ALLEN & COMPANY
Incorporated
March 31, 1998
effective as of November 4, 1997
Chaparral Resources, Inc.
2211 Norfolk, Suite 1150
Houston, Texas 77090
Gentlemen:
We are pleased to reaffirm our mutual understanding concerning the
retention by Chaparral Resources, Inc., a Colorado corporation (the "Company"),
of Allen & Company Incorporated ("Allen") to act as a nonexclusive financial
advisor to the Company on the terms set forth herein.
1. Scope of Engagement. During the term of this engagement, Allen shall use
its best efforts to assist the Company in consummating, though one or more
offerings of the Company's securities, on terms acceptable to the Company and
such investors as shall be identified to the satisfaction of the Company, an
aggregate of $22.5 million of its securities (the "Securities"). Such offers and
sales of the Securities or other financing transactions as to which Allen shall
assist the Company are hereinafter referred to collectively as the "Offerings."
2. Appointment of Allen. Allen is hereby appointed a nonexclusive financial
advisor to the Company during the Offering Period (as defined herein) for the
purpose of assisting the Company with the sale of Securities to qualified
investors or other alternative financings. The "Offering Period" shall commence
on the date hereof and shall continue until November 25, 1999, unless terminated
in accordance with the terms hereof or extended for an additional period by
written agreement between you and Allen. Allen hereby accepts such engagement
and agrees to assist the Company with sales of such Securities or other
alternative financings on a "best efforts" basis. Except as contemplated by
Section 13 hereof, Allen's agency hereunder may not be terminated by the
Company. It is understood that the Offerings of the Securities or other
financings are intended by all parties to be exempt from the registration
requirements of the Act pursuant to Section 4(2) thereof and the rules and
regulations of the Securities and Exchange Commission thereunder (the "Rules and
Regulations").
3. Company Disclosure. The Company has prepared and will deliver to Allen
from time to time a reasonable number of copies of certain documents filed by
the Company with the Securities and Exchange Commission, including the Company's
Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q, as well as
certain supplemental documents referred to therein or requested by Allen. In
addition, the Company shall make available to Allen access to such members of
Chaparral Resources, Inc.
Page 2
its management as necessary or appropriate for Allen to conduct its periodic due
diligence reviews of the Company. Such documents (including all documents
delivered in connection therewith) and the information presented by such members
of the Company's management, in each case as amended or supplemented by the
Company from time to time, are collectively referred to herein as the "Company
Disclosure."
4. Closing; Delivery; Placement Fees.
(a) It is anticipated that one or more closings of the purchase and
sale of Securities or other financings with which Allen shall assist the Company
(each, a "Closing") shall take place at the offices of Allen & Company
Incorporated, 711 Fifth Avenue, New York, New York 10022 at such date or dates
as may be agreed to by the Company and Allen.
(b) At each Closing there shall be delivered by the Company executed
copies of an applicable Purchase Agreement to be entered into by the Company and
the applicable purchasers of the Securities substantially in the form delivered
to Allen (the "Purchase Agreement"). In addition, at each Closing, (i) the
Purchaser shall deliver the full purchase price of the Securities which the
Purchaser is to purchase at such Closing, and (ii) the Company will deliver to
the Purchaser certificates or other appropriate documentation representing the
Securities purchased by it and other documents as set forth in the applicable
Purchase Agreement.
(c) The Company has issued to Allen a retainer for services to be
rendered hereunder in the form of a warrant (the "Warrant") to purchase 900,000
shares of the Company's common stock, par value $.10 per share, at an exercise
price of $.01 per share. Such Warrant may be immediately exercised by Allen only
with respect to such proportion of the Warrant as funds raised in Offerings
bears to $22.5 million; thus, the Warrant can be exercised as to 200,000 shares
of such common stock in consideration for the sale by the Company (as part of
any Offering that is consummated in a Closing) of $5 million of Securities. At
the time of each subsequent Closing, the Warrant shall become exercisable with
respect to one additional share of Common Stock for each $25 of Securities sold
(or other financing obtained) at such Closing. Any portion of the Warrant that
does not become exercisable pursuant to this Section 4(c) prior to the
termination of the Offering Period shall expire upon such termination. In
addition, at each Closing, the Company shall reimburse Allen for its
out-of-pocket expenses as provided in Section 6(d) hereof, against the
presentation of bills therefor.
5. Representations and Warranties of the Company. The Company hereby
represents and warrants that this letter agreement has been duly authorized,
executed and delivered on behalf of the Company and constitutes a valid and
binding agreement of the Company, enforceable in accordance with its terms,
except as rights to indemnity or contribution hereunder may be limited by
Federal or state securities laws. The Company is aware of no facts which lead it
to believe that the Company Disclosure contains or will contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements therein not misleading.
Chaparral Resources, Inc.
Page 3
6. Covenants of the Company. The Company covenants and agrees with Allen
that:
(a) The Company will notify Allen of any event of which it is aware
and as a result of which the Company Disclosure would include an untrue
statement of a material fact or omit to state any material fact necessary to
make the statements therein not misleading; and it will not use any amendment or
supplement to the Company Disclosure until Allen have given its consent to such
amendment or supplement. The Company will conduct the Offering in compliance
with Section 4(2) of the Act and the Rules and Regulations and all applicable
state securities laws and regulations.
(b) The Company will use its best efforts (i) to coordinate with Allen
to qualify the Securities for offer and sale under the "Blue Sky" or securities
laws of such jurisdictions as Allen may designate and (ii) to continue such
qualifications in effect for so long as may be required for purposes of the
private placements of the Securities, except that the Company shall not be
required in connection therewith or as a condition thereof to qualify as a
foreign corporation or to execute a general consent to service of process in any
state.
(c) The Company covenants for the benefit of each applicable purchaser
of securities (including, but not limited to, Exeter) to use its best efforts to
file promptly after the applicable Closing and cause to become effective with
the Securities and Exchange Commission a registration statement registering (i)
the Exeter Shares and (ii) any other Securities upon which the Company and Allen
shall agree, for resale by such purchasers from time to time.
(d) The Company covenants and agrees with Allen that the Company will
pay all expenses, fees and taxes in connection with (i) the preparation of the
Company Disclosure and all other documents delivered to prospective investors,
(ii) the furnishing of closing documents and (iii) the qualification of the
Securities for offer or sale under the securities laws of such jurisdictions as
Allen may reasonably designate. The Company also agrees that it will reimburse
Allen at each Closing for its out-of-pocket expenses in connection with the
Offering, and will pay the reasonable fees and expenses of counsel to Allen.
(e) The Company agrees to cooperate with Allen and counsel to Allen
with respect to their due diligence investigation.
7. Representations, Warranties and Covenants of Allen. Allen represents,
warrants and covenants as follows:
(a) This Agreement has been duly executed and delivered by Allen and
constitutes a valid and binding obligation of Allen, enforceable against it in
accordance with its terms, except as rights to indemnity or contribution
hereunder may be limited by Federal or state securities laws.
Chaparral Resources, Inc.
Page 4
(b) Allen will not make an offer of Securities by any form of general
solicitation or general advertising in violation of Rule 502(c) of Regulation D.
(c) Allen shall not deliver to any offeree without the consent of the
Company any information concerning the Offering other than the Company
Disclosure contemplated to be delivered hereby.
8. Conditions of Allen's Performance. The purchase and sale of the
Securities and the obligations of Allen as provided herein shall be subject to
the accuracy in all material respects, as of the date hereof and each Closing
Date (as if made on and as of such Closing Date), of the representations and
warranties of the Company herein, to the performance in all material respects by
the Company of its obligations hereunder, and to the following additional
conditions:
(a) Upon request of Allen, Allen shall have received a certificate,
dated such Closing Date, of the President of the Company to the effect that:
(i) The representations and warranties of the Company in this
Agreement are true and correct in all material respects as if made on and
as of such Closing Date; and the Company has complied with all the
agreements and satisfied all the conditions in all material respects on its
part to be performed or satisfied at or prior to such Closing Date; and
(ii) Except as set forth in the Company Disclosure or in the
applicable Purchase Agreement and subsequent to the date of the most recent
financial statements included with the Company Disclosure, there has not
been any material adverse change in the condition (financial or otherwise),
business or results of operations of the Company and its subsidiaries taken
as a whole.
(b) The Company shall have furnished to Allen such certificates, in
addition to those specifically mentioned herein, as Allen or its counsel may
have reasonably requested, as to the accuracy and completeness at such Closing
Date (and as of the date of any Purchase Agreements subsequent to the Closing
Date) of any statement in the Company Disclosure, as to the accuracy at such
Closing Date of the representations and warranties of the Company herein, as to
the performance by the Company of its obligations hereunder, and as to the
fulfillment of the conditions concurrent and precedent to the obligations of
Allen hereunder.
9. Indemnification. The Company will indemnify and hold harmless Allen, the
directors and officers of Allen and each person, if any, who controls Allen
within the meaning of the Act against any losses, claims, damages or
liabilities, joint or several, to which Allen or any such directors, officers or
controlling persons may become subject, under the Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect thereof)
Chaparral Resources, Inc.
Page 5
arise out of or are based upon (i) any untrue statement or alleged untrue
statement of any material fact contained in the Company Disclosure, or arise out
of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading; or (ii) the Company's engagement of Allen or any service
Allen performs for the Company or on its behalf pursuant to this Agreement,
except to the extent that any such loss, claim, damage or liability is found by
a court of competent jurisdiction in a judgment that has become final (in that
it is no longer subject to appeal or review) to have resulted directly and
primarily from such indemnified party's gross negligence or willful misconduct.
Subject to subsection (c) below, the Company will reimburse Allen or any such
directors, officers or controlling persons for any legal or other expenses
reasonably incurred by Allen or any such directors, officers or controlling
persons in connection with investigating or defending any such loss, claim,
damage, liability or action; provided, however, that the Company will not be
liable in any case to the extent that any such loss, claim, damage, liability or
action arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in the Company Disclosure in
reliance upon and in conformity with written information furnished by and with
respect to Allen specifically for use in the preparation thereof. The Company
shall not be required to indemnify Allen or any such directors, officers or
controlling persons for any payment made to any claimant in settlement of any
suit or claim unless such payment is approved by the Company, which approval
shall not be unreasonably withheld or delayed. This indemnity agreement will be
in addition to any liability which the Company may otherwise have, but in no
event shall an indemnified party receive more than the amount of its claim.
(b) Allen will indemnify and hold harmless the Company, its officers
and directors and each person, if any, who controls the Company within the
meaning of the Act against any losses, claims, damages or liabilities, joint or
several, to which the Company, or any such directors, officers or controlling
persons may be or become subject, under the Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon any untrue statement or alleged untrue statement of any
material fact contained in the Company Disclosure or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
in each case to the extent, but only to the extent, that such untrue statement
or alleged untrue statement or omission or alleged omission was made in the
Company Disclosure in reliance upon and in conformity with written information
furnished by and with respect to Allen specifically for use in the preparation
thereof; and (subject to subsection (c) below) will reimburse the Company or any
such directors, officers or controlling persons for any legal or other expenses
reasonably incurred by the Company or any such director, officer or controlling
person in connection with investigating or defending any such loss, claim,
damage, liability or actions. Allen shall not be required to indemnify the
Company or any such directors, officers or controlling persons for any payment
made to any claimant in settlement of any suit or claim unless payment is
approved by Allen, which approval shall not be unreasonably withheld or delayed.
This indemnity agreement will be in addition to any liability Allen may
otherwise have, but in no event shall an indemnified party receive more than the
amount of its claim.
Chaparral Resources, Inc.
Page 6
(c) Promptly after receipt by an indemnified party under subparagraphs
9(a) or (b) of notice of the commencement of any action or other proceeding
(including governmental investigations) in respect of which indemnity may be
sought, such indemnified party will, if a claim in respect thereof is to be made
against the indemnifying party under such subparagraphs, promptly notify the
indemnifying party in writing of the commencement thereof; but the omission to
so notify the indemnifying party will not relieve it from any liability which it
may have to any indemnified party otherwise than under such subparagraph. In
case any such action shall be brought against any
indemnified party, and it shall promptly notify the indemnifying party of the
commencement thereof, the indemnifying party will be entitled to participate in,
and, to the extent that it may wish, assume and control the defense thereof with
counsel chosen by it and after notice from the indemnifying party to such
indemnified party of its election so to assume and control such defense with
counsel chosen by it, it shall bear all expenses of such defense. Any such
indemnified party shall have the right to employ separate counsel in any such
action and to participate in the defense thereof, but the fees and expenses of
such counsel shall be at the expense of such indemnified party unless:
(i) the indemnifying party has agreed to pay such fees and expenses;
or
(ii) the indemnifying party shall have failed to assume the defense of
such action or proceeding and employ counsel reasonably satisfactory to
such indemnified party in any such action or proceeding; or
(iii) the named parties to any such action or proceeding (including
any impleaded parties) include both such indemnified party and the
indemnifying party, and such indemnified party shall have been advised by
counsel that there may be one or more legal defenses available to such
party which are different from or additional to those available to the
indemnifying party (in which case, if such indemnified party notifies the
indemnifying party in writing that it elects to employ separate counsel at
the expense of the indemnifying party, the indemnifying party shall not
have the right to assume the defense of such action or proceeding on behalf
of such indemnified party).
The indemnifying party shall not, in connection with any one such
action or proceeding or separate but substantially similar or related actions or
proceedings in the same jurisdiction arising out of the same general allegations
or circumstances, be liable for the reasonable fees and expenses of more than
one separate firm of attorneys at any time for the indemnified party, which firm
shall be designated in writing by the indemnified party.
Chaparral Resources, Inc.
Page 7
10. Contribution. In order to provide for contribution in circumstances in
which the indemnification provided for in Section 9(a) or 9(b) hereof is for any
reason held to be unavailable to any party entitled to such indemnification,
each indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of losses, claims, damages and liabilities of the
nature contemplated by such indemnification provisions (including any
investigation, legal and other expenses incurred in connection with, and amounts
paid in settlement of, any action, suit or proceeding or any claims asserted) to
which the Company and Allen may be subject, in such proportions so that Allen is
responsible for that portion in each case represented by the percentage that the
respective placement fee appearing in Section 4(c) of this Agreement bears to
the offering price of the Securities, and the Company is responsible for the
remaining portion; provided, however, that no person guilty of fraudulent
misrepresentation shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. For purposes of this Section 10,
each person, if any, who controls Allen within the meaning of Section 15 of the
Act shall have the same rights to contribution as Allen, and each person, if
any, who controls the Company within the meaning of Section 15 of the Act, each
officer of the Company and each director of the Company shall have the same
right to contribution as the Company, subject in each case to the prior
sentence. Any party entitled to contribution will, promptly after receipt of
notice of commencement of any action, suit or proceeding against such party in
respect of which claim for contribution may be sought, promptly notify the other
party or parties in writing of the commencement thereof, but the omission to so
notify such party or parties shall not relieve the party or parties from whom
contribution may be sought from any other obligation it or they may have
hereunder or otherwise than under this Section 10. No party shall be liable for
contribution with respect to any action or claim settled without its consent.
11. Representations and Agreements to Survive Delivery. All
representations, warranties or agreements of the Company or of Allen herein or
in certificates delivered pursuant hereto shall remain operative and in full
force and effect regardless of any investigation made by or on behalf of Allen
or any controlling person, the Company, or any of its officers, directors or
controlling persons, and shall survive delivery of the Securities.
12. Publicity and Disclosure. Except as may be required by federal
securities laws, no press release or public disclosure, either written or oral,
of the Offering or any matter related to the Offering shall be made without
Allen's prior approval.
13. Termination. Allen's obligation to proceed hereunder is conditioned
upon its continuing judgment that market conditions in general, and as they
relate to the Company's securities in particular, are such as to continue to
make appropriate the offering and sale of the Securities in the manner provided
for herein. Notwithstanding the foregoing, Allen may, in its sole discretion,
terminate this Agreement if the initial Closing of the sale of over $5,000,000
of the Securities does not take place before April, 1998, or such other date as
the parties hereto may agree in writing. Upon any such termination, (i) the
Company shall reimburse Allen for its out-of-pocket expenses and pay the
reasonable fees and expenses of counsel to Allen, in each case as provided in
Section 6(d) hereof, and (ii) the obligations of the parties set forth in
Sections 9 and 10 shall survive termination of this Agreement.
Chaparral Resources, Inc.
Page 8
14. Notice. All notices or communications hereunder, except as herein
otherwise specifically provided, shall be in writing and if sent to Allen shall
be mailed, delivered or telegraphed and confirmed, at Allen & Company
Incorporated, 711 Fifth Avenue, New York, New York 10022, Attn: Kim M. Wieland,
Managing Director and Chief Financial Officer, with a copy to Werbel &
Carnelutti, a Professional Corporation, 711 Fifth Avenue, New York, New York
10022, Attn: Guy N. Molinari, Esq., or, if sent to the Company, at 2211 Norfolk,
Suite 1150, Houston, Texas 77090, Attn: President, with a copy to Smith
McCullough Ferguson, P.C., 4643 South Ulster Street, Suite 900, Denver, Colorado
80237, Attn: Thomas S. Smith, Esq.
15. Benefits of the Agreement. This Agreement shall inure to the benefit of
and be binding upon the Company and Allen and their respective successors and
assigns. This agreement shall supersede and replace that certain Placement
Agency Agreement dated November 4, 1997 between the Company and Allen.
16. Applicable Law. This Agreement shall be governed by, construed and
enforced in accordance with the laws of the State of New York without regard to
the conflicts of law provisions thereof.
17. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument.
Chaparral Resources, Inc.
Page 9
If you are in agreement with the foregoing please execute where indicated
below and return a copy to us for files.
Very truly yours,
ALLEN & COMPANY INCORPORATED
By: /s/ Kim M. Wieland
------------------------------------
Name: Kim M. Wieland
Title: Managing Director
and Chief Financial Officer
CHAPARRAL RESOURCES, INC.
By:
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Name:
Title: