<PAGE> 1
SCHEDULE 14A
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [x]
Filed by the 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 Section 240.14a-11(c) or Section
240.14a-12
CHAPARRAL RESOURCES, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
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 the 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> 2
CHAPARRAL RESOURCES, INC.
2211 Norfolk Street, Suite 1150
Houston, Texas 77098
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 26, 1998
NOTICE IS HEREBY GIVEN that an Annual Meeting of Stockholders (the
"Meeting") of Chaparral Resources, Inc., a Colorado corporation (the
"Company"), will be held in the Vanderbilt Room of the Marriott Eastside, 525
Lexington at 49th Street, New York, New York 10017, on Friday, June 26, 1998,
at 9:00 a.m. Eastern Time, for the purpose of considering and voting upon
proposals to:
(1) Elect seven directors to serve until the next Annual Meeting
of Stockholders;
(2) Adopt the 1998 Incentive and Nonstatutory Stock Option Plan;
(3) Ratify the selection by the Board of Directors of Ernst &
Young LLP as independent auditors of the Company for the
fiscal year ended December 31, 1998; and
(4) Transact such other business as may lawfully come before the
Meeting or any adjournment(s) thereof.
Only stockholders of record at the close of business on May 14, 1998,
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
May 28, 1998
<PAGE> 3
CHAPARRAL RESOURCES, INC.
2211 Norfolk, Suite 1150
Houston, Texas 77098
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 26, 1998
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 in the Vanderbilt Room of the Marriott
Eastside, 525 Lexington at 49th Street, New York, New York 10017, on Friday,
June 26, 1998, at 9:00 a.m. Eastern 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 May 28, 1998.
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. The principal executive offices of the Company are located at 2211
Norfolk, Suite 1150, Houston, Texas 77098. 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 seven directors of the Company;
(2) The adoption of the 1998 Incentive and Nonstatutory Stock
Option Plan;
(3) The ratification of the selection by the Board of Directors of
Ernst & Young LLP as independent auditors of the Company for
the fiscal year ended December 31, 1998; and
(4) The transaction of such other business as may lawfully come
before the Meeting or any adjournment(s) 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
<PAGE> 4
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 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 or on the approval of any other 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, and in the holders of the Company's no par value Series A
Preferred Stock ("Preferred Stock"). The holders of the Company's Preferred
Stock are entitled to the same number of votes as is equal to the number of
shares of Common Stock into which the Preferred Stock is convertible. The
Preferred Stock is currently convertible into 2,222,222 shares of Common Stock.
Cumulative voting in the election of directors is not permitted. Only holders
of record of the Common Stock and Preferred Stock at the close of business on
May 14, 1998, are entitled to notice of and to vote at the Meeting or any
adjournments thereof. On May 14, 1998, the Company had 51,125,456 shares of
Common Stock outstanding and the holder of the Preferred Stock was entitled to
cast 2,222,222 votes at the Meeting.
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 seven directors effective at the
Meeting. To be elected, the nominees for director must receive a plurality of
the votes represented in person or by proxy at the Meeting. The votes withheld
in the election of directors will be counted as being present at the Meeting
for purposes of determining a quorum and will have no effect on the election of
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 seven 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 to be held in 1999, until their successors
are duly elected or appointed or until their earlier death, resignation or
removal. The nominees for director, each of whom has consented to serve if
elected, are as follows:
2
<PAGE> 5
<TABLE>
<CAPTION>
DIRECTOR PRINCIPAL OCCUPATION
NAME OF NOMINEE SINCE AGE DURING THE LAST FIVE YEARS
--------------- --------- --- --------------------------
<S> <C> <C> <C>
Howard Karren 1996 67 Chairman of the Board of the Company since 1996; Chief
Executive Officer of the Company since January 1997 and
President of the Company since February 1997. Senior Advisor
to the Chairman 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.
Arlo G. Sorensen 1996 57 Chief Financial Officer and Principal Accounting Officer of
the Company since March 1997. Treasurer of the Company
from February 1997 to February 1998. 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.
Secretary of the Company since August 1997; President of
Whittier Energy Company, an oil and gas exploration and
David A. Dahl 1997 36 production company, since 1997, President of Whittier
Ventures, LLC, a private investment entity, since January
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.
Ted Collins, Jr. 1997 59 President of Collins & Ware, Inc., an independent oil and
gas company, since 1988. President of Enron Oil & Gas Co.,
an oil and gas company, from 1982 to 1988; Executive Vice
President and a director of American Quasar Petroleum Co.
from 1969 to 1982. Mr. Collins is a director of Hanover
Compression Company, Mid Coast Energy Resources, Inc. and
Queen Sand Resources, Inc.
John G. McMillian 1997 71 Retired since 1995. Chairman, President 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 Marker International
and Excalibur Technologies.
</TABLE>
3
<PAGE> 6
<TABLE>
<CAPTION>
DIRECTOR PRINCIPAL OCCUPATION
NAME OF NOMINEE SINCE AGE DURING THE LAST FIVE YEARS
--------------- --------- --- --------------------------
<S> <C> <C> <C>
J. Michael Muckleroy 1997 68 Independent oil operator since 1994. Chairman and 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 manufacturing of appliances and
distributing of liquid gas, from 1984 to 1994.
Richard L. Grant Not 43 President of Mountaineer Gas Company, the largest natural
currently gas distribution company in West Virginia, since 1987. Prior
a director thereto, legal counsel with The Cincinnati Gas & Electric
Company. Mr. Grant is a member of the Executive Committee
for the West Virginia Oil and Gas Association, and a member
of the Board of Directors for the Southern Gas Association.
</TABLE>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF THE ELECTION OF THE
NOMINEES. DIRECTORS MEETINGS AND COMMITTEES
During the Company's fiscal year ended December 31, 1997, the Company
held 16 directors' meetings, 4 of which consisted of directors' minutes signed
by all directors and 12 of which were actual meetings held at which the
directors were present in person or by telephone. The consent directors minutes
reflect decisions reached by all of the directors following discussion among the
directors. John G. McMillian is the only current director of the Company who
attended in person or by telephone less than 75% of the directors' meetings
which actually were held while he was a director.
The Board of Directors of the Company has established an Audit
Committee, a Compensation Committee, an Executive Committee and a Nominations
Committee and has appointed Arlo G. Sorensen and David A. Dahl as the members of
the Audit Committee; John G. McMillian, J. Michael Muckleroy and Arlo G.
Sorensen as the members of the Compensation Committee; Howard Karren, Ted
Collins, Jr., John G. McMillian and J. Michael Muckleroy as the members of the
Executive Committee; and Ted Collins, Jr., David A. Dahl and Howard Karren as
the members of the Nominating Committee.
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 will annually review the qualifications and
4
<PAGE> 7
objectivity of the Company's independent auditors, the Company's accounting
policies and reporting practices, the Company's contracts and internal auditing
and internal control, compliance with the Company's policies regarding business
conduct and other matters as deemed appropriate. 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 Compensation Committee will recommend to the Board of Directors
cash and noncash compensation for Company executives and will review and
recommend to the Board of Directors stock plans for adoption by the Company for
the directors, officers, employees and consultants of the Company. The
Compensation Committee of the Board of Directors is responsible for developing
the Company's executive compensation program. The Compensation Committee will
continue to monitor and grant awards pursuant to the Company's comprehensive
executive compensation programs and stock option plans. See "Proposal Number
Two--Adoption of the 1998 Incentive and Nonstatutory Stock Option Plan."
The Executive Committee meets on a less formal basis and may exercise
all of the powers of the Board of Directors, except where restricted by the
bylaws of the Company or by the Colorado Business Corporation Act.
The Nominations Committee has oversight for recruiting and
recommending candidates for election to the Board of Directors and evaluation
of director independence and performance. The Nominations Committee
recommended the six nominees for director set forth herein and does not plan to
consider any other nominees that might be proposed.
During the fiscal year ended December 31, 1997, the Audit Committee,
the Compensation Committee and the then Stock Option Committee, which is now
the Compensation Committee, had no formal meetings. The Executive Committee
and the Nominations Committee were not established until March 1998.
5
<PAGE> 8
SECURITY OWNERSHIP OF CERTAIN PERSONS
The following table sets forth as of May 14, 1998, the number of
shares of the Company's outstanding Common Stock beneficially 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, by Paul V. Hoovler, by each
of the Company's current directors and by each nominee for director and by all
of the Company's current directors and executive officers as a group.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT
NAME AND ADDRESS BENEFICIAL OWNERSHIP(1) OF CLASS
- ---------------- ----------------------- ----------
<S> <C> <C>
Allen & Company Incorporated ................................... 8,431,107(2) 16.1%
711 Fifth Avenue
New York, New York 10022
Drake and Company .............................................. 2,490,000 4.8%
Citibank Performance Portfolio A.A
c/o Citibank, N.A
153 E. 53rd Street, 21st Floor
New York, New York 10043
Whittier Ventures, LLC ......................................... 3,233,556(3) 6.3%
1600 Huntington Drive
South Pasadena, California 91030
Paul V. Hoovler ................................................ 1,489,522(4) 2.9%
Howard Karren .................................................. 1,185,000(5) 2.8%
David A. Dahl .................................................. 5,029,803(6) 9.8%
Ted Collins, Jr ................................................ 110,000 *
Peter G. Dilling ............................................... 536,618(7) 1.0%
John G. McMillian .............................................. 435,000(8) *
J. Michael Muckleroy ........................................... 20,000 *
Arlo G. Sorensen ............................................... 96,242(9) *
All Current Directors and Executive Officers as
a Group (nine persons) ......................................... 7,507,663(10) 14.2%
Richard L. Grant ............................................... * *
</TABLE>
6
<PAGE> 9
- -----------------
* Less than 1%.
(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 1,228,720 shares underlying presently exercisable warrants.
Does not include 600,000 shares underlying a warrant that is not
exercisable. Allen & Company Incorporated is a wholly owned
subsidiary of Allen Holdings Inc., 711 Fifth Avenue, New York, 10002.
As a result, Allen Holdings Inc. may be deemed to beneficially own the
shares beneficially owned by Allen & Company Incorporated.
(3) Includes 262,500 shares underlying presently exercisable warrants.
(4) Includes 700,000 shares underlying presently exercisable warrants and
576,000 shares owned by the PVH Family Limited Partnership of which
Mr. Hoovler is the General Partner.
(5) Includes 1,025,000 shares underlying presently exercisable options.
Does not include 285,000 shares underlying an option granted to Mr.
Karren in January 1998 because the directors are still discussing the
terms of such grant.
(6) Includes 75,000 shares underlying presently exercisable options owned
by David A. Dahl, the 3,233,556 shares beneficially owned by Whittier
Ventures LLC, 349,185 shares owned by Whittier Energy Company, 87,500
shares underlying presently exercisable warrants owned by Whittier
Energy Company and 1,274,562 shares beneficially owned by Whittier
Trust Company. David A. Dahl has no pecuniary interest in the shares
beneficially owned by Whittier Ventures LLC, Whittier Energy Company
or Whittier Trust Company but, as the President of Whittier Ventures
LLC and Whittier Energy Company and as the Vice President of Whittier
Trust Company, 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.
(7) Includes 25,000 shares underlying presently exercisable options.
601,618 shares are owned directly by Spectrum Development, Inc. which
is controlled by Mr. Dilling, and the 601,618 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. Does not include
400,000 shares underlying an option that is not currently exercisable.
(8) Includes 25,000 shares underlying a presently exercisable option.
7
<PAGE> 10
(9) Includes 75,000 shares underlying presently exercisable options and
11,242 shares owned by Whittier 1982 Oil Trust for which Mr. Sorensen
is the trustee and has voting and investment power over such shares.
Mr. Sorensen is a director of Whittier Ventures LLC and Whittier
Energy Company. However, Mr. Sorensen disclaims beneficial ownership
of the shares that are owned by Whittier Ventures LLC and Whittier
Energy Company.
(10) Includes the shares as described in notes (5) through (9) above. Also
includes 10,000 shares owned by Michael B. Young, the Treasurer and
Controller of the Company, and 50,000 shares underlying a presently
exercisable option owned by Michael B. Young, and includes 10,000
shares owned by Alan D. Berlin, the Secretary of the Company, and
25,000 shares underlying a presently exercisable option owned by Alan
D. Berlin. Does not include a grant for 30,000 shares that will vest
with respect to 10,000 shares on each of January 30, 1999, 2000 and
2001, if Mr. Young is still employed by the Company on those dates.
The shares will vest earlier if Mr. Young is terminated without due
cause or if the Company is bought or merges with another Company.
EXECUTIVE OFFICERS
The executive officers of the Company are Howard Karren, Arlo G.
Sorensen and David A. Dahl, information pertaining to whom is set forth under
"Election of Directors," and Michael B. Young and Alan D. Berlin, 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 death or until he or she shall be removed in the manner
provided by the Company's Bylaws. Michael B. Young's and Alan D. Berlin's
positions with the Company, their ages, and the periods during which they have
served as executive officers of the Company are as follows:
8
<PAGE> 11
<TABLE>
<CAPTION>
NAME OF OFFICER PRINCIPAL OCCUPATION
EXECUTIVE OFFICER SINCE AGE DURING THE LAST FIVE YEARS
- ----------------- ----- --- --------------------------
<S> <C> <C> <C>
Michael B. Young 1998 29 Treasurer and Controller of the
Company since February 1998; Tax
Manager in the Oil & Gas Tax
Practice of Arthur Andersen LLP, an
accounting firm, from June 1991 to
February 1998.
Alan D. Berlin 1998 58 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; a
director of the Company from March
1997 to May 1998; Secretary of the
Company from May 1998 to the present
and from January 1997 to August
1997; 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.
</TABLE>
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 stockholders. Mr. McGee
subsequently resigned as a director and officer of the Company to become
Co-Managing Director of KKM. The former shareholders of CAP-D had the right to
nominate an additional director for election to the Company's board of
directors at the Company's 1996 annual meeting of stockholders but failed to do
so. If by June 30, 2000, the Karakuduk Field obtains 5,000 barrels of oil
production per day averaged over any sixty (60) day period, or the Company's
beneficial interest in the field is sold or the Company and the former
shareholders jointly participate in a new exploratory development project, the
former shareholders have the right to cause the Company to nominate one
additional director at the Company's annual meeting of stockholders held in the
year 2000.
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.
9
<PAGE> 12
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
December 31, 1997, and Form 5 and amendments thereto furnished to the Company
with respect to such fiscal year, during the Company's fiscal year ended
December 31, 1997, 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 Forms 3, 4, or 5 except for Walter A. Carozza who
did not timely file his Form 3, and failed to file a Form 5 reporting one
transaction during the fiscal year ended December 31, 1997, Peter G. Dilling
who failed to file three Forms 4 reporting a total of seven transactions and a
Form 5 reporting three transactions during the fiscal year ended December 31,
1997 and Howard Karren who did not timely file a Form 5 reporting three
transactions during the fiscal year ended December 31, 1997.
COMPENSATION
In May 1997, the Company changed its fiscal year end from November 30
to December 31. The following table shows all cash compensation paid by the
Company for services rendered during the fiscal years ended December 31, 1997,
during the month of December 1996 and during the fiscal years ended November
30, 1996 and November 30, 1995 to Howard Karren and Paul V. Hoovler who were
the chief executive officers of the Company at certain times during the fiscal
year ended December 31, 1997. There were no executive officers of the Company
whose annual salary and bonus exceeded $100,000 during the fiscal year ended
December 31, 1997.
10
<PAGE> 13
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
----------------------------------------
YEAR YEAR OTHER
ENDED ENDED ANNUAL
NAME AND DECEMBER MONTH OF NOVEMBER COMPEN-
PRINCIPAL POSITION 31, DECEMBER 30, SALARY($) BONUS($) SATION($)
- ------------------ -------- -------- ----------- --------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Howard Karren...................... 1997 -- -- --
Chief Executive Officer and 1996 -- -- --
President since January 1997 1996 -- -- $ 175,000(1)
and February 1997, respectively 1995 -- -- --
Paul V. Hoovler.................... 1997 $ 12,408 -- --
Chief Executive 1996 $ 5,000 $12,500 --
Officer and President until 1996 $ 60,000(2) -- $ 4,937(3)
January 1997 and February 1995 $60,000 -- $ 4,413(3)
1997, respectively
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
------------
SECURITIES
UNDERLYING ALL OTHER
OPTIONS(#) COMPENSATION($)
------------ ---------------
NAME AND
PRINCIPAL POSITION
- ------------------
<S> <C> <C>
Howard Karren...................... 1,025,000 --
Chief Executive Officer and -- --
President since January 1997 -- --
and February 1997, respectively -- --
Paul V. Hoovler.................... 200,000(4) --
Chief Executive -- --
Officer and President until -- $ 40,000(5)
January 1997 and February -- $ 40,000(5)
1997, respectively
</TABLE>
- ---------------------
(1) 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. The $175,000
represents the fair market value of the 350,000 shares on April 5, 1996, the
date the contingency was satisfied. The fair market value is based on the
$0.50 per share sales price of sales by the Company of restricted stock to
nonaffiliated parties in April 1996.
(2) 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 Kazakhstan ("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 warrants. Anything mentioned above to the contrary
notwithstanding, in the event Mr. Hoovler has exercised and paid for the
warrants 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.
11
<PAGE> 14
(3) Represents the amounts distributed pursuant to a royalty participation plan
to Paul V. Hoovler.
(4) Represents shares underlying warrants that were received by Mr. Hoovler as a
part of a severance agreement with the Company. See
"Compensation--Termination of Employment Agreements."
(5) The Company had a Deferred Compensation and Death Benefit Plan for Paul V.
Hoovler. The Company paid Mr. Hoovler $40,000 annually from this plan until
Mr. Hoovler voluntarily terminated his employment in February 1997 at which
time he received the life insurance policy on his life which previously
provided 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 the life
insurance policy.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information concerning options (warrants)
granted by the Company to Howard Karren and Paul V. Hoovler from December 1,
1996 through December 31, 1997.
<TABLE>
<CAPTION>
% OF TOTAL MARKET
NUMBER OF SECURITIES OPTIONS (WARRANTS) PRICE ON
UNDERLYING OPTIONS GRANTED TO EMPLOYEES EXERCISE OR EXPIRATION DATE OF
NAME (WARRANTS) GRANTED DURING PERIOD BASE PRICE DATE GRANT (1)
- ---- ----------------- -------------------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Howard Karren 25,000 Shares 1.9% $0.828125 7/16/2007 $0.828125
500,000 Shares 36.6% $0.75 9/1/2002 $0.8125
500,000 Shares 36.6% $1.50 9/1/2002 $0.8125
Paul V. Hoovler 100,000 Shares(2) 7.5% $0.85 2/12/2001 $0.828125
100,000 Shares(2) 7.5% $1.25 1/1/2002 $0.828125
</TABLE>
- -------------------------
(1) The market price on the date of grant is based on the mean between the
closing bid and asked prices of the Company's Common Stock on the date
of grant or on the next day before the date of grant on which there
were reported bid and asked prices of the Company's Common Stock.
(2) Mr. Hoovler's warrants were received as a part of a severance agreement
with the Company. See "Compensation--Termination of Employment
Agreements."
12
<PAGE> 15
FISCAL YEAR-END OPTION VALUES
The following table sets forth information concerning unexercised
options (warrants) held by Howard Karren and by Paul V. Hoovler at December 31,
1997:
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AS OF IN-THE-MONEY OPTIONS AT
DECEMBER 31, 1997(#) DECEMBER 31, 1997($)
--------------------------------- ---------------------------------
NAME EXERCISABLE/ UNEXERCISABLE EXERCISABLE/ UNEXERCISABLE
- ---- ----------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
Howard Karren.............. 1,025,000 - 0 - $1,379,180(1) - 0 -
Paul V. Hoovler............ 600,000 100,000 $1,285,000(1) $125,000
</TABLE>
- -----------------------
(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 December 31, 1997.
COMPENSATION OF DIRECTORS
On July 17, 1997, the stockholders of the Company approved a 1997
Incentive Stock Plan pursuant to which all non-employee directors were to
receive an award of 250 shares of Common Stock of the Company for each meeting
of the board of directors attended by such director. The directors have waived
their rights to receive shares for the meetings in 1997 and in 1998. Also on
July 17, 1997, the stockholders approved a 1997 Non-Employee Directors' Stock
Option Plan pursuant to which each year each non-employee director was to
receive an option to purchase 25,000 shares of Common Stock of the Company.
Subject to the adoption of the 1998 Incentive and Nonstatutory Stock Option
Plan, the directors have terminated the 1997 Incentive Stock Option Plan and the
1997 Non-Employee Directors' Stock Option Plan.
On January 23, 1998, the Board of Directors of the Company granted each
director of the Company 10,000 shares of the Company's Common Stock for their
service to the Company. There were no other standard or other arrangements for
the compensation of the Company's directors in effect for the Company's fiscal
year ended December 31, 1997.
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.
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
13
<PAGE> 16
and warrants to purchase 100,000 shares of the Company's common stock at an
exercise price of $1.25 per share that became 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 Kazakhstan,
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 elected to be a director at the Company's 1995
Annual Meeting of Stockholders under the arrangement. 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 McGee, a director of the Company until October 1997, 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. The additional 55% interest in
CAP-G was acquired by the Company from nonaffiliated parties.
14
<PAGE> 17
The previous management of the Company had been negotiating an
agreement pursuant to which the Company would have acquired 100% of the issued
and outstanding capital stock of M-D International Petroleum, Inc. ("MDI"), a
private company of which the shareholders include one current director of the
Company, Mr. Dilling, and two former directors of the Company, Mr. Jeffs and Mr.
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") was negotiating for the development of natural gas fields in the
Republic of Uzbekistan. The agreement with MDI was not consummated. 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, McGee and Jeffs,
agreed that if the Company did not acquire MDI within a specified time period,
the principal shareholders would 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. Because such acquisition did not occur within the specified
time period, such principal shareholders transferred the 180,000 shares to the
Company and the shares were cancelled. The Company is no longer pursuing the
acquisition of MDI.
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, 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 of the former Soviet Union. From March 1997 to August
1997, the Company reimbursed MDI for MDI's expenses incurred in connection with
the Karakuduk Project. Currently, there are no transactions contemplated between
the Company and MDI.
In November and December, 1996, the Company borrowed $1,850,000 for
interim financing pursuant to unsecured convertible promissory notes that bore
interest at 8% per annum, which was payable monthly and that were due and
payable on or before May 29, 1998. The promissory notes were 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 were received on November 22, 1996. Whittier Ventures, LLC, Whittier
Energy Company and Victory Ventures, LLC subsequently converted their loans into
the Company's common stock as described below.
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
15
<PAGE> 18
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 were 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 were not paid or converted by November 30, 1997.
Just prior to November 30, 1997, the Company offered to repay the then
outstanding promissory notes, including the promissory notes to Whittier
Ventures LLC and Whittier Energy Company. The lenders advised the Company that
they were considering whether or not to convert their promissory notes into
shares of the Company's Common Stock and requested the Company to not repay the
promissory notes by November 30, 1997. In connection with such requests, the
lenders agreed that the lenders would not receive any of the warrants to
purchase an additional 370,000 of the Company's Common Stock if the promissory
notes were not paid or converted by November 30, 1997. The warrants that were
issued are exercisable for a period of three years at $0.25 per share. Effective
November 30, 1997, Whittier Ventures LLC and Whittier Energy Company converted
the principal and accrued interest in their promissory notes into 1,047,556
shares and 349,185 shares, respectively, of the Company's Common Stock.
Walter A. Carozza, a director of the Company from May 1997 to May 1998,
is the president of Victory Ventures LLC. 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 up to an
additional 4,615,385 shares of the Company's Common Stock for $3,000,000 or
$0.65 per share. In October, 1997, Victory Ventures LLC exercised a portion of
the warrant by purchasing 2,307,692 shares of the Company's Common Stock. At the
same time, the Company agreed to extend the expiration date of the remaining
portion of the warrant to December 3, 1998. In November 1997, Victory Ventures
LLC exercised the remaining portion of the warrant by purchasing 2,307,693
shares of the Company's common stock and exercised another warrant that Victory
Ventures LLC had received in connection with a loan made by Victory Ventures LLC
in December 1996, to the Company. The warrant related to 125,000 shares of the
Company's Common Stock and was exercisable at a price of $0.25 per share.
Victory Ventures LLC subsequently distributed to its members or sold to various
persons all of the Company's Common Stock owned by Victory Ventures LLC so that,
as of the date hereof, Victory Ventures LLC no longer owns any shares of the
Company's common stock.
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.
On August 29, 1997, Whittier Ventures LLC loaned the Company $100,000.
The loan was repaid on December 4, 1997, with interest at a rate of 1% per
month. The loan was unsecured. On October 9, 1997, Whittier Ventures LLC loaned
the Company an additional
16
<PAGE> 19
$200,000. The loan was repaid on December 4, 1997, with interest at a rate of 1%
per month. The loan was unsecured. In September 1997, Howard Karren advanced
$61,000 to CAP-G which was repaid by CAP-G to Mr. Karren without interest in
December 1997. Mr. Karren also personally guaranteed payments to various
suppliers.
Aitken Irvin Lewin Berlin Vrooman & Cohn, LLP, a law firm in which Alan
D. Berlin, who is currently the Secretary of the Company and who was a director
of the Company from March 1997 to May 1998, is a partner, provides legal
services to the Company for which the law firm charges the Company an amount not
in excess of the law firm's normal billing rates. The total amount of fees that
were paid by the Company to the law firm during the Company's year ended
December 31, 1997, did not exceed 5% of the law firm's gross revenues for the
law firm's last full fiscal year. The Company believes that the fees paid to the
law firm were reasonable for the services rendered.
On November 24, 1997, the Company executed a Subscription Agreement
("Agreement") with an investor, which was not affiliated with the Company.
Pursuant to the Agreement, the Company sold to the investor 50,000 shares of the
Company's Series A Preferred Stock, no par value, for a purchase price of
$100,000 per share or an aggregate purchase price of Five Million Dollars
($5,000,000). The investor also agreed to purchase an additional 25,000 shares
of the Company's Series A Preferred Stock for an additional $2,500,000 and
150,000 shares of the Company's Series B and Series C Preferred Stock for
$15,000,000.
In March 1998, prior to the receipt of the funds for any additional
purchases the investor was to make under the Agreement, the Company and the
investor mutually released each other from any further obligations under the
Agreement. The investor retained the initial 50,000 shares of Series A Preferred
Stock that are convertible into the Company's Common Stock at $2.25 per share.
The number of shares of Common Stock issuable upon conversion of each share of
Series A Preferred Stock will be determined by dividing $100 by the conversion
price per share. The Company is not required to issue any additional preferred
stock under the Agreement and the investor has no other obligation to provide
funds to the Company in exchange for such stock.
The Series B Preferred Stock and Series C Preferred Stock would have
been 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 B Preferred Stock was initially $3.00 per share; and the
conversion price of the Series C Preferred Stock was initially $4.25 per share.
The number of shares of Common Stock issuable upon conversion of each share of
Series B Preferred Stock and Series C Preferred Stock would have been determined
by dividing $100 by the conversion price per share.
Allen & Company Incorporated ("Allen & Company") acted as placement
agent in connection with the sale of the Series A Preferred Stock, Series B
Preferred Stock and Series C Preferred Stock pursuant to the Agreement. Allen &
Company elected to receive its fees in
17
<PAGE> 20
the form of warrants to purchase 900,000 shares of the Company's Common Stock
that were all originally exercisable through November 25, 2002, at an exercise
price of $0.01 per share.
The Company has agreed to allow Allen & Company to retain the warrants
to purchase 700,000 shares of the Company's Common Stock related to the
$17,500,000 in funds not received under the original terms of the Agreement,
provided Allen & Company raises additional capital for the Company within the
two year period ending November 25, 1999. Based on a subsequent agreement, the
unearned warrants to purchase 700,000 shares of the Company's Common Stock held
by Allen & Company are fully restricted from exercise unless Allen & Company
raises additional capital for the Company that is acceptable to the Company's
Board of Directors. For each $25 of additional capital raised, a warrant to
purchase one share of Common Stock will be deemed to be earned. If, before
November 25, 1999, Allen & Company fails to raise additional capital for the
Company under terms acceptable to the Company, the unearned portion of the
warrants will expire. In April 1998, Allen & Company raised an additional
$2,500,000 of capital for the Company through the sale by the Company of
1,250,000 shares of the Company's Common Stock at $2.00 per share. As a result,
the warrants became exercisable as to an additional 100,000 shares of the
Company's Common Stock.
On July 17, 1997, the stockholders of the Company approved a 1997
Incentive Stock Plan pursuant to which all non-employee directors were to
receive an award of 250 shares of Common Stock of the Company for each meeting
of the board of directors attended by such director. The directors have waived
their rights to receive shares for the meetings in 1997 and 1998. Also on July
17, 1997, the stockholders approved a 1997 Non-Employee Directors' Stock Option
Plan pursuant to which each year each non-employee director will receive an
option to purchase 25,000 shares of Common Stock of the Company. The first
options relating to a total of 200,000 shares that are exercisable at a price of
$0.828125 per share were received effective July 17, 1997.
On January 23, 1998, the Board of Directors of the Company granted each
director of the Company 10,000 shares of the Company's Common Stock for their
service to the Company.
In connection with his employment, the Company granted Michael B. Young
a five year option to purchase 50,000 shares of the Company's Common Stock at an
exercise price of $2.25 per share and granted Mr. Young 40,000 shares of the
Company's Common Stock that, subject to certain conditions, vested as to 10,000
shares on January 30, 1998, and will vest as to 10,000 shares on each of January
30, 1999, 2000, and 2001. All unvested shares shall vest immediately if the
Company is acquired or merges with another company or if Mr. Young is terminated
without cause.
18
<PAGE> 21
PROPOSAL NUMBER TWO
ADOPTION OF THE 1998 INCENTIVE AND NONSTATUTORY
STOCK OPTION PLAN
The Board of Directors of the Company has adopted the 1998 Incentive
and Nonstatutory Stock Option 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 purposes of the Plan are to attract and retain the best available
personnel for positions of substantial responsibility, to provide additional
incentive to the employees and consultants of the Company and to promote the
success of the Company's business. Options granted under the plan may be either
"incentive stock options," ("Incentive Options") or "nonstatutory stock options"
("Nonstatutory Options").
AMOUNTS OF COMMON STOCK SUBJECT TO OPTIONS UNDER THE PLAN
The Plan provides for the grant of stock options covering an aggregate
of 3,000,000 shares of common stock of the Company ("Common Stock"). The number
of shares of Common Stock subject to options is subject to equitable adjustments
for any stock dividends, stock splits, reverse stock splits, combinations,
recapitalizations, reclassifications or any other similar changes which may be
required in order to prevent dilution. Any option which is not exercised prior
to expiration or which otherwise terminates will thereafter be available for
further grant under the Plan.
ADMINISTRATION OF THE PLAN
The Plan may be administered by the Board or by a committee appointed
by the Board consisting of not fewer than two non-employee members of the Board
(the "Committee"). Subject to the conditions set forth in the Plan, the Board or
the Committee has full and final authority to determine the number of shares to
be represented by each option, the individuals to whom and the time or times at
which such options shall be granted and be exercisable, their exercise prices
and the terms and provisions of the respective agreements to be entered into at
the time of grant, which may vary. The Plan is intended to be flexible, and a
significant amount of discretion is vested in the Board or the Committee with
respect to all aspects of the options to be granted under the Plan.
19
<PAGE> 22
PARTICIPANTS
Nonstatutory Options may be granted under the Plan to any person who is
or who agrees to become an officer, director, employee or consultant of the
Company or any of its subsidiaries. Incentive Options may be granted only to
persons who are employees of the Company or any of its subsidiaries. As of May
19, 1998, the Company and its subsidiaries had approximately 88 employees. The
participants will not be required to pay any sums for the granting of options,
but may be required to pay the Company for extending the options. As of May 26,
1998, no options had been granted pursuant to the Plan.
EXERCISE PRICE
The exercise price of each Nonstatutory Option granted under the Plan
shall be determined by the Board or the Committee. The exercise price of each
Incentive Option granted under the Plan shall be determined by the Board or the
Committee and shall in no event be less than 100% (110% in the case of a person
who owns directly or indirectly more than 10% of the Common Stock) of the fair
market value of the shares on the date of grant. The payment of the exercise
price of an option may be made in cash or shares of Common Stock, as more fully
described under "Consideration and Method of Payment" and "Exercise of Option"
in the Plan. Fair market value shall be determined by the Board or the Committee
in accordance with the Plan and such determination shall be binding upon the
Company and upon the holder. The closing sale price of the Common Stock on May
18, 1998, was $2.09375 per share.
TERMS OF OPTIONS
Options may be granted for a term of up to 10 years (five years in the
case of Incentive Options granted to a person who owns directly or indirectly
more than 10% of the Company's outstanding Common Stock), which may extend
beyond the term of the Plan.
EXERCISE OF OPTIONS
The terms governing the exercise of options granted under the Plan
shall be determined by the Board or the Committee, which may limit the number of
options exercisable in any period. Payment of the exercise price upon exercise
of an option may be made in any combination of cash and shares of Common Stock,
including the automatic application of shares of Common Stock received upon
exercise of an option to satisfy the exercise price of additional options
(unless the Board or the Committee provides otherwise). Where payment is made in
Common Stock, such Common Stock shall be valued for such purpose at the fair
market value of such shares on the date of exercise. In no event shall an option
granted under the Plan be exercisable prior to the date of stockholder approval
of the Plan.
20
<PAGE> 23
NONTRANSFERABILITY
Incentive Options granted under the Plan are not transferable or
assignable, other than by will or the laws of descent and distribution and,
during the lifetime of the holder, options are exercisable only by the holder.
Nonstatutory Options do not contain restrictions on transferability.
TERMINATION OF RELATIONSHIP
Except as Board or the Committee may expressly determine otherwise, if
the holder of an Incentive Option ceases to be employed by or to have another
qualifying relationship (such as that or director) with the Company or any of
its subsidiaries other than by reason of the holder's death or permanent
disability, all Incentive Options granted to such holder under the Plan shall
terminate immediately, except for Incentive Options which were exercisable on
the date of such termination of relationship, which Incentive Options shall
terminate 90 days after the date of such termination of relationship, unless
such Incentive Options specify by their terms an earlier expiration or
termination date. In the event of the death or permanent disability of the
holder of an Incentive Option, options may be exercised to the extent that the
holder might have exercised the options on the date of death or permanent
disability for a period of up to 12 months following the date of death or
permanent disability, unless by their terms the options expire before the end of
such 12 month period. No such restrictions exist with regard to Nonstatutory
Options because qualifying relationships with the Company are not a prerequisite
of Nonstatutory Options.
AMENDMENT AND TERMINATION OF THE PLAN
The Board may at any time and from time to time amend or terminate the
Plan, but may not, without the approval of the stockholders of the Company, (i)
increase the maximum number of shares of Common Stock subject to options which
may be granted under the Plan, other than in connection with an equitable
adjustment, (ii) change the class of employees eligible for Incentive Options,
or (iii) make any material amendment under the Plan that must be approved by the
Company's stockholders for the Board to be able to grant Incentive Options under
the Plan. No amendment or termination of the Plan by the Board may alter or
impair any of the rights under any option granted under the Plan without the
holder's written consent.
EFFECTIVE DATE AND TERM OF THE PLAN
Options may be granted under the Plan during its 10 year term, which
commenced on May 20, 1998.
21
<PAGE> 24
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
INCENTIVE OPTIONS. The Company believes that with respect to Incentive
Options granted under the Plan, no income generally will be recognized by an
optionee for federal income tax purposes at the time such an option is granted
or at the time it is exercised. If the optionee makes no disposition of the
shares so received within two years from the date the Incentive Option was
granted and one year from the receipt of the shares pursuant to the exercise of
the Incentive Option, the optionee will generally recognize long term capital
gain or loss upon disposition of the shares.
If the optionee disposes of shares acquired by exercise of an Incentive
Option before the expiration of the applicable holding period, any amount
realized from such a disqualifying disposition generally will be taxable as
ordinary income in the year of disposition to the extent that the lesser of the
fair market value of the shares on the date the option was exercised or the fair
market value at the time of such disposition exceeds the exercise price. The
ordinary income recognized by the optionee will be treated as wages and will be
subject to income tax withholding by the Company. Any amount realized upon such
a disposition in excess of the fair market value of the shares on the date of
exercise generally will be treated as long term or short term capital gain,
depending on the holding period of the shares.
The Company will not be allowed a deduction for federal income tax
purposes at the time of the grant or exercise of an Incentive Option. At the
time of a disqualifying disposition by an optionee, the Company will be entitled
to a deduction for federal income tax purposes equal to the amount taxable to
the optionee as ordinary income in connection with such disqualifying
disposition (assuming that such amount constitutes reasonable compensation).
NONSTATUTORY OPTIONS. The Company believes that the grant of a
Nonstatutory Option under the Plan will not be subject to federal income tax.
Upon exercise, the optionee generally will recognize ordinary income, and the
Company will be entitled to a corresponding deduction for federal income tax
purposes (assuming that such compensation is reasonable), in an amount equal to
the excess of the fair market value of the shares on the date of exercise over
the exercise price. The ordinary income recognized by the optionee will be
treated as wages and will be subject to income tax withholding by the Company if
the optionee is an employee. Gain or loss on the subsequent sale of shares
received on exercise of a Nonstatutory Option generally will be long term or
short term capital gain or loss, depending on the holding period of the shares.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE APPROVAL
OF THE ADOPTION OF THE PLAN.
22
<PAGE> 25
PROPOSAL NUMBER THREE
RATIFICATION OF SELECTION OF
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 opinion of Grant Thornton LLP on the Company's financial
statements for the fiscal year ended November 30, 1995, contains no adverse
opinion or disclaimer of opinion, nor was such opinion 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.
The Board of Directors has appointed Ernst & Young LLP, certified
public accountants, as auditors to examine the financial statements of the
Company for the year ending December 31, 1998, and to perform other appropriate
accounting services and is requesting ratification of such appointment by the
stockholders.
In the event that the stockholders do not ratify the appointment of
Ernst & Young LLP, the adverse vote will be considered as a direction to the
Board of Directors to select other auditors for the next fiscal year. However,
because of the difficulty and expense of making any substitution of auditors
after the beginning of the current fiscal year, it is contemplated that the
appointment for the year ending December 31, 1998, will be permitted to stand
unless the Board of Directors finds other reasons for making a change.
It is understood that even if the selection of Ernst & Young LLP is
ratified, the Board of Directors, in its discretion, may direct the appointment
of a new independent accounting firm at any time during the year if the Board of
Directors feels that such a change would be in the best interests of the Company
and its stockholders.
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.
23
<PAGE> 26
1997 ANNUAL REPORT TO STOCKHOLDERS
INCLUDED WITH THIS PROXY STATEMENT IS THE COMPANY'S 1997 ANNUAL REPORT
TO STOCKHOLDERS WHICH CONTAINS THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE
FISCAL YEAR ENDED DECEMBER 31, 1997. THE COMPANY WILL PROVIDE, WITHOUT CHARGE,
AN ADDITIONAL COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL
YEAR ENDED DECEMBER 31, 1997, 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 AMANDA JOHNSON, 2211 NORFOLK, SUITE 1150, HOUSTON, TEXAS
77098. EACH SUCH REQUEST MUST SET FORTH A GOOD FAITH REPRESENTATION THAT, AS OF
MAY 14, 1998, THE PERSON MAKING THE REQUEST WAS A BENEFICIAL OWNER OF THE
COMPANY'S COMMON STOCK. THE EXHIBITS TO THE ANNUAL REPORT ON FORM 10-K MAY BE
OBTAINED BY ANY SHAREHOLDER UPON WRITTEN REQUEST TO AMANDA JOHNSON. EACH PERSON
MAKING ANY SUCH REQUEST WILL BE REQUIRED TO PAY A FEE OF $0.25 PER PAGE TO COVER
THE COMPANY'S EXPENSES IN FURNISHING SUCH EXHIBITS.
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 January
28, 1999 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.
24
<PAGE> 27
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
May 28, 1998
25
<PAGE> 28
APPENDIX A
CHAPARRAL RESOURCES, INC.
1998 INCENTIVE AND NONSTATUTORY
STOCK OPTION PLAN
1. PURPOSES OF THE PLAN. The purposes of this 1998 Incentive and
Nonstatutory Stock Option Plan are to attract and retain the best available
personnel for positions of substantial responsibility, to provide additional
incentive to Employees and Consultants and to promote the success of the
Company's business. Options granted hereunder may be either "incentive stock
options," as defined in Section 422 of the Internal Revenue Code of 1986, as
amended, or "nonstatutory stock options," at the discretion of the Board and as
reflected in the terms of the written stock option agreement.
2. DEFINITIONS. As used herein, the following definitions shall
apply:
a. "BOARD" shall mean the Committee, if one has been
appointed, or the Board of Directors of the Company if no Committee is
appointed.
b. "CODE" shall mean the Internal Revenue Code of 1986,
as amended.
c. "COMMON STOCK" shall mean the $0.10 par value common
stock of the Company.
d. "COMPANY" shall mean Chaparral Resources, Inc., a
Colorado corporation.
e. "COMMITTEE" shall mean the Committee appointed by the
Board in accordance with paragraph (a) of Section 4 of the Plan, if
one is appointed, or the Board if no committee is appointed.
f. "CONSULTANT" shall mean any person who is engaged by
the Company or by any Parent or Subsidiary to render consulting
services and is compensated for such consulting services, but does not
include a director of the Company who is compensated for services as a
director only with the payment of a director's fee by the Company.
g. "CONTINUOUS STATUS AS AN EMPLOYEE" shall mean the
absence of any interruption or termination of service as an Employee.
Continuous Status as an Employee shall not be considered interrupted
in the case of sick leave, military leave, or any other leave of
absence approved by the Board; provided that such leave is for a
period of not more than 90 days or reemployment upon the expiration of
such leave is guaranteed by contract or statute.
<PAGE> 29
h. "EMPLOYEE" shall mean any person, including officers
and directors, employed by the Company or by any Parent or Subsidiary.
The payment of a director's fee by the Company shall not be sufficient
to constitute "employment" by the Company.
i. "INCENTIVE STOCK OPTION" shall mean an Option which
is intended to qualify as an incentive stock option within the meaning
of Section 422 of the Code and which shall be clearly identified as
such in the written Stock Option Agreement provided by the Company to
each Optionee granted an Incentive Stock Option under the Plan.
j. "NON-EMPLOYEE DIRECTOR" shall mean a director who:
(i) Is not currently an officer (as defined in
Section 16a-1(f) of the Securities Exchange Act of 1934, as
amended) of the Company or of a Parent or Subsidiary or
otherwise currently employed by the Company or by a Parent or
Subsidiary.
(ii) Does not receive compensation, either
directly or indirectly, from the Company or from a Parent or
Subsidiary, for services rendered as a Consultant or in any
capacity other than as a director, except for an amount that
does not exceed the dollar amount for which disclosure would
be required pursuant to Item 404(a) of Regulation S-K adopted
by the United States Securities and Exchange Commission.
(iii) Does not possess an interest in any other
transaction for which disclosure would be required pursuant to
Item 404(a) of Regulation S-K adopted by the United States
Securities and Exchange Commission.
k. "NONSTATUTORY STOCK OPTION" shall mean an Option
granted under this Plan which does not qualify as an Incentive Stock
Option and which shall be clearly identified as such in the written
Stock Option Agreement provided by the Company to each Optionee
granted a Nonstatutory Stock Option under this Plan. To the extent
that the aggregate fair market value of Optioned Stock to which
Incentive Stock Options granted under Options to an Employee are
exercisable for the first time during any calendar year (under the
Plan and all plans of the Company or any Parent or Subsidiary) exceeds
$100,000, such Options shall be treated as Nonstatutory Stock Options
under the Plan. The aggregate fair market value of the Optioned Stock
shall be determined as of the date of grant of each Option and the
determination of which Incentive Stock Options shall be treated as
qualified incentive stock options under Section 422 of the Code and
which Incentive Stock Options exercisable for the first time in a
particular year in excess of the $100,000 limitation shall be treated
as
2
<PAGE> 30
Nonstatutory Stock Options shall be determined based on the order in
which such Options were granted in accordance with Section 422(d) of
the Code.
l. "OPTION" shall mean an Incentive Stock Option, a
Nonstatutory Stock Option or both as identified in a written Stock
Option Agreement representing such stock option granted pursuant to
the Plan.
m. "OPTIONED STOCK" shall mean the Common Stock subject
to an Option.
n. "OPTIONEE" shall mean an Employee or other person who
is granted an Option.
o. "PARENT" shall mean a "parent corporation" of the
Company, whether now or hereafter existing, as defined in Section
424(e) of the Code.
p. "PLAN" shall mean this 1998 Incentive and
Nonstatutory Stock Option Plan.
q. "SHARE" shall mean a share of the Common Stock of the
Company, as adjusted in accordance with Section 11 of the Plan.
r. "STOCK OPTION AGREEMENT" shall mean the agreement to
be entered into between the Company and each Optionee which shall set
forth the terms and conditions of each Option granted to each
Optionee, including the number of Shares underlying such Option and
the exercise price of each Option granted to such Optionee under such
agreement.
s. "SUBSIDIARY" shall mean a "subsidiary corporation" of
the Company, whether now or hereafter existing, as defined in Section
424(f) of the Code.
3. STOCK SUBJECT TO THE PLAN. Subject to the provisions of
Section 11 of the Plan, the maximum aggregate number of Shares which may be
optioned and sold under the Plan is 3,000,000 shares of Common Stock. The
Shares may be authorized, but unissued, or reacquired Common Stock. If an
Option should expire or become unexercisable for any reason without having been
exercised in full, the unpurchased Shares which were subject thereto shall,
unless the Plan shall have been terminated, become available for future grant
under the Plan.
4. ADMINISTRATION OF THE PLAN.
a. PROCEDURE. The Plan shall be administered by the
Board or a Committee appointed by the Board consisting of two or more
Non-Employee Directors
3
<PAGE> 31
to administer the Plan on behalf of the Board, subject to such terms
and conditions as the Board may prescribe.
(i) Once appointed, the Committee shall continue
to serve until otherwise directed by the Board (which for
purposes of this paragraph (a)(i) of this Section 4 shall be
the Board of Directors of the Company). From time to time the
Board may increase the size of the Committee and appoint
additional members thereof, remove members (with or without
cause) and appoint new members in substitution therefor, fill
vacancies however caused, or remove all members of the
Committee and thereafter directly administer the Plan.
(ii) Members of the Board who are granted, or have
been granted, Options may vote on any matters affecting the
administration of the Plan or the grant of any Options
pursuant to the Plan.
b. POWERS OF THE BOARD. Subject to the provisions of
the Plan, the Board shall have the authority, in its discretion:
(i) To grant Incentive Stock Options, in
accordance with Section 422 of the Code, and Nonstatutory
Stock Options or both as provided and identified in a separate
written Stock Option Agreement to each Optionee granted such
Option or Options under the Plan; provided however, that in no
event shall an Incentive Stock Option and a Nonstatutory Stock
Option granted to any Optionee under a single Stock Option
Agreement be subject to a "tandem" exercise arrangement such
that the exercise of one such Option affects the Optionee's
right to exercise the other Option granted under such Stock
Option Agreement;
(ii) To determine, upon review of relevant
information and in accordance with Section 8(b) of the Plan,
the fair market value of the Common Stock;
(iii) To determine the exercise price per Share of
Options to be granted, which exercise price shall be
determined in accordance with Section 8(a) of the Plan;
(iv) To determine the Employees or other persons
to whom, and the time or times at which, Options shall be
granted and the number of Shares to be represented by each
Option;
(v) To interpret the Plan;
4
<PAGE> 32
(vi) To prescribe, amend and rescind rules and
regulations relating to the Plan;
(vii) To determine the terms and provisions of each
Option granted (which need not be identical) and, with the
consent of the holder thereof, modify or amend each Option;
(viii) To accelerate or defer (with the consent of
the Optionee) the exercise date of any Option, consistent with
the provisions of Section 7 of the Plan;
(ix) To authorize any person to execute on behalf
of the Company any instrument required to effectuate the grant
of an Option previously granted by the Board; and
(x) To make all other determinations deemed
necessary or advisable for the administration of the Plan.
c. EFFECT OF BOARD'S DECISION. All decisions,
determinations and interpretations of the Board shall be final and
binding on all Optionees and any other permissible holders of any
Options granted under the Plan.
5. ELIGIBILITY.
a. PERSONS ELIGIBLE. Options may be granted to any
person selected by the Board. Incentive Stock Options may be granted
only to Employees. An Employee, who is also a director of the
Company, its Parent or a Subsidiary, shall be treated as an Employee
for purposes of this Section 5. An Employee or other person who has
been granted an Option may, if he is otherwise eligible, be granted an
additional Option or Options.
b. NO EFFECT ON RELATIONSHIP. The Plan shall not confer
upon any Optionee any right with respect to continuation of employment
or other relationship with the Company nor shall it interfere in any
way with his right or the Company's right to terminate his employment
or other relationship at any time.
6. TERM OF PLAN. The Plan became effective on May 21, 1998. It
shall continue in effect until May 20, 2008, unless sooner terminated under
Section 13 of the Plan.
7. TERM OF OPTION. The term of each Option shall be 10 years
from the date of grant thereof or such shorter term as may be provided in the
Stock Option Agreement. However, in the case of an Option granted to an
Optionee who, at the time the Option is
5
<PAGE> 33
granted, owns stock representing more than 10% of the total combined voting
power of all classes of stock of the Company or any Parent or Subsidiary, if
the Option is an Incentive Stock Option, the term of the Option shall be five
years from the date of grant thereof or such shorter time as may be provided in
the Stock Option Agreement.
8. EXERCISE PRICE AND CONSIDERATION.
a. EXERCISE PRICE. The per Share exercise price for the
Shares to be issued pursuant to exercise of an Option shall be such
price as is determined by the Board, but the per Share exercise price
under an Incentive Stock Option shall be subject to the following:
(i) If granted to an Employee who, at the time of
the grant of such Incentive Stock Option, owns stock
representing more than 10% of the voting power of all classes
of stock of the Company or any Parent or Subsidiary, the per
Share exercise price shall not be less than 110% of the fair
market value per Share on the date of grant.
(ii) If granted to any other Employee, the per
Share exercise price shall not be less than 100% of the fair
market value per Share on the date of grant.
b. DETERMINATION OF FAIR MARKET VALUE. The fair market
value per Share on the date of grant shall be determined as follows:
(i) If the Common Stock is listed on the New York
Stock Exchange, the American Stock Exchange or such other
securities exchange designated by the Board, or admitted to
unlisted trading privileges on any such exchange, or if the
Common Stock is quoted on a National Association of Securities
Dealers, Inc. system that reports closing prices, the fair
market value shall be the closing price of the Common Stock as
reported by such exchange or system on the day the fair market
value is to be determined, or if no such price is reported for
such day, then the determination of such closing price shall
be as of the last immediately preceding day on which the
closing price is so reported;
(ii) If the Common Stock is not so listed or
admitted to unlisted trading privileges or so quoted, the fair
market value shall be the average of the last reported highest
bid and the lowest asked prices quoted on the National
Association of Securities Dealers, Inc. Automated Quotations
System or, if not so quoted, then by the National Quotation
Bureau, Inc. on the day the fair market value is determined;
or
6
<PAGE> 34
(iii) If the Common Stock is not so listed or
admitted to unlisted trading privileges or so quoted, and bid
and asked prices are not reported, the fair market value shall
be determined in such reasonable manner as may be prescribed
by the Board.
c. CONSIDERATION AND METHOD OF PAYMENT. The
consideration to be paid for the Shares to be issued upon exercise of
an Option, including the method of payment, shall be determined by the
Board and may consist entirely of cash, check, other shares of Common
Stock having a fair market value on the date of exercise equal to the
aggregate exercise price of the Shares as to which said Option shall
be exercised, or any combination of such methods of payment, or such
other consideration and method of payment for the issuance of Shares
to the extent permitted under the Colorado Business Corporation Act.
9. EXERCISE OF OPTION.
a. PROCEDURE FOR EXERCISE; RIGHTS AS A SHAREHOLDER. Any
Option granted hereunder shall be exercisable at such times and under
such conditions as determined by the Board, including performance
criteria with respect to the Company and/or the Optionee, and as shall
be permissible under the terms of the Plan.
In the sole discretion of the Board, at the time of the grant
of an Option or subsequent thereto but prior to the exercise of an
Option, an Optionee may be provided with the right to exchange, in a
cashless transaction, all or part of the Option for Common Stock of
the Company on terms and conditions determined by the Board.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice
of such exercise has been given to the Company in accordance with the
terms of the Stock Option Agreement by the person entitled to exercise
the Option and full payment for the Shares with respect to which the
Option is exercised has been received by the Company. Full payment, as
authorized by the Board, may consist of a consideration and method of
payment allowable under Section 8(c) and this Section 9(a) of the
Plan. Until the issuance (as evidenced by the appropriate entry on the
books of the Company or of the duly authorized transfer agent of the
Company) of the stock certificate evidencing such Shares, no right to
vote or receive dividends or any other rights as a shareholder shall
exist with respect to the Optioned Stock, notwithstanding the exercise
of the Option. No adjustment will be made for a dividend or other
right for which the record date is prior to the date the stock
certificate is issued, except as provided in Section 11 of this Plan.
7
<PAGE> 35
Exercise of an Option in any manner shall result in a decrease
in the number of Shares which thereafter may be available, both for
purposes of the Plan and for sale under the Option, by the number of
Shares as to which the Option is exercised.
b. TERMINATION OF STATUS AS AN EMPLOYEE. In the case of
an Incentive Stock Option, if any Employee ceases to serve as an
Employee, he may, but only within such period of time not exceeding
three months as is determined by the Board at the time of grant of the
Option after the date he ceases to be an Employee of the Company,
exercise his Option to the extent that he was entitled to exercise it
at the date of such termination. To the extent that he was not
entitled to exercise the Option at the date of such termination, or if
he does not exercise such Option (which he was entitled to exercise)
within the time specified herein, the Option shall terminate.
c. DISABILITY OF OPTIONEE. In the case of an Incentive
Stock Option, notwithstanding the provisions of Section 9(b) above, in
the event an Employee is unable to continue his employment with the
Company as a result of his total and permanent disability (as defined
in Section 22(e)(3) of the Code), he may, but only within such period
of time not exceeding 12 months as is determined by the Board at the
time of grant of the Option from the date of termination, exercise his
Option to the extent he was entitled to exercise it at the date of
such termination. To the extent that he was not entitled to exercise
the Option at the date of termination, or if he does not exercise such
Option (which he was entitled to exercise) within the time specified
herein, the Option shall terminate.
d. DEATH OF OPTIONEE. In the case of an Incentive Stock
Option, in the event of the death of the Optionee:
(i) During the term of the Option if the Optionee
was at the time of his death an Employee and had been in
Continuous Status as an Employee or Consultant since the date
of grant of the Option, the Option may be exercised, at any
time within 12 months following the date of death, by the
Optionee's estate or by a person who acquired the right to
exercise the Option by bequest or inheritance, but only to the
extent that the right to exercise would have accrued had the
Optionee continued living and remained in Continuous Status as
an Employee 12 months after the date of death; or
(ii) Within such period of time not exceeding
three months as is determined by the Board at the time of
grant of the Option after the termination of Continuous Status
as an Employee, the Option may be exercised, at any time
within 12 months following the date of death, by the
Optionee's estate or by a person who acquired the right to
exercise the Option by bequest or
8
<PAGE> 36
inheritance, but only to the extent that the right to exercise
had accrued at the date of termination.
10. NONTRANSFERABILITY OF OPTIONS. Unless permitted by the Code,
in the case of an Incentive Stock Option, the Option may not be sold, pledged,
assigned, hypothecated, transferred, or disposed of in any manner other than by
will or by the laws of descent and distribution and may be exercised, during
the lifetime of the Optionee, only by the Optionee.
11. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION OR MERGER. Subject
to any required action by the shareholders of the Company, the number of Shares
covered by each outstanding Option, and the number of Shares which have been
authorized for issuance under the Plan but as to which no Options have yet been
granted or which have been returned to the Plan upon cancellation or expiration
of any Option, as well as the price per Share covered by each such outstanding
Option, shall be proportionately adjusted for any increase or decrease in the
number of issued Shares resulting from a stock split, reverse stock split,
stock dividend, combination or reclassification of the Common Stock, or any
other increase or decrease in the number of issued shares of Common Stock
effected without receipt of consideration by the Company; provided, however,
that conversion of any convertible securities of the Company shall not be
deemed to have been "effected without receipt of consideration." Such
adjustment shall be made by the Board, whose determination in that respect
shall be final, binding and conclusive. Except as expressly provided herein, no
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of Shares
subject to an Option.
In the event of the proposed dissolution or liquidation of the
Company, the Option will terminate immediately prior to the consummation of
such proposed action, unless otherwise provided by the Board. The Board may, in
the exercise of its sole discretion in such instances, declare that any Option
shall terminate as of a date fixed by the Board and give each Optionee the
right to exercise his Option as to all or any part of the Optioned Stock,
including Shares as to which the Option would not otherwise be exercisable. In
the event of the proposed sale of all or substan- tially all of the assets of
the Company, or the merger of the Company with or into another corporation in a
transaction in which the Company is not the survivor, the Option shall be
assumed or an equivalent option shall be substituted by such successor
corporation or a parent or subsidiary of such successor corporation, unless the
Board determines, in the exercise of its sole discretion and in lieu of such
assumption or substitution, that the Optionee shall have the right to exercise
the Option as to all of the Optioned Stock, including Shares as to which the
Option would not otherwise be exercisable. If the Board makes an Option fully
exercisable in lieu of assumption or substitution in the event of such a merger
or sale of assets, the Board shall notify the Optionee that the Option shall be
fully exercisable for a period of 30 days from the date of such notice, and the
Option will terminate upon the expiration of such period.
9
<PAGE> 37
12. TIME OF GRANTING OPTIONS. The date of grant of an Option
shall, for all purposes, be the date on which the Board makes the determination
granting such Option. Notice of the determination shall be given to each
Employee or other person to whom an Option is so granted within a reasonable
time after the date of such grant. Within a reasonable time after the date of
the grant of an Option, the Company shall enter into and deliver to each
Employee or other person granted such Option a written Stock Option Agreement
as provided in Sections 2(r) and 16 hereof, setting forth the terms and
conditions of such Option and separately identifying the portion of the Option
which is an Incentive Stock Option and/or the portion of such Option which is a
Nonstatutory Stock Option.
13. AMENDMENT AND TERMINATION OF THE PLAN.
a. AMENDMENT AND TERMINATION. The Board may amend or
terminate the Plan from time to time in such respects as the Board may
deem advisable; provided that, the following revisions or amendments
shall require approval of the shareholders of the Company in the
manner described in Section 17 of the Plan:
(i) An increase in the number of Shares subject
to the Plan above 3,000,000 Shares, other than in connection
with an adjustment under Section 11 of the Plan;
(ii) Any change in the designation of the class of
Employees eligible to be granted Incentive Stock Options; or
(iii) Any material amendment under the Plan that
would have to be approved by the shareholders of the Company
for the Board to continue to be able to grant Incentive Stock
Options under the Plan.
b. EFFECT OF AMENDMENT OR TERMINATION. Any such
amendment or termination of the Plan shall not affect Options already
granted and such Options shall remain in full force and effect as if
the Plan had not been amended or terminated, unless mutually agreed
otherwise between the Optionee and the Board, which agreement must be
in writing and signed by the Optionee and the Company.
14. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be
issued pursuant to the exercise of an Option unless the exercise of such Option
and the issuance and delivery of such Shares pursuant thereto shall comply with
all relevant provisions of law, including, without limitation, the Securities
Act of 1933, as amended, the Securities Exchange Act of 1934, as amended, the
rules and regulations promulgated thereunder, applicable state securities laws,
and the requirements of any stock exchange upon which the Shares may then be
listed, and shall be further subject to the approval of legal counsel for the
Company with respect to such compliance.
10
<PAGE> 38
As a condition to the existence of an Option, the Company may require
the person exercising such Option to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares and such other
representations and warranties which in the opinion of legal counsel for the
Company, are necessary or appropriate to establish an exemption from the
registration requirements under applicable federal and state securities laws
with respect to the acquisition of such Shares.
15. RESERVATION OF SHARES. The Company, during the term of this
Plan, will at all times reserve and keep available such number of Shares as
shall be sufficient to satisfy the requirements of the Plan. Inability of the
Company to obtain authority from any regulatory body having jurisdiction, which
authority is deemed by the Company's legal counsel to be necessary for the
lawful issuance and sale of any Share hereunder, shall relieve the Company of
any liability relating to the failure to issue or sell such Shares as to which
such requisite authority shall not have been obtained.
16. STOCK OPTION AGREEMENT. Each Option granted to an Employee or
other persons shall be evidenced by a written Stock Option Agreement in such
form as the Board shall approve.
17. SHAREHOLDER APPROVAL. Continuance of the Plan shall be
subject to approval by the shareholders of the Company on or before May 20,
1999. Such shareholder approval and any shareholder approval required under
Section 13 of the Plan, may be obtained at a duly held shareholders meeting if
the votes cast in favor of the approval exceed the votes cast opposing the
approval, or by unanimous written consent of the shareholders in accordance
with the provisions of the Colorado Business Corporation Act.
18. INFORMATION TO OPTIONEES. The Company shall provide to each
Optionee, during the period for which such Optionee has one or more Options
outstanding, copies of all annual reports and other information which are
provided to all shareholders of the Company. The Company shall not be required
to provide such information if the issuance of Options under the Plan is
limited to key employees whose duties in connection with the Company assure
their access to equivalent information.
19. GENDER. As used herein, the masculine, feminine and neuter
genders shall be deemed to include the others in all cases where they would so
apply.
20. CHOICE OF LAW. ALL QUESTIONS CONCERNING THE CONSTRUCTION,
VALIDITY AND INTERPRETATION OF THIS PLAN AND THE INSTRUMENTS EVIDENCING OPTIONS
WILL BE GOVERNED BY THE
11
<PAGE> 39
INTERNAL LAW, AND NOT THE LAW OF CONFLICTS, OF THE STATE OF COLORADO.
IN WITNESS WHEREOF, the Company has caused its duly authorized officer
to execute this Plan effective as of May 21, 1998.
CHAPARRAL RESOURCES, INC.,
a Colorado corporation
By:
-------------------------------------
Howard Karren, President
12
<PAGE> 40
- --------------------------------------------------------------------------------
PROXY
CHAPARRAL RESOURCES, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 26, 1998
The undersigned hereby constitutes and appoints Alan D. Berlin, David
A. Dahl and Howard Karren, 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 in the Vanderbilt Room of the Marriott Eastside, 525
Lexington at 49th Street, New York, New York 10017, on Friday, June 26, 1998, at
9:00 a.m. Eastern 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.
David A. Dahl John G. McMillian
Ted Collins, Jr. J. Michael Muckleroy
Richard L. Grant Arlo G. Sorensen
Howard Karren
2. Adopt the 1998 Incentive and Nonstatutory Stock Option Plan.
[ ] For [ ] Against [ ] Abstain
3. Ratify the selection by the Board of Directors of Ernst & Young LLP as
independent auditors of the Company for the fiscal year ended December 31,
1998.
[ ] 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 1998 INCENTIVE AND NONSTATUTORY STOCK
OPTION PLAN AND FOR RATIFICATION OF THE SELECTION OF ERNST & YOUNG LLP.
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.
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:
, 1998
----------------------------
------------------------------------
------------------------------------
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.
- --------------------------------------------------------------------------------
<PAGE> 41
- --------------------------------------------------------------------------------
PROXY CHAPARRAL RESOURCES, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD JUNE 26, 1998
The undersigned hereby constitutes and appoints Alan D. Berlin, David A. Dahl
and Howard Karren, 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 in the Vanderbilt Room of the Marriott Eastside, 525 Lexington at 49th
Street, New York, New York 10017, on Friday, June 26, 1998, at 9:00 a.m. Eastern
Time, and at all adjournments thereof for the following purposes:
1. Election of Directors.
<TABLE>
<S> <C> <C>
[ ] FOR THE DIRECTOR NOMINEES LISTED BELOW (EXCEPT AS MARKED TO [ ]
THE CONTRARY BELOW)
<CAPTION>
<S> <C>
[ ] WITHHOLD AUTHORITY TO VOTE FOR ALL NOMINEES LISTED BELOW
</TABLE>
INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE,
STRIKE A LINE THROUGH THE NOMINEE'S NAME IN THE LIST BELOW.
<TABLE>
<S> <C> <C>
David A. Dahl Howard Karren J. Michael Muckleroy
Ted Collins, Jr. John G. McMillian Arlo G. Sorensen
Richard L. Grant
</TABLE>
2. Adopt the 1998 Incentive and Nonstatutory Stock Option Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. Ratify the selection by the Board of Directors of Ernst & Young LLP as
independent auditors of the Company for the fiscal year ended December 31,
1998.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. In their discretion, the Proxies are authorized to vote upon such other
business as lawfully may come before the Meeting.
- --------------------------------------------------------------------------------
<PAGE> 42
- --------------------------------------------------------------------------------
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
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 1998 INCENTIVE AND NONSTATUTORY STOCK
OPTION PLAN AND FOR RATIFICATION OF THE SELECTION OF ERNST & YOUNG LLP.
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.
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:
--------------------------------,
1998
--------------------------------
--------------------------------
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.
- --------------------------------------------------------------------------------
