fees, review their management comment
letters and annually review the status of significant current and potential
legal matters. The Audit Committee is also empowered to conduct its own
investigations into issues related to the aforementioned responsibilities and to
retain independent counsel or outside experts for such purposes.
The Stock Option Committee will review and recommend to the Compensation
Committee and Board of Directors stock plans for adoption by the Company for the
directors, officers, employees and consultants of the Company.
5
<PAGE>
SECURITY OWNERSHIP OF CERTAIN PERSONS
The following table sets forth as of May 22, 1997, the number of shares of
the Company's outstanding Common Stock beneficially owned by each of the
Company's current directors and executive officers and by each nominee for
director, sets forth the number of shares of the Company's outstanding Common
Stock beneficially owned by all of the Company's current directors and executive
officers as a group and sets forth the number of shares of the Company's
outstanding Common Stock owned by each person who owned of record, or was known
to own beneficially, more than 5% of the Company's outstanding shares of Common
Stock:
NAME AND ADDRESS OF BENEFICIAL OWNER AMOUNT AND NATURE OF PERCENT
OR NAME OF EXECUTIVE OFFICER OR DIRECTOR BENEFICIAL OWNERSHIP(1) OF CLASS
- ---------------------------------------- ---------------------- -----
Allen & Company Incorporated ........... 2,962,000(2) 6.9%
711 Fifth Avenue
New York, New York 10022
Drake and Company ...................... 3,000,000 7.2%
Citibank Performance Portfolio A.A .....
c/o Citibank, N.A ......................
153 E. 53rd Street, 21st Floor
New York, New York 10043
Victory Ventures, LLC .................. 8,589,616(3) 18.4%
645 Madison Avenue
New York, New York 10022
Whittier Ventures, LLC ................. 3,198,000(4) 7.4%
1600 Huntington Drive
So. Pasadena, California 91030
Howard Karren .......................... 150,000 0.4%
Peter G. Dilling ....................... 783,716(5) 1.9%
Jay W. McGee ........................... 923,992(6) 2.2%
Alan D. Berlin ......................... -0- --
Walter A. Carozza ...................... 8,589,616(7) 18.4%
David A. Dahl .......................... 3,618,833(8) 8.3%
John G. McMillian ...................... 100,000 0.2%
Arlo G. Sorensen ....................... 11,242(9) 0.03%
Charles P. Karren ...................... 175,000 0.4%
6
<PAGE>
All Directors and Officers as a Group (nine
persons).................................. 14,352,399(10) 29.7%
(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 a presently exercisable warrant.
(3) Includes 4,740,385 shares underlying presently exercisable warrants.
(4) Includes 1,000,000 shares underlying a convertible note and 262,500 shares
underlying unexercised warrants. Does not include shares underlying
additional warrants that will be issued if the debt to Whittier Ventures,
LLC is not repaid by November 30, 1997.
(5) All 783,716 shares are owned directly by Spectrum Development, Inc. which
is controlled by Mr. Dilling, and the 783,716 shares include 301,618 of a
total of 1,250,000 shares being held in escrow in connection with the
acquisition of Central Asian Petroleum, Inc.
(6) 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. Also
includes 2,589 shares owned in Mr. McGee's Individual Retirement Account
and 2,589 shares owned by Mr.
McGee's wife.
(7) Includes the shares beneficially owned by Victory Ventures, LLC. Walter A.
Carozza has no pecuniary interest in such shares but, as the President of
Victory Ventures, LLC, Mr. Carozza has voting power and investment power
over such shares and, thus, may be deemed to beneficially own such shares
pursuant to Rule 13d-3 adopted under the Securities Exchange Act of 1934,
as amended. Mr. Carozza's address is the same as the address of Victory
Ventures, LLC.
(8) Includes the shares beneficially owned by Whittier Ventures LLC and
includes 333,333 shares underlying a convertible note and 87,500 shares
underlying unexercised warrants owned by Whittier Energy Company. David A.
Dahl has no pecuniary interest in such shares but, as the President of
each, Mr. Dahl has voting power and investment power over such shares and,
thus, may be deemed to beneficially own such shares pursuant to Rule 13d-3
adopted under the Securities Exchange Act of 1934, as amended. Mr. Dahl's
address is the same as the address of Whittier Ventures, LLC. Does not
include
7
<PAGE>
shares underlying additional warrants that will be issued if the debt to
Whittier Ventures, LLC and Whittier Energy Company is not repaid by
November 30, 1997.
(9) The 11,242 shares are owned by Whittier 1982 Oil Trust for which Mr.
Sorensen is the trustee and has voting and investment power over such
shares.
(10) Includes the shares as described in notes (2) through (9) above.
EXECUTIVE OFFICERS
The executive officers of the Company are Howard Karren, Peter G. Dilling,
Jay W. McGee, Alan D. Berlin, Arlo G. Sorensen, information pertaining to whom
is set forth under "Election of Directors" and Charles P. Karren, information
pertaining to whom is set forth below. The executive officers of the Company are
elected annually at the first meeting of the Company's Board of Directors held
after each annual meeting of stockholders. Each executive officer holds office
until his or her successor is duly elected and qualified or until his or her
resignation or until he or she shall be removed in the manner provided by the
Company's Bylaws. Charles P. Karren's position with the Company, his age, and
the period during which he has served as an executive officer of the Company is
as follows:
OFFICER PRINCIPAL OCCUPATION
NAME EXECUTIVE OFFICER SINCE AGE DURING THE LAST FIVE YEARS
- ---------------------- ----- --- --------------------------
Charles P. Karren........ 1997 30 Vice President of Business
Development of the Company since
March 1997; Consultant to the
Company from May 1996 to March 1997;
Consultant to M-D International
Petroleum, Inc., an oil and gas
company, since May 1996; employed in
various capacities with Enron
Development Corp., an energy
development company, from 1992 to
1996; Associate with Hill
Samuel-Middle East, an English
merchant bank, from 1990 to 1992.
Howard Karren and Charles P. Karren are father and son.
In connection with the Company's acquisition of all of the stock of
Central Asian Petroleum, Inc. ("CAP-D") in 1994, the former shareholders of
CAP-D acquired 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 elected
a director at the 1995 annual meeting of shareholders. If by June 30, 2000, the
Karakuduk Field produces 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
8
<PAGE>
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. Dilling
and Karren 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, 1996. As a result of the repayment of the note, the Company
is no longer required to continue to nominate such persons as directors.
In connection with borrowings in August 1996, the Company agreed to add
two directors selected by two of the lenders, Whittier Ventures LLC and Whittier
Energy Company (collectively "Whittiers"). In connection with the transactions,
James A. Jeffs resigned from the Company's Board of Directors. At the request of
the Whittiers, on December 2, 1996, Arlo G. Sorensen replaced Mr. Jeffs on the
Company's Board of Directors and on January 3, 1997, David A. Dahl was appointed
to the Company's Board of Directors. The Whittiers will have the right to have
their two representatives nominated for directors of the Company until the later
of the date their promissory notes are paid in full or the date the Whittiers no
longer have any investment in the Company.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based solely upon a review of the Forms 3 and 4 and any amendments thereto
furnished to the Company during the Company's fiscal year ended November 30,
1996, and Form 5 and amendments thereto furnished to the Company with respect to
such fiscal year, during the Company's fiscal year ended November 30, 1996, no
persons who were directors, officers or beneficial owners of more than 10% of
the Company's outstanding Common Stock during such fiscal year filed late
reports on Form 3, 4, or 5 except for Howard Karren, Peter G. Dilling and James
A. Jeffs who did not timely file their Forms 3 during the fiscal year ended
November 30, 1996, Peter G. Dilling who did not timely file a Form 4 reporting
one transaction, Howard Karren who was late in filing two Forms 4 reporting two
transactions during the fiscal year ended November 30, 1996, and Jay W. McGee
who did not timely file his Form 3 during the fiscal year ended November 30,
1995.
COMPENSATION
The following table shows all cash compensation paid by the Company for
services rendered during the fiscal years ended November 30, 1996, November 30,
1995 and November 30, 1994 to Paul V. Hoovler (there were no other executive
officers of the Company whose annual salary and bonus exceeded $100,000) during
the fiscal year ended November 30, 1996.
9
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term
Compensation
Annual Compensation Awards
----------------------------------- ----------
Year Other
Ended Annual Securities All Other
Name and November Compen- Underlying Compen-
Principal Position 30, Salary($) Bonus($) sation($) Options(#) sation($)
- ----------------------- ---- ------------ -------- ----------- ------- -----------
<S> <C> <C> <C> <C> <C> <C>
Paul V. Hoovler ....... 1996 $ 60,000(1) -- $ 4,937(2) -- $ 40,000(3)
Chief Executive ...... 1995 $ 60,000 -- $ 4,413(2) -- $ 40,000(3)
Officer and Presi- ... 1994 $ 60,000 -- $ 3,518(2) -- $ 40,000(3)
dent until January
1997 and February
1997, respectively
</TABLE>
- ---------------------
(1) In addition, on August 19, 1996, the Company's board of directors awarded
Mr. Hoovler a cash bonus of $140,000 as recognition of past and present
services to the Company to be used by Mr. Hoovler to exercise certain
warrants, granted to Mr. Hoovler pursuant to the Company's 1989 Stock
Warrant Plan, to purchase 500,000 shares of the Company's Common Stock at
an exercise price of $0.28 per share. This bonus will not become payable
until receipt of notice from Mr. Hoovler, which notice may not be given
and shall not be effective, until the earlier of (i) completion of a sale
or farmout by the Company of all or a portion of its interest in the
Karakuduk Oil Field in Kazakstan, ("Karakuduk Field") or (ii) the date
when the Company makes a public disclosure of a sale or farmout of the
Karakuduk Field. At its sole option and discretion, the Company may, in
lieu of making payment of such bonus to Mr. Hoovler, use all or a portion
of such bonus as a direct offset to Mr. Hoovler's obligation to make any
payment due to the Company upon exercise of the warrant. Anything
mentioned above to the contrary notwithstanding, in the event Mr. Hoovler
has exercised and paid for the warrant prior to the date the bonus becomes
payable, the Company shall pay such bonus directly to Mr. Hoovler, but
only upon completion of a sale or farmout of all or a portion of its
interest in the Karakuduk Field.
(2) Represents the amounts distributed pursuant to a royalty participation
plan to Paul V. Hoovler.
(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 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
10
<PAGE>
Mr. Hoovler which provides for the major portion of any costs to the
Company. The plan was fully funded when the Company paid, during the
Company's fiscal year ended November 30, 1991, the final payment of a
premium of $18,000 on a life insurance policy insuring the life of Paul V.
Hoovler.
FISCAL YEAR-END OPTION VALUES
The following table sets forth information concerning unexercised options
(warrants) held by Paul V. Hoovler at November 30, 1996:
Number of Securities
Underlying Unexercised Value of Unexercised
Options as of In-the-Money Options at
November 30, 1996(#) November 30, 1996($)
--------------------------- ------------------------------
Name Exercisable/ Unexercisable Exercisable/ Unexercisable
- --------------- ------------ ------------ ------------ ------------
Paul V. Hoovler 500,000 - 0 - $ 406,875(1) - 0 -
- -----------------------
(1) The value was determined by multiplying the number of shares underlying
the warrants by the difference between the exercise price and the closing
sale price of the Company's Common Stock on November 30, 1996. No options
(warrants) were granted to or exercised by Paul V. Hoovler during the
Company's fiscal year ended November 30, 1996.
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,
1996. The Board of Directors agreed to pay to Frank H. Gower, Jr., who served as
a director of the Company from 1972 to 1997, a cash bonus of $28,000 that was
paid in July 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.
TERMINATION OF EMPLOYMENT ARRANGEMENTS
Paul V. Hoovler, the former Chief Executive Officer and President of the
Company, entered into a severance agreement ("Agreement") with the Company
effective February 12, 1997. Pursuant to the Agreement, Mr. Hoovler received his
salary and unpaid vacation time accrued through February 12, 1997. Also, the
Company agreed to amend the Company's 1989 Stock Warrant Plan to enable Mr.
Hoovler to transfer the warrants granted to him in 1996 to a member of his
family or a trust created by him.
11
<PAGE>
Further, Mr. Hoovler was granted warrants to purchase 100,000 shares of
the Company's common stock at an exercise price of $0.85 per share, for a period
of four years and warrants to purchase 100,000 shares of the Company's common
stock at an exercise price of $1.25 per share that become exercisable on January
1, 1998, and remain exercisable for a period of four years from such date.
Also, pursuant to the Agreement, the Company agreed to assign to Mr.
Hoovler, or an entity controlled by Mr. Hoovler, the existing overriding royalty
interest ("ORRI") that the Company holds in approximately 89 wells. Such
assignment will be for a three-year period. In exchange for the assignment, Mr.
Hoovler agreed to pay a former employee of the Company ten percent (10%) of the
net revenues received from such ORRI during the three-year period. In addition,
upon Mr. Hoovler's request, the Company agreed to assign its interest in the
Company's royalty participation plan to Mr. Hoovler or an entity controlled by
Mr. Hoovler. The Company also agreed to assign to Mr. Hoovler the Company's
ownership interest in two life insurance policies that the Company held on Mr.
Hoovler's life. Finally, pursuant to the Agreement, Mr. Hoovler was allowed to
bid on or retain certain office furniture and equipment 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 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 Karakuduk-Munay, Inc. ("KKM"), which holds
100% of 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.
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 Stockholders 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 were placed in escrow and are to be released to the former
shareholders of CAP-D, including Messrs. Dilling and
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McGee and James A. Jeffs, a director of the Company until November 1996, or
their affiliates, from time to time in connection with development of the
Karakuduk Field. Of the 4,250,000 shares originally placed in escrow, 3,000,000
shares have been released and delivered to the former shareholders of CAP-D.
Currently, the Company owns a 90% interest in CAP-G. The additional 45% interest
in CAP-G was acquired by the Company from nonaffiliated parties.
In connection with Howard Karren becoming a director of the Company,
subject to a certain contingency which was satisfied in April 1996, the Company
agreed to issue 350,000 shares of the Company's restricted common stock to
Howard Karren, a director of the Company, or his designees. Of the 350,000
shares, Mr. Karren directed that 200,000 of the shares be issued to his two sons
to compensate them for services they provided to Mr. Karren.
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 two directors of the Company, Messrs. Dilling and McGee. At
the time of the acquisition, the only asset that MDI would have would be a 5%
interest in a joint venture that Enron Oil & Gas Uzbekistan, Ltd. ("EOGU") is
negotiating for the development of natural gas fields in the Republic of
Uzbekistan. It is currently contemplated that, if the agreement with MDI is
consummated, the Company would issue to MDI's shareholders an as of yet
undetermined number of shares of the Company's restricted common stock in
exchange for their MDI shares. Of these shares, the Company anticipates that a
percentage of the shares would be issued at closing and the balance upon the
occurrence of certain events. On January 8, 1997, the Company agreed to issue
180,000 shares of the Company's Common Stock to EOGU to obtain an option to
acquire MDI. The Company also granted EOGU registration rights with respect to
the 180,000 shares. In the interim, the principal shareholders of MDI, including
Messrs. Dilling and McGee, have agreed that if the Company does not acquire MDI
within a specified time period, the principal shareholders will transfer 180,000
shares of the Company's common stock owned by them to the Company to replace the
180,000 shares issued by the Company to EOGU. Such principal shareholders also
have agreed to place the 180,000 shares in escrow to ensure compliance with
their obligation. There are no assurances that the Company will be able to
consummate the agreement to acquire the shares of MDI or that EOGU will be able
to consummate a joint venture or other arrangement for the development of the
natural gas fields in Uzbekistan.
The Company paid Mr. Karren a fee of $4,000 per month for the four month
period ending August 31, 1996, for office expenses and travel expenses in
connection with the Company's efforts to satisfy its funding obligations for the
Karakuduk Project.
Beginning in May 1996 through February 1997, the Company paid a base
consulting fee of $60,000 per month to MDI for assistance by MDI in seeking
means for meeting the Company's funding obligations for the Karakuduk Project.
The Company also assumed obligations of MDI to pay up to $42,000 during the six
month period ending September 30,
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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. Commencing in March 1997, the Company
began to reimburse MDI for MDI's expenses incurred in connection with the
Karakuduk Project.
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 of
Allen's expenses. The Company paid additional miscellaneous expenses related to
the offering of $71,363. 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 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 Persons".
In November and December, 1996, the Company borrowed $1,850,000 for
interim financing pursuant to unsecured convertible promissory notes that bear
interest at 8% per annum, which is payable monthly, and that are due and payable
on or before May 29, 1998. The promissory notes are convertible into the
Company's common stock at the lower of $0.75 per share or 75% of the market
price of the common stock on the date of the conversion if the market price is
less than $1.00 per share on such date. The proceeds from the first of such
loans was received on November 22, 1996. Whittier Ventures, LLC, Whittier Energy
Company and Victory Ventures, LLC loaned $1,500,000 of the $1,850,000 that was
loaned to the Company.
In connection with such borrowings, the Company agreed to issue the
lenders warrants that terminate on November 30, 1999, to purchase a total of
462,500 shares of the Company's common stock at $0.25 per share and agreed to
add two directors selected by two of the lenders, Whittier Ventures LLC and
Whittier Energy Company, to the Company's Board of Directors. The Company
further agreed that the Company would issue the lenders warrants to purchase an
additional 185,000 shares of the Company's common stock if the promissory notes
are not paid or converted by May 31, 1997, and warrants to purchase an
additional 370,000 shares of the Company's common stock if the promissory notes
are not paid or converted by November 30, 1997. Such warrants are or will be
exercisable for a period of three years at $0.25 per share.
On April 22, 1997, the Company sold 3,076,923 shares of the Company's
Common Stock for $0.65 per share for a total of $2,000,000 to Victory Ventures,
LLC. In connection with the transaction, the Company also issued a warrant to
Victory Ventures, LLC to purchase
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up to an additional 4,615,385 shares of the Company's common stock for
$3,000,000 or $0.65 per share. The warrant expires on December 31, 1997, if not
previously exercised.
In April, 1997, Victory Ventures, LLC also converted a $500,000 promissory
note (plus $2,000 of accrued interest) that had previously been issued by the
Company to Victory Ventures, LLC in December 1996 into 772,308 shares of the
Company's common stock at a conversion price of $0.65 per share.
Matthew R. Hoovler, the former Vice President and Treasurer of the
Company, was awarded on August 19, 1996 a cash bonus of $70,000 as recognition
for past and present services to the Company to be used solely and exclusively
by Mr. Hoovler to exercise certain warrants granted to him pursuant to the
Company's 1989 Stock Warrant Plan, to purchase 250,000 shares of the Company's
common stock at an exercise price of $0.28 per share. The bonus will not become
payable until receipt of notice from Mr. Hoovler, which notice may not be given
and shall not be effective until the earlier of (i) completion of a sale or
farmout by the Company of all or a portion of its interest in the Karakuduk
Field, or (ii) the date when the Company makes a public disclosure of a sale or
farmout of the Karakuduk Field. At its sole option and discretion, the Company
may, in lieu of making payment of such bonus to Mr. Hoovler, use all or a
portion of such bonus as a direct offset to Mr. Hoovler's obligation to make any
payment due to the Company upon exercise of the Warrant. Anything mentioned
above to the contrary notwithstanding, in the event Mr. Hoovler has exercised
and paid for the warrant prior to the date the bonus becomes payable, Chaparral
will pay such bonus directly to Mr. Hoovler, but only upon completion of a sale
or farmout of all or a portion of its interest in the project. The Company
amended its 1989 Stock Warrant Plan to enable Mr. Hoovler to transfer the
warrants granted to him in 1996 to a member of his family or a trust created by
him.
PROPOSAL NUMBER 2
ADOPTION OF THE 1997 INCENTIVE
STOCK PLAN
The Board of Directors of the Company has adopted the 1997 Incentive Stock
Plan ("Plan") subject to the approval of the Company's stockholders.
The following is a summary description of the Plan which is qualified in
its entirety by reference to the complete text of the Plan which is attached as
Appendix A to this Proxy Statement.
PURPOSE
The purpose of the Plan is to promote the interests of the Company and its
stockholders by attracting able persons as employees, consultants or directors
and to provide incentive
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compensation to those employees, consultants and directors, upon whom the
responsibilities of the successful administration and management of the Company
rest, and whose present and potential contributions to the Company are of
importance. A further purpose of the Plan is to provide such individuals with
additional incentive and reward opportunities designed to enhance the profitable
growth of the Company.
ADMINISTRATION; ELIGIBILITY; AWARDS UNDER THE PLAN
The Plan is to be administered by the compensation committee ("Committee")
of the Board of Directors of the Company, no member of which may be an employee
or consultant of the Company. The Committee has the authority to determine, in
its sole discretion which employees and consultants will receive an award of
Common Stock ("Award") pursuant to the Plan and the time or times when such
Award is made, to prescribe rules and regulations relating to the Plan, and to
determine the terms, restrictions and provisions of the agreement relating to
each Award. The Committee may correct any defect or supply an omission or
reconcile any inconsistency in the Plan or in any agreement relating to an Award
in the manner and to the extent it shall deem expedient to carry it into effect.
Pursuant to the Plan, on December 31, 1997, provided the Company is
producing or has produced on or before that date not less than 3,000 barrels of
crude oil and/or natural gas liquids per day and obtained the necessary
financing to permit development of the Karakuduk Field, each director then in
office will receive, without the exercise of the discretion of any person or
persons, an Award for 10,000 shares of Common Stock.
Also, pursuant to the Plan, each nonemployee director of the Company will
receive an Award of 250 shares of Common Stock for each meeting of the Board of
Directors attended by such director either in person or by telephone. Such Award
will be in lieu of any other compensation payable to such director for
attendance at any such meeting. Each such director will also be entitled to
reimbursement for such director's costs and expenses of attending such meeting.
None of the directors of the Company are currently employees of the
Company. Accordingly, unless one or more of the nonemployee directors of the
Company becomes employed by the Company, at the directors' meeting held
immediately after the Annual Meeting of Stockholders each nonemployee director
of the Company who is present in person or by telephone at the directors'
meeting will be granted 250 shares of the Company's Common Stock. If all eight
directors are present, they will receive total grants aggregating 2,000 shares
of Common Stock.
Further, if the eight directors of the Company are directors of the
Company on December 31, 1997, and the Company is then producing at least 3,000
barrels of crude oil and/or natural gas liquids per day and has obtained the
necessary financing to permit development of the Karakuduk Field, each such
director of the Company will be granted
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10,000 shares of the Company's Common Stock, for total grants aggregating 80,000
shares of Common Stock.
SHARES SUBJECT TO THE PLAN
The aggregate number of shares of Common Stock which may be issued
pursuant to the Plan shall not, on the date of an Award, exceed an amount equal
to 1,000,000 shares of the then outstanding shares of the Company's Common
Stock. As of the date hereof, no Awards have been granted pursuant to the Plan.
There are currently eight directors of the Company, all of whom currently are
nonemployee directors of the Company, no employees of the Company and ten
consultants of the Company eligible to receive Awards under the Plan.
AMENDMENT AND TERMINATION
The Board of Directors, in its discretion, may terminate the Plan at any
time with respect to any shares for which Awards have not previously been
granted. The Board of Directors has the right to alter or amend the Plan or any
part thereof from time to time, provided, that no change in any Award previously
granted may be made which would impair the rights of the holder thereof without
the consent of such person and provided, further, that the Board of Directors
may not make any alteration or amendment which would materially increase the
benefits accruing to participants under the Plan, increase the aggregate number
of shares of Common Stock which may be issued pursuant to the Plan, change the
class of individuals eligible to receive Awards under the Plan or extend the
term of the Plan, without the approval of the stockholders of the Company.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE APPROVAL OF
THE ADOPTION OF THE PLAN.
PROPOSAL NUMBER 3
ADOPTION OF THE 1997 NON-EMPLOYEE DIRECTORS'
STOCK OPTION PLAN
The Board of Directors of the Company has adopted the 1997 Nonemployee
Directors' Stock Option Plan ("1997 Director Plan"), subject to the approval of
the Company's stockholders.
The following is a summary description of the 1997 Director Plan which is
qualified in its entirety by reference to the complete text of the 1997 Director
Plan which is attached as Appendix B to this Proxy Statement.
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PURPOSE
The purpose of the 1997 Director Plan is to promote the interests of the
Company and its stockholders by helping to reward and retain highly qualified
independent directors, and allowing them to develop a sense of proprietorship
and personal involvement in the development and financial success of the
Company.
ADMINISTRATION
The 1997 Director Plan is to be administered by the Board of Directors of
the Company.
SHARES SUBJECT TO THE 1997 DIRECTOR PLAN
The aggregate number of shares of Common Stock which may be issued under
the 1997 Director Plan shall not, on the date of the grant of any option, exceed
an amount equal to 5% of the number of the then outstanding shares of Common
Stock.
ELIGIBILITY; AUTOMATIC GRANT OF OPTIONS UNDER THE 1997 DIRECTOR PLAN
Subject to the availability of shares of Common Stock under the 1997
Director Plan, the 1997 Director Plan authorizes the automatic grant of stock
options only to members of the Board of Directors who are neither employees nor
officers of the Company (individually, a "Nonemployee Director" and collectively
the "Nonemployee Directors"). Under the 1997 Director Plan, as of the date of
the Annual Meeting of the Stockholders of the Company in each year that the 1997
Director Plan is in effect, each Nonemployee Director will receive an option to
purchase 25,000 shares of Common Stock.
None of the directors of the Company are currently employees of the
Company. Accordingly, unless one or more of the nonemployee directors of the
Company becomes employed by the Company, immediately after the Annual Meeting of
Stockholders each nonemployee director of the Company will be granted an option
to purchase 25,000 shares of the Company's Common Stock, for total grants of
options to purchase 200,000 shares of Common Stock.
OPTION PRICE
The exercise price per share of Common Stock for all options granted under
the 1997 Director Plan will be 100% of the fair market value per share of the
Common Stock on the date of grant. As of June 16, 1997, the closing sale price
of the Company's Common Stock was $.84375 per share.
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OPTION DURATION
The term of each option will be for a period of 10 years from the date of
grant.
AMENDMENT AND TERMINATION
The Board of Directors, in its discretion, may terminate, alter or amend
any part of the 1997 Director Plan, provided, that no change in any option
previously granted may be made which would impair the rights of the optionee
without the consent of such optionee, and provided, further, that the Board of
Directors may not make any alteration or amendment which would materially
increase the benefits accruing to participants under the 1997 Director Plan,
increase the aggregate number of shares of Common Stock which may be issued
pursuant to the provisions of the 1997 Director Plan, change the class of
individuals eligible to receive options under the 1997 Director Plan or extend
the term of the 1997 Director Plan, without the approval of the stockholders of
the Company.
FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes certain United States federal income
tax consequences for directors receiving options pursuant to the 1997 Director
Plan and certain tax effects on the Company, based upon the provisions of the
Internal Revenue Code of 1986, as amended ("Code"), as in effect on the date of
this Proxy Statement, current regulations and existing administrative rulings of
the Internal Revenue Service ("IRS"). However, this summary is not intended to
be a complete discussion of all the federal income tax consequences of the 1997
Director Plan;
Options granted under the 1997 Director Plan do not qualify as "Incentive
Stock Options" under Section 422 of the Code.
In general, a Nonemployee Director will not recognize any taxable income
upon the grant of an option under the 1997 Director Plan and the Company will
not be entitled to a federal income tax deduction by reason of such grant.
In general, a Nonemployee Director will recognize ordinary income at the
time of exercise of the option in an amount equal to the excess, if any, of the
fair market value of the shares of Common Stock issued on the date of exercise
over the exercise price thereof. The Company may be required to withhold income
tax on this amount.
If a Nonemployee Director exercises an option by delivering shares of
Common Stock to the Company in payment of the exercise price, special rules will
apply.
When a Nonemployee Director sells the shares of Common Stock acquired upon
exercise of an option, he or she generally will recognize a capital gain or loss
in an amount
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equal to the difference between the amount realized upon sale of such shares of
Common Stock and his or her basis in such shares of Common Stock (generally, the
exercise price plus the amount, if any, taxed to the Nonemployee Director as
ordinary income as a result of his or her exercise of the option). If the
Nonemployee Director's holding period for such shares of Common Stock exceeds
one year, the gain or loss will be long-term capital gain or loss.
Generally, upon any grant or exercise of any option in which a Nonemployee
Director does not recognize ordinary income, no federal income tax deduction
will be allowed to the Company. When a Nonemployee Director recognizes ordinary
income as a result of the exercise of an option under the 1997 Director Plan,
the Company generally will be entitled to a corresponding deduction for federal
income tax purposes.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE APPROVAL OF
THE ADOPTION OF THE 1997 DIRECTOR PLAN.
INDEPENDENT PUBLIC ACCOUNTANTS
On January 16, 1997, the Company engaged Ernst & Young LLP as the
Company's principal independent accountant in place of Grant Thornton LLP. On
July 23, 1996, the Company requested and received the resignation of Grant
Thornton LLP. There were no disagreements during the Company's two fiscal years
ended November 30, 1995, or any interim period subsequent thereto between the
Company and Grant Thornton LLP on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure which,
if not resolved to the satisfaction of Grant Thornton LLP, would have caused
Grant Thornton LLP to make reference in its reports to the subject matter of
such disagreements. The opinions of Grant Thornton LLP on the Company's
financial statements for the fiscal years ended November 30, 1995 and 1994,
contain no adverse opinion or disclaimer of opinion, nor were such opinions
qualified as to uncertainty, audit scope or accounting principles, except that
the opinion on the Company's financial statements for the fiscal year ended
November 30, 1995, raised substantial doubt about the Company's ability to
continue as a going concern. The decision to change accountants was approved by
the Company's Board of Directors.
Representatives of Ernst & Young are expected to be present at the
Meeting, have an opportunity to make a statement if they desire to do so and to
be available to respond to appropriate questions.
1996 ANNUAL REPORT TO STOCKHOLDERS
INCLUDED WITH THIS PROXY STATEMENT IS THE COMPANY'S 1996 ANNUAL REPORT TO
STOCKHOLDERS WHICH CONTAINS THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE
FISCAL
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YEAR ENDED NOVEMBER 30, 1996. THE COMPANY WILL PROVIDE, WITHOUT CHARGE, AN
ADDITIONAL COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR
ENDED NOVEMBER 30, 1996 AS REQUIRED TO BE FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, UPON
WRITTEN REQUEST TO CHARLES P. KARREN, 3400 BISSONNET STREET, SUITE 135, HOUSTON,
TEXAS 77005.
STOCKHOLDER PROPOSALS
Proposals of stockholders intended to be presented at the next annual
meeting of the Company's stockholders must be received by the Company by
February 20, 1998 to be considered for inclusion in the proxy statement and form
of proxy relating to the next annual meeting.
SOLICITATION OF PROXIES
The cost of soliciting proxies, including the cost of preparing,
assembling and mailing this proxy material to stockholders, will be borne by the
Company. Solicitations will be made only by use of the mails, except that, if
necessary to obtain a quorum, officers and regular employees of the Company may
make solicitations of proxies by telephone or electronic facsimile or by
personal calls. Brokerage houses, custodians, nominees and fiduciaries will be
requested to forward the proxy soliciting material to the beneficial owners of
the Company's shares held of record by such persons and the Company will
reimburse them for their charges and expenses in this connection.
OTHER BUSINESS
The Company's Board of Directors does not know of any matters to be
presented at the Meeting other than the matters set forth herein. If any other
business should come before the Meeting, the persons named in the enclosed form
of Proxy will vote such Proxy according to their judgment on such matters.
BY ORDER OF THE BOARD OF DIRECTORS
ALAN D. BERLIN, SECRETARY
Houston, Texas
June 20, 1997
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APPENDIX A
CHAPARRAL RESOURCES, INC.
1997 INCENTIVE STOCK PLAN
ARTICLE I. PURPOSE OF THE PLAN
The Chaparral Resources, Inc., 1997 incentive Stock Plan (the "Plan") is
intended to promote the interests of Chaparral Resources, Inc. ("Company"), and
its stockholders by attracting able persons as employees, consultants or
directors and to provide incentive compensation to those employees, consultants
and directors, upon whom the responsibilities of the successful administration
and management of the Company rest, and whose present and potential
contributions to the Company are of importance. A further purpose of the Plan is
to provide such individuals with additional incentive and reward opportunities
designed to enhance the profitable growth of the Company. Accordingly, the Plan
provides for the granting of Stock Awards as provided herein.
ARTICLE 2. EFFECTIVE DATE AND TERM OF PLAN
The Plan shall be effective on the date the Plan is adopted by the Board,
provided the Plan is approved by the stockholders of the Company within twelve
months thereafter. Notwithstanding any provision in the Plan, no Stock Award
shall vest prior to such stockholder approval. Except with respect to Stock
Awards then outstanding, if not sooner terminated under the provisions of
Article 6 hereof, the Plan shall terminate upon and no further Stock Awards
shall be granted after the expiration of ten (10) years from the date the Plan
is approved by the stockholders of the Company.
ARTICLE 3. ADMINISTRATION OF THE PLAN
3.1 Stock Awards may be granted only to individuals who are either employees,
consultants or directors of the Company. In the case of employees or
consultants, the Plan shall be administered by the Compensation Committee
("Committee") of the Board of Directors of the Company ("Board"), no member of
which shall be an employee or consultant of the Company. The Committee shall
have the authority to determine, in its sole discretion, which employees and
consultants shall receive a Stock Award, and the time or times when such Stock
Award shall be made, and to prescribe rules and regulations relating to the
Plan, and determine the terms, restrictions and provisions of the agreement
relating to each Stock Award. The Committee may correct any defect or supply an
omission or reconcile any inconsistency in the Plan or in any agreement relating
to a Stock Award in the manner and to the extent it shall deem expedient to
carry it into effect. The determinations of he Committee on the matters referred
to in this Article 3 shall be conclusive and binding on each Stock Award
recipient.
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3.2 On December 31, 1997, provided the Company is producing or has produced on
or before that date not less than 3,000 barrels of crude oil and/or natural gas
liquids per day and obtained the necessary financing to permit development of
the Karakuduk Field, each director then in office shall receive, without the
exercise of the discretion of any person or persons, a Stock Award for 10,000
shares of Stock.
3.3 Each nonemployee director shall receive a Stock Award of 250 shares of Stock
for each meeting of the Board of Directors of the Company attended by such
director either in person or by telephone. Such Stock Award shall be in lieu of
any other compensation payable to such director for attendance at such meetings.
Each such director shall also be entitled to reimbursement for such director's
costs and expenses of attending such meetings.
ARTICLE 4. SHARES SUBJECT TO PLAN
The aggregate number of shares which may be issued pursuant to Stock Awards
granted under the Plan shall not, on the date of the grant of any Stock Award
hereunder, exceed an amount equal to one million shares of Common Stock
("Stock"). Such shares may consist of authorized but unissued shares of Stock or
previously issued shares of Stock reacquired by the Company. Any of such shares
which remain unissued and which are not subject to outstanding Stock Awards at
the termination of the Plan shall cease to be subject to the Plan, but, until
termination of the Plan, the Company shall at all times make available a
sufficient number of shares to meet the requirements of the Plan. Should any
Stock Award hereunder expire or terminate prior to its vesting in full, the
Stock theretofore subject to such Stock Award may again be subject to a Stock
Award granted under the Plan.
ARTICLE 5. RECAPITALIZATION OR REORGANIZATION
5.1 The existence of the Plan and the Stock Awards granted hereunder shall not
affect in any way the right or power of the Board or the stockholders of the
Company to make or authorize any adjustment, recapitalization, reorganization or
other change in the Company's capital structure or its business, any merger or
consolidation of the Company, any issue of debt or equity securities, the
dissolution or liquidation of the Company or any sale, lease, exchange or other
disposition of all or any part of its assets or business or any other corporate
act or proceeding.
5.2 The shares with respect to which Stock Award may be granted are shares of
Stock as presently constituted, but if, and whenever, prior to the expiration of
a Stock Award theretofore granted, the Company shall effect a subdivision or
consolidation of shares of Stock or the payment of a stock dividend on Stock
without receipt of consideration by the Company, the number of shares of Stock
subject to a Stock Award (i) in the event of an increase in the number of
outstanding shares shall be proportionately increased, and (ii) in the event of
a reduction in the number of outstanding shares shall be proportionately
reduced.
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5.3 If the Company recapitalizes, reclassifies its capital stock, or otherwise
changes its capital structure (a "recapitalization"), the number and class of
shares of Stock covered by a Stock Award theretofore granted shall be adjusted
so that such Stock Award shall thereafter cover the number and class of shares
of stock and securities to which the holder of the Stock Award would have been
entitled pursuant to the terms of the recapitalization if, immediately prior to
the recapitalization, the holder had been the holder of record of the number of
shares of Stock then covered by such Stock Award.
5.4 Any adjustment provided for in Articles 5.2 and 5.3 above shall be subject
to any required stockholder action.
5.5 Except as expressly provided herein, the issuance by the Company of shares
of stock of any class or securities convertible into shares of stock of any
class, for cash, property, labor or services, upon direct sale, upon the
exercise of rights or warrants to subscribe therefor, or upon conversion of
shares or obligations of the Company convertible into such shares or other
securities, and in any case whether or not for fair value, shall not affect, and
no adjustment by reason thereof shall be made with respect to, the number of
shares of Stock subject to Stock Award theretofore granted or the purchase price
per share.
ARTICLE 6. AMENDMENT OR TERMINATION OF THE PLAN
The Board in its discretion may terminate the Plan at any time with respect to
any stock for which Stock Awards have not previously been granted. The Board
shall have the right to alter or amend the Plan or any part thereof from time to
time; provided, that no change in any Stock Award previously granted may be made
which would impair the rights of the holder thereof without the consent of such
person and provided, further, that the Board may not make any alteration or
amendment which would materially increase the benefits accruing to participants
under the Plan, increase the aggregate number of shares of Stock which may be
issued pursuant to the provisions of the Plan, change the class of individuals
eligible to receive Stock Awards under the Plan or extend the term of the Plan,
without the approval of the stockholders of the Company.
ARTICLE 7. SECURITIES LAWS
It is intended that the Plan and any grant of a Stock Award made to a person
subject to Section 16 of the Securities Exchange Act of 1934, as amended
("Securities Act"), meet all of the requirements of Rule 16b-3 promulgated under
the Securities Act, as such rule is currently in effect or as hereinafter
modified or amended ("Rule 16b-3"). If any provision of the Plan or any such
Stock Award would disqualify the Plan or such Stock Award under, or would not
otherwise comply with, Rule 16b-3, such provision or Stock Award shall be
construed or deemed amended to conform to Rule 16b-3.
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ARTICLE 8. MISCELLANEOUS
8.1 Nothing contained in the Plan shall be confer upon any employee or
consultant any right with respect to continuation of employment with the Company
or any subsidiary or interfere in any way with the right of the Company or any
subsidiary to terminate his or her employment at any time.
8.2 The Company shall be entitled to deduct in connection with any Stock Award
made to an employee or consultant any taxes required by law to be withheld and
to require any payments required to enable it to satisfy its withholding
obligations.
8.3 Nothing contained in the Plan shall be construed to prevent the Company or
any subsidiary from taking any corporate action which is deemed by the Company
or such subsidiary to be appropriate or in it best interest, whether or not such
action would have an adverse effect on the Plan or any Stock Award made under
the Plan. No employee, consultant, beneficiary or other person shall have any
claim against the Company or any subsidiary as a result of any such action.
9.4 This Plan shall be construed in accordance with the laws of the State of
Colorado.
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APPENDIX B
CHAPARRAL RESOURCES, INC.
1997 NONEMPLOYEE DIRECTORS' STOCK OPTION PLAN
ARTICLE I. PURPOSE OF THE PLAN
The Chaparral Resources, Inc., 1997 Nonemployee Directors' Stock Option Plan
("Plan") is intended to promote the interests of Chaparral Resources, Inc.
("Company"), and its stockholders by helping to reward and retain
highly-qualified independent directors, and allowing them to develop a sense of
proprietorship and personal involvement in the development and financial success
of the Company. Accordingly, the Company shall grant to directors of the Company
who are not employees of the Company or any of its subsidiaries ("Nonemployee
Directors") the option to purchase shares of the common stock of the Company
("Stock"), as hereinafter set forth. For purposes of the Plan, the term
Nonemployee Directors shall include any director who is an independent
contractor for the Company, has a consulting agreement with the Company and/or
does not receive regular wages subject to tax withholding at the time the option
to such director is granted.
ARTICLE 2. OPTION AGREEMENTS
Each Option shall be evidenced by a written agreement in the form attached to
the Plan.
ARTICLE 3. ELIGIBILITY OF OPTIONEE
Options may be granted only to individuals who are Nonemployee Directors of the
Company. As of the date of the annual meeting of the stockholders of the Company
in each year that the Plan is in effect as provided in Paragraph 6 hereof, each
Nonemployee Director then in office or elected to the Board of Directors of the
Company (the "Board") on such date shall receive, without the exercise of the
discretion of any person or persons, a ten year Option exercisable for 25,000
shares (subject to adjustment in the manner hereinafter provided). If, as of any
date that the Plan is in effect, there are not sufficient shares of Stock
available, each Nonemployee Director shall receive an Option for his or her
pro-rata share of the total number of shares of Stock then available under the
Plan. All Options granted shall be at the price set forth herein and shall be
subject to adjustment as hereinafter provided.
ARTICLE 4. SHARES SUBJECT TO PLAN
The aggregate number of shares which may be issued under Options granted under
the Plan shall not, on the date of the grant of any Option hereunder, exceed an
amount equal to five percent (5%) of the number of then outstanding shares of
Stock. Such shares may consist of authorized but unissued shares of Stock or
previously issued shares of Stock reacquired by the Company. Any of such shares
which remain unissued and which are not subject to outstanding Options at the
termination of the Plan shall cease to be subject to the Plan, but,
<PAGE>
until termination of the Plan, the Company shall at all times make available a
sufficient number of shares to meet the requirements of the Plan. Should any
Option hereunder expire or terminate prior to its exercise in full, the shares
theretofore subject to such Option may again be subject to an Option granted
under the Plan.
ARTICLE 5. OPTION PRICE
The purchase price of the Stock issued under the Option shall be the fair market
value of the Stock as of the date the Option is granted. For all purposes under
the Plan, the fair market value of a share of Stock on a particular date shall
be equal to the mean of the high and low sales prices of the Stock (I) reported
by the National Market System or Small Cap Market of NASDAQ on that date, or
(ii) if the stock is listed on a national stock exchange, reported on the stock
exchange composite tape on that date; or, in either case, if no prices are
reported on that date, on the last preceding date on which such prices of the
Stock are so reported. If the Stock is traded over the counter at the time a
determination of its fair market value is required to be made hereunder, its
fair market value shall be deemed to be equal to the average between the
reported high and low prices of Stock on the most recent date on which Stock was
publicly traded. In the event Stock is not publicly traded at the time a
determination of its value is required to be made hereunder, the determination
of its fair market value shall be made by the Board in such manner as it deems
appropriate.
ARTICLE 6. EFFECTIVE DATE AND TERM OF PLAN
The Plan shall be effective on the date the Plan is approved by the stockholders
of the Company. Except with respect to Options then outstanding, if not sooner
terminated under the provisions of Article 8 hereof, the Plan shall terminate
upon and no further Options shall be granted after the expiration of ten (10)
years from the date the Plan is approved by the stockholders of the Company.
ARTICLE 7. RECAPITALIZATION OR REORGANIZATION
7.1 The existence of the Plan and the Options granted hereunder shall not affect
in any way the right or power of the Board or the stockholders of the Company to
make or authorize any adjustment, recapitalization, reorganization or other
change in the Company's capital structure or its business, any merger or
consolidation of the Company, any issue of debt or equity securities, the
dissolution or liquidation of the Company or any sale, lease, exchange or other
disposition of all or any part of its assets or business or any other corporate
act or proceeding.
7.2 The shares with respect to which Options may be granted are shares of Stock
as presently constituted, but if, and whenever, prior to the expiration of an
Option theretofore granted, the Company shall effect a subdivision or
consolidation of shares of Stock or the payment of a stock dividend on Stock
without receipt of consideration by the Company, the number of shares of Stock
with respect to which such Option may thereafter be exercised (I) in the event
of an increase in the number of outstanding shares shall be proportionately
2
<PAGE>
increased, and the purchase price per share shall be proportionately reduced,
and (ii) in the event of a reduction in the number of outstanding shares shall
be proportionately reduced, and the purchase price per share shall be
proportionately increased.
7.3 If the Company recapitalizes, reclassifies its capital stock, or otherwise
changes its capital structure (a "recapitalization"), the number and class of
shares of Stock covered by an Option theretofore granted shall be adjusted so
that such Option shall thereafter cover the number and class of shares of stock
and securities to which the optionee would have been entitled pursuant to the
terms of the recapitalization if, immediately prior to the recapitaliza- tion,
the optionee had been the holder of record of the number of shares of Stock then
covered by such Option.
7.4 Any adjustment provided for in Articles 7.2 and 7.3 above shall be subject
to any required stockholder action.
7.5 Except as expressly provided herein, the issuance by the Company of shares
of stock of any class or securities convertible into shares of stock of any
class, for cash, property, labor or services, upon direct sale, upon the
exercise of rights or warrants to subscribe therefor, or upon conversion of
shares or obligations of the Company convertible into such shares or other
securities, and in any case whether or not for fair value, shall not affect, and
no adjustment by reason thereof shall be made with respect to, the number of
shares of Stock subject to Options theretofore granted or the purchase price per
share.
ARTICLE 8. AMENDMENT OR TERMINATION OF THE PLAN
The Board in its discretion may terminate the Plan at any time with respect to
any shares for which Options have not previously been granted. The Board shall
have the right to alter or amend the Plan or any part thereof from time to time;
provided, that no change in any Option previously granted may be made which
would impair the rights of the optionee without the consent of such optionee;
and provided, further, that the Board may not make any alteration or amendment
which would materially increase the benefits accruing to participants under the
Plan, increase the aggregate number of shares which may be issued pursuant to
the provisions of the Plan, change the class of individuals n registered under
the Securities Act of 1933 as amended, and various state securities laws the
Company deems applicable and, in the opinion of legal counsel for the Company,
there is no exemption from the registration requirements of such laws, rules or
regulations available for the offering and sale of such shares.
9.2 It is intended that the Plan and any grant of an Option made to a person
subject to Section 16 of the Securities Exchange Act of 1934, as amended
("Securities Act"), meet all of the requirements of Rule 16b-3 promulgated under
the Securities Act, as such rule is currently in effect or as hereinafter
modified or amended ("Rule 16b-3"). If any provision of the Plan or any such
Option would disqualify the Plan or such Option under, or would not otherwise
comply with, Rule 16b-3, such provision or Option shall be construed or deemed
amended to conform to Rule 16b-3.
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<PAGE>
PROXY
CHAPARRAL RESOURCES, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JULY 17, 1997
The undersigned hereby constitutes and appoints Howard Karren, Charles P.
Karren, Alan D. Berlin, and each of them, the true and lawful attorneys and
proxies of the undersigned with full power of substitution and appointment, for
and in the name, place and stead of the undersigned, to act for and to vote all
of the undersigned's shares of $0.10 par value common stock of Chaparral
Resources, Inc. ("Company") at the Annual Meeting of Stockholders (the
"Meeting") to be held at the Petroleum Club, 800 Bell Street, Houston, Texas
77002, on Thursday, July 17, 1997, at 2:00 p.m. Central Time, and at all
adjournments thereof for the following purposes:
1. Election of Directors.
[ ] FOR THE DIRECTOR NOMINEES LISTED [ ] WITHHOLD AUTHORITY TO VOTE
BELOW (EXCEPT AS MARKED TO THE FOR ALL NOMINEES LISTED BELOW
CONTRARY BELOW)
INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE,
STRIKE A LINE THROUGH THE NOMINEE'S NAME IN THE LIST BELOW.
Howard Karren Walter A. Carozza
Peter G. Dilling David A. Dahl
Jay W. McGee John G. McMillian
Alan D. Berlin Arlo G. Sorensen
2. Adoption of the 1997 Incentive Stock Plan.
[ ] For [ ] Against [ ] Abstain
3. Adoption of the 1997 Nonemployee Directors' Stock Option Plan.
[ ] For [ ] Against [ ] Abstain
4. In their discretion, the Proxies are authorized to vote upon such other
business as lawfully may come before the Meeting.
The undersigned hereby revokes any proxies as to said shares heretofore
given by the undersigned and ratifies and confirms all that said attorneys and
proxies lawfully may do by virtue hereof.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS SPECIFIED. IF NO
SPECIFICATION IS MADE, THEN THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED
AT THE MEETING FOR ELECTION OF THE NOMINEES FOR DIRECTOR AS SELECTED BY THE
BOARD OF DIRECTORS, FOR ADOPTION OF THE 1997 INCENTIVE STOCK PLAN AND FOR
ADOPTION OF THE 1997 NONEMPLOYEE DIRECTORS' STOCK OPTION PLAN.
It is understood that this proxy confers discretionary authority in
respect to matters not known or determined at the time of the mailing of the
Notice of Annual Meeting of Stockholders to the undersigned. The proxies and
attorneys intend to vote the shares represented by this proxy on such matters,
if any, as determined by the Board of Directors.
<PAGE>
The undersigned hereby acknowledges receipt of the Notice of Annual
Meeting of Stockholders and the Proxy Statement and Annual Report to
Stockholders furnished therewith.
Dated and Signed:
___________________________________________, 1997
_________________________________________________
_________________________________________________
Signature(s) should agree with the name(s)
stenciled hereon. Executors, administrators,
trustees, guardians and attorneys should so
indicate when signing. Attorneys should submit
powers of attorney.
