SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) October 31, 1997
CHAPARRAL RESOURCES, INC.
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(Exact name of registrant as specified in its charter)
Colorado 0-7261 84-0630863
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(State or other jurisdiction (Commission File No.) (I.R.S. Employer
of incorporation) Identification No.)
3400 Bissonnet Street, Suite 135, Houston, Texas 77005
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (713) 669-0932
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Item 5. OTHER EVENTS.
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On October 31, 1997, Ted Collins, Jr. and Michael J. Muckleroy were
appointed directors of Chaparral Resources, Inc. ("Company") to fill the
vacancies on the Board of Directors of the Company created by the resignation as
a director on October 1, 1997, of Jay W. McGee and created by an increase in the
number of directors. Mr. Collins, age 59, has been the President of Collins &
Ware, Inc., an independent oil and gas company, since 1988. Mr. Collins was the
President of Enron Oil & Gas Co., an oil and gas company, from 1982 to 1988 and
was the Executive Vice President and a director of American Quasar Petroleum
Co., from 1969 to 1982. Mr. Collins is a director of Norgasco, Inc., Hanover
Compression Company and Mid Louisiana Gas Corp. Mr. Muckleroy, age 67, has been
an independent oil operator since 1994. Mr. Muckleroy was the Chairman and the
Chief Executive Officer of Enron Liquid Fuels, a subsidiary of Enron Corp.,
which is engaged in the processing and marketing of oil and gas and the
manufacture of appliances and the distribution of liquid gas, from 1984 to 1994.
On November 24, 1997, the Company executed a Subscription Agreement
("Agreement") with an investor ("Investor") which was not affiliated with the
Company. Pursuant to the Agreement, the Company agreed to sell to the Investor
75,000 shares of the Company's Series A Preferred Stock, no par value ("Series A
Preferred Stock"), for a purchase price of $100.00 per share or an aggregate
purchase price of Seven Million Five Hundred Thousand Dollars ($7,500,000),
75,000 shares of the Company's Series B Preferred Stock, no par value ("Series B
Preferred Stock"), for a purchase price of $100.00 per share or an aggregate
purchase price of Seven Million Five Hundred Thousand Dollars ($7,500,000), and
75,000 shares of the Company's Series C Preferred Stock, no par value ("Series C
Preferred Stock"), for a purchase price of $100.00 per share or an aggregate
purchase price of Seven Million Five Hundred Thousand Dollars ($7,500,000).
The purchase and sale of the Series A, B and C Preferred Stock will occur
at four separate closings. The funds for the first purchase, which consists of
50,000 shares of Series A Preferred Stock for a purchase price of $5,000,000,
were received on November 25, 1997. The second closing, with respect to the
purchase and sale of the remaining 25,000 shares of Series A Preferred Stock for
a purchase price of $2,500,000, will occur on a date mutually agreeable to the
parties to the Agreement but in no event later than January 31, 1998. The third
closing, with respect to the purchase and sale of 75,000 shares of Series B
Preferred Stock for a purchase price of $7,500,000, will occur on a date
mutually agreeable to the parties to the Agreement but in no event later than
April 30, 1998. The fourth closing, with respect to the purchase and sale of
75,000 shares of Series C Preferred Stock for a purchase price of $7,500,000,
will occur on a date mutually agreeable to the parties to the Agreement but in
no event later than June 30, 1998.
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The Series A, B and C Preferred Stock will be entitled to receive
cumulative dividends at the annual rate of $5.00 per share and will have a
redemption price of $100.00 plus any unpaid dividends.
Commencing on November 30, 2002, April 30, 2003 and June 30, 2003, the
Company will be required to redeem the Series A Preferred Stock, Series B
Preferred Stock and Series C Preferred Stock, respectively, to the extent of the
lesser of (i) the number of shares of the respective series outstanding on each
scheduled redemption date or (ii) one-third of the largest number of shares of
each respective series outstanding at any time prior to the first scheduled
redemption date for such series. The Company has the right to redeem all or any
portion of any shares of Series A, B and C Preferred Stock prior thereto.
Each holder of shares of Series A, B and C Preferred Stock is entitled to
vote on all matters in an amount equal to the largest number of full shares of
common stock into which all shares of the Series A, B and C Preferred Stock held
by such holders are convertible.
Further, the Series A, B and C Preferred Stock is convertible at the option
of the holders thereof at any time or from time to time on or prior to the
redemption date into common stock. The conversion price of the Series A
Preferred Stock is initially $2.25 per share; the conversion price of the Series
B Preferred Stock is initially $3.00 per share; and the conversion price of the
Series C Preferred Stock is initially $4.25 per share. The number of shares of
common stock issuable upon conversion of each share of Series A, B and C
Preferred Stock will be determined by dividing $100 by the conversion price per
share.
The holders of the Series A, B and C Preferred Stock have demand
registration rights with respect to the underlying common stock and the Company
has agreed to register the underlying common stock on most registration
statements filed by the Company.
Allen & Company Incorporated acted as placement agent in connection with
the sale of the Series A, B and C Preferred Stock. Allen & Company Incorporated
elected to receive its fees in the form of warrants to purchase 900,000 shares
of the Company's common stock that are exercisable for six years for a total of
$10.00.
Item 7. FINANCIAL STATEMENTS AND EXHIBITS.
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(c) Exhibits.
Exhibit 3.1 Articles of Amendment to the Restated Articles of
Incorporation + Amendments dated November 25, 1997.
Exhibit 10.19 Form of Subscription Agreement dated November 21, 1997.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: December 2, 1997
CHAPARRAL RESOURCES, INC.
By: /s/ Howard Karren
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Howard Karren, President
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EXHIBIT INDEX
Exhibit 3.1 Articles of Amendment to the Restated Articles of
Incorporation + Amendments dated November 25, 1997.
Exhibit 10.19 Form of Subscription Agreement dated November 21, 1997.
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ARTICLES OF AMENDMENT
TO THE
RESTATED ARTICLES OF INCORPORATION + AMENDMENTS
OF
CHAPARRAL RESOURCES, INC.
Pursuant to the provisions of the Colorado Business Corporation Act, the
undersigned corporation adopts the following Articles of Amendment to its
Restated Articles of Incorporation + Amendments:
FIRST: The name of the corporation is Chaparral Resources, Inc.
SECOND: The following amendments to the Restated Articles of Incorporation
+ Amendments were duly adopted by the board of directors of Chaparral Resources,
Inc. ("Company") on November 10, 1997, in accordance with Section 7-106-102 of
the Colorado Business Corporation Act. Pursuant to the Company's Restated
Articles of Incorporation + Amendments and the Colorado Business Corporation
Act, shareholder action is not required to authorize or approve these Articles
of Amendment.
Article Fourth of the Restated Articles of Incorporation + Amendments is
hereby amended by adding the following provisions as Paragraph 3 to Article
Fourth:
Paragraph 3: 225,000 shares of the Company's preferred stock shall consist
of three series of the no par value preferred stock of the Company. The rights,
preferences, privileges and restrictions imposed upon these three series of
preferred stock are as follows:
Section 1. Designation and Amount. The shares of such series shall be
designated as follows: Series A Preferred Stock and the number of shares
constituting such series initially shall be 75,000; Series B Preferred Stock and
the number of shares constituting such series initially shall be 75,000; and
Series C Preferred Stock and the number of shares constituting such series
initially shall be 75,000.
Section 2. Definitions. The following definitions shall apply to the
designations of the Preferred Stock under Article Fourth, Paragraph 3 of the
Restated Articles:
"Approved Transaction" shall mean a transaction approved by a majority
of the Board for the sale, grant, award or issuance to management, directors or
employees of, or consultants to, the Company of shares of Common Stock or
options to purchase such shares pursuant to which transaction any such sale,
grant or award must be approved by the Board or a committee thereof prior to
such sale, grant, award or issuance.
"Board" shall mean the Board of Directors of the Company.
"Commitment Date" shall mean the date immediately prior to the date of
original issuance of any Preferred Stock created by this Paragraph 3.
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"Common Stock" shall mean the Common Stock, par value $0.10 per share,
of the Company.
"Company" shall mean this corporation.
"Company Optional Redemption Value" shall mean, with respect to each
series of Preferred Stock, a price per share that equals or exceeds the then
Conversion Price of such series of Preferred Stock by at least 50%.
"Conversion Price" shall mean, (i) with respect to the Series A
Preferred Stock, the initial Series A Conversion Price per share of $2.25, as
adjusted from time to time as provided by Section 7 of this Paragraph 3, (ii)
with respect to the Series B Preferred Stock, the initial Series B Conversion
Price per share of $3.00, as adjusted from time to time as provided by Section 7
of this Paragraph 3 and, (iii) with respect to the Series C Preferred Stock, the
initial Series C Conversion Price per share of $4.25, as adjusted from time to
time as provided by Section 7 of this Paragraph 3.
"Majority of the Preferred Stock" shall mean more than 50% of the
outstanding shares of Preferred Stock.
"Paragraph 3" shall mean Paragraph 3 of Article Fourth of the
Company's Restated Articles.
"Person" shall include all natural persons, corporations, business
trusts, associations, companies, partnerships, joint ventures and other
entities, governments, and agencies and political subdivisions.
"Preferred Stock" shall mean the collective reference to the Series A
Preferred Stock, the Series B Preferred Stock and the Series C Preferred Stock
of the Company.
"Redemption Price" shall mean with respect to a series of Preferred
Stock, the Redemption Price set forth in Section 5(b) of this Paragraph 3, as
such may be adjusted from time to time as provided in Section 5.
"Restated Articles" shall mean the Restated Articles of Incorporation
+ Amendments of the Company.
"Series A Conversion Price" shall mean the initial conversion price
for the Series A Preferred Stock of $2.25 per share, as adjusted from time to
time as provided by Section 7 of this Paragraph 3.
"Series A Preferred Stock" shall mean the Series A Preferred Stock, no
par value, of the Company.
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"Series B Conversion Price" shall mean the initial conversion price
for the Series B Preferred Stock of $3.00 per share, as adjusted from time to
time as provided by Section 7 of this Paragraph 3.
"Series B Preferred Stock" shall mean the Series B Preferred Stock, no
par value, of the Company.
"Series C Conversion Price" shall mean the initial conversion price
for the Series C Preferred Stock of $4.25 per share, as adjusted from time to
time as provided by Section 7 of this Paragraph 3.
"Series C Preferred Stock" shall mean the Series C Preferred Stock, no
par value, of the Company.
"Subsidiary" shall mean any corporation, partnership, joint venture,
association or other business entity at least fifty percent (50%) of the
outstanding voting stock or voting interest of which is at the time owned
directly or indirectly by the Company or by one or more of such subsidiary
entities, or both.
The foregoing definitions shall be equally applicable to both the singular
and plural forms of the defined terms.
Section 3. Dividends.
(a) Right to Dividends. The holders of the then outstanding Preferred
Stock shall be entitled to receive, when and as declared by the Board, and out
of any funds legally available therefor, cumulative dividends at the annual rate
of $5.00 per share, payable semiannually in cash on the last day of May and
November of each year commencing May 31, 1998. Such dividends shall be
cumulative so that, if such dividends in respect of any previous or current
semi-annual dividend period, at the annual rate specified above, shall not have
been paid or declared and a sum sufficient for the payment thereof set apart,
the deficiency shall first be fully paid before any dividend or other
distribution shall be paid or declared and set part for the Common Stock.
(b) Priority. Each share of each series of Preferred Stock shall rank
equally in all respects with each share of each other series of Preferred Stock
with respect to dividends; provided, however, that the Company shall not declare
or pay dividends which are insufficient to pay all accrued dividends on each
series of Preferred Stock outstanding unless such dividends are declared and
paid to each series of Preferred Stock pro rata based on the accrued dividends
with respect to such series as a percentage of accrued dividends for all series
of Preferred Stock. Unless full accumulated and accrued dividends on the
Preferred Stock for all past dividend periods and the then current dividend
period shall have been paid or declared and a sum sufficient for the payment
thereof set apart, no dividend whatsoever other than a dividend payable solely
in Common Stock shall be paid or declared, and no distribution shall be made, on
any Common Stock.
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Section 4. Liquidation Rights of Preferred. In the event of any
liquidation, dissolution or winding up of the Company, whether voluntary or
involuntary, the holders of the Preferred Stock then outstanding shall be
entitled to be paid out of the assets of the Company available for distribution
to its stockholders, whether such assets are capital, surplus, or earnings,
before any payment or declaration and setting apart for payment of any amount
shall be made in respect of the Common Stock, an amount equal to $100.00 plus
all accrued and unpaid dividends thereon. If upon any liquidation, dissolution,
or winding up of the Company, whether voluntary or involuntary, the assets to be
distributed to the holders of the Preferred Stock shall be insufficient to
permit the payment of the full respective preferential amounts to the holders of
Preferred Stock, then such assets of the Company shall be distributed ratably to
the holders of each series of Preferred Stock on the basis of the full
preferential amounts due with respect to each such series.
Section 5. Redemptions.
(a) Scheduled Redemption. Commencing on November 30, 2002 and on the
last day of November of each year thereafter (each such date being referred to
as a "scheduled redemption date"), so long as any shares of Series A Preferred
Stock shall be outstanding and to the extent the Company shall have funds
legally available for such payment, the Company shall redeem the lesser of (i)
the number of shares of Series A Preferred Stock outstanding on such scheduled
redemption date or (ii) one-third of the largest number of shares of Series A
Preferred Stock outstanding at any time prior to the first scheduled redemption
date for the Series A Preferred Stock. The shares to be redeemed shall be
determined pro rata among the holders of shares of Series A Preferred Stock.
Commencing on April 30, 2003 and on the last day of April of each year
thereafter (each such date being referred to as a "scheduled redemption date"),
so long as any shares of Series B Preferred Stock shall be outstanding and to
the extent the Company shall have funds legally available for such payment, the
Company shall redeem the lesser of (i) the number of shares of Series B
Preferred Stock outstanding on such scheduled redemption date or (ii) one-third
of the largest number of shares of Series B Preferred Stock outstanding at any
time prior to the first scheduled redemption date for the Series B Preferred
Stock. The shares to be redeemed shall be determined pro rata among the holders
of shares of Series B Preferred Stock.
Commencing on June 30, 2003 and on the last day of June of each year
thereafter (each such date being referred to as a "scheduled redemption date"),
so long as any shares of Series C Preferred Stock shall be outstanding and to
the extent that the Company shall have funds legally available for such payment,
the Company shall redeem the lesser of (i) the number of shares of Series C
Preferred Stock outstanding on such scheduled redemption date or (ii) one-third
of the largest number of shares of Series C Preferred Stock outstanding at any
time prior to the first scheduled redemption date for the Series C Preferred
Stock. The shares to be redeemed shall be determined pro rata among the holders
of shares of Series C Preferred Stock.
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If the Company shall fail to discharge all or any part of any
scheduled redemption obligation pursuant to this subsection (a) because
insufficient funds are legally available therefor, funds legally available
therefore shall be applied pro rata to each series of Preferred Stock based upon
the amount of matured but unpaid Redemption Price applicable to each such
series. The balance of such scheduled redemption obligation shall be discharged
as soon as the Company shall have funds legally available to permit such
redemption, at which time the Board shall promptly fix a date for such
redemption and so notify the holders of such shares in writing.
(b) Company Optional Redemption. The Company shall have the right, but
not the obligation, to redeem all or any portion of any series of Preferred
Stock, if the average closing price of the Common Stock for any thirty (30)
consecutive trading day period equals or exceeds the Company Optional Redemption
Value for such series. If the Company redeems less than all of the Preferred
Stock of a particular series, such redemption shall be made pro rata among the
holders of such series.
(c) Redemption Price. The redemption price of the Preferred Stock (the
"Redemption Price") shall be an amount per share equal to $100.00 plus all
unpaid dividends thereon which have accrued, whether or not earned or declared.
Even though the Redemption Price and the Conversion Price are both initially
$100.00, they have no connection with, or relationship to, one another.
(d) Redemption Notice. The Company shall, not less than thirty (30)
days nor more then sixty (60) days prior to the date fixed for redemption
("Redemption Date"), mail written notice ("Redemption Notice"), postage prepaid,
to each holder of shares of record of Preferred Stock to be redeemed at such
holder's post office address last shown on the records of the Company. The
Redemption Notice shall state:
(1) The total number of shares of each class of Preferred Stock which
the Company intends to redeem;
(2) The number of shares of each class of Preferred Stock held by the
holder which the Company intends to redeem;
(3) The Redemption Date and Redemption Price;
(4) That the holder's right to convert the Preferred Stock will
terminate on the day preceding the Redemption Date; and
(5) The time, place and manner in which the holder is to surrender to
the Company the certificate or certificates representing the shares of
Preferred Stock to be redeemed.
(e) Surrender of Stock. On or before the Redemption Date, each holder
of Preferred Stock to be redeemed, unless the holder has exercised his right to
convert the shares as provided in Section 7 of this Paragraph 3, shall surrender
the certificate or certificates representing such shares to the Company, in the
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manner and at the place designated in the Redemption Notice, and thereupon the
Redemption Price for such shares shall be payable to the order of the person
whose name appears on such certificate or certificates as the owner thereof, and
each surrendered certificate shall be cancelled and retired. In the event less
than all of the shares represented by such certificate are redeemed, a new
certificate shall be issued representing the unredeemed shares.
(f) Termination of Rights. If the Redemption Notice is duly given, and
if on or prior to the Redemption Date the Redemption Price is either paid or
made available for payment, then notwithstanding that the certificates
evidencing any of the shares of Preferred Stock so called for redemption have
not been surrendered, all rights with respect to such shares shall forthwith
after the Redemption Date cease and terminate, except only (i) the right of the
holders to receive the Redemption Price without interest upon surrender of their
certificates therefor or (ii) the right to receive Common Stock upon exercise of
the conversion rights as provided in Section 7 hereof.
(g) Adjustment for Stock Splits and Combinations. If the Company at
any time or from time to time after the Commitment Date for a class of Preferred
Stock effects a subdivision of the outstanding shares of such class of Preferred
Stock, the Redemption Price for such class of Preferred Stock then in effect
immediately before the subdivision shall be proportionately decreased, and
conversely, if the Company at any time or from time to time after the Commitment
Date for a class of Preferred Stock combines the outstanding shares of such
class of Preferred Stock into a smaller number of shares, the Redemption Price
for such class of Preferred Stock then in effect immediately before the
combination shall be proportionately increased. Any adjustment under this
subsection (g) shall become effective at the close of business on the date the
subdivision or combination becomes effective.
(h) Adjustment for Certain Dividends and Distributions. If the Company
at any time or from time to time after the Commitment Date for the Preferred
Stock makes or issues, or fixes a record date for the determination of holders
of shares of Preferred Stock entitled to receive, a dividend or other
distribution payable in additional shares of a series of Preferred Stock, then
and in each such event the Redemption Price for such series of Preferred Stock
then in effect shall be decreased as of the time of such issuance or, in the
event such record date is fixed, as of the close of business on such record
date, by multiplying the Redemption Price for such series of Preferred Stock
then in effect by a fraction (1) the numerator of which is the total number of
shares of such series of Preferred Stock issued and outstanding immediately
prior to the time of such issuance or the close of business on such record date,
and (2) the denominator of which shall be the total number of shares of such
series of Preferred Stock issued and outstanding, immediately prior to the time
of such issuance or the close of business on such record date plus the total
number of shares of such series of Preferred Stock issuable in payment of such
dividend or distribution; provided, however, that if such record date is fixed
and such dividend is not fully paid or if such distribution is not fully made on
the date fixed therefor, the Redemption Price for such series of Preferred Stock
shall be recomputed accordingly as of the close of business on such record date
and thereafter the Redemption Price for such series of Preferred Stock shall be
adjusted pursuant to this subsection (h) as of the time of actual payment of
such dividends or distributions.
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Section 6. Voting Rights. Each holder of shares of Preferred Stock
shall be entitled to vote on all matters and, except as otherwise expressly
provided herein, shall be entitled to the number of votes equal to the largest
number of full shares of Common Stock into which all shares of Preferred Stock
held by such holder could be converted, pursuant to the provisions of Section 7
of this Paragraph 3, at the record date for the determination of the
stockholders entitled to vote on such matters or, if no such record date is
established, at the date such vote is taken or any written consent of
stockholders is first executed. This provision for determination of the number
of votes to which each holder of Preferred Stock is entitled shall also apply in
all cases in which the holders of shares of Preferred Stock have the right to
vote separately as a class.
Section 7. Conversion.
The holders of Preferred Stock shall have the following conversion rights:
(a) Right to Convert. Each share of Preferred Stock shall be
convertible, at the option of the holders thereof, at any time or from time to
time and prior to the Redemption Date for such share, into fully paid and
nonassessable shares of Common Stock.
(b) Conversion Price. Each share of Series A Preferred Stock shall be
convertible into the number of shares of Common Stock which results from
dividing $100.00 by the Class A Conversion Price per share in effect at the time
of conversion. The initial Series A Conversion Price per share shall be $2.25
and shall be subject to adjustment from time to time as provided below. Each
share of Series B Preferred Stock shall be convertible into the number of shares
of Common Stock which results from dividing $100.00 by the Series B Conversion
Price per share in effect at the time of conversion. The initial Series B
Conversion Price per share shall be $3.00, which shall be subject to further
adjustment from time to time as provided below. Each share of Series C Preferred
Stock shall be convertible into the number of shares of Common Stock which
results from dividing $100.00 by the Series C Conversion Price per share in
effect at the time of conversion. The initial Series C Conversion Price per
share shall be $4.25 and shall be subject to adjustment from time to time as
provided below.
(c) Mechanics of Conversion. Each holder of Preferred Stock who
desires to convert the same into shares of Common Stock shall surrender the
certificate or certificates therefor, duly endorsed, at the office of the
Company or of any transfer agent for the Preferred Stock or Common Stock, and
shall give written notice to the Company at such office that such holder elects
to convert the same and shall state therein the number of shares of Preferred
Stock being converted. Thereupon the Company shall promptly issue and deliver at
such office to such holder a certificate or certificates for the number of
shares of Common Stock to which such holder is entitled. Such conversion shall
be deemed to have been made immediately prior to the close of business on the
date of such surrender of the certificate representing the shares of Preferred
Stock to be converted, and the person entitled to receive the shares of Common
Stock issuable upon such conversion shall be treated for all purposes as the
record holder of such shares of Common Stock on such date. A holder of Preferred
Stock who converts any shares of Preferred Stock shall not be entitled to any
accrued but unpaid dividends with respect to the Preferred Stock so converted.
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(d) Adjustment for Stock Splits and Combinations. If the Company at
any time or from time to time after the Commitment Date for the Preferred Stock
effects a subdivision of the outstanding Common Stock, the Conversion Price for
each series of Preferred Stock then in effect immediately before the subdivision
shall be proportionately decreased, and conversely, if the Company at any time
or from time to time after the Commitment Date for the Preferred Stock combines
the outstanding shares of Common Stock into a smaller number of shares, the
Conversion Price for the Preferred Stock then in effect immediately before the
combination shall be proportionately increased. Any adjustment under this
subsection (d) shall become effective at the close of business on the date the
subdivision or combination becomes effective.
(e) Adjustment for Certain Dividends and Distributions. If the Company
at any time or from time to time after the Commitment Date for the Preferred
Stock makes or issues, or fixes a record date for the determination of holders
of Common Stock entitled to receive, a dividend or other distribution payable in
additional shares of Common Stock, then and in each such event the Conversion
Price for the Preferred Stock then in effect shall be decreased as of the time
of such issuance or, in the event such record date is fixed, as of the close of
business on such record date, by multiplying the Conversion Price for each
series of Preferred Stock then in effect by a fraction (1) the numerator of
which is the total number of shares of Common Stock issued and outstanding
immediately prior to the time of such issuance or the close of business on such
record date, and (2) the denominator of which shall be the total number of
shares of Common Stock issued and outstanding immediately prior to the time of
such issuance or the close of business on such record date plus the number of
shares of Common Stock issuable in payment of such dividend or distribution;
provided, however, that if such record date is fixed and such dividend is not
fully paid or if such distribution is not fully made on the date fixed therefor,
the Conversion Price for such series of Preferred Stock shall be recomputed
accordingly as of the close of business on such record date and thereafter the
Conversion Price for such series of Preferred Stock shall be adjusted pursuant
to this subsection (e) as of the time of actual payment of such dividends or
distributions.
(f) Adjustments for Other Dividends and Distributions. In the event
the Company at any time or from time to time after the Commitment Date for the
Preferred Stock makes or issues, or fixes a record date for the determination of
holders of Common Stock entitled to receive, a dividend or other distribution
payable in securities of the Company other than shares of Common Stock, then and
in each such event provision shall be made so that the holders of the Preferred
Stock shall receive upon conversion thereof, in addition to the number of shares
of Common Stock receivable thereupon, the amount of securities of the Company
which they would have received had their Preferred Stock been converted into
Common Stock on the date of such event and had they thereafter, during the
period from the date of such event to and including the conversion date,
retained such securities receivable by them as aforesaid during such period,
subject to all other adjustments called for during such period under this
Section 7 with respect to the rights of the holders of the Preferred Stock.
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(g) Adjustments for Reclassification, Exchange and Substitution. In
the event that at any time or from time to time after the Commitment Date for
the Preferred Stock, the Common Stock issuable upon the conversion of the
Preferred Stock is changed into the same or a different number of shares of any
class or classes of stock, whether by recapitalization, reclassification or
otherwise (other than a subdivision or combination of shares or stock dividend
or a reorganization, merger, consolidation or sale of assets, provided for
elsewhere in this Section 7), then and in any such event each holder of such
class of Preferred Stock shall have the right thereafter to convert such
Preferred Stock into the kind and amount of stock and other securities and
property receivable upon such recapitalization, reclassification or other
change, by holders of the number of shares of Common Stock into which such
shares of Preferred Stock could have been converted immediately prior to such
recapitalization, reclassification or change, all subject to further adjustment
as provided herein.
(h) Reorganizations, Mergers, Consolidations or Sales of Assets.
Subject to Section 3 of this Paragraph 3, if at any time or from time to time
there is a capital reorganization of the Common Stock (other than a
recapitalization, subdivision, combination, reclassification or exchange of
shares provided for elsewhere in this Section 7) or a merger or consolidation of
the Company with or into another corporation, or the sale of all or
substantially all of the Company's properties and assets to any other person,
then, as a part of such reorganization, merger, consolidation or sale, provision
shall be made so that the holders of each series of Preferred Stock shall
thereafter be entitled to receive upon conversion of such Preferred Stock the
number of shares of stock or other securities or property of the Company, or of
the successor corporation resulting from such merger or consolidation or sale,
to which a holder of the number of shares of Common Stock deliverable upon
conversion of such Preferred Stock would have been entitled in such capital
reorganization, merger, consolidation, or sale. In any such case, appropriate
adjustment shall be made in the application of the provisions of this Section 7
with respect to the rights of the holders of such Preferred Stock after the
reorganization, merger, consolidation or sale to the end that the provisions of
this Section 7 (including adjustment of the Conversion Price then in effect and
the number of shares purchasable upon conversion of such Preferred Stock) shall
be applicable after that event and be as nearly equivalent as may be
practicable.
(i) Sale of Shares Below Conversion Price.
(1) If at any time or from time to time after the Commitment
Date for the Preferred Stock, the Company issues or sells, or is
deemed by the express provisions of this subsection (i) to have
issued or sold, Additional Shares of Common Stock (as hereinafter
defined), other than as a dividend or other distribution on any
class of stock as provided in subsection 7(e) above and other
than upon a subdivision or combination of shares of Common Stock
as provided in subsection 7(d) above, for an Effective Price (as
hereinafter defined) less than the then existing Conversion Price
for such series of Preferred Stock, then and in each such case
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the then existing Conversion Price for such series of Preferred
Stock shall be reduced, as of the opening of business on the date
of such issuance or sale, to a price determined by multiplying
that Conversion Price for such series by a fraction (i) the
numerator of which shall be (A) the number of shares of Common
Stock outstanding at the close of business on the day next
preceding the date of such issuance or sale, plus (B) the number
of shares of Common Stock which the aggregate consideration
received (or by the express provisions hereof deemed to have been
received) by the Company for the total number of Additional
Shares of Common Stock so issued would purchase at such
Conversion Price, and (ii) the denominator of which shall be the
number of shares of Common Stock outstanding at the close of
business on the date of such issuance after giving effect to such
issuance of Additional Shares of Common Stock.
For the purpose of the calculation described in this
subsection (i), the number of shares of Common Stock outstanding
shall include (A) the number of shares of Common Stock into which
the then outstanding shares of Preferred Stock could be fully
converted on the day next preceding the issuance or sale of
Additional Shares of Common Stock and (B) the number of shares of
Common Stock which could be obtained through the conversion of
all Convertible Securities (as hereinafter defined) which are
convertible on the day next preceding the issuance or sale of
Additional Shares of Common Stock.
(2) For the purpose of making any adjustment required under
this subsection (i), the consideration received by the Company
for any issuance or sale of securities shall (A) to the extent it
consists of cash be computed at the net amount of cash received
by the Company after deduction of any expenses payable by the
Company and any underwriting or similar commissions,
compensation, or concessions paid or allowed by the Company in
connection with such issuance or sale, (B) to the extent it
consists of property other than cash, be computed at the fair
value of that property as reasonably determined in good faith by
the Board, and (C) if Additional Shares of Common Stock,
Convertible Securities (as hereinafter defined) or rights or
options to purchase either Additional Shares of Common Stock or
Convertible Securities are issued or sold together with other
stock or securities or other assets of the Company for a
consideration which covers both, be computed as the portion of
the consideration so received that may be reasonably determined
in good faith by the Board to be allocable to such Additional
Shares of Common Stock, Convertible Securities or rights or
options.
(3) For the purpose of the adjustment required under this
subsection (i), if the Company issues or sells any rights or
options for the purchase of, or stock or other securities
convertible or exchangeable, with or without consideration, into
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<PAGE>
or for, Additional Shares of Common Stock (such convertible or
exchangeable stock or securities being herein referred to as
"Convertible Securities") and if the Effective Price of such
Additional Shares of Common Stock is less than the Conversion
Price of a series of Preferred Stock then in effect, then in each
case the Company shall be deemed to have issued at the time of
the issuance of such rights or options or Convertible Securities
the maximum number of Additional Shares of Common Stock issuable
upon exercise, conversion or exchange thereof and to have
received as consideration for the issuance of such shares an
amount equal to the total amount of the consideration, if any,
received by the Company for the issuance of such rights or
options or Convertible Securities, plus, in the case of such
rights or options, the minimum amounts of consideration, if any,
payable to the Company upon the exercise of such rights or
options, plus, in the case of Convertible Securities, the minimum
amounts of consideration, if any, payable to the Company (other
than by cancellation of liabilities or obligations evidenced by
such Convertible Securities) upon the conversion or exchange
thereof. No further adjustment of the Conversion Price for such
series of Preferred Stock, adjusted upon the issuance of such
rights, options or Convertible Securities, shall be made as a
result of the actual issuance of Additional Shares of Common
Stock on the exercise of any such rights or options or the
conversion or exchange of any such Convertible Securities.
If any such rights or options or the conversion or exchange
privilege represented by any such Convertible Securities shall
expire without having been exercised, the Conversion Price for
such series of Preferred Stock adjusted upon the issuance of such
rights, options or Convertible Securities shall be readjusted to
the Conversion Price which would have been in effect had an
adjustment been made on the basis that the only Additional Shares
of Common Stock so issued were the Additional Shares of Common
Stock, if any, actually issued or sold on the exercise of such
rights or options or rights of conversion or exchange of such
Convertible Securities, and such Additional Shares of Common
Stock, if any, were issued or sold for the consideration actually
received by the Company upon such exercise, plus the
consideration, if any, actually received by the Company for the
granting of all such rights or options, whether or not exercised,
plus the consideration received for issuing or selling the
Convertible Securities actually converted or exchanged, plus the
consideration, if any, actually received by the Company (other
than by cancellation of liabilities or obligations evidenced by
such Convertible Securities) on the conversion or exchange of
such Convertible Securities.
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(4) For the purpose of the adjustment required under this
subsection (i), if the Company issues or sells any rights or
options for the purchase of Convertible Securities and if the
Effective Price of the Additional Shares of Common Stock
underlying such Convertible Securities is less than the
Conversion Price for any series of Preferred Stock then in
effect, then in each such case the Company shall be deemed to
have issued at the time of the issuance of such rights or options
the maximum number of Additional Shares of Common Stock issuable
upon conversion or exchange of the total amount of Convertible
Securities covered by such rights or options and to have received
as consideration for the issuance of such Additional Shares of
Common Stock an amount equal to the amount of consideration, if
any, received by the Company for the issuance of such rights or
options, plus the minimum amounts of consideration, if any,
payable to the Company upon the exercise of such rights or
options and plus the minimum amount of consideration, if any,
payable to the Company (other than by cancellation of liabilities
or obligations evidenced by such Convertible Securities) upon the
conversion or exchange of such Convertible Securities. No further
adjustment of the Conversion Price for such series of Preferred
Stock, adjusted upon the issuance of such rights or options,
shall be made as a result of the actual issuance of the
Convertible Securities upon the exercise of such rights or
options or upon the actual issuance of Additional Shares of
Common Stock upon the conversion or exchange of such Convertible
Securities. The provisions of Section 7(i)(3) above for the
readjustment of the Conversion Price for such series of Preferred
Stock upon the expiration of rights or options or the rights of
conversion or exchange of Convertible Securities shall apply to
the rights, options and Convertible Securities referred to in
this Section 7.
(5) "Additional Shares of Common Stock" shall mean all
shares of Common Stock issued by the Company after the Commitment
Date for the Preferred Stock, whether or not subsequently
reacquired or retired by the Company, other than (i) shares of
Common Stock issued upon conversion of the Preferred Stock, (ii)
shares of Common Stock or options or warrants to acquire Common
Stock issued to management, directors or employees of, or
consultants to, the Company or any Subsidiary pursuant to
Approved Transactions, (iii) shares of Common Stock issuable upon
exercise of Convertible Securities outstanding on the Commitment
Date for the Preferred Stock and (iv) shares of Common Stock or
options or warrants to acquire Common Stock issued in connection
with investment banking or financial advisory services provided
to the Company.
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<PAGE>
The "Effective Price" of Additional Shares of Common Stock
shall mean the quotient determined by dividing the total number
of Additional Shares of Common Stock issued or sold, or deemed to
have been issued or sold by the Company under this subsection
(i), into the aggregate consideration received, or deemed to have
been received by the Company for such issuance under this
subsection (i), for such Additional Shares of Common Stock.
(j) Accountants' Certificate of Adjustment. In each case of an
adjustment or readjustment of the Conversion Price of any series of Preferred
Stock or the number of shares of Common Stock or other securities issuable upon
conversion of any series of Preferred Stock, the Company, at its expense, shall
cause independent public accountants of recognized standing selected by the
Company (who may be the independent public accountants then auditing the books
of the Company) to compute such adjustment or readjustment in accordance with
the provisions hereof and prepare a certificate showing such adjustment or
readjustment, and shall mail such certificate, by first class mail, postage
prepaid, to each registered holder of the Preferred Stock at the holder's
address as shown in the Company's books. The certificate shall set forth such
adjustment or readjustment, showing in detail the facts upon which such
adjustment or readjustment is based, including a statement of (1) the
consideration received or deemed to be received by the Company for any
Additional Shares of Common Stock issued or sold or deemed to have been issued
or sold, (2) the Conversion Price for each series of Preferred Stock at the time
in effect, (3) the number of Additional Shares of Common Stock and (4) the type
and amount, if any, of other property which at the time would be received upon
conversion of the Preferred Stock.
(k) Notices of Record Date. In the event of (i) any taking by the
Company of record of the holders of any class of securities for the purpose of
determining the holders thereof who are entitled to receive any dividend or
other distribution, or (ii) any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the Company, any
merger or consolidation of the Company with or into any other corporation, or
any transfer of all or substantially all of the assets of the Company to any
other Person or any voluntary or involuntary dissolution, liquidation or winding
up of the Company, the Company shall mail to each holder of Preferred Stock at
least thirty (30) days prior to the record date specified therein, a notice
specifying (1) the date on which any such record is to be taken for the purpose
of such dividend or distribution and a description of such dividend or
distribution, (2) the date on which any such reorganization, reclassification,
transfer, consolidation, merger, dissolution, liquidation or winding up is
expected to become effective, and (3) the date, if any, that is to be fixed, as
to when the holders of record of Common Stock (or other securities) shall be
entitled to exchange their shares of Common Stock (or other securities) for
securities or other property deliverable upon such reorganization,
reclassification, transfer, consolidation, merger, dissolution, liquidation or
winding up.
(l) Fractional Shares. No fractional shares of Common Stock shall be
issued upon conversion of Preferred Stock. If more than one share of Preferred
Stock shall be surrendered for conversion at any one time by the same holder,
the number of full shares of Common Stock issuable upon conversion thereof shall
be computed on the basis of the aggregate number of shares of Preferred Stock so
surrendered. In lieu of any fractional share to which the holder would otherwise
be entitled, the Company shall pay cash equal to the product of such fraction
multiplied by the fair market value of one share of the Company's Common Stock
on the date of conversion as determined by the Board.
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(m) Reservation of Stock Issuable Upon Conversion. The Company shall
at all times reserve and keep available out of its authorized but unissued
shares of Common Stock, solely for the purpose of effecting the conversion of
the shares of the Preferred Stock, such number of its shares of Common Stock as
shall from time to time be sufficient to effect the conversion of all
outstanding shares of the Preferred Stock; and if at any time the number of
authorized but unissued shares of Common Stock shall not be sufficient to effect
the conversion of all then outstanding shares of the Preferred Stock, the
Company shall promptly take such corporate action as may, in the opinion of its
counsel, be necessary to increase its authorized but unissued shares of Common
Stock to such number of shares as shall be sufficient for such purpose.
(n) Notices. All notices and other communications required by the
provisions of this Section 7 shall be in writing and shall be deemed to have
been duly given if delivered personally, mailed by certified mail (return
receipt requested) or sent by overnight delivery service, cable, telegram,
facsimile transmission or telex to each holder of record at the address of such
holder appearing on the books of the Company. Notice so given shall, in the case
of notice so given by mail, be deemed to be given and received on the fourth
calendar day after posting, in the case of overnight delivery service, on the
date of actual delivery and, in the case of notice so given by cable, telegram,
facsimile transmission, telex or personal delivery, on the date of actual
transmission or, as the case may be, personal delivery.
(o) Payment of Taxes. The Company will pay all taxes (other than taxes
based upon income) and other governmental charges that may be imposed with
respect to the issuance or delivery of shares of Common Stock upon conversion of
shares of Preferred Stock, including without limitation any tax or other charge
imposed in connection with any transfer involved in the issuance and delivery of
shares of Common Stock in a name other than that in which the shares of
Preferred Stock so converted were registered.
(p) No Dilution or Impairment. The Company shall not amend its
Restated Articles or participate in any reorganization, transfer of assets,
consolidation, merger, dissolution, issuance or sale of securities or any other
voluntary action, for the purpose of avoiding or seeking to avoid the observance
or performance of any of the terms to be observed or performed hereunder by the
Company, but will at all times in good faith assist in carrying out all such
action as may be reasonably necessary or appropriate in order to protect the
conversion rights of the holders of the Preferred Stock against dilution or
other impairment.
(q) Rounding of Calculations; Minimum Adjustment. All calculations
under this Section 7 shall be made to the nearest one thousandth (1/1,000th)
cent or to the nearest one thousandth (1/1,000th) of a share, as the case may
be. Any provision of this Section 7 to the contrary notwithstanding, no
adjustment in any Conversion Price shall be made if the amount of such
adjustment would be less than $0.001, but any such amount shall be carried
forward and an adjustment with respect thereto shall be made at the time of and
together with any such subsequent adjustment which, together with such amount
and any other amount or amounts so carried forward, shall aggregate $0.001 or
more.
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Section 8. Waivers. With the written consent of a Majority of the Preferred
Stock, the obligations of the Company and the rights of the holders of the
Preferred Stock under this Paragraph 3 may be waived (either generally or in a
particular instance, either retroactively or prospectively and either for a
specified period of time or indefinitely). Upon the effectuation of each such
waiver, the Company shall promptly give written notice thereof to the holders of
Preferred Stock who have not previously consented thereto in writing.
Section 9. Determination of Percentages. Whenever this Certificate of
Designations requires the calculation of a percentage of Preferred Stock, such
calculation shall be made as if the Preferred Stock has been fully converted
into Common Stock.
Dated: November 25, 1997
CHAPARRAL RESOURCES, INC.,
a Colorado corporation
By: /s/ Howard Karren
--------------------------------------
Howard Karren, Chairman of the Board
15
November 21, 1997
Chaparral Resources, Inc.
Attn: Howard Karren, Chairman and CEO
3400 Bissonnet
Houston, Texas 77005
Gentlemen:
1. Subscription. The undersigned, (the
"Subscriber"), intending to be legally bound, irrevocably applies to purchase
from Chaparral Resources, Inc., a corporation organized under the laws of the
State of Colorado (the "Company") (i) 75,000 shares of the Company's Series A
Preferred Stock, no par value ("Series A Preferred Stock"), for a purchase price
of $100.00 per share or an aggregate purchase price of Seven Million Five
Hundred Thousand Dollars ($7,500,000), (ii) 75,000 shares of the Company's
Series B Preferred Stock, no par value ("Series B Preferred stock"), for a
purchase price of $100.00 per share (or an aggregate purchase price of Seven
Million Five Hundred Thousand Dollars ($7,500,000)) and (iii) 75,000 shares of
the Company's Series C Preferred Stock no par value ("Series C Preferred Stock")
for a purchase price of $100.00 per share (or an aggregate purchase price of
Seven Million Five Hundred Thousand Dollars ($7,500,000)). The Series A Stock,
Series B Stock and Series C Preferred Stock are collectively referred to herein
as the "Preferred Stock". The purchase and sale of the Preferred Stock will
occur at four closings (each, a "Closing, and, collectively, the "Closings") as
follows:
(i) the first Closing shall occur with respect to the
purchase and sale of 50,000 shares of Series A Preferred Stock
for a purchase price of $5,000,000 as soon as practicable after
the date hereof and in no event later than two business days
after the Company's execution and delivery of this Subscription
Agreement;
(ii) the second Closing shall occur with respect to the
purchase and sale of the remaining 25,000 shares of Series A
Preferred Stock for a purchase price of $2,500,000 on a date
mutually agreeable to the Subscriber and the Company, but in no
event later than January 31, 1998;
(iii) the third Closing shall occur with respect to the
purchase and sale of the 75,000 shares of Series B Preferred
Stock for a purchase price of $7,500,000 on a date mutually
agreeable to the Subscriber and the Company, but in no event
later than April 30, 1998; and
(iv) the fourth Closing shall occur with respect to the
purchase and sale of the 75,000 shares of Series C Preferred
Stock for a purchase price of $7,500,000 on a date mutually
agreeable to the Subscriber and the Company, but in no event
later than June 30, 1998.
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The Preferred Stock issued hereunder shall have the rights and preferences
set forth on Exhibit A hereto. The Preferred Stock is being offered to the
Subscriber without registration under the Securities Act of 1933, as amended
(the "Securities Act").
2. Acceptance. The subscription shall be deemed accepted by the
Company upon execution of this Agreement by the Company and receipt by the
Company at each Closing of the purchase price for the Preferred Stock to be
acquired at such Closing. The purchase price shall be paid at each Closing by
wire transfer of immediately available funds payable to the Company.
3. Delivery of Certificate for Shares. As soon as practicable after
receipt of the purchase price at each Closing, the Company will deliver to the
Subscriber a certificate or certificates representing the Preferred Stock
subscribed for hereby and purchased at such Closing, registered in the name of
the Subscriber.
4. Representations Warranties and Covenants of Subscriber. In order to
induce the Company to sell the Preferred Stock to the Subscriber, the Subscriber
hereby represents, warrants and covenants to the Company as follows:
(a) The Subscriber is acquiring the Preferred Stock solely for
investment purposes only and not with a view to resale or distribution, or for
the account, in whole or in part, of others. No other person has or will have a
direct or indirect beneficial interest in the Preferred Stock.
(b) The Subscriber recognizes the restrictions on the
transferability of the Preferred Stock and the Subscriber is able to bear the
substantial economic risk of an investment therein, including a complete loss
thereof, for an indefinite period of time.
(c) The Subscriber understands that the sale of the Preferred
Stock hereunder is intended to be exempt from registration under the Securities
Act, by virtue of Section 4(2) and/or Section 4(6) thereof (and the rules and
regulations promulgated under the Securities Act) and applicable state
securities laws. The Subscriber will not sell or otherwise transfer any or all
of the Preferred Stock without registration under the Securities Act or an
exemption therefrom.
(d) The Subscriber acknowledges and agrees that the certificate
or certificates representing the Preferred Stock shall bear a legend restricting
the transfer of the Preferred Stock.
(e) The Subscriber further represents and warrants that in order
to make an informed decision in connection with the purchase of the Preferred
Stock:
(i) the Subscriber has reviewed the merits and risks of an
investment in the Preferred Stock; and
(ii) the Subscriber recognizes that an investment in the
Preferred Stock involves a number of significant risks; the
Subscriber has such knowledge and experience in financial and
business matters as to be capable of evaluating the merits and
risks of an investment in the Preferred Stock.
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<PAGE>
(f) The Subscriber is not subscribing to purchase the Preferred
Stock as a result of or subsequent to any advertisement, article, notice or
other communication published in any newspaper, magazine or similar media or
broadcast over television or radio, or presented at any seminar or meeting, or
any solicitation of a subscription by a person not previously known to the
Subscriber in connection with investments in securities generally.
(g) The Subscriber understands that all documents, records and
books pertaining to this investment have been made available for inspection by
the undersigned, the undersigned's attorney and/or accountant including, but not
limited to, the Company's Annual Report on Form 10-K for the fiscal year ended
November 30, 1996, the Company's Quarterly Reports on Form 10-Q for the
quarterly periods ended February 28, 1997, June 30, 1997 and September 30, 1997
and the Company's Current Reports on Form 8-K dated April 17, 1997, May 29, 1997
and November 6, 1997.
(h) The Subscriber has had a reasonable opportunity to ask
questions of and receive answers from a person or persons acting on behalf of
the Company concerning the Company and the offering of the Preferred Stock
contemplated hereby, and all such questions have been answered to the full
satisfaction of the undersigned.
The representations of the Subscriber contained in this Section 4 shall be
deemed to be made again at each Closing and shall be true and correct on the
date of each Closing.
5. Representations and Warranties of the Company. The Company hereby
represents and warrants to the Subscriber that the Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Colorado and has all corporate power and authority to own and lease its
properties and to conduct its business as presently conducted. The Company
further represents and warrants to the Subscriber that the issuance of the
Preferred Stock has been duly authorized and, upon the issuance thereof and
payment therefor in the manner provided herein, will be duly authorized, validly
issued, fully-paid and non-assessable.
6. Registration Rights.
(a) Definitions. For purposes of this Section 6, the following
terms shall have the respective meanings set forth below:
(i) "Commission" shall mean the Securities and Exchange
Commission or any other Federal agency at the time administering
the Securities Act.
(ii) The term "holder or holders of Registrable Stock" shall
mean any holder of any Common Stock issued or issuable upon
conversion of the Preferred Stock issued pursuant to this
Agreement, including any transferee of any Subscriber.
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<PAGE>
(iii) The terms "register," "registered" and "registration"
refer to a registration effected by preparing and filing a
registration statement or similar document in compliance with the
Securities Act, and the declaration or ordering of effectiveness
of such registration statement or document by the Commission.
(iv) The term "Registrable Stock" means (a) the Common Stock
issuable upon conversion of the Preferred Stock issued pursuant
to this Agreement; provided, however, that shares of Registrable
Stock shall cease to be Registrable Stock if they are sold or
transferred pursuant to a registered public offering or other
transaction which does not result in restrictions on resale being
imposed on the transfer by virtue of Federal or state securities
laws; and provided further that Registrable Stock shall cease to
be Registrable Stock if the holder could sell or transfer all
such Registrable Stock held by the holder in one transaction
pursuant to Rule 144 promulgated under the Securities Act.
(b) Demand Registration.
(i) Upon the written request of any holder or holders
("Initiating Holders") of at least 30% of the shares of
Registrable Stock, which request shall state the intended method
of disposition by such Initiating Holders and shall request that
the Company effect the registration of all or part of the
Registrable Stock under the Securities Act, the Company shall
promptly give written notice of such requested registration to
all other holders, if any, of Registrable Stock. If, after the
expiration of thirty days from the giving of such notice to the
holders of Registrable Stock, the Company shall have received
written requests to register at least 50% of the shares of
Registrable Stock, which requests shall state the intended method
of disposition of such securities by such holders, the Company
shall use all reasonable efforts to prepare and file with the
Commission a registration statement and such other documents,
including a prospectus, as may be necessary to permit a public
offering and sale of such Registrable Stock in the United States
in compliance with the provisions of the Securities Act, all to
the extent required to permit the disposition (in accordance with
the intended methods thereof as aforesaid) by the holders of the
Registrable Stock so to be registered (the "Participating
Holders"). If such sale of Registrable Stock is to be pursuant to
an underwritten offering, the underwriter shall be selected by
the Initiating Holders and shall be reasonably acceptable to the
Company. If the underwriter selected determines that the number
of shares of Registrable Stock so to be included is required to
be limited due to market conditions or otherwise, the holders of
Registrable Stock proposing to sell their shares of Registrable
Stock in such underwritten registration shall share pro rata
(according to the number of shares of Registrable Stock requested
to be registered) in the number of shares of Registrable Stock
being underwritten (as determined by such underwriter) and
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<PAGE>
registered for their account. The Company shall only be required
to effect one registration pursuant to this Section 6(b);
provided, however, that, (i) if at the time of the exercise of
the rights of a Participating Holder under this Section 6(b), the
Company is not permitted by law to register all of the
Registrable Stock, the Company may be required to effect one
additional registration pursuant to this Section 6(b) and (ii) if
at the time of such additional registration the Company is still
not permitted by law to register all of the Registrable Stock,
the Company may be required to effect one additional registration
pursuant to this Section 6(b).
(ii) The Company shall not be required to effect any
registration under this Section 6(b) within nine months after the
completion of any public offering of its securities pursuant to
which the holders of Registrable Stock were afforded the right to
register as many shares of their Registrable Stock as requested
nor within six months after any other public offering by the
Company.
(iii) The Company shall have the right to include in any
registration statement or post-effective amendment filed pursuant
to this Section 6(b) other securities of the Company then
proposed to be distributed, except that, to the extent consistent
with the rights of other holders of the Company's securities, if
and to the extent that the underwriter or underwriters acting
with respect of such public offering reasonably determine that
the inclusion of such other securities may substantially
prejudice or hinder the offering of Registrable Stock, the number
of such other securities shall be reduced or eliminated prior to
any reduction in the number of shares of Registrable Stock so to
be registered.
(iv) If the registration under this paragraph (b) is
effected on a Form S-3 (or any successor form thereto), and the
effectiveness of such registration statement can be maintained
without significant additional expense to the Company, then the
Company agrees to maintain the effectiveness of such registration
statement for a period of two years after its initial effective
date. Otherwise, the Company shall not be required to maintain
the effectiveness of such registration statement for a period in
excess of six months after its initial effective date.
(c) Incidental Registration.
(i) If the Company at any time or from time to time proposes
to file with the Commission a registration statement under the
Securities Act with respect to any proposed distribution of any
of its securities (other than a registration to be effected on
Form S-4, S-8 or other similar limited purpose form), whether for
sale for its own account or for the account of any other person
holding registration rights with respect to the securities of the
Company, then the Company shall give written notice of such
proposed filing to the holders of Registrable Stock at least
thirty (30) days before the anticipated filing date, and such
notice shall describe in detail the proposed registration and
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<PAGE>
distribution (including those jurisdictions where registration or
qualification under the securities or blue sky laws is intended)
and shall offer the holders of Registrable Stock the opportunity
to register such number of shares of Registrable Stock as the
holders of Registrable Stock may request. Upon receipt by the
Company by the anticipated filing date of written requests from
Participating Holders for the Company to register their
Registrable Stock, the Company shall permit, or in the event of
an underwritten offering, shall use its best efforts to cause the
managing underwriter or underwriters of such proposed
underwritten offering to permit, the Participating Holders to
include such securities in such offering on the same terms and
conditions as any similar securities of the Company included
therein; provided, however, that if in the opinion of the
managing underwriter or underwriters of such offering, the
inclusion of the total amount or kind of securities which it or
the Company, and any other persons or entities, intend to include
in such offering would interfere, hinder, delay, reduce or
prevent the effectiveness or sale of the Company's shares of
Common Stock proposed to be so registered or would otherwise
adversely affect the success of such offering, then the amount or
kind of securities to be offered for the accounts of the Company
and each holder of Common Stock (including without limitation
Registrable Stock) or securities convertible into or exercisable
for Common Stock proposed to be registered (other than any
persons exercising demand registration rights) shall be reduced
(or eliminated) in proportion to their respective values to the
extent necessary to reduce the total amount of securities to be
included in such offering on behalf of such holders of securities
to the amount recommended by such managing underwriter. For
purposes of this Section, "value" shall mean principal amount
with respect to debt securities and the proposed offering price
per share with respect to equity securities. Notwithstanding the
foregoing, if, at any time after giving written notice of its
intention to register Common Stock or other securities
convertible into or exercisable for Common Stock and prior to the
effectiveness of the registration statement filed in connection
with such registration, the Company determines for any reason
either not to effect such registration or to delay such
registration, the Company may, at its election, by delivery of
written notice to the Participating Holders, (i) in the case of a
determination not to effect registration, relieve itself of its
obligations to register any Registrable Stock in connection with
such registration, or (ii) in the case of determination to delay
the registration, delay the registration of such Registrable
Stock for the same period as the delay in the registration of
such other shares of Common Stock or other securities convertible
into or exercisable for Common Stock.
(ii) Exception. The Company shall not be required to include
any of the Registrable Stock of a Participating Holder in any
registration statement or post-effective amendment prepared at
its own instance unless such Participating Holder shall furnish
such information and sign such documents as may be required by
the Commission or reasonably requested by the Company in
accordance with generally accepted practices, in connection with
such proposed distribution.
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(d) Covenants of the Company with Respect to Registration. In
connection with any registration under this Section 6, the Company shall, as
expeditiously as is reasonably possible:
(i) Prepare and file with the Commission a registration
statement with respect to such Participating Holders and, subject
to the last sentence of Section 6(c)(i) hereof, use its best
efforts to cause such registration statement to become effective.
(ii) Prepare and file with the Commission such amendments
and supplements to such registration statement and prospectus
used in connection with such registration statement as may be
necessary to comply with the provisions of the Securities Act
with respect to the disposition of all Registrable Stock covered
by such registration statement.
(iii) Furnish to the Participating Holders such numbers of
copies of a prospectus, including, if applicable, a preliminary
prospectus, in conformity with the requirements of the Securities
Act, and such other documents as the selling shareholders may
reasonably request in order to facilitate the disposition of
Registrable Stock owned by the Participating Holders.
(iv) Use its best efforts to register and qualify the
securities covered by such registration statement under such
other securities or blue sky laws of such jurisdictions within
the United States as shall be reasonably requested by the
Participating Holders, provided, however, that the Company shall
not be required in connection therewith or as a condition thereto
to qualify to do business or to file a general consent to service
of process in any such states or jurisdictions.
(v) in the event of any underwritten public offering, enter
into and perform its obligations under an underwriting agreement,
in usual and customary form, with the managing underwriter of
such offering. The Participating Holders shall also enter into
and perform their obligations under such an agreement.
(vi) Notify the Participating Holders, at any time when a
prospectus relating to Registrable Stock covered by such
registration statement is required to be delivered under the
Securities Act, of the happening of any event as a result of
which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact
or omits to state a material fact required to be stated therein
or necessary to make the statements therein not misleading in the
light of the circumstances then existing.
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(e) The Company shall pay all costs, fees and expenses in
connection with all registration statements filed under this Section 6
including, without limitation, the Company's legal and accounting fees, printing
expenses and blue sky fees and expenses, but not including the fees and expenses
of counsel and accountants and advisors for the Participating Holders in
connection with such registration. However, the Company shall not pay for
underwriting discounts and commissions and underwriters' expenses allocable to
the Registrable Stock being registered or state transfer taxes.
(f) Indemnification.
(i) The Company shall indemnify each Participating Holder,
its officers and directors and any person controlling it within
the meaning of Section 15 of the Securities Act or Section 20(a)
of the Securities Exchange Act of 1934, as amended, against any
loss, claim, damage, expense or liability (including without
limitation all expenses reasonably incurred in investigating,
preparing, or defending against any claim whatsoever, such
expenses to be reimbursed by the Company as they are incurred) to
which it may become subject under the Securities Act, the
Exchange Act or otherwise, arising out of or based upon (i) any
untrue statement or alleged untrue statement of a material fact
contained in any registration statement or prospectus or any
amendments or supplements thereto in which Registrable Stock is
included or in any application, statement or other document filed
by the Company with the Commission or any securities exchange or
in any jurisdiction in connection with qualifying such shares
under the securities laws thereof, or (ii) the omission or
alleged omission therefrom of a material fact required to be
stated therein or necessary to make the statements therein not
misleading, unless such statement or omission is made in reliance
upon and in conformity with written information furnished to the
Company by or on behalf of such Participating Holder or an
underwriter expressly for use in any such registration statement
or other document.
(ii) Each Participating Holder shall, as a condition to such
registration of Registrable Stock, agree to indemnify the
Company, its officers and directors and any person controlling
the Company within the meaning of Section 15 of the Securities
Act or Section 20(a) of the Exchange Act, against any loss,
claim, damage or expense or liability (including without
limitation all expenses reasonably incurred in investigating,
preparing or defending against any claim whatsoever, such
expenses to be reimbursed by the undersigned as they are
incurred) to which they may become subject under the Securities
Act, the Exchange Act or otherwise, arising out of or based upon
(i) any untrue statement or alleged untrue statement of a
material fact contained in any registration statement or
prospectus or any amendments or supplements thereto in which
Registrable Stock is included or in any application, statement or
other document filed by the Company with the Commission or any
securities exchange or in any jurisdiction in connection with
qualifying such shares under the securities laws thereof, or (ii)
the omission or alleged omission therefrom of a material fact
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required to be stated therein or necessary to make the statements
therein not misleading, provided in each case that such statement
or omission is made in reliance upon and in conformity with
written information furnished to the Company by or on behalf of
such Participating Holder expressly for use in any such
registration statement or other document.
(iii) Promptly upon receipt by a party claiming
indemnification hereunder of notice of the commencement of any
action involving a claim referred to above, such indemnified
party will, if a claim in respect thereof is to be made against a
party which may be required to indemnify such party hereunder,
give written notice to the latter of the commencement of such
action. In case any such action is brought against an indemnified
party, the indemnifying party shall be entitled to participate in
and to assume the defense of such action, to the extent that it
may wish, with counsel reasonably satisfactory to such
indemnified party. Except as set forth herein, the indemnified
party and any party cooperating in the defense of such claim
shall not settle or compromise any such claim or admit liability
without the express written consent of the indemnifying party.
The indemnified party shall have the right to be represented by
an advisory counsel and accountants, at its own expense, and the
indemnified party shall be kept fully informed of such action,
suit or proceeding at all stages thereof whether or not the
indemnified party is so represented.
Notwithstanding the foregoing, the indemnified party may
immediately cause to be paid or discharged any asserted claim the
non-payment of which would have an immediate substantial adverse
impact on the indemnified party and any claim which the
indemnifying party has not disputed within thirty days of notice
as provided above.
(iv) If the indemnification provided for in this Section
6(f) is unavailable or insufficient to hold harmless an
indemnified party under such Section in respect of any losses,
claims, damages or liabilities or action in respect thereof or
referred to therein, then each indemnifying party shall in lieu
of indemnifying such indemnified party contribute to the amount
paid or payable by such indemnified party as a result of such
losses, claims, damages, liabilities or actions in such
proportion as is appropriate to reflect the relative fault of the
Company, on the one hand, and the Participating Holder, on the
other, in connection with the statements or omissions which
resulted in such losses, claims, damages, liabilities or actions
as well as any other relevant equitable considerations, including
the failure to give the notice required under such Section. The
relative fault shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a
material fact relates to information supplied by the Company on
the one hand, or the Participating Holders on the other hand, and
the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission.
The Company and the Participating Holder agree that it would not
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<PAGE>
be just and equitable if contribution pursuant to this Section
6(f)(iv) were determined by pro rata allocation or by any other
method of allocation which did not take account of the equitable
considerations referred to above in this subsection. No person
guilty of fraudulent misrepresentations (within the meaning of
Section 11(f) of the Securities Act), shall be entitled to
contribution from any person who is not guilty of such fraudulent
misrepresentations.
(v) The obligations of the Company and the Participating
Holder under this Section 6(f) shall survive the completion of
any offering of Registrable Stock in a registration statement
under this Section 6.
(vi) The rights of indemnification contained in this Section
6 shall not be deemed to be the exclusive remedy of the parties
hereto and such rights shall be in addition to any other rights
or remedies which any party hereto may have at law or equity.
(g) Assignment of Registration Rights. The undersigned's rights
and obligations set forth in this Section 6 shall automatically be deemed
assigned to any transferee or assignee of Registrable Stock, provided that
immediately following such transfer the further disposition of such securities
by the transferee or assignee is restricted under the Securities Act; provided
however, that, the termination of registration rights in respect of any shares
of Registrable Stock by reason of the operation of Section 6(a) shall be binding
upon any transferee of such shares. Upon the request of any such holder, the
Company will confirm in writing to any transferee of such holder's Registrable
Stock the Company's continuing obligation to afford such transferee the benefits
of the Company's agreements contained in this Section 6, but no failure of the
Company to confirm such obligations shall in any way impair such transferee's
rights under this Section 6.
7. Information Rights. As long as the Subscriber holds at least 10% of the
Preferred Stock acquired hereunder, the Company will provide the Subscriber with
the Company's audited financial statements within 10 days after such financial
statements are filed with the Commission.
8. Confidentiality. The Subscriber shall hold and shall cause its
consultants and advisors to hold in strict confidence, unless compelled to
disclose by judicial or administrative process or by other requirements of law,
all documents and information concerning the Company furnished to it (except to
the extent that such information can be shown to have been (a) previously known
by the party to which it was furnished, (b) in the public domain through no
fault of such party or (c) later lawfully acquired from other sources by the
party to which it was furnished), and Subscriber shall not release or disclose
such information to any other person or entity, except its auditors, attorneys,
financial advisors, bankers and other consultants and advisors in connection
with this Agreement. Subscriber shall be deemed to have satisfied its obligation
to hold confidential information concerning or supplied to it if it exercises
the same care as it takes to preserve confidentiality for its own similar
information.
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9. Governing Law. This Agreement has been made in, and shall be construed
in accordance with, the laws of the State of Texas applicable to contracts made
and to be fully performed therein.
10. Entire Agreement. This Agreement contains the entire understanding and
agreement of the parties with respect to the subject matter hereof and
supersedes all negotiations, representations and other agreements made by and
between such parties with respect hereto.
11. Assignment. The Subscriber may assign its rights to acquire shares of
Preferred Stock hereunder with the prior written consent of the Company, which
consent shall not be unreasonably withheld.
By:
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
Taxpayer Identification Number :
-------------------------------------------
Address:
-----------------------------------
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Agreed to and accepted
this 24th day of November, 1997.
CHAPARRAL RESOURCES, INC.
By:
-----------------------------
Name: Howard Karren
Title: Chairman & CEO
11
