April 22, 1997
Chaparral Resources, Inc.
Attn: Howard Karen, Chairman and CEO
3400 Bissonnet
Houston, Texas 77005
Gentlemen:
1. Subscription. The undersigned, Victory Ventures, LLC (the "Subscriber"),
intending to be legally bound, irrevocably applies to purchase from Chaparral
Resources, Inc., a corporation organized under the laws of the State of Colorado
(the "Company") (i) 3,076,923 shares of the Company's Common Stock, par value
$.10 per share ("Common Stock"), for a purchase price of $0.65 per share or in
the aggregate amount of Two Million Dollars ($2,000,000) payable in cash (the
"Cash Purchase Price") and (ii) an additional 772,991 shares of Common Stock
(collectively, the "Shares"), for a purchase price of $0.65 per share or in the
aggregate amount of Five Hundred and Two Thousand Four Hundred Forty-Four
Dollars ($502,444) payable by delivery and surrender of that certain 8%
Convertible Promissory Note dated December 6, 1996 in the principal amount of
$500,000 made by the Company in favor of the Subscriber (the "Promissory Note")
together with the right to receive Two Thousand Four Hundred and Forty Four
Dollars ($2,444) which amount represents all accrued and unpaid interest on the
Promissory Note through April 22, 1997. The Shares are being offered to the
Subscriber without registration under the Securities Act of 1933, as amended
(the "Securities Act").
2. Acceptance. The subscription shall be deemed accepted by the Company
upon receipt by the Company of (i) the Cash Purchase Price and the Promissory
Note (the "Purchase Price") and a duly executed copy of this Agreement. The Cash
Purchase Price is being made by wire transfer payable to the Company.
3. Warrant. As additional consideration for the execution of this Agreement
by the undersigned, the Company hereby agrees to grant the Subscriber a warrant
to purchase up to 4,615,385 additional shares of Common Stock at an exercise
price of $.65 per share, exercisable at any time and from time to time not later
than December 31, 1997.
4. Delivery of Certificate for Shares. As soon as practicable after receipt
of the Purchase Price, the Company will deliver to the Subscriber a certificate
or certificates representing the Shares subscribed for hereby, registered in the
name of the Subscriber.
5. Representations Warranties and Covenants of Subscriber. In order to
induce the Company to sell the Shares to the Subscriber, the Subscriber hereby
represents, warrants and covenants to the Company as follows:
(a) The Subscriber is acquiring the Shares solely for investment purposes
only and not with a view to resale or distribution, or for the account, in whole
or in part, of others. No other person has or will have a direct or indirect
beneficial interest in the Shares.
(b) The Subscriber recognizes the restrictions on the transferability of
the Shares and the Subscriber is able to bear the substantial economic risk of
an investment therein, including a complete loss thereof, for an indefinite
period of time.
(c) The Subscriber understands that the sale of the Shares hereunder is
intended to be exempt from registration under the Securities Act, by virtue of
Section 4(2) thereof (and the rules and regulations promulgated under the
Securities Act) and applicable state securities laws. The Subscriber will not
sell or otherwise transfer any or all of the Shares without registration under
the Securities Act or an exemption therefrom.
(d) The Subscriber acknowledges that the certificate or certificates
representing the Shares shall bear a legend restricting the transfer of the
Shares.
(e) The Subscriber further represents and warrants that in order to make an
informed decision in connection with the purchase of the Shares:
(i) the Subscriber has reviewed the merits and risks of an
investment in the Shares; and
(ii) the Subscriber recognizes that an investment in the Shares
involves a number of significant risks; the Subscriber has such
knowledge and experience in financial and business matters as to be
capable of evaluating the merits and risks of an investment in the
Shares.
(f) The Subscriber represents and warrants that it is an "accredited
investor" as that term is defined in Rule 501 promulgated under the Securities
Act.
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(g) The Subscriber is not subscribing to purchase the Shares as a result of
or subsequent to any advertisement, article, notice or other communication
published in any newspaper, magazine or similar media or broadcast over
television or radio, or presented at any seminar or meeting, or any solicitation
of a subscription by a person not previously known to the Subscriber in
connection with investments in securities generally.
(h) The Subscriber understands that all documents, records and books
pertaining to this investment have been made available for inspection by the
undersigned, the undersigned's attorney and/or accountant including, but not
limited to, the Company's Annual Report on Form 10-K for the fiscal year ended
November 30, 1996.
(i) The Subscriber has had a reasonable opportunity to ask questions of and
receive answers from a person or persons acting on behalf of the Company
concerning the Company and the offering of the securities contemplated hereby,
and all such questions have been answered to the full satisfaction of the
undersigned.
6. Representations and Warranties of the Company. The Company hereby
represents and warrants to the Subscriber that the Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Colorado and has all corporate power and authority to own and lease its
properties and to conduct its business as presently conducted. The Company
further represents and warrants to the Subscriber that the issuance of the
Shares has been duly authorized and, upon the issuance thereof and payment
therefor in the manner provided herein, will be duly authorized, validly issued,
fully-paid and non-assessable.
7. Registration Rights.
(a) Definitions. For purposes of this Section 7, the following terms shall
have the respective meanings set forth below:
(i) "Commission" shall mean the Securities and Exchange Commission or
any other Federal agency at the time administering the Act.
(ii) The term "holder or holders of Registrable Stock" shall mean any
holder of any Shares issued pursuant to this Agreement, including any transferee
of any Subscriber.
(iii) The terms "register," "registered" and "registration" refer to a
registration effected by preparing and filing a registration statement or
similar document in compliance with the Securities Act, and the declaration or
ordering of effectiveness of such registration statement or document by the
Commission.
(iv) The term "Registrable Stock" means (a) the Shares issued pursuant
to this Agreement; provided, however, that shares of Registrable Stock shall
cease to be Registrable
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Stock if they are sold or transferred pursuant to a registered public offering
or other transaction which does not result in restrictions on resale being
imposed on the transfer by virtue of Federal or state securities laws; and
provided further that Registrable Stock shall cease to be Registrable Stock if
the holder could sell or transfer all such Shares held by him in one transaction
pursuant to Rule 144 promulgated under the Securities Act.
(b) Demand Registration.
(i) Upon the written request of any holder or holders ("Initiating
Holders") of at least 30% of the shares of Registrable Stock, which request
shall state the intended method of disposition by such Initiating Holders and
shall request that the Company effect the registration of all or part of the
Registrable Stock under the Securities Act, the Company shall promptly give
written notice of such requested registration to all other holders, if any, of
Registrable Stock. If, after the expiration of thirty days from the giving of
such notice to the holders of Registrable Stock, the Company shall have received
written requests to register at least 50% of the shares of Registrable Stock,
which requests shall state the intended method of disposition of such securities
by such holders, the Company shall use all reasonable efforts to prepare and
file with the Commission a registration statement and such other documents,
including a prospectus, as may be necessary to permit a public offering and sale
of such Registrable Stock in the United States in compliance with the provisions
of the Securities Act, all to the extent required to permit the disposition (in
accordance with the intended methods thereof as aforesaid) by the holders of the
Registrable Stock so to be registered (the "Participating Holders"). If such
sale of Registrable Stock is to be pursuant to an underwritten offering, the
underwriter shall be selected by the Initiating Holders and shall be reasonably
acceptable to the Company. If the underwriter selected determines that the
number of shares so to be included is required to be limited due to market
conditions or otherwise, the holders of Registrable Stock proposing to sell
their shares in such underwritten registration shall share pro rata (according
to the number of shares requested to be registered) in the number of shares
being underwritten (as determined by such underwriter) and registered for their
account. The Company shall only be required to effect two registrations pursuant
to this Section 7(b).
(ii) The Company shall not be required to effect any registration
under this Section 7(b) within nine months after the completion of any public
offering of its securities pursuant to which the holders of Registrable Stock
were afforded the right to register as many shares of their Registrable Stock as
requested nor within six months after any other public offering by the Company.
(iii) The Company shall have the right to include in any registration
statement or post-effective amendment filed pursuant to this Section 7(b) other
securities of the Company then proposed to be distributed, except that, to the
extent consistent with the rights of other holders of the Company's securities,
if and to the extent that the underwriter or underwriters acting with respect of
such public offering reasonably determine that the inclusion of such other
securities may substantially prejudice or hinder the offering of Registrable
Stock,
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the number of such other securities shall be reduced or eliminated prior to any
reduction in the number of shares of Registrable Stock so to be registered.
(iv) If the registration under this paragraph (b) is effected on a
Form S-3 (or any successor form thereto), and the effectiveness of such
registration statement can be maintained without significant additional expense
to the Company, then the Company agrees to maintain the effectiveness of such
registration statement for a period of one year after its initial effective
date.
(c) Incidental Registration.
(i) If the Company at any time or from time to time proposes to file
with the Commission a registration statement under the Securities Act with
respect to any proposed distribution of any of its securities (other than a
registration to be effected on Form S-4, S-8 or other similar limited purpose
form), whether for sale for its own account or for the account of any other
person holding registration rights with respect to the securities of the
Company, then the Company shall give written notice of such proposed filing to
the holders of Registrable Stock at least thirty (30) days before the
anticipated filing date, and such notice shall describe in detail the proposed
registration and distribution (including those jurisdictions where registration
or qualification under the securities or blue sky laws is intended) and shall
offer the holders of Registrable Stock the opportunity to register such number
of shares of Registrable Stock as the holders of Registrable Stock may request.
Upon receipt by the Company by the anticipated filing date of written requests
from Participating Holders for the Company to register their Registrable Stock,
the Company shall permit, or in the event of an underwritten offering, shall use
its best efforts to cause the managing underwriter or underwriters of such
proposed underwritten offering to permit, the Participating Holders to include
such securities in such offering on the same terms and conditions as any similar
securities of the Company included therein; provided, however, that if in the
opinion of the managing underwriter or underwriters of such offering, the
inclusion of the total amount or kind of securities which it or the Company, and
any other persons or entities, intend to include in such offering would
interfere, hinder, delay, reduce or prevent the effectiveness or sale of the
Company's shares of Common Stock proposed to be so registered or would otherwise
adversely affect the success of such offering, then the amount or kind of
securities to be offered for the accounts of the Company and each holder of
Common Stock (including without limitation Registrable Stock) or securities
convertible into or exercisable for Common Stock proposed to be registered
(other than any persons exercising demand registration rights) shall be reduced
(or eliminated) in proportion to their respective values to the extent necessary
to reduce the total amount of securities to be included in such offering on
behalf of such holders of securities to the amount recommended by such managing
underwriter. For purposes of this Section, "value" shall mean principal amount
with respect to debt securities and the proposed offering price per share with
respect to equity securities. Notwithstanding the foregoing, if, at any time
after giving written notice of its intention to register Common Stock or other
securities convertible into or exercisable for Common Stock and prior to the
effectiveness of
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the registration statement filed in connection with such registration, the
Company determines for any reason either not to effect such registration or to
delay such registration, the Company may, at its election, by delivery of
written notice to the Participating Holders, (i) in the case of a determination
not to effect registration, relieve itself of its obligations to register any
Registrable Stock in connection with such registration, or (ii) in the case of
determination to delay the registration, delay the registration of such
Registrable Stock for the same period as the delay in the registration of such
other shares of Common Stock or other securities convertible into or exercisable
for Common Stock.
(ii) Exception. The Company shall not be required to include any of
the Registrable Stock of a Participating Holder in any registration statement or
post-effective amendment prepared at its own instance unless such Participating
Holder shall furnish such information and sign such documents as may be required
by the Commission or reasonably requested by the Company in accordance with
generally accepted practices, in connection with such proposed distribution.
(d) Covenants of the Company with Respect to Registration. In connection
with any registration under this Section 7, the Company shall, as expeditiously
as is reasonably possible:
(i) Prepare and file with the Commission a registration statement with
respect to such Participating Holders and, subject to the last sentence of
Section 7(c)(i) hereof, use its best efforts to cause such registration
statement to become effective.
(ii) Prepare and file with the Commission such amendments and
supplements to such registration statement and prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement.
(iii) Furnish to the Participating Holders such numbers of copies of a
prospectus, including, if applicable, a preliminary prospectus, in conformity
with the requirements of the Securities Act, and such other documents as the
selling shareholders may reasonably request in order to facilitate the
disposition of Registrable Stock owned by the Participating Holders.
(iv) Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or blue sky
laws of such jurisdictions within the United States as shall be reasonably
requested by the Participating Holders; provided, however, that the Company
shall not be required in connection therewith or as a condition thereto to
qualify to do business or to file a general consent to service of process in any
such states or jurisdictions.
(v) In the event of any underwritten public offering, enter into and
perform its obligations under an underwriting agreement, in usual and customary
6
form, with the managing underwriter of such offering. The Participating Holders
shall also enter into and perform their obligations under such an agreement.
(vi) Notify the Participating Holders, at any time when a prospectus
relating to Registrable Stock covered by such registration statement is required
to be delivered under the Securities Act, of the happening of any event as a
result of which the prospectus included in such registration statement, as then
in effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing.
(vii) Furnish to the Participating Holders, on the date that shares of
Registrable Stock are delivered to the underwriters for sale in connection with
a registration pursuant to this Section 7, if such securities are being sold by
underwriters, or, on the date that the registration statement with respect to
such securities becomes effective, (i) an opinion as to matters of law only,
dated such date, of counsel representing the Company for the purposes of such
registration, in form and substance as is customarily given to underwriters in
an underwritten public offering, addressed to the underwriters, if any, and to
Participating Holders and (ii) a letter dated such date, from the independent
certified public accountants of the Company, in form and substance as is
customarily given by independent certified public accountants to underwriters in
an underwritten public offering, addressed to the underwriters. and to the
Participating Holders.
(e) The Company shall pay all costs, fees and expenses in connection with
all registration statements filed under this Section 7 including, without
limitation, the Company's legal and accounting fees, printing expenses and blue
sky fees and expenses, but not including the fees and expenses of counsel for
the Participating Holders in connection with such registration. However, the
Company shall not pay for underwriting discounts and commissions and under-
writers' expenses allocable to the Registrable Stock being registered or state
transfer taxes.
(f) Indemnification.
(i) The Company shall indemnify each Participating Holder under this
Agreement, its officers and directors and any person controlling it within the
meaning of Section 15 of the Securities Act or Section 20(a) of the Securities
Exchange Act of 1934, as amended, against any loss, claim, damage, expense or
liability (including without limitation all expenses reasonably incurred in
investigating, preparing, or defending against any claim whatsoever, such
expenses to be reimbursed by the Company as they are incurred) to which it may
become subject under the Securities Act, the Exchange Act or otherwise, arising
out of or based upon (i) any untrue statement or alleged untrue statement of a
material fact contained in any registration statement or prospectus or any
amendments or supplements thereto in which Registrable Stock is included or in
any application, statement or other document filed by the Company with the
Commission or any securities exchange or in any jurisdiction in connection with
qualifying such shares under the securities laws thereof, or (ii)
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the omission or alleged omission therefrom of a material fact required to be
stated therein or necessary to make the statements therein not misleading,
unless such statement or omission is made in reliance upon and in conformity
with written information furnished to the Company by or on behalf of such
Participating Holder or an underwriter expressly for use in any such
registration statement or other document.
(ii) Each Participating Holder shall, as a condition to such
registration of Registrable Stock, agree to indemnify the Company, its officers
and directors and any person controlling the Company within the meaning of
Section 15 of the Securities Act or Section 20(a) of the Exchange Act, against
any loss, claim, damage or expense or liability (including without limitation
all expenses reasonably incurred in investigating, preparing or defending
against any claim whatsoever, such expenses to be reimbursed by the undersigned
as they are incurred) to which they may become subject under the Securities Act,
the Exchange Act or otherwise, arising out of or based upon (i) any untrue
statement or alleged untrue statement of a material fact contained in any
registration statement or prospectus or any amendments or supplements thereto in
which Registrable Stock is included or in any application, statement or other
document filed by the Company with the Commission or any securities exchange or
in any jurisdiction in connection with qualifying such shares under the
securities laws thereof, or (ii) the omission or alleged omission therefrom of a
material fact required to be stated therein or necessary to make the statements
therein not misleading, provided in each case that such statement or omission is
made in reliance upon and in conformity with written information furnished to
the Company by or on behalf of such Participating Holder expressly for use in
any such registration statement or other document.
(iii) Promptly upon receipt by a party claiming indemnification
hereunder of notice of the commencement of any action involving a claim referred
to above, such indemnified party will, if a claim in respect thereof is to be
made against a party which may be required to indemnify such party hereunder,
give written notice to the latter of the commencement of such action. In case
any such action is brought against an indemnified party, the indemnifying party
shall be entitled to participate in and to assume the defense of such action, to
the extent that it may wish, with counsel reasonably satisfactory to such
indemnified party. Except as set forth herein, the indemnified party and any
party cooperating in the defense of such claim shall not settle or compromise
any such claim or admit liability without the express written consent of the
indemnifying party. The indemnified party shall have the right to be represented
by an advisory counsel and accountants, at its own expense, and the indemnified
party shall be kept fully informed of such action, suit or proceeding at all
stages thereof whether or not the indemnified party is so represented. After a
period of thirty days following the date the written notice of such claim was
given to the indemnifying party the indemnified party may settle any such claim
(and the amount of any such settlement shall be subject to indemnification
hereunder) unless within such thirty-day period the indemnifying party shall
have provided the indemnified party with notice and evidence to the indemnified
party's satisfaction that the indemnifying party reasonably disputes such claim
and has the financial ability to meet its indemnification obligations hereunder.
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Notwithstanding the foregoing, the indemnified party may immediately cause to be
paid or discharged any asserted claim the non-payment of which would have an
immediate substantial adverse impact on the indemnified party and any claim
which the indemnifying party has not disputed within thirty days of notice as
provided above.
(iv) If the indemnification provided for in this Section 7(f) is
unavailable or insufficient to hold harmless an indemnified party under such
subsection in respect of any losses, claims, damages or liabilities or action in
respect thereof or referred to therein, then each indemnifying party shall in
lieu of indemnifying such indemnified party contribute to the amount paid or
payable by such indemnified party as a result of such losses, claims, damages,
liabilities or actions in such proportion as is appropriate to reflect the
relative fault of the Company, on the one hand, and the Participating Holder, on
the other, in connection with the statements or omissions which resulted in such
losses, claims, damages, liabilities or actions as well as any other relevant
equitable considerations, including the failure to give the notice required
under such subsections. The relative fault shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact relates to information supplied by the Company on the one hand, or the
Participating Holders, on the other hand, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The Company and the Participating Holder agree that it
would not be just and equitable if contribution pursuant to this Section
7(f)(iv) were determined by pro rata allocation or by any other method of
allocation which did not take account of the equitable considerations referred
to above in this subsection. No person guilty of fraudulent misrepresentations
(within the meaning of Section 11(f) of the Securities Act), shall be entitled
to contribution from any person who is not guilty of such fraudulent
misrepresentations.
(v) The obligations of the Company and the Participating Holder under
this Section 7(f) shall survive the completion of any offering of Registrable
Stock in a registration statement under this Section 7.
(vi) The rights of indemnification contained in this Section 7 shall
not be deemed to be the exclusive remedy of the parties hereto and such rights
shall be in addition to any other rights or remedies which any party hereto may
have at law or equity.
(g) Assignment of Registration Rights. The undersigned's rights and
obligations set forth in this Section 7 shall automatically be deemed assigned
to any transferee or assignee of shares of Common Stock issued hereunder,
provided that immediately following such transfer the further disposition of
such securities by the transferee or assignee is restricted under the Securities
Act; provided however, that, the termination of registration rights in respect
of any shares of Registrable Stock by reason of the operation of Section 7(a)
shall be binding upon any transferee of such shares. Upon the request of any
such holder, the Company will confirm in writing to any transferee of such
holder's Registrable Stock the Company's continuing obligation to afford such
transferee the benefits of the Company's
9
agreements contained in this Section 7, but no failure of the Company to confirm
such obligations shall in any way impair such transferee's rights under this
Section 7.
(h) Effect of Private Placement. Notwithstanding anything to the contrary
contained in this Section 7, if, prior to December 31, 1997, the Company
completes a private offering of equity securities in which the Company realizes
gross proceeds of at least of $1 million and in which one or more purchasers of
such securities are granted more favorable registration rights than those
granted herein, the registration rights granted to holders of Registrable Stock
hereunder shall be modified to be equivalent in all respects to the most
favorable registration rights granted in such private offering; provided,
however, that the provisions of Section 6(f) hereof shall not be modified as a
result of such private offering.
7. Governing Law. This Agreement has been made in, and shall be construed
in accordance with, the laws of the State of New York applicable to contracts
made and to be fully performed therein.
8. Entire Agreement. This Agreement contains the entire understanding and
agreement of the parties with respect to the subject matter hereof and
supersedes all negotiations, representations and other agreements made by and
between such parties with respect hereto.
VICTORY VENTURES LLC
By:/s/
-----------------------------------------
Name:
Title:
Agreed to and accepted
this 23th day of April, 1997.
----
By:/s/Howard Karren
--------------------------------
Name: Howard Karren
Title: Chairman & CEO
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