SCHEDULE 14A
(Rule 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange
Act of 1934 (Amendment No. ___)
Filed by the Registrant |X|
Filed by a Party other than the Registrant |_|
Check the appropriate box:
|X| Preliminary Proxy Statement |_| Confidential, For Use
|_| Definitive Proxy Statement of the Commission
|_| Definitive Additional Materials Only (as permitted by
|_| Soliciting Material Under Rule 14a-12 Rule 14a-6(e)(2))
CHAPARRAL RESOURCES, INC
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
|X| No fee required.
|_| Fee computed on table below per Exchange Act Rule 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
|_| Fee paid previously with preliminary materials:
|_| Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
-----------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-----------------------------------------------------------------------
(3) Filing Party:
-----------------------------------------------------------------------
(4) Date Filed:
-----------------------------------------------------------------------
<PAGE>
CHAPARRAL
CHAPARRAL RESOURCES, INC.
Notice and Proxy Statement
April ___, 2000
Dear Chaparral Resources' Stockholder:
We are pleased to invite you to the Annual Meeting of Stockholders of
Chaparral Resources, Inc. The meeting will be held on May 9, 2000 at 10:00 a.m.,
Central Daylight Time, at the offices of Akin, Gump, Strauss, Hauer & Feld,
L.L.P., located at 1900 Pennzoil Place - South Tower, 711 Louisiana Street,
Houston, Texas 77002.
At the meeting, you and the other stockholders will be asked to vote on the
following:
1. the approval of the conversion provision contained in the outstanding
8% Non-Negotiable Convertible Subordinated Promissory Notes of
Chaparral Resources;
2. the election of seven directors to the Board of Directors of Chaparral
Resources; and
3. ratify the appointment of Ernst & Young LLP as the independent
auditors of Chaparral Resources for fiscal year 2000.
You will also hear an overview of Chaparral Resources' current and prior
year operations from senior management to be followed by a question and answer
session open to all stockholders. Our Annual Report, which is enclosed with this
Proxy Statement, contains other detailed information about Chaparral Resources,
including its audited financial statements, for the year ended December 31,
1999.
Stockholders are urged to carefully read this Proxy Statement in its
entirety before voting on the proposals. This Proxy Statement and the enclosed
proxy card are being mailed to stockholders on or about April ___, 2000.
We hope you can join us on May 9, 2000. Regardless of whether you expect to
attend the meeting in person, please read the enclosed Proxy Statement. When you
have done so, please mark your votes on the enclosed proxy card, sign and date
it, and return it to us in the enclosed postage-paid envelope. It is important
that your shares be represented, and your promptness will assist us in making
necessary preparations for the meeting.
Sincerely,
/s/ John G. McMillian /s/ James A. Jeffs
--------------------------- ------------------------
John G. McMillian James A. Jeffs
Co-Chairman of the Board Co-Chairman of the Board
and Chief Executive Officer
<PAGE>
CHAPARRAL
CHAPARRAL RESOURCES, INC.
Notice of Annual Meeting of Stockholders
To be held May 9, 2000
Chaparral Resources, Inc. will hold its Annual Meeting of Stockholders on
May 9, 2000 at 10:00 a.m., Central Daylight Time, at:
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
1900 Pennzoil Place - South Tower
711 Louisiana Street
Houston, Texas 77002
We are holding this meeting to consider and act upon the following matters
that are more fully-described in the accompanying Proxy Statement, including
proposals to:
1. approve the conversion provision contained in the outstanding 8%
Non-Negotiable Convertible Subordinated Promissory Notes of Chaparral
Resources;
2. elect seven directors to the Board of Directors of Chaparral
Resources;
3. ratify the appointment of Ernst & Young LLP as the independent
auditors of Chaparral Resources for fiscal year 2000; and
4. consider such other business as may properly come before the meeting
or any adjournment thereof.
The Board of Directors has selected March 31, 2000 as the record date for
determining stockholders entitled to notice of and to vote at the meeting and
any adjournment thereof. A list of stockholders as of the record date will be
available for inspection at corporate headquarters of Chaparral Resources for
ten days before the meeting.
IN ORDER TO ASSURE YOUR REPRESENTATION AT THE MEETING, PLEASE DATE, SIGN,
AND MAIL PROMPTLY THE ENCLOSED PROXY CARD IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
A copy of Chaparral Resources' 1999 Annual Report is enclosed. Please read
the Annual Report in its entirety.
By Order of the Board of Directors,
/s/ Alan D. Berlin
------------------------------------------
Alan D. Berlin
Secretary
Houston, Texas
April ___, 2000
<PAGE>
CHAPARRAL
CHAPARRAL RESOURCES, INC.
Annual Meeting of Stockholders
To Be Held May 9, 2000
This Proxy Statement is furnished to stockholders of Chaparral Resources,
Inc. for use at the Annual Meeting of Stockholders to be held at 10:00 a.m.,
Central Daylight Time, on May 9, 2000, at the offices of Akin, Gump, Strauss,
Hauer & Feld, L.L.P., 1900 Pennzoil Place - South Tower, 711 Louisiana Street,
Houston, Texas 77002, or at any postponements or adjournments thereof for the
purposes set forth in the accompanying Notice of Annual Meeting of Stockholders.
The approximate date on which this Proxy Statement and the enclosed proxy card
are first being sent to stockholders is April ___, 2000.
TABLE OF CONTENTS
Page
----
General Information..........................................................2
Proposal One: Conversion of Notes............................................5
The Notes...........................................................5
Dilution to Ownership Percentage....................................5
Dilution to the Net Tangible Book Value Per Share...................6
Summary Pro Forma Financial Data....................................7
Fairness Opinion....................................................7
Effect of a Negative Vote...........................................11
Recommendation of the Board.........................................11
Proposal Two: Election of Directors..........................................12
Nominees............................................................12
Nomination of Mr. Turner............................................14
Meetings of the Board and Its Committees............................14
Remuneration of Directors...........................................14
Resignation of Directors............................................14
Recommendation of the Board.........................................15
Beneficial Ownership of Certain Stockholders, Directors,
Nominees and Executive Officers...........................................16
Stock Performance Graph......................................................18
Section 16(a) Beneficial Ownership Reporting Compliance......................18
Executive Compensation.......................................................19
Summary Compensation Table..........................................19
Option/SAR Grants...................................................19
Aggregated Option/SAR Exercises and Year-End
Option/SAR Value Table.............................................19
Director Interlocks.................................................20
Certain Relationships and Related Transactions...............................20
Interests of Certain Persons in Matters to be Acted Upon.....................21
Insider Participation in Compensation Decisions
and Compensation Committee..................................................22
Report on Executive Compensation.............................................22
Compensation Philosophy.............................................22
Compensation Structure..............................................22
Executive Compensation Deductibility................................23
Compensation Committee Interlocks and Insider Participation.........23
Where You Can Find Additional Information....................................24
Proposal Three: Ratification of Independent Auditors.........................25
Recommendation of the Board.........................................25
Other Business...............................................................25
Opinion of Financial Advisor.............................................Annex I
<PAGE>
GENERAL INFORMATION
Q: Who is soliciting my proxy?
A: We, the Board of Directors of Chaparral Resources (the "Board"), are
sending you this Proxy Statement in connection with our solicitation of
proxies for use at Chaparral Resources' Annual Meeting of Stockholders.
Certain directors, officers, and employees of Chaparral Resources may also
solicit proxies on our behalf by mail, phone, fax, or in person.
Q: Who is paying for this solicitation?
A: Chaparral Resources will pay for the solicitation of proxies, including the
cost of preparing, assembling, and mailing this Proxy Statement, the proxy
card, the Annual Report and all other materials which may be sent to
stockholders in connection with this solicitation.
Q: On what am I voting?
A: You will have the chance to vote on, specifically:
o the approval of the conversion provision contained in the $13,339,769
aggregate principle amount 8% Non-Negotiable Convertible Subordinated
Promissory Notes of Chaparral Resources (the "Notes") at $1.86 per
share;
o the election of John G. McMillian, James A. Jeffs, David A. Dahl, Ted
Collins, Jr., Richard L. Grant, Mark L.G. Turner, and Judge Burton B.
Roberts to the Board; and
o the ratification of the appointment of Ernst & Young LLP as Chaparral
Resources' independent auditors for fiscal year 2000.
Q: Who can vote?
A: Only holders of Chaparral Resources' Common Stock ("Common Stock") or
Series A Preferred Stock at the close of business on March 31, 2000, the
record date for the Annual Meeting, can vote. If you beneficially owned any
Common Stock on the record date, you have one vote per share of Common
Stock. If you beneficially owned any Series A Preferred Stock on the record
date, you have .7784 votes per share of Series A Preferred Stock. The
Securities and Exchange Commission (the "SEC") defines "beneficial
ownership" of shares to mean shares over which a person has sole or shared
voting or investment power.
Q: How do I vote?
A: You may vote your shares either in person or by proxy. To vote by proxy,
you should mark, date, sign, and mail the enclosed proxy card in the
postage prepaid-envelope. Granting a proxy will not affect your right to
vote your shares if you attend the Annual Meeting and want to vote in
person; by voting in person you will revoke your proxy. You may also revoke
your proxy at any time before the voting by providing Chaparral Resources'
Secretary written notice of your revocation or by submitting a later-dated
proxy. If you return your proxy but do not mark your voting preference,
Messrs. McMillian and Jeffs, the proxy holders, will vote your shares as
follows:
o FOR conversion of the Notes;
o FOR the election of each of the nominees for director; and
o FOR the ratification of the appointment of the independent auditors.
2
<PAGE>
Q: What constitutes a quorum?
A: On the record date, Chaparral Resources had 980,481 shares of Common Stock,
issued and outstanding and 50,000 shares of Series A Preferred Stock,
issued and outstanding. In order for the Annual Meeting to be properly
held, a majority of the outstanding shares, consisting of our outstanding
Common Stock and our Series A Preferred Stock on a converted basis (a
quorum) must be present at the meeting or represented by proxy.
Q: What vote is required to approve each proposal?
A: For the election of directors, the affirmative vote of a plurality of the
votes cast at the meeting is required for the election of directors. A
properly executed proxy card marked WITHHOLD AUTHORITY with respect to the
election of one or more directors will not be voted with respect to the
director or directors indicated, although it will be counted for purposes
of determining whether there is a quorum.
For all matters other than the election of directors, the affirmative vote
of a majority of the votes cast by person or by proxy at the Annual Meeting
is required for approval of such matter. A properly executed proxy marked
ABSTAIN with respect to any other matter will not be voted, although it
will be counted for purposes of determining whether there is a quorum.
Accordingly, if there are any other items on which the stockholders vote at
the Annual Meeting, an abstention will have the effect of a negative vote
on such other item.
Q: What if my shares are held in "street name?"
A: If you hold your shares in "street name" through a broker or other nominee,
your broker or nominee may only exercise voting discretion with respect to
matters deemed routine by the Nasdaq Stock Market, such as the election of
directors and the selection of independent auditors. On a non-routine
matter, a broker or other nominee cannot cast a vote (a so-called "broker
non-vote"). All matters other than the election of directors must be
approved by a majority of the votes cast. Directors are elected by a
plurality of the votes cast. The seven nominees for Directors who receive
the largest number of votes cast will be elected as Directors. Abstentions
and broker non-votes, if any, will not be treated as votes cast, and
therefore, will not affect the outcome of the matters referred to above.
Q: Can I vote on other matters?
A: The matters presented at an annual meeting are limited to those properly
presented by the Board and those presented by stockholders so long as the
stockholder has given Chaparral Resources' Secretary prior written notice
of the matter by April 11, 2000. We do not currently expect any other
matter to come before the Annual Meeting. If any other matter is presented
at the Annual Meeting, your signed proxy gives Messrs. McMillian and Jeffs,
the proxy holders, authority to vote your shares.
Q: How does the Board recommend I vote on the proposals?
A: Unless you give other instructions on your proxy card, Messrs. McMillian
and Jeffs, the proxy holders, on the proxy card will vote in accordance
with the recommendations of the Board. The Board recommends a vote FOR:
o the conversion provision of the Notes (see page 5);
o the election of the nominated slate of directors (see page 12); and
o the ratification of the appointment of the independent auditors (see
page 25).
With respect to any other matter that properly comes before the meeting,
the proxy holders will vote as recommended by the Board, or if no
recommendation is given, in their own discretion.
3
<PAGE>
Q: When are stockholder proposals for the 2001 annual meeting due?
A: Stockholders interested in presenting a proposal to be considered for
inclusion in next year's Proxy Statement and form of proxy may do so by
following the procedures prescribed in Rule 14a-8 under the Securities
Exchange Act of 1934 (the "Exchange Act"). To be eligible for inclusion,
stockholder proposals must be submitted in writing to the Secretary,
Chaparral Resources, Inc., 16945 Northchase Drive, Suite 1620, Houston,
Texas 77060, before December 10, 2000.
Q: How do I get copies of the exhibits filed with Chaparral Resources' Form
10-K?
A: A copy of Chaparral Resources' Annual Report for 1999, which contains
Chaparral Resources' Form 10-K and consolidated financial statements, was
delivered to you with this Proxy Statement. Chaparral Resources will
provide to any stockholder as of the record date, who so specifically
requests in writing, copies of the exhibits filed with Chaparral Resources'
Form 10-K for a reasonable fee. Requests for such copies should be directed
to Assistant Secretary, Chaparral Resources, Inc., 16945 Northchase Drive,
Suite 1620, Houston, Texas 77060. In addition, copies of all exhibits filed
electronically by Chaparral Resources may be reviewed and printed from the
SEC's website at: http://www.sec.gov.
4
<PAGE>
PROPOSAL ONE
CONVERSION OF NOTES
The Notes.
Chaparral Resources issued $13,339,769 aggregate principal amount of Notes
as of March 31, 2000. The Notes provide, subject to stockholder approval, that
the outstanding principal balance of the Notes, together with all accrued but
unpaid interest thereon, are convertible into shares of Common Stock (the
"Conversion Provision") at a conversion price of $1.86 per share (the
"Conversion Price"). On March 31, 2000, the closing price of Common Stock on the
Nasdaq SmallCap Market was $9.50 per share. Chaparral Resources estimates that
7,239,834 shares of Common Stock are issuable upon conversion of the Notes,
including all accrued interest through December 31, 1999. The actual conversion
will include all accrued but unpaid interest through the conversion date.
Chaparral Resources issued the Notes in connection with satisfying certain
conditions to borrowing under Chaparral Resources' loan agreement, dated as of
November 1, 1999, by and among Chaparral Resources, Central Asian Petroleum
(Guernsey) Limited, Central Asian Petroleum, Inc., Closed Type JSC
Karakudukmunay JSC ("KKM"), Shell Capital Limited ("Shell Capital"), Shell
Capital Services Limited, and certain other lenders (the "Loan"). Under the
terms of the Loan, Chaparral Resources must retire, convert or subordinate all
of its term debt. By issuing the Notes, Chaparral Resources was able to
consolidate all of its term debt into the Notes, which are subordinate to the
Loan and convertible, upon stockholder approval, into shares of Common Stock at
the Conversion Price. Chaparral Resources used the proceeds from the Notes to
(1) provide interim financing pending completion of the Loan, (2) extinguish a
pre-existing bank loan and (3) retire secured demand loans from certain
stockholders. Upon approval of the Conversion Provision, the entire $13,339,769
of Notes, plus all accrued but unpaid interest thereon, will automatically
convert into shares of Common Stock, thereby eliminating all of Chaparral
Resources' term debt other than the Loan.
Dilution to Ownership Percentage.
Currently, there are 980,481 shares of Common Stock issued and outstanding.
Of the number of shares outstanding, approximately 80% are held by
non-affiliates of Chaparral Resources, or the public, and approximately 20% are
held by certain affiliates of Chaparral Resources; namely, Allen & Company
Incorporated ("Allen & Company"), Whittier Ventures LLC ("Whittier"), and Mr.
McMillian. Approximately 79% of the Notes are held by such affiliates. Upon
approval of the Conversion Provision of the Notes, an additional 7,239,834
shares of Common Stock will be issued, plus shares for accrued but unpaid
interest from December 31, 1999 to the date of conversion, of which 5,725,000
shares will be issued to such affiliates. Such issuance will result in an
increase of over 738% in the number of issued and outstanding shares of Common
Stock. As a result, following the conversion of the Notes, the ownership of
stockholders that were not holders of the Notes will decrease to approximately
9% of the outstanding shares of Common Stock and the ownership of such
affiliates will increase to approximately 72%. The remaining 19% will be held by
various non-affiliated holders of the Notes. This does not include additional
dilution that may result from the exercise of Chaparral Resources' outstanding
warrants and grants under Chaparral Resources' stock option plans.
5
<PAGE>
Dilution to the Net Tangible Book Value Per Share.
Chaparral Resources' net tangible book value as of December 31, 1999, was
approximately $22,851,000, or $23.31 per share of Common Stock. Net tangible
book value per share represents the amount of Chaparral Resources' total
tangible assets on December 31, 1999, reduced by the amount of total liabilities
and redeemable Series A Preferred Stock, divided by the total number of shares
of Common Stock outstanding. Dilution in net tangible book value per share
represents the difference between the actual net tangible book value per share
of Common Stock as of December 31, 1999 versus pro forma net tangible book value
per share of Common Stock immediately after the completion of the conversion of
the Notes.
Assuming the conversion of the Notes and related accrued interest occurred
on December 31, 1999, 5,465,640 shares of Common Stock would have been issuable
to the holders of the Notes. In January and February 2000, Chaparral Resources
issued $3,300,000 of additional Notes to various related parties and other
non-affiliated investors. Accordingly, the following as adjusted information has
been provided based on both the balances as of December 31, 1999 and after
giving effect to the additional Notes issued in January and February 2000.
<TABLE>
<CAPTION>
As of December 31, 1999
--------------------------------------------------------
Historical As Adjusted (1) As Adjusted (2)
--------------------------------------------------------
<S> <C> <C> <C>
Net tangible book value $ 22,851,000 $ 32,553,000 $ 35,853,000
========================================================
Shares outstanding 980,481 980,481 980,481
Additional shares issued at $1.86 per share -- 5,465,640 7,239,834
--------------------------------------------------------
Total pro forma shares outstanding 980,481 6,446,121 8,220,315
Net tangible book value per share $ 23.31 $ 5.05 $ 4.36
========================================================
Dilution per share $ -- $ 18.26 $ 18.95
========================================================
</TABLE>
- ----------
(1) As adjusted to reflect the conversion of the Notes plus accrued but unpaid
interest thereon as of December 31, 1999.
(2) 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.
6
<PAGE>
Summary Pro Forma Financial Data.
Chaparral Resources is providing the following selected historical
information to aid you in your analysis of the financial aspects of this
proposal. This information is only a summary and you should read it in
conjunction with Chaparral Resources' historical consolidated financial
statements (and related notes) contained in Chaparral Resources' Annual Report
on Form 10-K that has been filed with the SEC. See "Where You Can Find More
Information" on page 24.
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------
1997 1998 1999
---------------------------------------------------------
<S> <C> <C> <C>
Statement of Operations Data:
Oil and gas sales........................................ $ -- $ -- $ --
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 item........................... (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)
=========================================================
Net loss per share - basic and diluted................... $ (3.76) $ (4.75) $ (5.28)
Weighted average number of shares outstanding............ 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 $ 23,000 $ 3,323,000
Restricted cash.......................................... 578,000 578,000 578,000
Working capital (deficit)................................ (2,941,000) (2,815,000) 485,000
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 41,303,000 44,603,000
Stockholders' equity..................................... 22,851,000 32,553,000 35,853,000
</TABLE>
- ----------
(1) As adjusted to reflect the conversion of the Notes plus accrued but unpaid
interest thereon as of December 31, 1999.
(2) 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.
Fairness Opinion.
Chaparral Resources engaged Houlihan Lokey Howard & Zukin Financial
Advisors, Inc., ("Houlihan Lokey") to act as its financial advisor in connection
with the Conversion Price.
Chaparral Resources instructed Houlihan Lokey, in its role as a financial
advisor, to evaluate the fairness from a financial point of view, of the
Conversion Price to the public stockholders of Chaparral Resources. On March 23,
2000, Houlihan Lokey delivered its oral opinion to the Board (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, the Conversion Price is
fair to the public stockholders of Chaparral Resources.
Chaparral Resources 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 the Board and was rendered to the Board in connection with the
Conversion Price.
7
<PAGE>
Houlihan Lokey's fairness opinion addresses only fairness from a financial
point of view of the Conversion Price to the public stockholders of Chaparral
Resources and does not constitute a recommendation as to how such holders or any
other person should vote with respect to the Conversion Provision. Houlihan
Lokey has not been requested and does not intend to further update, revise or
reaffirm its fairness opinion in connection with the Conversion Price, unless
requested to do so by the Board. Events that could affect the fairness of the
Conversion Price, 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 Resources.
Houlihan Lokey did not, and was not requested by us to, make any
recommendations as to the form or terms of the Conversion Provision, and does
not express any opinion as to the fairness of any aspect of the Conversion Price
not expressly addressed in its fairness opinion. Houlihan Lokey's fairness
opinion also does not address Chaparral Resources' underlying business decision
to issue the Notes or the terms thereof, including the Conversion Price.
Houlihan Lokey was not asked to opine on and does not express any opinion as to
the tax consequences of the Conversion Provision, the public market values or
realizable value of Chaparral Resources' Common Stock or the prices at which its
Common Stock may trade following the conversion of the Notes.
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. Chaparral Resources 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 the Conversion Provision. Chaparral Resources 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.
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 I and is incorporated herein by reference. The
discussion of the fairness opinion below is qualified in its entirety by
reference to such opinion. Please read the fairness opinion in its entirety.
In arriving at its fairness opinion, Houlihan Lokey reviewed and analyzed
the following:
8
<PAGE>
o reviewed Chaparral Resources' publicly-available information, which
includes Chaparral Resources' 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 Chaparral Resources' management identified as
being the most current financial information available at the time the
opinion was rendered, and Chaparral Resources' 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 Chaparral Resources' senior management to
discuss Chaparral Resources' operations, financial condition, future
prospects and projected operations and performance, and spoke with
representatives of Chaparral Resources' legal counsel and independent
accountants to discuss certain matters;
o visited certain of Chaparral Resources' facilities and offices;
o reviewed certain confidential forecasts and projections, which are not
publicly available, prepared by Chaparral Resources' management as of
approximately September 21, 1999, for review by Shell Capital Limited
in connection with Chaparral Resources' 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 Chaparral Resources' registration statement on
Form S-3 for a rights offering of 5,300,000 shares of its Common Stock
with a subscription price of $1.86;
o reviewed a draft of Chaparral Resources' Schedule 14A, Information
Required in Proxy Statement;
o reviewed the historical market prices and trading volumes for
Chaparral Resources' Common Stock;
o reviewed certain other publicly available financial information for
certain companies that Houlihan Lokey deemed comparable to Chaparral
Resources, and publicly available prices and premiums paid in other
transactions that Houlihan Lokey considered similar; 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 the
Conversion Price to the public stockholders of Chaparral Resources, Houlihan
Lokey conducted several analyses, including the following:
o a discounted cash flow analysis whereby projected cash flows were
discounted to determine Chaparral Resources' present enterprise value;
o a market valuation approach whereby Chaparral Resources' proven
reserves were multiplied by a risk adjusted multiple based upon a
comparison between Chaparral Resources and the comparable companies to
determine Chaparral Resources' enterprise value; and
o various other analysis.
9
<PAGE>
Comparable Company Analysis. Using publicly available information, Houlihan
Lokey compared selected financial data of Chaparral Resources with similar data
of various companies engaged in businesses considered by Houlihan Lokey to be
comparable to Chaparral Resources, 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 Chaparral Resources'
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 Chaparral Resources' 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, Chaparral Resources' 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 Resources 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 Chaparral
Resources' management's projections and this analysis, Houlihan Lokey calculated
indications of the range of Chaparral Resources' enterprise value of between
$8.0 million and $10.6 million.
The second method used to determine Chaparral Resources' 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 Chaparral Resources'
management's projections and this analysis, Houlihan Lokey calculated an
indication of Chaparral Resources' enterprise value of $6.2 million.
Consideration of Publicly Traded Price. Houlihan Lokey reviewed the
historical market prices and trading volumes for Chaparral Resources' 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 Chaparral Resources' 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
Chaparral Resources' enterprise values of $8.9 million to $10.8 million, the
high end of the low and high indications of value. After adding Chaparral
Resources' cash of approximately $85,000 as of March 7, 2000, and subtracting
Chaparral Resources' debt of approximately $13.4 million as of March 17, 2000,
Houlihan Lokey arrived at an aggregate valuation of Chaparral Resources' equity
ranging from -$4.4 million to -$2.5 million.
10
<PAGE>
In conclusion, Houlihan Lokey's analyses indicated that the Conversion
Price is fair, from a financial point of view, to the public stockholders of
Chaparral Resources.
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
Chaparral Resources was reasonably and accurately prepared based upon the best
current available estimates of the financial results and condition of Chaparral
Resources taken as a whole. Houlihan Lokey did not independently verify the
accuracy or completeness of the information supplied to it with respect to
Chaparral Resources and does not assume responsibility for it. Houlihan Lokey
did not make any independent appraisal of Chaparral Resources' 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 Resources, industry performance, general business,
economic, political, market and financial conditions and other matters, many of
which are beyond the control of Chaparral Resources. 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.
Effect of a Negative Vote.
If the Conversion Provision contained in the Notes is not approved, (i) the
interest rate payable on the Notes will automatically increase to the lesser of
25% per annum or the maximum rate allowed by applicable law thereby causing a
significant increase in interest expense, and (ii) the Notes will remain
subordinate to the Loan, which will extend the maturity of Notes until the Loan
is repaid in full.
Recommendation of the Board.
The Board recommends that stockholders vote FOR approval of the Conversion
Provision contained in the Notes.
11
<PAGE>
PROPOSAL TWO
ELECTION OF DIRECTORS
Nominees.
At the Annual Meeting, you and the other stockholders will elect seven
individuals to serve as directors until the next annual meeting of shareholders
to be held in 2001, until their successors are duly elected or appointed or
until their death, resignation, or removal. Except for Mark L.G. Turner and
Judge Burton B. Roberts, each of the nominees is currently a member of the
Board.
The individuals named as proxies will vote the enclosed proxy for the
election of all nominees, unless you direct them to withhold your votes. If any
nominee becomes unable to serve as a director before the Annual Meeting, an
event which is not presently anticipated, discretionary authority may be
exercised by the persons named as proxies to vote for substitute nominees
proposed by the Board.
The nominees for director, each of whom has consented to serve, if elected,
are as follows:
<TABLE>
<CAPTION>
Name of Nominee Director Since Age Principal Occupation During the Last 5 Years
--------------- -------------- --- --------------------------------------------
<S> <C> <C> <C>
John G. McMillian 1997 73 Mr. McMillian has served as the Chairman of the Board of
Chaparral Resources and Chief Executive Officer since
January 1999 and Co-Chairman of the Board since May 1999.
From May 1997 to January 1999, Mr. McMillian served as a
director of Chaparral Resources. Mr. McMillian served as the
Chairman, President, and Chief Executive Officer of
Allegheny & Western Energy Corporation, an oil and gas
company, from 1987 to 1995. Mr. McMillian founded Northwest
Energy Company, a major supplier of natural gas, and served
as its Chairman and Chief Executive Officer from 1973 to
1983. From 1986 to 1989, Mr. McMillian was the owner,
Chairman and Chief Executive Officer of Burger Boat Company,
a boat manufacturing company. McMillian has served as a
director of Excalibur Technologies and as a member of its
Audit Committee since 1996.
James A. Jeffs 1999 48 Mr. Jeffs has served as the Co-Chairman of the Board of
Chaparral Resources since May 1999. Since 1994, Mr. Jeffs
has served as Managing Director and the Chief Investment
Officer for The Whittier Trust Company, a trust and
investment management company, with substantial oil and gas
interests. From 1993 to 1994, Mr. Jeffs was a Senior Vice
President of Union Bank of California. Mr. Jeffs was the
Chief Investment Officer of Northern Trust of California,
N.A., a trust and investment management company, from 1992
to 1993. Mr. Jeffs was Chief Investment Officer and Senior
Vice President of Trust Services of America, a trust and
investment management company from 1988 to 1992 and served
as President and Chief Executive Officer of TSA Capital
Management, an institutional investment management company,
during that period.
12
<PAGE>
Name of Nominee Director Since Age Principal Occupation During the Last 5 Years
--------------- -------------- --- --------------------------------------------
David A. Dahl 1997 38 Mr. Dahl served as Secretary of Chaparral Resources from
August 1997 until May 1998. Currently, Mr. Dahl is the
President of Whittier Energy Company, an oil and gas
exploration and production company, a position that he has
held since 1997. Since 1996, Mr. Dahl has also served as the
President of Whittier Ventures, LLC, a private investment
entity. Since 1993, Mr. Dahl has been a Vice President of
Whittier Trust Company, an investment management trust
company. From 1990 to 1993, Mr. Dahl was a Vice President of
Merus Capital Management, an investment firm.
Ted Collins, Jr. 1997 61 Since 1988, Mr. Collins has been the President of Collins &
Ware, Inc., an independent oil and gas company. From 1982
to 1988, Mr. Collins was the President of Enron Oil & Gas
Co., an oil and gas company. Beginning in 1969 and until
1982, Mr. Collins was an Executive Vice President and
director of American Quasar Petroleum Co., an oil and gas
company. Mr. Collins also serves on the Board of Directors
of Hanover Compression Company, MidCoast Energy Resources,
Inc. and Queen Sand Resources, Inc.
Richard L. Grant 1998 45 Mr. Grant is the President of Cabot LNG Corporation, an
importer of liquified natural gas, a position he has held
since September 1998. Mr. Grant served in various capacities
at Mountaineer Gas Company, the largest natural gas
distribution company in West Virginia, including President,
from September 1988 to August 1998, and Executive Vice
President and General Counsel, from 1986 to 1988. Mr. Grant
was an engineer for and legal counsel with the Cincinnati
Gas & Electric Company, from 1980 to 1986.
Mark L.G. Turner Nominee 42 Mr. Turner is the Director of the International E&P Group of
Shell Capital Services Limited, a position he has held since
January 1998. Prior to joining Shell Capital Services
Limited, Mr. Turner served as a corporate tax advisor for
Royal/Dutch Shell Group from 1987 to December 1997. Prior
to 1987, Mr. Turner was employed as Inspector of Taxes for
the United Kingdom's Board of Inland Revenue.
Judge Burton B. Nominee 77 Since January 1999, Judge Roberts has served as counsel to
Roberts the law firm of Fischbein, Badillo, Wagner, Harding. From
1973 to 1999, Judge Roberts served as Justice of the
New York State Supreme Court, as Administrative Judge for
the Criminal Branch, 12th Judicial District, from January
1984 to January 1999, and for the Civil Branch, 12th Judicial
District, from 1988 to 1999. Prior to his service on the
bench, Judge Roberts was an Assistant District Attorney
in New York County, then Chief Assistant District Attorney
and District Attorney for Bronx County, New York. Judge
Roberts was formerly Chair of the Bronx County Coordinating
Committee for Criminal Justice and of the New York State
Committee on Audio/Visual coverage. He is currently a member
of the American Bar Association, the New York State Bar
Association, the Association of the Bar of the City of New
York and the Bronx Bar Association.
</TABLE>
13
<PAGE>
Nomination of Mr. Turner.
Under the terms of the Loan, Shell Capital is entitled to have one nominee
for the Board. In connection with satisfying this obligation, the Nominating
Committee of the Board nominated Mr. Turner as a director.
Meetings of the Board and Its Committees.
During the fiscal year ended December 31, 1999, Chaparral Resources held
eight Board meetings. Mr. Collins is the only director of Chaparral Resources
who attended less than 75% of the Board meetings.
The Board had several committees, including the Audit Committee, the
Compensation Committee, and the Nominations Committee. The following discussion
details the composition and role of each committee.
The Audit Committee, comprised of Messrs. Arlo G. Sorensen, Dahl, and
Grant, represents the Board in discharging its responsibilities relating to the
accounting, reporting, and financial control practices of Chaparral Resources.
The Audit Committee is responsible for annually reviewing the qualifications and
objectivity of Chaparral Resources' independent auditors and overseeing
Chaparral Resources' accounting policies and financial reporting practices. The
Audit Committee is also empowered to conduct its own investigations into issues
related to its responsibilities and to retain independent counsel or outside
experts for such purposes. During the fiscal year ended December 31, 1999, this
committee met on one occasion. Mr. Sorensen resigned effective August 31, 1999
and was not replaced on the Audit Committee.
As members of the Compensation Committee, Messrs. Grant, Dahl and Jeffs,
recommend cash and non-cash compensation for Chaparral Resources' executives to
the full Board and review and recommend to the full Board stock plans for
adoption by the Chaparral Resources for its directors, officers, employees, and
consultants. The Compensation Committee is also responsible for developing the
Chaparral Resources' executive compensation program. The Compensation Committee
monitors and grants awards pursuant to Chaparral Resources' executive
compensation program and stock option plans. During the year ended December 31,
1999, the Compensation Committee met on one occasion.
The Nominations Committee, which consisted of Messrs. Jeffs, Grant and
McMillian, has oversight for recruiting and recommending candidates for election
to the Board and evaluation of director independence and performance. During
fiscal year ended December 31, 1999, the Nominations Committee met on two
occasions.
Remuneration of Directors.
During the fiscal year ended December 31, 1999, Chaparral Resources did not
compensate its directors for their service as directors. There were no standard
or other arrangements for the compensation of directors in effect for the fiscal
year ended December 31, 1999.
Resignation of Directors.
During the fiscal year ended December 31, 1999, three of the directors of
the Board resigned. Mr. Howard Karren resigned effective January 7, 1999, Mr.
Michael J. Muckleroy resigned effective January 8, 1999 and Mr. Sorensen
resigned effective August 31, 1999.
14
<PAGE>
Recommendation of the Board.
The Board recommends that stockholders vote FOR each of the nominees to
serve as directors of Chaparral Resources.
15
<PAGE>
BENEFICIAL OWNERSHIP OF CERTAIN STOCKHOLDERS, DIRECTORS, NOMINEES,
AND EXECUTIVE OFFICERS
The following table sets forth information as of March 15, 2000, with
respect to directors, nominees, named executive officers of Chaparral Resources
and each person who is known by Chaparral Resources to own beneficially more
than 5% of Common Stock, and with respect to shares owned beneficially by all
directors, nominees and executive officers of Chaparral Resources as a group.
The following table and supporting footnotes include the aggregate value of
Notes held by each beneficial owner and the number of shares such Notes will
convert into if Chaparral Resources' stockholders approve the Conversion
Provision of the Notes. The address for all directors and executive officers of
Chaparral Resources is 16945 Northchase Drive, Suite 1620, Houston, Texas 77060.
<TABLE>
<CAPTION>
Amount and Nature of Percent of
Beneficial Ownership Common
Name of Beneficial Owner Position (1) Stock (1)
- --------------------------------------- ----------------------------------- ---------------------- ------------
<S> <C> <C> <C>
Allen & Company Incorporated -- 4,497,508(2) 53.54%
711 Fifth Avenue
New York, New York 10022
Whittier Ventures, LLC -- 1,203,360(3) 14.39%
1600 Huntington Drive
South Pasadena, California 91030
John G. McMillian Co-Chairman of the Board and 372,773(4) 4.46%
Chief Executive Officer
James A. Jeffs Co-Chairman of the Board 1,208,335(5) 14.45%
David A. Dahl Director 1,205,048(6) 14.41%
Ted Collins, Jr. Director 2,668 *
Richard L. Grant Director -- *
Mark L.G. Turner Nominee --(7) *
Judge Burton B. Roberts Nominee -- *
Michael B. Young Treasurer & Controller 1,668(8) *
Howard Karren Former President and Chief 19,917(9) *
Executive Officer
Dr. Jack A. Krug Former President and Chief 4,868(10) *
Operating Officer
Arlo G. Sorensen Former Director 1,205,048(11) 14.41%
Michael J. Muckleroy Former Director 167(12) *
All current directors, nominees, and 1,587,446(13) 18.98%
executive officers as a group (eight
persons)
</TABLE>
16
<PAGE>
- ----------
* Represents less than 1% of the shares of Common Stock outstanding.
1. Beneficial ownership of Common Stock has been determined for this purpose
in accordance with Rule 13d-3 under the Exchange Act, under which a person
is deemed to be the beneficial owner of securities if such person has or
shares voting power or investment power with respect to such securities or
has the right to acquire beneficial ownership within 60 days.
2. In accordance with Rule 13d-3(d)(1)(i)(D), includes 4,325,850 shares
issuable upon conversion of Allen & Company's $7,827,161 aggregate
principal amount of Notes, together with $218,920 of accrued but unpaid
interest thereon as of March 31, 2000, at the conversion price of $1.86 per
share if the Conversion Provision is approved by the stockholders. Also
includes 48,284 shares underlying warrants to purchase shares of Common
Stock. Allen & Company is a wholly owned subsidiary of Allen Holding Inc.
("AHI"), and, consequently, AHI may be deemed to beneficially own the
shares beneficially owned by Allen & Company. Does not include certain
shares owned directly by certain officers and stockholders of AHI and Allen
& Company with respect to which AHI and Allen & Company disclaim beneficial
ownership. Certain officers and stockholders of AHI and Allen & Company may
be deemed to beneficially own certain shares of the Common Stock reported
to be beneficially owned directly by AHI and Allen & Company.
3. In accordance with Rule 13d-3(d)(1)(i)(D), includes 1,137,797 shares
issuable upon conversion of Whittier's $2,050,959 aggregate principal
amount of Notes, together with $65,345 of accrued but unpaid interest
thereon as of March 31, 2000, at the conversion price of $1.86 per share if
the Conversion Provision is approved by the stockholders. Also includes
2,002 shares underlying currently exercisable warrants and 8,334 shares
underlying a currently exercisable option.
4. In accordance with Rule 13d-3(d)(1)(i)(D), includes 365,104 shares issuable
upon conversion of Mr. McMillian's $661,649 aggregate principal amount of
Notes, together with $17,445 of accrued but unpaid interest thereon as of
March 31, 2000, at the conversion price of $1.86 per share if the
Conversion Provision is approved by the stockholders. Also includes 417
shares underlying a currently exercisable option and 417 shares underlying
a currently exercisable warrant.
5. In accordance with Rule 13d-3(d)(1)(i)(D), includes 1,137,797 shares
issuable upon conversion of Whittier's $2,050,959 aggregate principal
amount of Notes, together with $65,345 of accrued but unpaid interest
thereon as of March 31, 2000, at the conversion price of $1.86 per share if
the Conversion Provision is approved by the stockholders. Also includes
49,519 shares beneficially owned by Whittier, 1,584 shares underlying
currently exercisable warrants owned by Whittier, 5,820 shares owned by
Whittier Energy Company, 418 shares underlying currently exercisable
warrants owned by Whittier Energy Company, 158 shares owned by Whittier
Opportunity Fund, and 8,334 shares underlying currently exercisable options
owned by Whittier Opportunity Fund. Mr. Jeffs has no pecuniary interest in
the shares beneficially owned by Whittier, Whittier Energy Company, and
Whittier Opportunity Fund, however, as Vice President of Whittier and
Director of Whittier Energy Company, Mr. Jeffs has voting power and
investment power over such shares and, thus, may be deemed to beneficially
own such shares. Does not include 3,917 shares subject to an escrow
agreement which provides that such shares will be released to Mr. Jeffs if
Chaparral Resources' oil and gas interests attain specified performance
levels.
6. In accordance with Rule 13d-3(d)(1)(i)(D), includes 1,137,797 shares
issuable upon conversion of Whittier's $2,050,959 aggregate principal
amount of Notes, together with $65,345 of accrued but unpaid interest
thereon as of March 31, 2000, at the conversion price of $1.86 per share if
the Conversion Provision is approved by the stockholders. Also includes
1,251 shares underlying currently exercisable options owned by Mr. Dahl,
49,519 includes shares beneficially owned by Whittier, 1,584 shares
underlying currently exercisable warrants owned by Whittier, 5,820 shares
owned by Whittier Energy Company, 418 shares underlying currently
exercisable warrants owned by Whittier Energy Company, 158 shares owned by
Whittier Opportunity Fund and 8,334 shares underlying currently exercisable
options owned by Whittier Opportunity Fund. Mr. Dahl has no pecuniary
interest in the shares beneficially owned by Whittier, Whittier Energy
Company, or Whittier Opportunity Fund, however, as the President of
Whittier and Whittier Energy Company, Mr. Dahl has voting power and
investment power over such shares and, thus, may be deemed to beneficially
own such shares.
7. Does not include a warrant to Shell Capital to purchase up to 147,072
shares, with an exercise price of $15.45 per share. The Shell Capital
warrant contains certain anti-dilution provisions.
17
<PAGE>
8. Includes 501 shares owned by Mr. Young and 1,167 shares underlying
currently exercisable options. 9. Includes 17,083 shares underlying
currently exercisable options. Mr. Karren resigned effective January 7,
1999.
10. Includes 3,333 shares beneficially owned by Dr. Krug. Effective as of
September 30, 1999, Chaparral Resources issued to Dr. Krug an additional
2,361 shares of Common Stock pursuant to his employment agreement, of which
826 shares were subsequently assigned to a third party. Dr. Krug resigned
effective September 30, 1999.
11. In accordance with Rule 13d-3(d)(1)(i)(D), includes 1,137,797 shares
issuable upon conversion of Whittier's $2,050,959 aggregate principal
amount of Notes, together with $65,345 of accrued but unpaid interest
thereon as of March 31, 2000, at the conversion price of $1.86 per share if
the Conversion Provision is approved by the stockholders. Also includes
49,519 shares beneficially owned by Whittier, 1,584 shares underlying
currently exercisable warrants owned by Whittier, 5,820 shares owned by
Whittier Energy Company, 418 shares underlying currently exercisable
warrants owned by Whittier Energy Company, 158 shares owned by Whittier
Opportunity Fund and 8,334 shares underlying currently exercisable options
owned by Whittier Opportunity Fund. Also includes 1,251 shares underlying
currently exercisable options owned by Mr. Sorensen. Mr. Sorensen has no
pecuniary interest in the shares beneficially owned by Whittier, Whittier
Energy Company, or Whittier Opportunity Fund, however, as a Director of
Whittier and Whittier Energy Company, Mr. Sorensen has voting power and
investment power over such shares and, thus, may be deemed to beneficially
own such shares.
12. Mr. Muckleroy resigned effective January 8, 1999.
13. Includes the shares as described in Notes (4) through (8) above. Also
includes 167 shares owned by Alan D. Berlin, the Secretary of Chaparral
Resources and 417 shares underlying a presently exercisable option owned by
Mr. Berlin.
STOCK PERFORMANCE GRAPH
Comparison of Five Year Cumulative Total Return
The following line graph compares the total returns (assuming reinvestment
of dividends) of Common Stock, the Nasdaq Market Index and the SIC Code Index
for the five year period ending December 31, 1999.
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998 1999
<S> <C> <C> <C> <C> <C> <C>
CHAPARRAL RESOURCES, INC. 100.00 125.01 175.01 400.00 55.01 21.00
SIC CODE INDEX 100.00 105.41 146.37 148.65 119.07 145.45
NASDAQ MARKET INDEX 100.00 126.79 157.31 191.98 270.78 477.58
</TABLE>
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under U.S. securities laws, directors, certain executive officers and
persons holding more than 10% of Common Stock must report their initial
ownership of Common Stock and any changes in that ownership to the SEC. The SEC
has designated specific due dates for such reports and Chaparral Resources must
identify in this Proxy Statement those persons who did not file such reports
when due.
Based solely upon a review of the Forms 3 and 4 and any amendments
furnished to Chaparral Resources during Chaparral Resources' fiscal year ended
December 31, 1999, and Form 5 and any amendments furnished to Chaparral
Resources with respect to the same fiscal year, during Chaparral Resources'
fiscal year ended December 31, 1999, Chaparral Resources believes that its
directors, officers, and greater than 10% beneficial owners complied with all
applicable filing requirements, except that Mr. Young failed to file, on a
timely basis, a report representing one transaction for fiscal year ended
December 31, 1999.
18
<PAGE>
EXECUTIVE COMPENSATION
The following table shows the compensation paid by Chaparral Resources for
services rendered by Mr. Karren, who was the Chief Executive Officer of
Chaparral Resources until January 7, 1999, Dr. Krug who was the President and
Chief Operating Officer until September 30, 1999, Mr. McMillian who is currently
the Chief Executive Officer and Co-Chairman of the Board and Mr. Young, who is
the Treasurer and Chief Accounting Officer of Chaparral Resources. There were no
other executive officers of Chaparral Resources whose annual salary and bonus
exceeded $100,000 during the fiscal year ended December 31, 1999.
Summary Compensation Table.
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
------------------------------------ -----------------------------------------------
Awards Payouts
----------------------------------- ------------
Other Restricted Securities
Name and Annual Stock Underlying LTIP All Other
Principal Position Year Salary Bonus Compensation Awards ($) Options/SARs (#) Payouts ($) Compensation
- ------------------ ---- ------ ----- ------------ ------------ ---------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Howard Karren 1999 -- -- -- -- -- -- --
Chief 1998 -- -- -- -- -- -- --
Executive 1997 -- -- -- -- 17,084 -- --
Officer
(1/97-1/99)
and President
(2/97-1/99)
Dr. Jack A. Krug 1999 $159,990(1) -- $280,000(1) -- -- $172,132(2) --
President and
Chief Operating
Officer (1/99 -
9/99)
John G. McMillian 1999 -- -- -- -- -- -- --
Chief Executive
Officer (1/99
to Present)
Michael B. Young 1999 $89,167 $42,500(3) -- -- -- -- --
1998 $73,333 -- -- $90,000(4) -- -- --
- --------------
1. Pursuant to the terms of his employment agreement with Chaparral Resources,
Dr. Krug received $159,990 as compensation for his employment with
Chaparral Resources and $280,000 in connection with his resignation from
Chaparral Resources.
2. Pursuant to the terms of his employment agreement with Chaparral Resources,
Dr. Krug received 3,333 shares on January 15, 1999. Effective as of
September 30, 1999, Chaparral Resources issued Dr. Krug an additional 2,361
shares of Common Stock pursuant to a letter agreement in connection with
his resignation from Chaparral Resources. This agreement became effective
February 18, 2000. The $172,132 represents the aggregate market value of
3,333 shares on January 15, 1999 and 2,361 shares on February 18, 2000.
3. Mr. Young received $42,500 in cash bonuses during 1999.
4. Under the terms of a letter agreement, Mr. Young is entitled to receive 167
shares on February 3, 1998, January 30, 1999, January 30, 2000, and January
30, 2001. The $90,000 represents the market value of such shares at the
closing price on the last trading day immediately preceding the date of
grant. Dividends will be paid on shares of restricted stock held by Mr.
Young if Chaparral Resources pays any dividends on its Common Stock. At
December 31, 1999, the aggregate value of the restricted stock grants to
Mr. Young was $5,500 based on the closing price of Chaparral Resources'
Common Stock on the last trading day immediately preceding the end of its
fiscal year.
Options/SAR Grants.
For the fiscal year ended December 31, 1999, Chaparral Resources did not
grant any options.
Aggregated Option/SAR Exercises and Year-End Option/SAR Value Table.
Number of Securities Underlying Value of Unexercised In-the-Money
Unexercised Options/SARs at Options/SARs at
December 31, 1999 December 31, 1999
------------------------------------- -----------------------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- --------------------------------------------------------- -----------------------------------------------
Howard Karren 17,084 -- -- --
Michael B. Young 1,167 -- -- --
</TABLE>
Additionally, no options were exercised in fiscal year 1999.
19
<PAGE>
Director Interlocks.
During our last fiscal year, Messrs. Jeffs, who is the Co-Chairman of the
Board, and Dahl served on the Compensation Committee of the Board and acted as
officers or directos to Whittier or one of its affiliates. Mr. Jeffs is a Vice
President of Whittier and a Director of Whittier Energy Company. Mr. Dahl is
President of both Whittier and Whittier Energy Company. Whittier currently owns
approximately 6.72% of the outstanding Common Stock. Assuming conversion of the
Notes, including all accrued interest as of March 31, 2000, Whittier will own
approximately 14.40% of the outstanding Common Stock. See "Certain Relationships
and Related Transactions" immediately below for a description of transaction
between Whittier and Chaparral Resources.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Allen & Company, loaned to Chaparral Resources, at an interest rate of 8%
per annum, an aggregate of $700,000 in three transactions during January 1999,
and an aggregate of $1,050,000 in three transactions during February of 1999.
Whittier, for which the Co-Chairman, Mr. Jeffs, and a director, Mr. Dahl,
act as officers, loaned Chaparral Resources, at an interest rate of 8% per
annum, an aggregate of $1.0 million in two transactions in March 1999.
In March 1999, Chaparral Resources issued a promissory note to Allen &
Company in the principal amount of $2,769,978, representing an additional
$1,000,000 loan to Chaparral Resources and the retirement of the January and
February 1999 notes, plus accrued interest. In June 1999, Chaparral Resources
borrowed an additional $1,000,000 from Allen & Company. The promissory notes all
bear interest at a rate of 8% per annum.
In August 1999, Chaparral Resources restructured its indebtedness with
Allen & Company to enable Mr. McMillian to acquire a portion of such
indebtedness. In connection with the restructuring, Allen & Company surrendered
its promissory notes, and Chaparral Resources replaced them with two new
promissory notes, each bearing interest at a rate of 8% per annum, in principal
amounts of $2,494,978 and $900,000, respectively. Also related to the
restructuring, Chaparral Resources issued to Mr. McMillian two promissory notes,
which also bore interest at 8% per annum. The principal amounts on those notes
were $275,000 and $100,000, respectively.
In August 1999, Chaparral Resources borrowed additional funds from Allen &
Company and Mr. McMillian by the issuance of three demand promissory notes. The
principal amount of the two notes issued to Allen & Company was $280,000, and
the principal amount of the one note issued to Mr. McMillian was $20,000. Both
notes have interest rates of 8% per annum.
As collateral for the promissory notes issued by Chaparral Resources, each
of Allen & Company, Whittier, and Mr. McMillian received a non-exclusive junior
security interest in all of the capital stock of Central Asian Petroleum
(Guernsey) Limited, a subsidiary of Chaparral Resources. These junior security
interests in the shares were to be subordinate to a senior security interest
held by Whittier in the same stock.
The promissory notes held by Whittier, Allen & Company, and Mr. McMillian
permitted the holders to elect to exchange the outstanding balance of the notes,
together with accrued interest, for any convertible securities issued by
Chaparral Resources, including any debt or equity instrument convertible into
Common Stock, on or before March 31, 2000.
20
<PAGE>
In October 1999, Chaparral Resources borrowed $2,000,000 from Allen &
Company in exchange for a $2,000,000 principal amount Note.
In November 1999, each of Allen & Company, Whittier, and Mr. McMillian
exercised their right to exchange their outstanding notes, together with accrued
interest thereon, for Notes. In connection with such exchange, Chaparral
Resources issued $3,827,161 principal amount of Notes to Allen & Company,
$1,050,959 principal amount of Notes to Whittier and $411,649 principal amount
of Notes to Mr. McMillian. Chaparral Resources also borrowed an additional
$1,000,000 from Whittier in November 1999 in exchange for a $1,000,000 principal
amount Note.
Subsequent to the fiscal year ended December 31, 1999, Chaparral Resources
borrowed an additional $1,250,000 from Allen & Company in exchange for a
$1,250,000 principal amount Note. In addition, as a condition of the Loan, Allen
& Company and Whittier have undertaken to purchase an aggregate of $4,000,000 of
Common Stock at $1.86 per share or other Chaparral Resources' indebtedness if
Chaparral Resources does not complete a rights offering to its stockholders to
acquire not less than $6,000,000 of Common Stock on or before June 30, 2000.
In January 2000, Rose Dosti, the mother-in-law of Mr. Jeffs purchased
$150,000 aggregate amount of the Notes.
Additionally, Chaparral Resources issued to Shell Capital, in connection
with the Loan, warrants to purchase 147,072 shares of Common Stock, subject to
certain anti-dilution provisions at $15.45 per share. Shell Capital was also
entitled to nominate one director to the Board. The Nominating Committee of the
Board nominated Mr. Turner, the Director of the International E&P Group of Shell
Capital Services Limited.
INTEREST OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON
Certain of the current directors or nominees are officers or directors of
certain holders of the Notes. Mr. Jeffs, the Co-Chairman of the Board, and Mr.
Dahl, a director, are officers of Whittier, or one of its affiliates, which
holds $2,050,959 aggregate principal amount of the Notes, plus accrued but
unpaid interest of $65,345 through March 31, 2000. If the Notes are converted,
Whittier will receive 1,137,798 shares of Common Stock. Mr. McMillian, the
Co-Chairman of the Board, holds $661,649 aggregate principal amount of the
Notes, plus accrued but unpaid interest of $17,445 through March 31, 2000. If
the Notes are converted, Mr. McMillian will receive 365,104 shares of Common
Stock.
21
<PAGE>
INSIDER PARTICIPATION IN COMPENSATION DECISIONS
AND COMPENSATION COMMITTEE
REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board determines the compensation of the
executive officers named in the Summary Compensation Table. The Compensation
Committee has furnished the following report on executive compensation in
connection with the Annual Meeting.
Compensation Philosophy.
As members of the Compensation Committee, it is our duty to administer the
executive compensation program for Chaparral Resources. The Compensation
Committee is responsible for establishing appropriate compensation goals for the
executive officers of Chaparral Resources, evaluating the performance of such
executive officers in meeting such goals and making recommendations to the Board
with regard to executive compensation. Chaparral Resources' compensation
philosophy is to ensure that executive compensation be directly linked to
continuous improvements in corporate performance, achievement of specific
operations, financial and strategic objectives, and increases in shareholder
value. The Compensation Committee regularly reviews the compensation packages of
Chaparral Resources' executive officers, taking into account factors which it
considers relevant, such as business conditions within and outside the industry,
Chaparral Resources' financial performance, the market composition for
executives of similar background and experience, and the performance of the
executive officer under consideration. The particular elements of Chaparral
Resources' compensation programs for executive officers are described below.
Compensation Structure.
The base compensation for the executive officers of Chaparral Resources
named in the Summary Compensation Table is intended to be competitive with that
paid in comparable situated industries, taking into account the scope of
responsibilities and internal relationships. The goals of the Compensation
Committee in establishing Chaparral Resources' executive compensation program
are:
o to compensate the executive officers of Chaparral Resources fairly for
their contributions to Chaparral Resources' short-term and long-term
performance; and
o to allow Chaparral Resources to attract, motivate and retain the
management personnel necessary to Chaparral Resources' success by
providing an executive compensation program comparable to that offered
by companies with which Chaparral Resources competes for management
personnel.
The elements of Chaparral Resources' executive compensation program are
annual base salaries, annual bonuses and equity incentives. The Compensation
Committee bases its decisions on the scope of the executive's responsibilities,
a subjective evaluation of the executive's performance and the length of time
the executive has been in the position.
During fiscal year ended December 31, 1999, the Compensation Committee
determined not to grant incentive compensation to the executive officers of
Chaparral Resources named in the Summary Compensation Table due to the
performance of Common Stock in relation to the Nasdaq Market Index and the SIC
Code Index (see Stock Performance Graph on page 18).
22
<PAGE>
During 1999, Chaparral Resources retained an outside consulting firm to
assist the Compensation Committee in formulating a new incentive compensation
plan to be implemented in fiscal year 2000. As of the date of this Proxy
Statement, the consultant's report has not been finalized.
Executive Compensation Deductibility.
Chaparral Resources intends that amounts paid pursuant to Chaparral
Resources' compensation plans generally will be deductible compensation
expenses. The Compensation Committee does not currently anticipate that the
amount of compensation paid to executive officers will exceed the amounts
specified as deductible pursuant to Section 162(m) of the Internal Revenue Code
of 1986.
Compensation Committee Interlocks and Insider Participation.
No executive officer or director of Chaparral Resources serves as an
executive officer, director, or member of a compensation committee of any other
entity, for which an executive officer, director, or member of such entity is a
member of the Board or the Compensation Committee of the Board. There are no
other interlocks.
Compensation Committee
of the Board of Directors
Richard L. Grant, Chairman
James A. Jeffs
David A. Dahl
23
<PAGE>
WHERE YOU CAN FIND ADDITIONAL INFORMATION
Chaparral Resources is subject to the information requirements of the
Exchange Act and files reports and other information with the SEC. You may read
and copy information concerning Chaparral Resources 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 Resources from the SEC's website at
http://www.sec.gov.
The SEC allows Chaparral Resources to "incorporate by reference"
information into this document, which means that Chaparral Resources can
disclose important information to you by referring you to another document filed
separately with the SEC. The information incorporated by reference is deemed to
be a part of this document, except where the information in this document
supercedes the incorporated material. The information incorporated by reference
is an important part of this Proxy Statement. Incorporated documents contain
important information about Chaparral Resources and its finances. This Proxy
Statement incorporates the following documents filed by Chaparral Resources with
the SEC by reference into this Proxy Statement:
o Annual Report on Form 10-K for its fiscal year ended December 31,
1999; and
o Current Report on Form 8-K dated March 22, 2000.
We will provide to each person, including any beneficial owner, to whom
this Proxy Statement is delivered, a copy of any or all of the information that
has been incorporated by reference into this Proxy Statement but not delivered
with this Proxy Statement. These documents will be provided for a reasonable
fee. If you wish to receive any incorporated documents, please contact Natalie
Hairston at Chaparral Resources, Inc., 16945 Northchase Drive, Suite 1620,
Houston, Texas 77060, (281) 877-7100.
24
<PAGE>
PROPOSAL THREE
RATIFICATION OF INDEPENDENT AUDITORS
The Board has appointed Ernst & Young LLP, certified public accountants, as
auditors to examine the consolidated financial statements of Chaparral Resources
for the fiscal years ending December 31, 1999 and 2000, and to perform other
appropriate audit and advisory services and is requesting ratification of such
appointment by the stockholders. In the event that the stockholders do not
ratify the appointment of Ernst & Young LLP, the adverse vote will be considered
as a direction to the Board to select other auditors for the next fiscal year.
However, because of the difficulty and expense of making any substitution of
auditors after the beginning of the current fiscal year, it is contemplated that
the appointment for the fiscal year ending December 31, 2000, will be permitted
to stand, unless the Board finds other reasons for making a change. It is
understood that even if the selection of Ernst & Young LLP is ratified, the
Board, in its discretion, may direct the appointment of a new independent
accounting firm at any time during the year if the Board feels that such a
change would be in the best interests of Chaparral Resources and its
stockholders.
Representatives of Ernst & Young LLP will be present at the Annual Meeting,
will have an opportunity to make a statement if they desire to do so and will be
available to respond to appropriate questions. This proposal will be approved if
it receives the affirmative vote of holders of a majority of the shares of
Common Stock voted or represented and entitled to vote at the Annual Meeting.
Recommendation of the Board.
The Board recommends that stockholders vote FOR the proposal to ratify the
appointment of Ernst & Young LLP as Chaparral Resources' independent auditors
for fiscal year 2000.
OTHER BUSINESS
Management knows of no other business to be presented for action at the
meeting. If other matters properly come before the meeting or any adjournment
thereof, the persons named as proxies will vote upon them in accordance with
their best judgment.
By Order of the Board of Directors,
/s/ Alan D. Berlin
------------------------------------------
Alan D. Berlin
Secretary
Houston, Texas
April ___, 2000
<PAGE>
ANNEX I
[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;
I-1
<PAGE>
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;
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.
I-2
<PAGE>
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.
HOULIHAN LOKEY HOWARD & ZUKIN FINANCIAL ADVISORS, INC.
/s/ Houlihan Lokey Howard & Zukin Financial Advisors, Inc.
I-3
<PAGE>
CHAPARRAL
CHAPARRAL RESOURCES, INC.
PROXY CARD
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR ANNUAL MEETING OF STOCKHOLDERS, MAY 9, 2000
The undersigned hereby appoints John G. McMillian and James A. Jeffs,
either of them, jointly and severally, with power of substitution, to represent
and to vote as designated all shares of Common Stock and Series A Preferred
Stock which the undersigned would be entitled to vote at the Annual Meeting of
Stockholders of Chaparral Resources, Inc., to be held May 9, 2000 at the offices
of Akin, Gump, Strauss, Hauer & Feld, L.L.P., located at 1900 Pennzoil Place -
South Tower, 711 Louisiana Street, Houston, Texas 77002, at 10:00 a.m., Central
Daylight Time, or any adjournment thereof.
1. Approval of the Conversion Provision contained in the Notes.
|_| FOR |_| AGAINST |_| ABSTAIN
2. Election of directors
a. John G. McMillian e. Richard L. Grant
b. James Jeffs f. Mark L.G. Turner
c. David A. Dahl g. Judge Burton B. Roberts
d. Ted Collins, Jr.
|_| FOR |_| AGAINST |_| ABSTAIN
INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, STRIKE A
LINE THROUGH OR OTHERWISE STRIKE THE NOMINEE'S NAME.
3. Ratification of the appointment of Ernst & Young LLP as Chaparral
Resources' independent auditors for the fiscal year ending December 31,
2000.
|_| FOR |_| AGAINST |_| ABSTAIN
|_| If you plan to attend the Annual Meeting, please check here.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED BY THE
UNDERSIGNED STOCKHOLDER. UNLESS OTHERWISE SPECIFIED, THE SHARES WILL BE VOTED
FOR THE APPROVAL OF THE CONVERSION PROVISION CONTAINED IN THE NOTES, FOR THE
ELECTION OF ALL NOMINEES TO CHAPARRAL RESOURCES' BOARD OF DIRECTORS AND FOR THE
RATIFICATION OF ERNST & YOUNG LLP AS INDEPENDENT AUDITORS.
The undersigned acknowledges receipt of the Notice of Annual Meeting of
Stockholders and the accompanying Proxy Statement.
Please sign exactly as name appears hereon and date. If the shares are jointly
held, each holder should sign. When signing as an attorney, executor,
administrator, trustee, or as an officer signing for a corporation, please give
full title under signature.
____________________________________ Date: _______________
____________________________________ Date: _______________
Signatures of Stockholder(s)
(PLEASE DATE, SIGN AND RETURN THIS PROXY PROMPTLY USING THE ENCLOSED ENVELOPE)
