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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): September 21, 2000
CHAPARRAL RESOURCES, INC.
(Exact Name of Registrant as Specified in Charter)
DELAWARE 0-7261 84-0630863
(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification No.)
16945 Northchase, Suite 1620 77060
Houston, Texas (Zip Code)
(Address of Principal Executive Offices)
Registrant's telephone number, including area code: (281) 877-7100
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Item 1. Changes in Control of Registrant.
Chaparral Resources, Inc. (the "Company") entered into a $24.0 million loan
agreement (the "Loan") with Shell Capital Limited ("Shell") and has borrowed
$21.5 million to date under the Loan. In connection with the Loan, the Company
committed to Shell to raise $6.0 million in equity or debt financing by June 30,
2000. The Company failed to fulfill this obligation before June 30, 2000. Shell
agreed to extend the time deadline for the Company's commitment to raise the
equity or debt financing from June 30, 2000 to September 30, 2000, but increased
the amount of the Company's obligation from $6.0 million to $10.0 million. In an
effort to fulfill these equity requirements, the Company entered into an
agreement to sell $3.0 million of the Company's common stock, issued promissory
notes in the principal amount of $4.0 million to two stockholders of the
Company, and converted $20,845,369 of the Company's outstanding Notes, plus
accrued interest, into shares of the Company's common stock. Upon the completion
of these events, Shell has agreed to extend the Company's commitment to raise
$10.0 million in equity or debt financing from September 30, 2000 to October 31,
2000.
The Company entered into the agreement to sell $3.0 million of the
Company's common stock to Capco Resources, Ltd. ("Capco"), a Canadian
corporation, on September 21, 2000. Under the agreement, Capco will acquire $1.0
million of the Company's common stock for $1.86 per share on or before September
29, 2000 and an additional $2.0 million of the Company's common stock for $1.86
per share on or before October 30, 2000. Capco will purchase the Company's
common stock with proceeds from the sale of securities of Greka Energy
Corporation. Once Capco fulfills its obligations under the agreement, the
Company will issue Capco a total of 1,612,903 shares of the Company's common
stock.
On September 21, 2000, the Company also issued $2.0 million in unsecured,
fully subordinated 8% Non-negotiable Convertible Promissory Notes ("Notes") to
each of the Company's two largest stockholders, Allen & Company Incorporated
("Allen") and Whittier Ventures LLC ("Whittier"). After the issuance of the
additional $4.0 million in indebtedness, Allen and Whittier held $9,827,161 and
$4,050,959, respectively, of the Company's Notes, plus accrued interest. Allen
and Whittier utilized working capital to purchase the Notes.
The Company converted a total of $20,845,369 in outstanding Notes, plus
accrued interest of $898,513, into 11,690,259 shares, or 92.26%, of the
Company's outstanding common stock. The conversion price was $1.86 per share.
The Company was required to amend the terms of the conversion provision of the
Notes in order to immediately convert the Notes into shares of the Company's
common stock. This conversion provision of the Notes were originally subject to
stockholder approval, but the Company's Board of Directors authorized management
to amend the Notes upon approval from the holders of the Notes. On September 21,
2000, the Company obtained approval from the Note holders and the Notes were
converted.
After giving effect to the foregoing events, Allen, Whittier, and Capco
will beneficially own 5,732,824 shares (40.00%), 2,319,169 shares (16.23%), and
2,040,017 shares (14.28%), respectively, of the Company's common stock.
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The Company has received a fairness opinion from its independent financial
advisor with respect to the fairness, from a financial point of view, of the
conversion of the outstanding Notes and the issuance of the Company's common
stock to Capco for $1.86 per share.
The foregoing summary is qualified in its entirety by (i) the terms and
conditions of the Letter Agreement, dated September 21, 2000, between the
Company and Capco, a copy of which is included as Exhibit 99.1 and incorporated
herein by this reference, (ii) the terms and conditions of the 8% Non-Negotiable
Convertible Subordinated Promissory Note, dated September 21, 2000, to Allen, a
copy of which is included as Exhibit 4.1 and incorporated herein by this
reference, (iii) the terms and conditions of the 8% Non-Negotiable Convertible
Subordinated Promissory Note to Whittier, a copy of which is included as Exhibit
4.2 and incorporated herein by this reference and (iv) the Company's press
release, dated September 21, 2000, which is included as Exhibit 99.2 and
incorporated herein by this reference.
Item 5. Other Events.
On September 15, 2000, the Company repaid a $500,000 promissory note, plus
accrued interest, through the issuance of a $505,600 aggregate principal amount
Note. The holder of the Note is not affiliated with the Company. The Company
also repaid a $500,000 promissory note held by Whittier using proceeds received
from the issuance of the Notes.
Assuming the Capco agreement is consummated, the Shell warrant, subject to
certain anti-dilution provisions, will represent the right to purchase up to
1,785,455 shares of the Company's common stock at an exercise price of $9.79 per
share.
The Company's Board of Directors is evaluating the future status of
conducting a rights offering to the Company's common stockholders at a
conversion price of $1.86 per share. The Company has not made any decision at
this time, but may choose to delay, withdraw, or proceed with the rights
offering.
The Company's Board of Directors has authorized a stock option plan for its
directors, employees and consultants. The Company has reserved 15% of its
outstanding common stock, after consideration of the Capco transaction, for
issuance under the stock option plan, or 2,142,547 shares of the Company's
common stock, a portion of which will be issued at $1.86 per share. The granting
of stock options with an exercise price below the current market price of the
Company's common stock will result in a charge to the Company's earnings for the
period covering the granting of such options as compensation expense. As of
September 21, 2000, no grants have been made under the plan.
In late August 2000, Karakuduk-Munay, JSC ("KKM") delivered approximately
73,000 barrels of crude oil to Shell Trading International Limited ("STASCO"),
an affiliate of Shell, for approximately $1,625,000, net of royalty and
transportation costs. KKM nominated approximately 146,000 barrels for delivery
in September 2000, but only received government approval for the export sale of
approximately 73,000 barrels of crude oil, which is expected to generate
approximately $1,600,000, net of royalty and transportation costs. KKM has
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nominated approximately 182,000 barrels for October 2000 delivery to the export
market, but has no assurances that the nomination will be approved, in whole or
in part, by the Kazakh government.
The government of Kazakhstan has required KKM to sell approximately 42,000
barrels of crude oil on the local market in October 2000, which is expected to
generate approximate cash proceeds of $450,000, net of royalty and
transportation costs. The impact on the Company's available cash flow from local
oil sales is significant, given the discrepancy between local market and world
market oil prices. KKM is prohibited from making local oil sales under the Loan,
but has received a waiver from Shell regarding the current local sales
requirement.
KKM has drilled and completed two wells into two previously untested zones
which do not currently have any proven crude oil reserves attributed to them.
The two wells are producing approximately 1,900 barrels of oil per day, or 38%
of KKM's daily productive capacity, but neither well has been fully tested or
evaluated at this time.
The foregoing summary is qualified in its entirety by the Company's press
release, dated September 21, 2000, a copy of which is included as Exhibit 99.2
and incorporated herein by this reference.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(c) Exhibits.
Number Exhibit
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4.1 8.0% Non-Negotiable Convertible Subordinated Promissory Note, dated
September 21, 2000, to Allen & Company Incorporated
4.2 8.0% Non-Negotiable Convertible Subordinated Promissory Note, dated
September 21, 2000, to Whittier Ventures, LLC
99.1 Letter Agreement, dated September 21, 2000, between Chaparral
Resources, Inc. and Capco Resources, Ltd.
99.2 Press Release, dated September 21, 2000, of Chaparral Resources,
Inc.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
CHAPARRAL RESOURCES, INC.
Date: October 6, 2000 By: /s/ Michael B. Young
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Michael B. Young, Treasurer
and Controller
