AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON April 5, 2000
REGISTRATION NO. 333-_____
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
.
CHAPARRAL RESOURCES, INC.
----------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
Delaware 84-0630863
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
16945 Northchase Drive, Suite 1620
Houston, Texas 77060
Telephone: (281) 877-7100
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(Address, Including Zip Code, and Telephone Number, Including Area Code,
of Registrant's Principal Executive Offices)
Mr. Michael B. Young
16945 Northchase Drive, Suite 1620
Houston, Texas 77060
Telephone: (281) 877-7100
--------------------------------------------------------
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)
Copies to:
Mark S. Croft, Esq.
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
1900 Pennzoil Place - South Tower
711 Louisiana Street
Houston, Texas 77002
Telephone: (713) 220-5800
Approximate date of commencement of proposed sale to public: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, please check the following box. |_|
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. |_| ________________
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, please check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. |_| ________________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_|
CALCULATION OF REGISTRATION FEE
================================================================================
Title of Each Class Of Proposed Maximum Amount Of
Securities To Be Registered Aggregate Registration Fee
Offering Price(2)
- --------------------------------------------------------------------------------
Subscription Rights(1) -- --
Common Stock, par value
$.0001 per share $9,858,000 $2,603
================================================================================
(1) Evidencing the right to subscribe for shares of Common Stock as described
below. Pursuant to Rule 457(g), no separate registration fee is required
for the rights because the rights are being registered in the same
registration statement as the Common Stock underlying the rights.
(2) Calculated in accordance with Rule 457(o) based on the estimated maximum
aggregate offering price of the Common Stock.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
<PAGE>
Prospectus
5,300,000 SHARES OF COMMON STOCK
CHAPARRAL
CHAPARRAL RESOURCES, INC.
Chaparral Resources, Inc. is offering 5,300,000 shares of common stock to
our stockholders who owned shares of our common stock as of the close of
business on _________, 2000, the record date.
o You will receive, at no cost, one right for each share of our common
stock you own on the record date.
o Each right entitles you to subscribe for and purchase .6346 of a share
of our common stock.
o The subscription price for your right is $1.18 per right, which is
equal to $1.86 per share of our common stock.
o We will not issue fractional shares of common stock, and we will not
pay cash in place of fractional shares.
o The rights are exercisable beginning on the date of this prospectus
and continuing until 5:00 p.m., Central Daylight Savings Time, on June
16, 2000, the expiration date.
o If you want to participate in this offering, we recommend that you
submit your subscription documents to the subscription agent before
the expiration date or to your broker or bank at least 10 days before
the expiration date.
o All subscriptions will be held in escrow by our subscription agent,
American Securities Transfer & Trust, Inc., until the expiration date.
o Your rights are not transferable.
o The rights will not be listed for trading on any stock exchange.
o We reserve the right to cancel this offering at any time before the
expiration date.
There is no minimum number of shares that we must sell in order to complete
this offering. Stockholders who do not participate in this offering will
continue to own the same number of shares, but will own a smaller percentage of
the total shares outstanding to the extent that other stockholders participate
in this offering.
Our common stock is quoted for trading on The Nasdaq SmallCap Market under
the trading symbol "CHAR." The closing price of our common stock on March 31,
2000 was $9.50 per share.
Per Right Total
--------- -----
Proceeds to Chaparral ........................ $1.18 $9,858,000
The expenses of this offering that we will pay, estimated at $485,000, have
not been deducted from the proceeds to Chaparral.
See "Risk Factors" on page 8 for a discussion of factors you should
consider in connection with this offering.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities nor passed upon the
adequacy of this prospectus. Any representation to the contrary is a criminal
offense.
The date of this prospectus is _____________, 2000.
<PAGE>
Table of Contents
Page
----
Questions and Answers About This Offering.....................................1
Prospectus Summary............................................................3
Risk Factors..................................................................8
Special Note Regarding Forward-Looking Statements............................18
Where You Can Find More Information..........................................18
The Offering.................................................................20
Use of Proceeds..............................................................23
Opinion of Financial Advisor.................................................23
Federal Income Tax Consequences..............................................26
Disclosure of Commission Position on
Indemnification for Securities Act Liabilities.............................27
Legal Matters................................................................27
Fairness Opinion of Financial Advisor...................................Annex A
You should rely only on the information contained is this prospectus or to
which we have referred you. We have not authorized anyone to provide you with
different information. This document may be used only where it is legal to sell
these securities. The information in this prospectus is only accurate on the
date of this prospectus.
In this prospectus, all references to "Chaparral," "we," "us," and "our"
refer to Chaparral Resources, Inc., its subsidiaries, and its 50% interest in
Closed Type JSC Karakudukmunay, unless indicated otherwise.
i
<PAGE>
Questions and Answers About This Offering
What is a rights offering?
A rights offering is a distribution of rights to stockholders with a
subscription privilege.
What is the subscription privilege of the rights?
The subscription privilege of the rights entitle you to subscribe for and
purchase shares of our common stock offered in this offering upon payment of the
subscription price. Each right entitles you to subscribe for and purchase .6346
of a share of our common stock.
What is the subscription price?
The subscription price is $1.18 per right, which is equal to $1.86 per
share of our common stock.
To whom will the rights be distributed?
We are distributing the rights, on a pro rata basis, to our stockholders of
record as of ________________, 2000. We are conducting this offering to raise
capital only from our existing stockholders.
Why are we conducting this offering?
We entered into a $24,000,000 loan agreement (the "Loan") with Shell
Capital Limited ("Shell Capital") and other lenders. The Loan requires that we
raise at least $6,000,000 of new equity. This offering will enable us to satisfy
the requirements of the Loan, and our stockholders will have the opportunity to
maintain their percentage of ownership of Chaparral.
Am I required to subscribe in this offering?
No. If you do not subscribe fully, however, your percentage ownership
interest in our common stock will be reduced.
When can I exercise my right?
This offering will begin as of the date of this prospectus, and it will
expire at 5:00 p.m., Central Daylight Savings Time, on June 16, 2000, unless we
extend it. The subscription agent must actually receive all required
subscription documents and payments before the expiration time and date. After
that date and time, you will not be able to exercise your right and they will be
worthless.
Will I be charged a commission or fee if I exercise my right?
No. We will not charge you a brokerage commission or a fee for exercising
your rights. However, if you exercise your right through a broker, dealer or
nominee, you will be responsible for any fees charged by your broker, dealer or
nominee.
May I transfer my right if I do not want to purchase any shares?
No. The rights are not transferable. If you do not want to purchase
additional shares, you do not have to do anything, and your right will expire
worthless.
1
<PAGE>
If I exercise my right, may I cancel my exercise or change my decision?
No. All exercises of rights are irrevocable, unless the conditions to
completion of this rights offering are not satisfied or unless they are waived
before the subscription period ends. In that case, we may extend the
subscription period and you will be able to change your decision.
If this offering is not completed for any reason, will my subscription payment
be refunded to me?
Yes. The subscription agent will hold all funds it receives in escrow until
this offering is completed or terminated. If this offering is not completed, the
subscription agent will promptly return all subscription payments, without
interest.
What should I do if I have other questions about this offering?
If you have questions or need assistance, please contact American
Securities Transfer & Trust, Inc., our information and subscription agent for
this offering, by mail or telephone at:
American Securities Transfer & Trust, Inc.
12039 West Alameda Parkway, Suite Z-2
Lakewood, Colorado 80228
(303) 986-5400.
2
<PAGE>
Prospectus Summary
This entire summary is qualified by the more detailed information and
financial statements and related notes incorporated by reference into, or
appearing elsewhere in, this prospectus.
Chaparral Resources, Inc.
Our Business
Chaparral Resources, Inc. is an independent oil and gas exploration and
production company. Our strategy is to acquire and develop foreign oil and gas
projects in emerging markets, specifically targeting fields with previously
discovered reserves, which have never been commercially produced or could be
materially enhanced by our management team and technical expertise.
Through a subsidiary, we own a 50% interest in Closed Type JSC
Karakudukmunay ("KKM"), a Kazakh joint stock company that holds a governmental
license (the "License") to develop the Karakuduk Oil Field (the "Karakuduk
Field"). The Karakuduk Field is a 16,900-acre oil field in the Republic of
Kazakhstan. The government of the former Soviet Union discovered the Karakuduk
Field in 1972 and drilled 22 exploratory and development wells, none of which
were produced commercially. KKM has re-established oil production from some of
the existing wells previously drilled in the Karakuduk Field, as well as
initiating its own drilling program. KKM began commercial oil production from
the Karakuduk Field as of November 1, 1999. Our business strategy is to fully
develop and commercially produce the oil reserves in the Karakuduk Field.
Currently, the Karakuduk Field is our only oil field. We are in the process
of identifying and evaluating other oil fields for possible acquisition and
development.
Corporate Information
Our address is 16945 Northchase Drive, Suite 1620, Houston, Texas 77060,
and our telephone number is (281) 877-7100.
Recent Developments
We recently issued $13,339,769 aggregate principal amount of our 8%
Non-Negotiable Convertible Subordinated Promissory Notes, or the Notes. The
proceeds of these Notes were used to provide interim funds pending the
consummation of our Loan and to repay or otherwise retire our existing term
debt. The Notes, together with accrued but unpaid interest through March 31,
2000, were converted into approximately 7,370,936 shares of common stock at a
conversion price of $1.86 per share. The newly issued stock increased the amount
of our outstanding common stock by approximately 751%. Since the Notes converted
before the record date for this offering, the stockholders that acquired the
shares issued pursuant to the conversion of the Notes are eligible to
participate in this rights offering.
3
<PAGE>
The Offering
Securities offered..................... Chaparral is offering 5,300,000
shares of its common stock to be
issued upon exercise of the rights.
Nasdaq symbol.......................... Our common stock is traded on The
Nasdaq SmallCap Market under the
symbol "CHAR."
Shares of common stock outstanding
prior to this offering ............... 8,351,417 outstanding on March 31,
2000.
Shares of common stock outstanding
after this offering .................. 13,651,417, if this offering is
fully subscribed and is completed.
The rights............................. The rights have a subscription
privilege that entitles the holder
to purchase up to a pro rata
portion of this offering. Each
right will entitle the holder to
acquire an additional .6346 of a
share of common stock for each
share of common stock held of
record on the record date for this
offering, rounded down to the
nearest whole number of shares.
Transferability of rights.............. The rights are not transferable.
Subscription price..................... $1.18 per right, which is equal to
$1.86 per share of our common
stock, payable in cash. Payment by
personal check must clear payment
on or before the expiration date
and may require five or more
additional business days in which
to clear payment. Chaparral
recommends that stockholders pay
the subscription price by check
drawn on a U. S. Bank or U.S.
postal money order.
Basis for subscription price........... Our Board of Directors determined
the subscription price.
Expiration date and time............... The rights expire at 5:00 p.m.,
Central Daylight Savings Time, on
June 16, 2000, unless we extend it.
Subscription agent..................... American Securities Transfer &
Trust, Inc., or AST.
Information agent...................... AST.
4
<PAGE>
Exercise of rights..................... You may exercise your right by
forwarding the attached
subscription documents, with
payment in full of the aggregate
subscription price, to the
subscription agent prior to the
expiration date at either of the
following addresses:
By mail: American Securities
Transfer & Trust, Inc.
P.O. Box 1596
Denver, Colorado 80201-1596
By hand or overnight
courier:
American Securities
Transfer & Trust, Inc.
12039 West Alameda
Parkway, Suite Z-2
Lakewood, Colorado 80228
You may deliver the documents and
payments by mail or commercial
courier. If regular mail is used
for this purpose, we recommend
that you use insured, registered mail.
Payment adjustments.................... If you send a payment that is
insufficient to purchase the
number of shares requested, or if
the number of shares requested is
not specified in the forms, the
payment received will be applied
to exercise the subscription
privilege to the extent of the
payment, up to your pro rata share
of the offering. If the payment
exceeds the subscription price for
the full exercise of the
subscription privilege, the excess
payment will be refunded as soon
as received under this offering.
Nominee accounts....................... If you wish to purchase shares in
this offering and your shares are
held by a securities broker, bank,
trust company or other nominee,
you should promptly contact those
record holders and request them to
exercise rights on your behalf.
You may also contact the nominee
and request the nominee to send
the subscription documents to you.
You are responsible for the
payment of any fees that brokers
or other persons holding your
shares may charge.
5
<PAGE>
No revocation.......................... If you exercise your right, you
are not allowed to revoke or
change the exercise, or to receive
a refund of monies paid.
Refund of subscription price........... If this offering is not completed,
then AST will refund, to those
persons who subscribed for shares
in this offering, all payments,
without interest, received from
those subscribers.
Opinion of financial advisor........... Our financial advisor has
delivered both an oral and written
opinion that this offering is fair
to our public stockholders from a
financial point of view.
No board or committee recommendation .. Neither our Board of Directors,
any committee of the Board of
Directors nor our financial
advisor makes any recommendation
to stockholders regarding the
exercise of rights under this
offering.
Federal income tax consequences ....... You will not recognize taxable
income for federal income tax
purposes upon receipt of your
rights, nor will you recognize a
gain or loss upon the lapse of the
rights without exercise. However,
if you sell the stock you acquire
pursuant to this offering, you
will recognize taxable income
equal to the excess of the amount
realized over your basis in those
shares.
Stock certificates..................... We will deliver stock certificates
representing the common stock
purchased under the rights as soon
as possible after the expiration
date.
Important Dates and Times to Remember
Record date _______________________, 2000
Expiration date and time June 16, 2000 at 5:00 p.m.,
Central Daylight Savings Time
6
<PAGE>
Summary Financial Data
We are providing the following selected historical information to aid you
in your analysis of the financial aspects of this offering. This information is
only a summary and you should read it in conjunction with our historical
financial statements (and related notes) contained in our Annual Report on Form
10-K that has been filed with the Securities and Exchange Commission ("SEC" or
the "Commission"). See "Where You Can Find More Information" on page 18.
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------
1997 1998 1999
Statement of Operations Data ------------ ------------ ------------
<S> <C> <C> <C>
Oil and gas sales ......................................... $ -- $ -- $ --
Production costs .......................................... -- -- --
Depreciation and depletion ................................ 7,000 14,000 31,000
General and administrative ................................ 1,654,000 3,017,000 2,392,000
------------ ------------ ------------
Loss from operations ...................................... (1,661,000) (3,031,000) (2,423,000)
Other expense ............................................. (728,000) (999,000) (2,740,000)
------------ ------------ ------------
Loss before extraordinary items ........................... (2,389,000) (4,030,000) (5,163,000)
Extraordinary loss ........................................ (214,000) (236,000) --
------------ ------------ ------------
Net loss .................................................. $ (2,603,000) $ (4,266,000) $ (5,163,000)
============ ============ ============
Loss per share - basic and diluted ........................ $ (3.76) $ (4.75) $ (5.28)
Weighted average shares outstanding - basic and diluted ... 692,691 898,477 978,391
As of December 31, 1999
------------------------------------------------------
Historical As Adjusted (1) As Adjusted (2)
---------- --------------- ---------------
Balance Sheet Data
Cash and cash equivalents ................................. $ 23,000 $ 3,323,000 $ 12,696,000
Restricted cash ........................................... 578,000 578,000 578,000
Working capital ........................................... (2,941,000) 485,000 9,858,000
Oil and gas properties and investments - full
cost method - Republic of Kazakhstan
(Karakuduk Field) - subject to depletion ............ 38,151,000 38,151,000 38,151,000
Total assets .............................................. 41,303,000 44,603,000 53,976,000
Stockholders' equity ...................................... 22,851,000 35,853,000 45,226,000
</TABLE>
- ----------
(1) As adjusted to reflect the conversion of the Notes plus accrued but unpaid
interest thereon as of December 31, 1999, plus conversion of $3,300,000 in
additional Notes issued in January and February 2000.
(2) As adjusted to reflect (i) the conversion of the Notes plus accrued but
unpaid interest thereon as of December 31, 1999, plus conversion of
$3,300,000 in additional Notes issued in January and February 2000 and (ii)
the net proceeds from this offering.
7
<PAGE>
Risk Factors
An investment in our common stock is speculative and involves a high degree
of risk. Before exercising your rights, you should carefully consider the
following factors, which may affect our current operations and future prospects,
in addition to the other information contained in this prospectus. You should
exercise your right only if you are sophisticated in financial matters and
business investments.
Risks Related to This Offering
- ------------------------------
Recent issuances of our common stock may have diluted your ownership percentage,
and if you do not exercise your right, your percentage of ownership of Chaparral
could further decrease.
We issued 7,370,936 shares of common stock upon conversion of the Notes,
together with accrued but unpaid interest through March 31, 2000. This newly
issued stock increased the amount of outstanding common stock by approximately
751%. These new shares of common stock have significantly diluted both your
ownership interest and may dilute the per share value of those shares. Because
the number of outstanding common stock shares has increased, your ownership
interest in Chaparral has decreased.
Since the Notes have already been converted into common stock, the holders
of that stock will be entitled to participate in this offering and, therefore,
maintain their respective ownership interests in Chaparral. In order to maintain
your current ownership interest, you must exercise your right to purchase your
pro rata portion of this offering. If you choose not to exercise your right,
your relative ownership interest in Chaparral will be diluted by the issuance of
shares of common stock to those stockholders who exercise their rights.
The subscription price was determined by our Board of Directors and bears no
relationship to the value of our assets, financial condition or other
established criteria for value.
Our Board of Directors determined the subscription price. The subscription
price does not necessarily bear any relationship to the book value of our
assets, past operations, cash flow, earnings, financial condition or any other
established criteria for value and should not be considered an indication of our
underlying value. If you purchase shares of common stock, and their true value
is less than the subscription price, then you will have paid for the shares more
than they are worth, and you may be unable to sell them at a price that is equal
to or above what you paid.
You cannot revoke your exercise of your right for any reason.
Once you exercise your right and submit the subscription documents to the
subscription agent, you may not revoke the exercise for any reason.
After you exercise your right, the trading price of our common stock may
decline, and the value of your investment may be reduced.
Our common stock may trade at prices below the subscription price at any
time after the date of this prospectus. The public trading market price of our
common stock may decline before the rights expire. Therefore, if you exercise
your right and the public trading market price of our common stock decreases
below $1.86, then you will have committed to buy shares of common stock at a
price above the prevailing market price. Moreover, you may be unable to sell
your shares of common stock at a price equal to or greater than the subscription
price because it may be impossible to find a buyer who is willing to purchase
shares at a price that is greater than their market price.
8
<PAGE>
You cannot sell any shares of common stock that you purchase in this offering
until you receive a share certificate.
After this offering is completed, we will deliver certificates representing
shares of our common stock to all stockholders who purchase shares in this
offering. We will deliver the certificates as soon as is practicable after
expiration of this offering. However, until you receive a certificate, you will
not be able to sell the shares of common stock that you purchase. If the value
of our stock declines after you exercise your right, but before you receive your
certificate, you may suffer losses as you wait to receive your certificate and
to sell your shares.
Risks Related to Our Business
- -----------------------------
We have sustained significant operating losses in recent years, and we may fail
as an operating company.
We have incurred significant operating losses for each of our last five
fiscal years. We had an accumulated deficit of $24,983,000 as of December 31,
1999.
Currently, there is substantial doubt about our ability to continue as a
going concern. Our auditors have included a "going concern" explanatory
paragraph in their report on our consolidated financial statements for the year
ended December 31, 1999.
We are substantially leveraged which limits our ability to raise additional
financing.
Our Loan with Shell Capital subjects us to a significant number of
restrictions, including various representations and warranties, positive and
negative covenants, and events of default. These restrictions include, but are
not limited to, the following:
o Pledge of Assets. We pledged substantially all of our assets to Shell
Capital, including our interest in the Karakuduk Field. If an event of
default occurs under the Loan and is not timely cured, Shell Capital
is entitled to certain remedies, including the right to accelerate
repayment of the loan and obtain our rights to the Karakuduk Field.
o Business Alteration. We cannot engage in any other business except the
ownership of KKM and the operation of the Karakuduk Field without the
prior consent of Shell Capital.
o Change in Control. We cannot enter into any transaction whereby a
"group" as defined in the Securities Exchange Act of 1934 (the
"Exchange Act") acquires or otherwise gains control of 20% or more of
our outstanding shares of voting stock. Certain transactions are
exempt from this restriction, including, the conversion of our Notes,
this offering, conversion of our outstanding Series A preferred stock,
the exercise of a warrant for Shell Capital to purchase up to 15% of
our outstanding common stock (the "Shell Warrant"), and a grant of
non-statutory or statutory options to purchase up to 15% of our
outstanding common stock to our officers, directors, employees, and
consultants under a proposed long-term incentive compensation plan to
be adopted during the fiscal year 2000 (the "2000 Long-term Incentive
Plan"). The Series A preferred stock, the Shell Warrant and the 2000
Long-term Incentive Plan contain certain anti-dilution provisions.
Furthermore, Allen & Company Incorporated ("Allen") and Whittier
Ventures, LLC ("Whittier"), have agreed not to sell or otherwise
transfer any of our common stock on or before June 30, 2000, and at no
time let their ownership in us fall below 20%, unless otherwise agreed
with Shell Capital.
9
<PAGE>
o Charged Accounts. We must retain all cash receipts from oil sales,
proceeds from the Loan, and any other funds raised through approved
equity or debt offerings in pledged bank accounts (the "Charged
Accounts"). The Charged Accounts are controlled by Shell Capital. We
retain title to the Charged Accounts, but Shell Capital directs all
cash movements at our request. On a monthly basis, we request
transfers of funds from the Charged Accounts into certain operating
accounts controlled directly by us or by KKM, respectively.
o Cash Expenditures. We must expend funds in accordance with capital and
operating budgets approved by Shell Capital on an annual basis, unless
otherwise approved by Shell Capital.
o Project Completion. KKM must reach project completion on or before
September 30, 2001. Project completion occurs when various conditions
are met by us and KKM, including, but not limited to: (i) receipt by
Shell Capital of an independent engineer's reserve report evidencing
proven developed reserves of at least 30 million barrels in the
Karakuduk Field, (ii) sustaining average production of 13,000 barrels
of oil per day from the Karakuduk Field for a period of 45 consecutive
days, (iii) sustaining water injection at an average rate of 15,000
barrels per day over 45 consecutive days, (iv) injection of lift gas
into one well over a 24 hour period, and (v) various other financial
and technical milestones ("Project Completion").
o Share Capital. We cannot purchase, issue, or redeem any of our share
capital without the prior approval of Shell Capital.
o Future Indebtedness. We cannot borrow money, other than trade debt,
without the approval of Shell Capital.
o Sale of Significant Assets. We cannot dispose of any significant
assets, including capital stock in our subsidiaries, without the
approval of Shell Capital.
o Leases. Without Shell Capital's approval, KKM cannot enter into any
lease or license arrangement with annual payments in excess of
$1,000,000 and we will not enter into any lease or license arrangement
with annual payments in excess of $200,000.
o Dividends. KKM cannot pay dividends prior to Project Completion, and
then only subject to certain restrictions. We cannot pay any dividends
without Shell Capital's consent.
o Overseas Private Investment Corporation ("OPIC") Insurance. We must
maintain OPIC political risk insurance throughout the duration of the
Loan.
o Transportation Risk Insurance. In March 2000, we paid Shell Capital
for a beneficial interest in Shell Capital's policy for transportation
risk insurance, which covers certain circumstances whereby KKM would
be unable to export crude oil production outside of the Republic of
Kazakhstan through the existing pipeline routes.
o Hedge Agreement. On February 11, 2000, the Company purchased for
$4,000,000 put contracts to sell 1,562,250 barrels of North Sea Brent
crude (the "Hedge Agreement"). We will not cancel or terminate the
hedging contracts entered into as part of the Loan or enter into any
other hedging transaction without Shell Capital's consent.
10
<PAGE>
The terms and conditions and related financing costs of the Loan are
significant. A substantial portion of our future cash flow from operations will
be required for debt service and may not be available for other purposes. Our
ability to obtain additional debt or equity financing in the future for working
capital, capital expenditures, or acquisitions is also restricted, as well as
our ability to acquire or dispose of significant assets or investments. These
restrictions may make us more vulnerable and less able to react to adverse
economic conditions. Our failure to meet the terms of the Loan could result
in an event of default and the loss of our investment in the Karakuduk Field.
As of March 31, 2000, we have borrowed $13,800,000 under the Loan. The Loan
proceeds were utilized to pay $2,225,000 in outstanding debt issuance costs,
$4,000,000 for the Hedge Agreement, $750,000 for transportation risk insurance,
$157,500 for the initial OPIC insurance premium, $6,000,000 for KKM's
operations, and $667,500 for our corporate overhead.
If we are unable to fulfill the requirements to maintain our License to operate
in the Karakuduk Field, we will be unable to continue our operations in the
Karakuduk Field.
KKM's License allows KKM to explore and develop the Karakuduk Field. The
License establishes minimum work thresholds and capital spending requirements
that KKM must meet in order to maintain its interest in the Karakuduk Field.
As of March 31, 2000, KKM is required to drill 6 additional new wells and
invest an additional $13,500,000 in the development of the Karakuduk Field by
June 30, 2000, unless we obtain waivers or deferrals from the licensing
authority. We are required to provide funds necessary for KKM to enable it to
satisfy the work plan and maintain our interest in the Karakuduk Field. If
necessary, KKM will request a deferral of these financial commitments; however,
there is no guarantee that the licensing authority will grant a deferral.
KKM's failure to satisfy the conditions under the License could cause the
licensing authority to cancel the License. If the License is cancelled, we will
be unable to develop and sell oil produced from the Karakuduk Field, and we will
have no other source of revenues.
Our efforts to develop, produce, and market oil reserves may be unsuccessful.
The development of oil reserves is a high risk endeavor and is frequently
marked by unprofitable efforts, such as:
o drilling unproductive wells;
o drilling productive wells which do not produce sufficient amounts of
oil to return a profit; and
o production of developed oil reserves which cannot be marketed or
cannot be sold for adequate market prices.
We cannot guarantee that we will be able to successfully develop, produce,
and market the oil reserves underlying the Karakuduk Field or elsewhere. The
development of oil reserves inherently involves a high degree of risk, even
11
<PAGE>
though the reserves are proven. Our risks are increased because our activities
are concentrated in areas where political or other unknown developments could
adversely affect commercial development of the reserves. Costs necessary to
acquire, explore, and develop oil reserves are substantial. We cannot guarantee
that we will recover the costs incurred to acquire and develop the Karakuduk
Field and if the costs incurred exceed our revenues, then our operations will
not be profitable. If we fail to generate sufficient cash flow from operations
to repay the Loan, we may lose our entire investment in the Karakuduk Field
pledged as collateral to Shell Capital.
We may be unable to compete effectively with larger, well-capitalized or more
experienced companies in the oil & gas industry.
We compete in all areas of the exploration and production segment of the
oil and gas industry with a number of other companies. These companies include
large multinational oil and gas companies and other independent operators with
greater financial resources and more experience than us. We do not hold a
significant competitive position in the oil industry. Within Kazakhstan alone,
we compete both with major oil and gas companies and with independent producers
for, among other things, rights to develop oil and gas properties, access to
limited pipeline capacity, procurement of available materials and resources, and
hiring qualified local and international personnel.
The oil market is unstable.
The current market for oil is characterized by instability. This
instability has caused fluctuations in world oil prices in recent years and
there can be no assurance of any price stability in the future. The production
and sale of oil from the Karakuduk Field may not be commercially feasible under
market conditions prevailing in the future. The price we receive for our oil may
not be sufficient to generate revenues in excess of our costs of production or
sufficient cash flow to service our debt obligations. If so, we will be unable
to generate profits and could default on our Loan.
We are uncertain about the prices at which we will be able to sell oil that
we produce. Our estimated future net revenue from oil sales is highly dependent
on the price of oil, as well as the amount of oil produced. The energy market
makes it difficult to estimate future prices of oil. Various factors beyond our
control affect these prices. These factors include:
o domestic and worldwide supplies of oil;
o the ability of the members of the Organization of Petroleum Exporting
Countries, or OPEC, to agree to and maintain oil price and production
controls;
o political instability or armed conflict in oil-producing regions;
o the price of foreign imports;
o the level of consumer demand;
o the price and availability of alternative fuels;
o the availability of pipeline capacity; and
o changes in existing federal regulation and price controls.
It is likely that oil prices will continue to fluctuate as they have in the
past. Current oil prices are not representative of oil prices in either the near
or short-term. We do not expect oil prices to maintain current price levels and
do not base our capital spending decisions on current market prices.
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<PAGE>
We have hedged a significant portion of our future oil production.
In February 2000, we purchased, for $4,000,000, hedges (put contracts) for
a total of 1,562,250 barrels of North Sea Brent crude oil. The exercise prices
of the hedges range from $22.35 to $17.25 per barrel, with monthly expiration
dates beginning in October 2000 and ending December 2002. Given the volatile
nature of prices for oil, it is possible that all or a significant portion of
the hedges could reach maturity with oil prices in excess of the applicable
strike prices, rendering the hedges worthless. If so, our entire hedge
investment could be lost or significantly impaired. We cannot sell or terminate
the hedges without the approval of Shell Capital, which may prevent us from
taking advantage of changes in oil prices, which might increase the value of all
or part of the hedges.
We may face liability for risks associated with drilling for and producing oil
and gas.
There are many risks incident to drilling for and producing oil and gas.
These risks include blowouts, cratering, fires, equipment failure and accidents.
Any of these events could result in personal injury, loss of life and
environmental and/or property damage. If such an event does occur, we may be
held liable, and we are not fully insured against these risks. In fact, many of
these risks are not insurable. The occurrence of such events that are not fully
covered by insurance may require us to pay damages, which would reduce our
profits.
Because we do not entirely own and control KKM, we must obtain the consent of
other KKM stockholders in order to take major actions, or operations may come to
a standstill.
Through a subsidiary, we own a 50% interest in KKM. The other stockholders
of KKM are KazakhOil, the national petroleum company of the Republic of
Kazakhstan ("KazakhOil"), and a private Kazakhstan joint stock company.
KazakhOil owns a 40% interest in KKM and the private Kazakh joint stock company
owns the remaining 10%. The government of Kazakhstan indirectly owns 40% of KKM
through KazakhOil's direct ownership interest.
Because we only control a 50% interest in KKM, we must seek the approval of
one of the other two stockholders before KKM can take any major action. If we
are unable to obtain the approval of one of these stockholders, the operations
of KKM may come to a standstill. There are no practical mechanisms in the
agreements among the KKM stockholders to effectively resolve deadlocks. A
deadlock could halt KKM's operations and ultimately result in the loss of KKM's
rights to explore and develop the Karakuduk Field.
We may have to file for bankruptcy if we do not achieve profits and/or cannot
find additional sources of capital.
We have failed to achieve a profit for the last five fiscal years. If we
continue to incur operating losses and are unable to raise sufficient capital to
satisfy our financial commitments and repay our indebtedness, we may be forced
to file for protection against our creditors under federal bankruptcy laws. If
we file for such protection, our creditors will be paid prior to you, our
stockholders. We are restricted from raising additional financing without the
consent of Shell Capital, our largest creditor. In addition, if we file for
bankruptcy protection, the market for our common stock may no longer exist.
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Risks Related to Operating in Kazakhstan
- ----------------------------------------
Our contracts with Kazakh agencies may be arbitrarily cancelled or re-negotiated
by the government of the Republic of Kazakhstan.
Our ability to develop the Karakuduk Field is dependent on fundamental
contracts that we have with governmental agencies in Kazakhstan, including the
License. The government of Kazakhstan may arbitrarily cancel our contracts or
may force them into re-negotiation. Cancellation or re-negotiation of contracts
could result in less favorable terms for us and could reduce or eliminate
revenues. While we have political risk insurance coverage, there is no assurance
that such a cancellation or re-negotiation would be recoverable under the
political risk policy or any proceeds received would be sufficient to satisfy
our losses incurred or to repay our outstanding indebtedness.
The environmental regulations to which we are subject may become more numerous,
and compliance with them may become more expensive.
We must comply with Kazakh laws and international requirements that
regulate the discharge of materials into the environment. Environmental
protection and pollution control could, in the future, become so restrictive as
to make production unprofitable. Furthermore, we may be exposed to potential
claims and lawsuits involving such environmental matters as soil and water
contamination and air pollution. We are currently in compliance with all local
and international environmental requirements and are closely monitored by the
Kazakh environmental authorities. We have not made any material capital
expenditures for environmental control facilities and have no plans to do so in
the foreseeable future.
Other government regulations may make our operations in Kazakhstan less
profitable.
Our operations may be subject to other regulations by the government of the
Republic of Kazakhstan or other regulatory bodies responsible for the area in
which the Karakuduk Field is located. In addition to taxation, customs
declarations and environmental controls, regulations may govern such things as
drilling permits and production rates. Drilling permits could become difficult
to obtain or prohibitively expensive. Production rates could be set so low that
they would make production unprofitable. These regulations may substantially
increase the costs of doing business and may prevent or delay the starting or
continuation of any given exploration or development project.
All regulations are subject to future changes by legislative and
administrative action and by judicial decisions. Such changes could adversely
affect the petroleum industry in general, and us in particular. It is impossible
to predict the effect that any current or future proposals or changes in
existing laws or regulations will have on our operations.
If disputes arise, we may be unable to enforce our rights.
The laws of the Republic of Kazakhstan govern our operations and a number
of our significant agreements. As a result, we may be subject to arbitration in
Kazakhstan or to the jurisdiction of the Kazakh courts. Even if we seek relief
in the courts of the United States, we may not be successful in subjecting
foreign persons to the jurisdiction of those courts. In addition, we may be
prevented from enforcing our rights with respect to government agencies,
regulatory bodies, or other entities of Kazakhstan because they may consider
themselves immune from the jurisdiction of any court.
The Republic of Kazakhstan currency may devalue and may decrease the worth of
our investments in Kazakhstan.
The devaluation of the tenge, the currency of the Republic of Kazakhstan,
could significantly decrease the value of the monetary assets that we hold in
Kazakhstan as well as our assets in that country that are based on the tenge.
Devaluation could also create uncertainty with respect to the future business
climate in Kazakhstan and to our investment in that country.
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<PAGE>
We may encounter difficulty in conducting operations in the Karakuduk Field due
to social, political and economic instability in the region.
We may encounter unexpected difficulties in conducting operations in
Kazakhstan. Kazakhstan is a relatively new country and there is uncertainty as
to the status of Kazakh law, the stability of the country and the region, and
the autonomy of the parties involved with us in Kazakhstan.
In order to counteract some of these potential difficulties, we obtained
political risk insurance through OPIC covering 90% of the book value of our
investment in KKM up to a maximum of $50,000,000. Our OPIC policy provides
coverage for certain acts, which could be committed against us by the government
of the Republic of Kazakhstan or other parties in times of severe political
instability. The OPIC policy generally provides the following types of risk
coverage:
o Currency Inconvertibility. Certain currency restrictions, which might
be imposed by the government of the Republic of Kazakhstan to prevent
or defer our recovery of our investment in the Karakuduk Field,
including revoking KKM's right to retain U.S. dollar proceeds from oil
sales outside of Kazakhstan or to convert local currency into U.S.
dollars for repayment of our investment;
o Expropriation. Acts attributable to the government of the Republic of
Kazakhstan that are violations of international law or an abrogation,
repudiation or material breach of our agreements with the government.
To qualify for coverage, the act of expropriation must continue
without interruption for at least six months and prevent us from
exercising our fundamental rights under our agreements, exercising
control over our investment the Karakuduk Field, or recovering our
investment in the Karakuduk Field;
o Political Violence. The loss or impairment of our investment due to
certain politically motivated violent acts, including war, revolution,
insurrection, or politically motivated civil strife, terrorism and
sabotage; and
o Interference with Operations. The loss or impairment of our investment
due to political violence lasting more than six months.
While the OPIC policy provides significant political risk coverage, it does
not address political risks outside of the Republic of Kazakhstan or cover every
contingency within Kazakhstan. The OPIC policy does not cover commercial risks,
whatsoever. If social, political, or economic strife in the region hinder KKM or
our operations in a manner that is not covered by our OPIC policy, we will bear
the full burden of any resulting loss or damage. If we do have a future claim
under the OPIC policy, we may be required to assign all or a portion of our
rights to the Karakuduk Field to OPIC before any insurance payments will be
made. The OPIC policy only covers 90% of our book value of our investment in
KKM, but there is no assurance any proceeds received will cover 90% of our
actual losses incurred or be sufficient to cover our outstanding indebtedness
repayable to our creditors.
Our limited access to transportation routes to markets may hinder our attempts
to sell our oil.
To maximize the value of our assets in Kazakhstan, we must not only extract
oil, but we must also transport it to appropriate markets for sale. The
exportation of oil from Kazakhstan depends on access to transportation routes,
particularly the Russian pipeline system. Transportation routes are limited in
number and access to them is restricted. If any of our agreements relating to
oil transportation or marketing are breached, or if we are unable to renew such
agreements upon their expiration, we may be unable to transport or market our
oil. Also, a breakdown of the Kazakhstan or Russian pipeline systems could
seriously delay or even halt our ability to sell oil. Any such event would
result in reduced revenues.
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<PAGE>
In November 1999, KKM entered into a long-term crude oil sale agreement
(the "Crude Oil Sales Agreement") with Shell Trading International Limited
("STASCO"), an affiliate of Shell Capital, for the sale of 100% of KKM's oil
production on the export market. STASCO will take title of KKM's crude oil at
various delivery points outside of Kazakhstan. Under the terms of the Crude Oil
Sales Agreement, KKM is responsible for obtaining export quotas and all other
permissions from Kazakhstan, Russia, or other relevant jurisdictions, necessary
to transport and deliver KKM's oil production to STASCO. The Loan requires KKM
to sell all of its oil production to STASCO, unless otherwise approved by STASCO
and Shell Capital.
In January 2000, KKM entered into a marketing services agreement (the
"Marketing Agreement") with KazakhOil. Under the terms of the Marketing
Agreement, KazakhOil will assist KKM with export oil sales under the Crude Oil
Sales Agreement, including obtaining export quotas from the government of the
Republic of Kazakhstan, consulting on procedures required for the nomination and
delivery of oil sales, obtaining other necessary approvals and permissions, and
preparation of relevant documentation.
Obtaining the necessary quotas and permissions to export production through
the Russian pipeline system can be extremely difficult, if not impossible in
certain circumstances. Although our agreements with the government of the
Republic of Kazakhstan grant us the right to export, and to receive export
quota, we cannot provide any assurances that we will receive export quota or any
other approvals required to export and deliver our production according to the
terms of the Crude Oil Sales Agreement.
Furthermore, the government of the Republic of Kazakhstan has recently
stated they may require all oil and gas producers within Kazakhstan to supply
some portion of year 2000 production to local Kazakh refineries to meet domestic
energy needs. The inability of KKM to sell all or part of its oil production to
STASCO could result in a loss of revenue and default of the Loan.
Severe weather conditions may impede our operations in the Karakuduk Field.
Although our business is not seasonal, severe weather conditions could
impede our drilling and exploration activities. Any inability to conduct such
activities could delay our discovery and production of oil.
Risks Related to Our Common Stock
- ---------------------------------
Since we do not currently plan to pay dividends on our common stock, you will
not have cash flow from your investment.
We have never paid cash dividends on our common stock. We do not anticipate
paying any dividends on our common stock in the foreseeable future because our
Loan prohibits the paying of dividends. If you need regular cash flow from your
investments, you should not purchase shares of our common stock.
If the holders of outstanding warrants and options exercise these instruments,
then your ownership interest may be diluted.
As of March 31, 2000, we had outstanding warrants and options entitling the
holders to purchase a total of 201,521 and 57,516 shares of our common stock,
respectively. If the market price of our common stock rises, then the holders of
the outstanding warrants and options could profit by exercising their warrants
and options and purchasing shares. The exercise of these warrants and options
may dilute your ownership interest in Chaparral. In addition, the common stock
to be issued upon the exercise of warrants and options may be resold. The resale
of this common stock could adversely affect the market price for such stock.
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The existence of the Series A preferred stock, and the rights that attach to it,
may be detrimental to the holders of common stock.
We currently have outstanding 50,000 shares of our Series A preferred
stock. The preferred stock has a liquidation preference over our common stock of
$5.0 million plus accrued but unpaid dividends. Therefore, if Chaparral goes out
of business, the holders of preferred stock will, after required payments to our
creditors, be paid up to $5.0 million plus accrued but unpaid dividends before
the holders of our common stock are entitled to any payment. Accrued dividends
totaled $500,000 as of December 31, 1999.
Furthermore, the Series A preferred stock is convertible into approximately
298,965 shares of common stock at any time. If the holders of the preferred
stock convert their shares to common stock, the ownership interests that the
common stockholders have in Chaparral will be diluted. The resale of this common
stock could adversely affect the market price of our common stock.
After November 30, 2002, Chaparral is required to redeem the lesser of the
Series A preferred stock outstanding on such date or one-third of the largest
number of shares of Series A preferred stock outstanding at any time prior to
such date. We also have the right to redeem all or any portion of any shares of
the Series A preferred stock before November 30, 2002. The redemption price for
the Series A preferred stock is $100 per share plus accrued but unpaid
dividends. Any such redemption will require us to pay out money to the holders
of the Series A preferred stock. The redemption could deplete the cash reserves
that would otherwise be invested in our operations.
We may issue additional preferred stock, which might have greater rights and
preferences than our common stock.
Chaparral is authorized to issue additional shares of preferred stock under
its Certificate of Incorporation. Our Board of Directors has the power, without
the consent of our stockholder, to issue these shares and to designate their
rights and preferences. The rights and preferences could include preferences as
to liquidation, redemption and conversion rights, voting rights, dividends or
other preferences. Any such preferences may dilute the ownership interests of
the holders of common stock or otherwise adversely affect those stockholders.
Two stockholders own a significant portion of our outstanding common stock.
Following the conversion of the Notes, two of our stockholders, Allen and
Whittier, own an aggregate of 65.4% of our outstanding common stock. Given their
collective ownership, they have the ability to control the outcome of the
matters submitted to a vote of our stockholders, including the election of
directors.
Our common stock may lack liquidity.
Our common stock is not widely held and has experienced very low trading
volume. If a liquid trading market does not develop for our common stock, it may
be difficult for you to sell our common stock, and large sales of our common
stock by you or other holders of our common stock will likely depress the
trading price.
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Special Note Regarding Forward-Looking Statements
Some of the statements under "Prospectus Summary," and "Risk Factors," and
elsewhere in this prospectus and in the documents incorporated by reference
constitute "forward-looking statements". Forward-looking statements relate to
future events or our future financial performance. In some cases, you can
identify forward-looking statements by terminology such as "may," "will,"
"should," "expects," "plans," "estimates," "believes," "predicts," "potential,"
"likely," or "continue," or by the negative of such terms or comparable
terminology. Forward-looking statements are predictions based on current
expectations that involve a number of risks and uncertainties. Actual events may
differ materially. In evaluating forward-looking statements, you should consider
various factors, including the risks outlined under "Risk Factors." These
factors may cause our actual results to differ materially from any
forward-looking statement.
Although we believe that these statements are reasonable, we cannot
guarantee future results, levels of activity, performance or achievements, and
you are encouraged to exercise caution in considering such forward-looking
statements. Moreover, neither we nor any other person assumes responsibility for
the accuracy and completeness of these statements. We are not under any duty to
update any of the forward-looking statements after the date of this prospectus
to conform these statements to actual results.
Where You Can Find More Information
We are subject to the information requirements of the Exchange Act and file
reports and other information with the SEC. You may read and copy information
concerning Chaparral at the Public Reference Room of the SEC in Washington,
D.C., at 450 Fifth Street, N.W., Washington, D.C., and at its regional offices
at One World Trade Center, Suite 1300, New York, New York 10048 and 500 W.
Madison Street, Suite 1400, Chicago, Illinois 60661. Please call the SEC at
1-800-SEC-0330 to get information on the operation of the public reference
rooms. You may also receive copies of documents from the SEC upon payment of a
duplicating fee, by writing to the SEC's Public Reference Section, located at
450 Fifth Street, N.W., Washington, D.C. 20549. You can also download
information concerning Chaparral from the SEC's website at http://www.sec.gov.
The SEC allows us to "incorporate by reference" information into this
prospectus, which means that we can disclose important information to you by
referring you to another prospectus filed separately with the SEC. The
information incorporated by reference is deemed to be a part of this prospectus,
except where the information in this document supercedes the incorporated
material. The information incorporated by reference is an important part of this
prospectus. Incorporated documents contain important information about Chaparral
and its finances. This prospectus incorporates the following documents filed by
Chaparral with the SEC by reference into this prospectus:
o Annual Report on Form 10-K for its fiscal year ended December 31,
1999;
o Current Report on Form 8-K, dated March 22, 2000.
In addition, all documents that are filed pursuant to Section 13(a), 13(c),
14 or 15(d) of the Securities Exchange Act, prior to the termination of this
offering, shall be deemed to be incorporated by reference into this prospectus.
We will provide to each person, including any beneficial owner, to whom a
prospectus is delivered, a copy of any or all of the information that has been
incorporated by reference into this prospectus but not delivered with this
prospectus. These documents will be provided for a reasonable fee. If you wish
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to receive any incorporated documents, please contact us by writing to Natalie
Hairston at Chaparral Resources, Inc., 16945 Northchase Drive, Suite 1620,
Houston, Texas 77060, or by calling us at (281) 877-7100.
You should rely only on the information contained in this prospectus or the
information incorporated by reference to which you have previously been
referred. We have not authorized anyone to provide you with information that
differs from such information. We are not making an offer of securities in any
state where the offer is not permitted. You should not assume that the
information in this prospectus or any prospectus supplement is accurate as of
any date other than the date on the front of those documents.
Chaparral filed a registration statement with the SEC for the rights and
shares of common stock issuable upon exercise of the rights. Pursuant to SEC
rules and regulations, this prospectus does not contain all of the information
that you can find in the registration statement. You can read and copy the
information in the registration statement in the same way that you read and copy
any other information filed by Chaparral with the SEC.
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The Offering
Why are we selling shares through this offering?
Chaparral is conducting this offering because doing so will allow us to
raise capital, which we are required to do under the terms of our Loan. This
offering is being made only to our stockholders, so that the stockholders can
maintain their current percentage of ownership of Chaparral.
How you exercise your right.
You may exercise your rights by completing and signing the subscription
documents. You must send the completed and signed documents, along with payment
in full of the subscription price for all of the shares of common stock that you
wish to purchase, to the subscription agent. You must pay the subscription price
in U.S. dollars by check drawn on a U.S. Bank or U.S. postal money order.
Until this offering is closed, the subscription agent will hold your
payment in escrow. The subscription agent will deliver certificates to you
representing the shares of common stock purchased through the exercise of rights
as soon as practicable after the rights expire. The subscription agent will not
deliver any funds from the escrow account to Chaparral until the shares of
common stock have been transferred.
We suggest, for your protection, that you deliver your subscription
documents to the subscription agent by overnight or express mail courier. If you
mail your subscription documents, we suggest that you use insured registered
mail. The addresses for mailing or delivery of your subscription documents and
payment for the subscription price to the subscription agent are as follows:
<TABLE>
<CAPTION>
<S> <C>
By Mail: By Hand or Overnight:
American Securities Transfer & Trust, Inc. American Securities Transfer & Trust, Inc.
P.O. Box 1596 12039 West Alameda Parkway, Suite Z-2
Denver, Colorado 80201-1596 Lakewood, Colorado 80228
</TABLE>
If you are a broker or depositary who holds Chaparral common stock for the
account of others and you receive rights certificates for the account of more
than one beneficial owner, you should provide copies of this prospectus to each
beneficial owner. You should also carry out their intentions as to the exercise
or transfer of their rights.
When you can exercise your right.
You may exercise your rights at any time before 5:00 p.m., Central Daylight
Savings Time, on June 16, 2000. The subscription agent must receive the required
documents and the payment by such date and time. We do not intend to honor any
exercise of rights that the subscription agent receives after that date.
What will happen if a right is exercised in an erroneous manner?
We will decide all questions as to the validity, form and eligibility
(including times of receipt, beneficial ownership and compliance with minimum
exercise provisions). We will also determine the acceptance of subscription
forms and the subscription price. Alternative, conditional or contingent
exercises will not be accepted. We reserve the absolute right to reject any
subscriptions not properly submitted. In addition, we may reject any
subscription if the acceptance of the subscription would be unlawful. We also
may waive any irregularities (or conditions) in the subscription, and its
interpretation of the terms and conditions of this offering shall be final and
binding.
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<PAGE>
If you are given notice of a defect in your subscription, you will have
five business days after the giving of notice to correct it. You will not,
however, be allowed to cure any defect later than June 16, 2000. Neither the
subscription agent nor we are obligated to give you notification of defects in
your subscription. Neither the subscription agent nor we will consider an
exercise to be made until all defects have been cured or waived. If your
exercise is rejected, the subscription agent will promptly return your payment
of the subscription price.
Rule as to revocation.
Once a holder of a right has exercised his or her right, such exercise may
not be revoked. Rights that are not exercised prior to the expiration time and
date will expire worthless.
What happens if this offering is canceled?
We have the right to cancel the offering. In such event, the rights will
expire and be worthless. If you exercise rights and this offering is canceled,
the subscription agent will promptly return to you, without interest, any
payment received in respect of the subscription price and you will not receive
any shares of common stock. Chaparral has established an escrow account with the
subscription agent to hold funds received prior to the closing date of this
offering. The National Association of Securities Dealers has advised us that
market trades in the additional shares of common stock to be issued as part of
this offering will be canceled if this offering is not consummated.
Rules regarding the subscription privilege.
Each right will allow the holder to purchase, upon payment of the
subscription price, .6346 of a share of our common stock. The subscription price
is $1.18 per right, which is equal to $1.86 per share, and it will not change.
The certificates representing shares of common stock purchased pursuant to your
subscription will be delivered to you as soon as is practicable after the
expiration date and after all prorations and adjustments contemplated by the
terms of the offering have been effected. We will not issue fractional shares.
Therefore, your subscription will be rounded down to the nearest whole number of
shares. You will receive the remaining cash rather than a fraction of a share.
What to do if you want to participate in this offering but your shares are held
in the name of your broker or a custodian bank.
If you hold shares of our common stock through a broker, dealer or other
nominee, we have requested your broker, dealer or nominee notify you of this
offering. If you wish to exercise your rights, you will need to have your
broker, dealer or nominee send the subscription documents to you.
Effects of this offering on other securities and stock options of Chaparral.
In addition to possible increased liquidity in our common stock and the
potential reduction in the number of shares of common stock outstanding as a
result of any redemptions by Chaparral, this offering will also have an effect
on our Series A preferred stock, the warrant issued to Shell Capital to acquire
15% of our common stock in connection with our Loan, and our 2000 Long-term
Incentive Plan that currently has 15% of our common stock reserved for issuance
thereunder. The Series A preferred stock, the Shell Warrant and the 2000
Long-term Incentive Plan contain certain anti-dilution provisions. Upon
consummation of this offering the following dilutive events will occur:
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o the conversion provisions of the Series A preferred stock will be
adjusted such that the holders of Series A preferred stock will be
entitled to acquire an additional 157,512 shares of common stock;
o the conversion provisions of the Shell Warrant will be adjusted such
that Shell Capital will be entitled to acquire an additional 15% of
common stock should Shell Capital choose to exercise its conversion
rights; and
o an additional 15% of common stock will be reserved for issuance under
our 2000 Long-term Incentive Plan.
Federal income tax consequences of this offering.
The following general summary of the material federal income tax
consequences of this offering is based upon the advice of Akin, Gump, Strauss,
Hauer & Feld, L.L.P. ("Akin Gump"), counsel to Chaparral. It does not discuss
all of the federal income tax consequences that may affect a particular
investor, nor does it describe state, local, foreign or other tax consequences.
This summary is based on the Internal Revenue Code of 1986, the Treasury
regulations promulgated thereunder, judicial authority, and current
administrative rulings in practice, all of which are subject to change, perhaps
retroactively. This discussion is limited to U.S. taxpayers who hold common
stock and does not include any tax consequences to holders of Series A preferred
stock. Financial institutions, brokers, dealers, nominee holders of our common
stock or rights, life insurance companies or tax exempt organizations and
possibly other types of taxpayers may be subject to special provisions of the
tax law or subject to other tax considerations not discussed below.
Holders of common stock should consult their own tax advisors concerning
the tax treatment of this offering.
You should generally not recognize taxable income for federal income tax
purposes upon receipt of the rights. Upon exercise of the right, you must
allocate your basis in your old common stock between the old common stock and
the right in proportion to their relative fair market values as of the date of
distribution, unless the fair market value of the rights is less than 15% of the
fair market value of the old common stock at the time of the distribution. Thus,
after exercise of the rights you will have a basis in your new common stock
equal to the sum of the exercise price of the right and proportion of your basis
in your old common stock allocable to the rights. Your holding period in your
stock acquired by exercise of the rights includes a holding period of the old
common stock with respect to which the rights were issued. You will recognize
neither a gain nor a loss upon the lapse of the rights without exercise.
This offering may not be registered in certain states.
This offering is not being made in any state or other jurisdiction in which
it is unlawful to do so, nor will we sell or accept any offers to purchase any
shares of common stock from rights holders who are residents of any such state
or other jurisdiction. We may delay commencing this offering in certain states
or other jurisdictions, or change the terms of this offering, to comply with the
securities law requirements of such states or other jurisdictions. We do not
anticipate that there will be any changes in the terms of this offering. If any
such change is made that is material and has a significant adverse effect on
you, if you have previously exercised rights, you will be provided the
opportunity to revoke such exercise. If we determine in our sole discretion that
this offering may not be consummated in certain states or jurisdictions, we may
decline to make modifications to the terms of this offering requested by such
states or other jurisdictions, in which event rights holders resident in those
states or jurisdictions will not be eligible to participate in this offering.
22
<PAGE>
Use of Proceeds
We estimate the proceeds to Chaparral, upon completion of this offering, to
be approximately $9,858,000 before deducting the fees and expenses related to
this offering. The net proceeds will provide working capital for Chaparral
through project completion pursuant to our Loan, as well as additional advances
to KKM for working capital to develop of the Karakuduk Field.
Opinion of Financial Advisor
We engaged Houlihan Lokey Howard & Zukin Financial Advisors, Inc., or
Houlihan Lokey, to act as our financial advisor in connection with this
offering.
We instructed Houlihan Lokey, in its role as a financial advisor, to
evaluate the fairness from a financial point of view, of this offering to our
public stockholders. On March 23, 2000, Houlihan Lokey delivered its oral
opinion to our Board of Directors (previously confirmed in writing on November
2, 1999 and updated and confirmed on March 17, 2000) to the effect that as of
such date and based upon and subject to certain matters stated therein, from a
financial point of view, this offering is fair to our public stockholders.
We imposed no limitations on the scope of Houlihan Lokey's investigation or
the procedures to be followed by Houlihan Lokey in rendering its fairness
opinion. Houlihan Lokey's fairness opinion is for the use and benefit of our
Board of Directors and was rendered to our Board of Directors in connection with
this offering.
Houlihan Lokey's fairness opinion addresses only fairness from a financial
point of view of this offering to our public stockholders and does not
constitute a recommendation as to how such holders or any other person should
participate in this offering. Houlihan Lokey has not been requested and does not
intend to further update, revise or reaffirm its fairness opinion in connection
with this offering, unless requested to do so by our Board of Directors. Events
that could affect the fairness of this offering, from a financial point of view,
include adverse changes in industry performance or market conditions and changes
to the business, financial condition and results of operations of Chaparral.
Houlihan Lokey did not, and was not requested by us to, make any
recommendations as to the form or terms of this offering, and does not express
any opinion as to the fairness of any aspect of this offering not expressly
addressed in its fairness opinion. Houlihan Lokey's fairness opinion also does
not address Chaparral's underlying business decision to effect this offering.
Houlihan Lokey was not asked to opine on and does not express any opinion as to
the tax consequences of this offering, the public market values or realizable
value of our common stock or the prices at which our common stock may trade
following this offering.
Houlihan Lokey is a nationally recognized investment banking firm that
provides financial advisory services in connection with mergers and
acquisitions, leveraged buyouts, business valuations for a variety of regulatory
and planning purposes, recapitalizations, financial restructurings, and private
placements of debt and equity securities. We agreed to pay Houlihan Lokey a fee
of $100,000 for the preparation and delivery of its fairness opinion and an
additional fee of $40,000 to update and confirm its fairness opinion. No portion
of Houlihan Lokey's fee is contingent upon the successful completion of this
offering. We agreed to indemnify Houlihan Lokey and its affiliates against
certain liabilities, including liabilities under federal securities laws that
arise out of the engagement of Houlihan Lokey.
23
<PAGE>
The full text of Houlihan Lokey's written fairness opinion, which sets
forth the assumptions made, general procedures followed, factors considered and
limitations on the review undertaken by Houlihan Lokey in rendering its fairness
opinion is attached as Annex A and is incorporated herein by reference. The
discussion of the fairness opinion below is qualified in its entirety by
reference to such opinion. We urge you to read the fairness opinion in its
entirety.
In arriving at its fairness opinion, Houlihan Lokey reviewed and analyzed
the following:
o reviewed our publicly-available information, which includes our annual
reports to shareholders, Form 10-K for the fiscal year ended 1998,
reports on Form 10-Q for the quarters ended March 31, 1999, June 30,
1999 and September 30, 1999, respectively, which our management
identified as being the most current financial information available
at the time the opinion was rendered, and our press releases issued
through the date of the fairness opinion;
o reviewed the Karakuduk Field Development Study dated May 1999, which
is not publicly available;
o met with certain members of our senior management to discuss our
operations, financial condition, future prospects and projected
operations and performance, and spoke with representatives of our
legal counsel and independent accountants to discuss certain matters;
o visited certain of our facilities and offices;
o reviewed certain confidential forecasts and projections, which are not
publicly available, prepared by our management as of approximately
September 21, 1999, for review by Shell Capital in connection with our
Loan, for the years ending December 31, 1999 through 2019, which
reflect among other things production levels, capital expenditures,
and oil price assumptions;
o reviewed a draft of our registration statement on Form S-3 for the
this offering;
o reviewed a draft of our Schedule 14A, Information Required in Proxy
Statement;
o reviewed the historical market prices and trading volumes for our
common stock;
o reviewed certain other publicly available financial information for
certain companies that Houlihan Lokey deemed comparable to Chaparral,
and publicly available prices and premiums paid in other transactions
that Houlihan Lokey considered similar to this offering; and
o conducted such other studies, analyses and inquiries as Houlihan Lokey
deemed appropriate.
In order to determine the fairness, from a financial point of view, of this
offering to our public stockholders, Houlihan Lokey conducted several analyses,
including the following:
o a discounted cash flow analysis whereby projected cash flows were
discounted to determine our present enterprise value;
o a market valuation approach whereby our proven reserves were
multiplied by a risk adjusted multiple based upon a comparison between
us and the comparable companies to determine our enterprise value; and
o various other analysis.
24
<PAGE>
Comparable Company Analysis. Using publicly available information, Houlihan
Lokey compared selected financial data of Chaparral with similar data of various
companies engaged in businesses considered by Houlihan Lokey to be comparable to
us, including American International Petroleum Corp., Benton Oil & Gas Co.,
Carrizo Oil & Gas Inc., Exploration Co., Harken Energy Corp., Hurricane
Hydrocarbons Ltd., Seven Seas Petroleum, Ocean Energy Inc., Pogo Producing Co.,
Range Resources Corp., Union Pacific Resources Grp., and Enron Oil & Gas. For
each of the comparable companies, Houlihan Lokey calculated, reviewed and
analyzed numerous financial and operating performance ratios, as well as
numerous market capitalization ratios, such as the enterprise value (aggregate
equity plus total interest-bearing debt) to proven reserves. The multiple of
enterprise value to proven reserves for primary comparable companies ranged from
1.61 to 40.10 with 4.29 as the mean of the multiple of enterprise value to
proven reserves for primary comparable companies.
There are significant inherent differences between our business, operation,
and prospect and those of the comparable companies, including differences
between companies that have fields currently in production and pre-production
companies, differences in quality of crude oil and relative market values of
various types of crude oil, differences in transportation costs, differences in
customer base, differences in the number of and location of the fields and
differences in relative overall proven reserves. Accordingly, Houlihan Lokey
believed that it was inappropriate to, and therefore did not, rely solely on the
above-described quantitative results of the comparable company analysis and
accordingly also made qualitative judgments concerning differences between our
financial and operating characteristics and prospects and those of the
comparable companies that would, in Houlihan Lokey's opinion, affect the public
market valuation of such companies.
Based upon the aforementioned analyses, our indicated enterprise value
ranged from a low of approximately $8.9 million to a high of $10.8 million.
Discounted Cash Flow Approach. Houlihan Lokey utilized management's cash
flow projections for Chaparral for the fiscal years ending December 31, 1999
through 2019. The net present value of the cash flows for the applicable periods
was determined in two ways. The first method involved application of discount
rates ranging from 14.0% to 16.0%. Based on our management's projections and
this analysis, Houlihan Lokey calculated indications of the range of our
enterprise value of between $8.0 million and $10.06 million.
The second method used to determine our enterprise value based on the
discounted cash flow approach involved application of specific discount rates to
each category of projected cash inflows and cash outflows. The discount rates
ranged from 10.0% to 22.0%. The specific discount rate that was applied to a
category of cash flow or cash uses was determined based on the perceived risk of
the cash inflow or outflow. Based on our management's projections and this
analysis, Houlihan Lokey calculated an indication of our enterprise value of
$6.2 million.
Consideration of Publicly Traded Price. Houlihan Lokey reviewed the
historical market prices and trading volumes for our common stock and determined
that the market price is based on speculation, historically thin trading volume
and other factors, including unavailability to the public of certain information
that was provided to Houlihan Lokey for its review, and thus was not indicative
of the fair market value of our common stock as of the date of March 17, 2000.
Equity Value. Houlihan Lokey's use of the comparable company approach and
the two forms of discounted cash flow analyses resulted in a concluded range of
our enterprise values of $8.9 million to $10.8 million, the high end of the low
and high indications of value. After adding our cash of approximately $85,000 as
of March 7, 2000 and subtracting our debt of approximately $13.4 million as
of March 17, 2000, Houlihan Lokey arrived at an aggregate valuation of our
equity ranging from -$4.4 million to -$2.5 million. In conclusion, Houlihan
Lokey's analyses indicated that this offering is fair, from a financial point of
view, to our public stockholders.
25
<PAGE>
In arriving at its fairness opinion, Houlihan Lokey reviewed key economic
and market indicators, including growth in gross domestic product, inflation
rates, interest rates, consumer spending levels, manufacturing productivity
levels, unemployment rates and general stock market performance. Houlihan
Lokey's opinion is based on the business, economic, market and other conditions
as they existed as of March 17, 2000 and on the projected financial information
provided to Houlihan Lokey as of such date. In rendering its opinion, Houlihan
Lokey has relied upon and assumed, without independent verification, that the
historical and projected financial information provided to Houlihan Lokey by us
was reasonably and accurately prepared based upon the best current available
estimates of the financial results and condition of Chaparral taken as a whole.
Houlihan Lokey did not independently verify the accuracy or completeness of the
information supplied to it with respect to Chaparral and does not assume
responsibility for it. Houlihan Lokey did not make any independent appraisal of
our properties or assets.
The summary set forth above describes the material points of more detailed
analyses performed by Houlihan Lokey in arriving at its fairness opinion. The
preparation of a fairness opinion is a complex analytical process involving
various determinations as to the most appropriate and relevant methods of
financial analysis and application of those methods to the particular
circumstances and is therefore not readily susceptible to summary description.
In arriving at its opinion, Houlihan Lokey made qualitative judgments as to
the significance and relevance of each analysis and factor. Accordingly,
Houlihan Lokey believes that its analyses and summary set forth herein must be
considered as a whole. In its analysis, Houlihan Lokey made numerous assumptions
with respect to Chaparral, industry performance, general business, economic,
political, market and financial conditions and other matters, many of which are
beyond the control of Chaparral. The estimates contained in such analyses are
not necessarily indicative of actual values or predictive of future results or
values, which may be more or less favorable than suggested by such analyses.
However, there were no specific factors reviewed by Houlihan Lokey that did not
support its opinion. Additionally, analyses relating to the value of businesses
or securities are not appraisals. Accordingly, such analyses and estimates are
inherently subject to substantial uncertainty.
Federal Income Tax Consequences
The following general summary of the material federal income tax
consequences of this offering is based upon the advice of Akin Gump. It does not
discuss all of the federal income tax consequences that may affect a particular
investor, nor does it describe state, local, foreign or other tax consequences.
This summary is based on the Internal Revenue Code of 1986, the Treasury
regulations promulgated thereunder, judicial authority, and current
administrative rulings in practice, all of which are subject to change, perhaps
retroactively. This discussion is limited to U.S. taxpayers that hold common
stock and does not include any tax consequences to holders of Series A preferred
stock. Financial institutions, broker dealers, nominee holders of our common
stock or rights, life insurance companies or tax exempt organizations and
possibly other types of taxpayers may be subject to special provisions of the
tax law or subject to other tax considerations not discussed below.
Holders of common stock should consult their own tax advisors concerning
the tax treatment to them of this offering.
You should generally not recognize taxable income for federal income tax
purposes upon receipt of the rights. Upon exercise of the right, you must
allocate your basis in your old common stock between the old common stock and
the right in proportion to their relative fair market values as of the date of
distribution, unless the fair market value of the rights is less than 15% of the
fair market value of the old common stock at the time of the distribution. Thus,
after exercise of the rights you will have a basis in your new common stock
equal to the sum of the exercise price of the right and proportion of your basis
in your old common stock allocable to the right. Your holding period in your
stock acquired by exercise of the rights includes a holding period of the old
common stock with respect to which the rights were issued. You will recognize
neither a gain nor a loss upon the lapse of the rights without exercise.
26
<PAGE>
Disclosure of Commission Position on Indemnification
for Securities Act Liabilities
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Securities Act") may be permitted to directors, officers or
persons controlling Chaparral pursuant to the foregoing provisions, we have been
informed that in the opinion of the SEC such indemnification is against public
policy as expressed in the Securities Act and is therefore unenforceable.
Legal Matters
Akin Gump of Houston, Texas, passed on the validity of the shares of common
stock offered in this prospectus by Chaparral. Akin Gump owns 107,527 shares of
our common stock. In addition, Robert Strauss, a partner of Akin Gump, is the
trustee of a trust that owns 188,172 shares of our common stock.
27
<PAGE>
ANNEX A
[HOULIHAN LOKEY HOWARD & ZUKIN FINANCIAL ADVISORS, INC. LETTERHEAD]
March 17, 2000
Board of Directors
Chaparral Resources, Inc.
16945 Northchase
Suite 1620
Houston, TX 77060
We understand that Chaparral Resources, Inc. (the "Company") recently issued
$13,339,769 aggregate principal amount 8% Non-Negotiable Convertible
Subordinated Promissory Notes in part to repay existing term debt (the
"Convertible Debt"). We further understand that the Convertible Debt will be
converted, subject to shareholder approval, into newly-issued shares of Company
common stock based upon a ratio of $1.86 per share of Company common stock (the
"Conversion"). We further understand that the Company publicly announced a $24
million debt financing (the "Financing") with Shell Capital Services Limited
("Shell") and certain other lenders, and in connection with the Financing the
Company issued to Shell a warrant to purchase up to 15% of the Company's
outstanding common stock, subject to certain anti-dilution provisions, at an
exercise price of $15.45 per share. We further understand that the Company is
considering a $6 to $10 million rights offering whereby its shareholders
following the Conversion will be accorded the right to purchase newly issued
shares of stock at a price of $1.86 per share based upon each shareholder's
proportionate shareholdings (the "Rights Offering"). We further understand that
to fulfill a covenant of the loan agreement with Shell, two of the Company's
largest stockholders; namely, Allen & Company Incorporated and Whittier
Ventures, LLC, have undertaken to subscribe for and purchase their full pro rata
portion of the Rights Offering. We further understand that if the Conversion is
not approved by the Company's shareholders, the interest rate on the Convertible
Debt will be increased to the lesser of 25% per annum or the maximum rate
allowed by applicable law. The Conversion and the Rights Offering are
collectively referred to as the "Transaction."
You have requested our opinion (the "Opinion") as to the matters set forth
below. The Opinion does not address the Company's underlying business decision
to effect the Transaction. We have not been requested to, and did not, solicit
third party indications of interest in acquiring all or any part of the Company
or its assets. Furthermore, at your request, we have not negotiated the
Transaction or advised you with respect to alternatives to it.
In connection with this Opinion, we have made such reviews, analyses and
inquiries as we have deemed necessary and appropriate under the circumstances.
Among other things, we have:
1. reviewed the Company's publicly-available information, which includes
annual reports to shareholders and Form 10-K for the fiscal years ended 1998,
quarterly reports on Form 10-Q for the quarters ended March 31, 1999, June 30,
1999 and September 30, 1999, respectively, which the Company's management has
identified as being the most current financial information available, and press
releases issued by the Company through the date of this letter;
2. reviewed the Karakuduk Field Development Study prepared by the Company
dated May 1999, which is not publicly available;
3. met with certain members of the senior management of the Company to
discuss the operations, financial condition, future prospects and projected
operations and performance of the Company, and spoke with representatives of the
Company's legal counsel to discuss certain matters;
A-1
<PAGE>
4. visited certain facilities and business offices of the Company;
5. reviewed certain confidential forecasts and projections, which are not
publicly available, prepared by the Company's management as of approximately
September 21, 1999, for review by Shell in connection with the Financing, with
respect to the Company for the years ending December 31, 1999 through 2019,
which reflect among other things production levels, capital expenditures, and
oil price assumptions (the "Projections");
6. reviewed a draft of the registration statement on Form S-3 for the
Rights Offering;
7. reviewed a draft of the Schedule 14A, Information Required in Proxy
Statement for the Conversion;
8. reviewed the historical market prices and trading volume for the
Company's common stock (the "Stock Price");
9. reviewed certain other publicly available financial information for
certain companies that we deem comparable to the Company, and publicly available
prices and premiums paid in other transactions that we considered similar to the
Transaction; and
10. conducted such other studies, analyses and inquiries as we have deemed
appropriate. We have relied upon and assumed, without independent verification,
that the Projections provided to us have been reasonably prepared and reflect
the best currently available estimates of the future financial results and
condition of the Company taken as a whole, and that there has been no material
change in the assets, financial condition, business or prospects of the Company
or any of its subsidiaries since the date of the most recent financial
statements made available to us. We understand that the Financing has occurred.
We have not independently verified the accuracy and completeness of the
information supplied to us with respect to the Company, and we do not assume any
responsibility with respect to it. We have not made any physical inspection or
independent appraisal of any of the properties or assets of the Company or its
subsidiaries. Our Opinion is necessarily based on business, economic, political,
market and other conditions as they exist and can be evaluated by us at and as
of the date of this letter.
As discussed above, we have reviewed the Stock Price and have determined that it
is based on speculation, historically thin trading volume and other factors,
including unavailability to the public of certain confidential information that
has been provided to us for our review, and thus is not indicative of the fair
market value of the Company's common stock at and as of the date of this letter.
We have not reviewed any final documents in connection with the Conversion or
the Rights Offering and have thus relied upon management's representations
regarding their respective financial terms and conditions.
Based upon the foregoing, and in reliance thereon, it is our opinion that the
Transaction is fair to the public stockholders of the Company from a financial
point of view.
/s/ Houlihan Lokey Howard & Zukin Financial Advisors, Inc.
- ----------------------------------------------------------
HOULIHAN LOKEY HOWARD & ZUKIN FINANCIAL ADVISORS, INC.
A-2
<PAGE>
================================================================================
5,300,000 Shares
CHAPARRAL
CHAPARRAL RESOURCES, INC.
Common Stock
P R O S P E C T U S
______________, 2000
No dealer, salesperson or other person has been authorized to give any
information or to make any representations other than those contained in this
prospectus in connection with this offering and, if given or made, such
information or representation must not be relied upon as having been authorized
by us. This prospectus does not constitute an offer to sell, or a solicitation
of an offer to buy, to any person in any jurisdiction in which such offer to
sell or solicitation is not authorized, or in which the person making such offer
or solicitation is not qualified to do so, or to any person to whom it is
unlawful to make such offer or solicitation.
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 14. Other Expenses of Issuance and Distribution
The estimated expenses in connection with the issuance and distribution of
the securities being registered set forth in the following table. Each amount,
except for the SEC fees, is estimated.
SEC registration fees ............................................ $ 2,603
The Nasdaq National Market application and listing fees .......... 17,500
Transfer agents' and registrar's fees and expenses ............... 125,000
Printing and engraving expenses .................................. 10,000
Legal fees and expenses .......................................... 200,000
Accounting fees and expenses ..................................... 100,000
Blue sky fees and expenses ....................................... 25,000
Miscellaneous .................................................... 4,897
--------
Total ....................................................... $485,000
========
ITEM 15. Indemnification of Directors and Officers
Chaparral may indemnify its officers and directors against liability that
they may incur in their capacity as officers and directors. The Delaware General
Corporation Law gives Chaparral the power, under specified circumstances, to
indemnify its directors, officers, employees and agents in connection with
threatened, pending or completed actions, suits or proceedings, whether civil,
criminal, administrative or investigative (other than an action by or in right
of the corporation), brought against them by reason of the fact that they were
or are such directors, officers, employees or agents, against expenses,
judgments, fines and amounts paid in settlement actually and reasonably incurred
in any such action, suit or proceeding.
Our Certificate of Incorporation and our Bylaws provide for indemnification
of each person who is or was made a party to any actual or threatened civil,
criminal, administrative or investigative action, suit or proceeding because
such person is or was an officer or director of Chaparral, or is a person who is
or was serving, at our request, as a director, officer, employee or agent of
another corporation or of a partnership, joint venture, trust or other
enterprise, including service relating to employee benefit plans, to the fullest
extent permitted by the Delaware General Corporation Law as it existed at the
time the indemnification provisions of our Certificate and Bylaws were adopted
or as may be thereafter amended. Our Certificate and Bylaws expressly provide
that they are not the exclusive methods of indemnification.
The Delaware General Corporation Law also allows to limit or eliminate the
personal liability of a director to the corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director, provided that such
provision shall not eliminate or limit the liability of a director: (i) for any
breach of the director's duty of loyalty to the corporation or its stockholders,
(ii) for its or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Section 174 of the
Delaware General Corporation Law (relating to liability for unauthorized
acquisitions or redemptions of, or dividends on, capital stock) or (iv) for any
transaction from which the director derived an improper personal benefit. Our
Certificate of Incorporation contains a provision that limits or eliminates
directors' liability in such a manner.
In addition, our Bylaws allow us to maintain insurance to protect Chaparral
and any of our directors, officers, employees or agents, or such parties of
another entity, against any expense, liability, or loss, regardless of whether
we would have the power to indemnify such person against such expense, liability
or loss under the Delaware General Corporation Law.
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<PAGE>
Chaparral hereby undertakes that:
(i) For purposes of determining any liability under the Securities Act, the
information omitted from the form prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by Chaparral pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(ii) For purposes of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of Chaparral
pursuant to the foregoing provisions, or otherwise, Chaparral has been advised
that in the opinion of the Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by Chaparral of expenses incurred or paid by a director, officer or
controlling person of Chaparral in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, Chaparral will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
ITEM 16. Exhibits
Exhibit No. Description and Method of Filing
- ----------- --------------------------------
2.1 Stock Acquisition Agreement and Plan of Reorganization dated April
12, 1995 between Chaparral Resources, Inc., and the Shareholders of
Central Asian Petroleum, Inc., incorporated by reference to Exhibit
2.1 to Chaparral Resources, Inc.'s Quarterly Report on Form 10-Q for
the quarter ended May 31, 1995.
2.2 Escrow Agreement dated April 12, 1995 between Chaparral Resources,
Inc., the Shareholders of Central Asian Petroleum, Inc. and Barry W.
Spector, incorporated by reference to Exhibit 2.2 to Chaparral
Resources, Inc.'s Quarterly Report on Form 10-Q for the quarter
ended May 31, 1995.
2.3 Amendment to Stock Acquisition Agreement and Plan of Reorganization
dated March 10, 1996 between Chaparral Resources, Inc., and the
Shareholders of Central Asian Petroleum, Inc., incorporated by
reference to Chaparral Resources, Inc.'s Registration Statement No.
333-7779.
II-2
<PAGE>
Exhibit No. Description and Method of Filing
- ----------- --------------------------------
**4.1 Form of Right Certificate.
**5.1 Opinion of Akin, Gump, Strauss, Hauer & Feld, L.L.P.
**8.1 Opinion of Akin, Gump, Strauss, Hauer & Feld, L.L.P. regarding Tax
Matters
*23.1 Consent of Ernst & Young LLP.
*23.2 Consent of Ernst & Young Kazakhstan.
*23.3 Consent of Houlihan Lokey Howard & Zukin Financial Advisors, Inc.
re: Fairness Opinion
*23.4 Consent of Ryder Scott Company Petroleum Engineers.
*24.1 Power of Attorney (included on the signature pages on this
Registration Statement on Form S-3).
*27 Financial Data Schedule.
**99.1 Form of Instructions to Stockholders as to Use of Rights.
**99.2 Form of Letter to Stockholders who are Record Holders.
**99.3 Form of Letter to Stockholders who are Beneficial Holders.
* Filed herewith
** To be filed by amendment.
Statements in this prospectus concerning those documents and any document
filed as an exhibit to the registration statement are not necessarily complete.
Each of those statements is qualified in its entirety by reference to the
complete document. The exhibits to the prospectus, filed with the SEC, may be
inspected, copied, and obtained by mail from the SEC. Also, these documents will
also be available for inspection and copying, for a reasonable fee, at the
principal executive offices of Chaparral Resources, Inc., located at 16945
Northchase, Suite 1620, Houston, Texas 77060, during regular business hours by
any interested shareholder, or by his or her duly authorized representative, so
designated in writing.
ITEM 17. Undertakings
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Exchange Act (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Exchange Act) that is
incorporated by reference in the registration statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
The undersigned registrant hereby undertakes to supplement the prospectus,
after the expiration of the subscription period, to set forth the results of the
subscription offer, the transactions by the underwriters during the subscription
period, the amount of unsubscribed securities to be purchased by the
underwriters, and the terms of any subsequent reoffering thereof. If any public
offering by the underwriters is to be made on terms differing from those set
forth on the cover page of the prospectus, a post-effective amendment will be
filed to set forth the terms of such offering.
II-3
<PAGE>
The undersigned registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to whom the prospectus is sent or
given, the latest annual report, to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Exchange Act; and, where
interim financial information required to be presented by Article 3 of
Regulation S-X is not set forth in the prospectus, to deliver, or cause to be
delivered to each person to whom the prospectus is sent or given, the latest
quarterly report that is specifically incorporated by reference in the
prospectus to provide such interim financial information.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Houston, State of Texas, on April 5, 2000.
CHAPARRAL RESOURCES, INC.
By: /s/ John G. McMillian
-----------------------------
John G. McMillian
Co-Chairman of the Board and
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints John G. McMillian and James A. Jeffs, and each of
them, with the power to act without the other, his true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him or her in his or her name, place and stead, in any and
all capacities, to sign on his behalf individually and in each capacity stated
below any or all amendments or post-effective amendments to this Registration
Statement, and to file the same, with all exhibits thereto, and other documents
in connection therewith, with the SEC granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in the amount the
premises, as fully to all intents and purposes as he or she might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or either of them, or their substitutes, may lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated:
By: /s/ John G. McMillian Title: Co-Chairman of the Date: April 5, 2000
----------------------- Board and Chief
John G. McMillian Executive Officer
(Principal Executive Officer)
By: /s/ Michael B. Young Title: Treasurer and Date: April 5, 2000
----------------------- Controller (Principal
Michael B. Young Financial and
Accounting Officer)
By: /s/ James A. Jeffs Title: Co-Chairman of the Date: April 5, 2000
----------------------- Board
James A. Jeffs
By: /s/ David A. Dahl Title: Director Date: April 5, 2000
-----------------------
David A. Dahl
By: /s/ Richard L. Grant Title: Director Date: April 5, 2000
-----------------------
Richard L. Grant
By: /s/ Ted Collins, Jr. Title: Director Date: April 5, 2000
-----------------------
Ted Collins, Jr.
II-5
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement (Form
S-3) and related Prospectus of Chaparral Resources, Inc. for the registration of
5,300,000 shares of its common stock of our report dated March 17, 2000, with
respect to the consolidated financial statements of Chaparral Resources, Inc.
included in its Annual Report (Form 10-K) for the year ended December 31, 1999,
filed with the Securities and Exchange Commission.
ERNST & YOUNG LLP
Houston, Texas
March 31, 2000
Exhibit 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement (Form
S-3) and related Prospectus of Chaparral Resources, Inc. for the registration of
5,300,000 shares of its common stock of our report dated March 15, 2000, with
respect to the financial statements of Closed Type JSC Karakudukmunay included
in Chaparral Resources, Inc.'s Annual Report (Form 10-K) for the year ended
December 31, 1999, filed with the Securities and Exchange Commission.
ERNST & YOUNG KAZAKHSTAN
Almaty, Kazakhstan
March 31, 2000
Exhibit 23.3
CONSENT OF FINANCIAL ADVISORS
April 4, 2000
Board of Directors
Chaparral Resources, Inc.
16945 Northchase
Suite 1620
Houston, TX 77060
As agreed to in our retainer agreement dated July 27, 1999, we consent to the
incorporation of our fairness opinion dated March 17, 2000 in the Registration
Statement on Form S-3 and related Prospectus of Chaparral Resources, Inc. for
the registration of 5,300,000 shares of its common stock.
HOULIHAN LOKEY HOWARD & ZUKIN FINANCIAL ADVISORS, INC.
/s/ Houlihan Lokey Howard & Zukin Financial Advisors, Inc.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
<PERIOD-END> DEC-31-1999 DEC-31-1998
<CASH> 23,000 121,000
<SECURITIES> 0 0
<RECEIVABLES> 23,000 445,000
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 735,000 1,398,000
<PP&E> 38,251,000 32,354,000
<DEPRECIATION> 39,000 17,000
<TOTAL-ASSETS> 41,303,000 34,324,000
<CURRENT-LIABILITIES> 3,676,000 1,685,000
<BONDS> 0 0
5,200,000 4,850,000
0 0
<COMMON> 0 0
<OTHER-SE> 22,851,000 27,579,000
<TOTAL-LIABILITY-AND-EQUITY> 41,303,000 34,324,000
<SALES> 0 0
<TOTAL-REVENUES> 924,000 662,000
<CGS> 0 0
<TOTAL-COSTS> 2,423,000 3,031,000
<OTHER-EXPENSES> (3,141,000) (1,456,000)
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 523,000 205,000
<INCOME-PRETAX> (5,163,000) (4,030,000)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (5,163,000) (4,030,000)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 (236,000)
<CHANGES> 0 0
<NET-INCOME> (5,163,000) (4,266,000)
<EPS-BASIC> (5.28) (4,75)
<EPS-DILUTED> (5.28) (4.75)
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