CREDIT SUPPORT AND PLEDGE AGREEMENT
Agreement entered into as of the 2nd day of July, 1998 between Whittier
Ventures, LLC, a Delaware Limited Liability Company ("Whittier"), and Chaparral
Resources, Inc, a Colorado corporation ("CRI").
WHEREAS, Whittier has agreed to assist CRI in securing approximately $1
million in financing (the "Bank Loan") from Chase Bank of Texas, N.A. ("Chase")
in order to enable CRI to pay for the winterization and certain supplies and
equipment for a Cabot 900 drilling rig (the drilling rig together with drilling
and other equipment is hereinafter referred to as the "Drilling Unit" owned and
operated by Challenger Oil Service PLC ("Challenged"); and
WHEREAS, Challenger has entered into a drilling contract dated April 7,
1998 (the "Drilling Contract") with Karakuduk Munay, Inc. ("KKM") a joint stock
company organized under the laws of the Republic of Kazakstan whereby CRI will
use the Drilling Unit to drill certain wells for KKM in the Karakuduk Oil Field
in Kazakstan; and
WHEREAS, CRI owns all of the issued and outstanding shares of Central Asia
Petroleum (Guernsey) Ltd. ("CAP-G"), which in turn owns a fifty percent (50%)
interest in KKM; and
WHEREAS, Whittier agrees to secure from the Union Bank of California
("UBOC") an irrevocable letter of credit in the amount of $1 million (the
"Letter of Credit") on behalf of CRI as a credit enhancement for the Bank Loan.
NOW THEREFORE, the parties hereto hereby agree as follows:
1. Issuance of Letter of Credit and Grant of Security Interest
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1.1 Whittier agrees to cause UBOC to issue the Letter of Credit in favor of
Chase.
1.2 As security for its obligations to Whittier hereunder, CRI hereby pledges,
transfers and assigns to Whittier a security interest in the all of the issued
and outstanding shares of CAP-G (the "Shares"). In lieu of physical delivery of
the certificates representing the Shares, Whittier will accept a letter from the
custodian of said certificates that said custodian will act as the agent of
Whittier with respect to such Shares (the "Letter"); provided that Whittier
expressly retains the right to require the custodian to physically deliver the
certificates to Whittier at any time. On or before July 17, 1998, CRI shall
deliver to Whittier (1) the original Letter executed by the custodian of the
Shares and (2) original stock powers for the Shares to be held by Whittier for
disposition in accordance with the terms of this Agreement.
1.3 Upon release of the Letter of Credit, Whittier agrees to promptly release
its security interest in the Shares, to return to CRI the related stock powers
and, at CRI's sole cost and expense, to take all action and give all notices
reasonably requested by CRI to effectuate such release.
2. Agreements of CRI and Rights of Whittier
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2.1 If a Default shall exist, CRI irrevocably authorizes and appoints Whittier,
while such Default exists, as CRI's attorney-in-fact to do any act which CRI is
obligated to do under this Agreement, or which is necessary to carry out the
intent of this Agreement. As the attorney-in-fact, Whittier may, among other
things, execute any and all documents, agreements and or instruments necessary
to carry out the provisions and terms of this Agreement, including but not
limited to any documents, agreements and/or instruments required to be filed or
recorded with any governmental body or agency. CRI understands and agrees that
this authorization and appointment of Whittier is to enable Whittier to protect
and preserve its rights under this Agreement. CRI agrees to reimburse Whittier
for (all reasonable expenses which it may incur when acting as CRI's
attorney-in-fact. Whittier agrees to notify CRI of all actions taken by Whittier
in its capacity as CRI's attorney-in-fact, including copies of all
correspondence, documents, notices and agreements entered into or executed by
Whittier in such capacity and summaries of any actions taken by Whittier in such
capacity which are not reduced to writing.
2.2 Whittier may, in its own name, or in the name of CRI vote the Shares and
give consents, waivers and ratifications in connection with the Shares, provided
that until the occurrence of a Default (as hereinafter defined), Whittier will
only take that action if requested by CRI, or if, in its judgment, failure to
take that action would impair its rights under this Agreement. If a Default
shall exist, Whittier may vote and exercise, or cause its nominee or nominees to
vote and exercise, all the powers of an owner with respect to the Shares. In so
voting and exercising the power of an owner, Whittier shall not be required to
amend any meeting of the stockholders of CAP-G, but Whittier( may vote or act by
power of attorney or by proxy, and such power of attorney or proxy may be
granted to any person selected by Whittier; and Whittier may so vote and
exercise the power of an owner,with respect to the Shares for any purpose or
purposes which Whittier, in its discretion, shall deem advisable and in its
interest, whether or not such purpose or purposes may be inconsistent with the
"best interests" of CRI and whether or not such action may involve a change in
the character of the Shares.
2.3 Whittier may, in its own name, or in the name of CRI (l) receive all
payments, distributions and dividends in securities, property or cash made with
respect to the Shares and, at the discretion of Whittier, held by it until
applied as provided in this Agreement; provided that until the occurrence of a
Default, any cash dividends received with respect to the Shares shall be paid to
CRI; (ii) modify the terms of the Letter of Credit without incurring any
responsibility to, or affecting the liability of CRI; and (iii) make any
notification (to KKM or otherwise) or take any other action in connection with
the perfection or preservation of its security interest or of any enforcement of
remedies; provided that until the occurrence of a Default Whittier will only
take that action if requested by CRI, or if in its judgment, failure to take
that action would impair its rights under this Agreement.
2.4 Except for the pledge of the Shares to Whittier set forth herein, CRI will
not sell, assign, or otherwise dispose of, grant any option with respect to, or
pledge, or otherwise further encumber (either voluntarily or involuntarily) all
or any of the Shares, or file or permit to be filed any financing or like
statement with respect to the Shares in which Whittier is not named as the sole
secured party. CRI agrees, at its sole cost and expenses, to do all other things
which Whittier may, from time to time, deem necessary or advisable in order to
perfect and preserve its security interest in the Shares and to give effect to
the rights granted to Whittier under this Agreement or to enable Whittier to
comply with any applicable laws or regulations in any country, state or any
political subdivision thereof.
2.5 CRI will defend its title to the Shares, and to the security interest of
Whittier therein, against any and all claims and demands of third parties. CRI
shall indemnify and hold Whittier harmless from any and all losses, costs,
damages, liabilities or expenses, including reasonable attorney's fees, that
Whittier may sustain or incur by reason of defending or protecting Whittier's
security interest in and to the Shares or the priority thereof, or in the
prosecution or defense of any action or proceeding concerning any matter arising
out of or connected with this Agreement or the Shares.
3. Representations and Warranties of CRI
CRI represents and warrants as follows:
3.1 The Shares are the only issued and outstanding shares of CAP-G. CRI has good
and marketable title to the Shares and has not through any action or omission on
its part subjected the Shares to any mortgage, pledge, lien, encumbrance or
charge, and no other person or entity has or hereafter will have any right,
title, interest, claim or lien in or to the Shares by reason of any action or
omission of CRI or anyone claiming by, through or under CRI except for the
security interest in favor of Whittier created by this Agreement.
3.2 No authorizations, consents or approvals and no notice to or filing with any
governmental authority or regulatory body is required for the execution and
delivery of this Agreement or the exercise by Whittier of its rights and
remedies.
3.3 The execution, delivery and performance of this Agreement will not violate
any provisions of applicable law, regulation or order and will not result in the
breach of, or constitute a default, or require any consent, under any agreement,
instrument or document to which the undersigned is a party or by which it or any
of its property may be bound or affected.
3.4 This Agreement constitutes the legal, valid, and binding obligation of CRI
enforceable against CRI in accordance with its terms.
4. Compensation and Payment of Expenses
4.1 As consideration for issuing the Letter of Credit, CRI shall pay Whittier a
fee of $10,000 (i.e, one percent (1%) of the face amount of the Letter of
Credit), which fee shall be due and payable on or before July 22, 1998.
4.2 In addition to the fee stated in Section 4.1 above, CRI shall issue to
Whittier warrants for the purchase of 20,000 shares of the common stock of CRI
at $.01 per share. Such warrants shall have a term of five (5) years from the
date of issuance. Said warrants shall be dated the date hereof and physically be
issued to Whittier on or before July 22, 1998.
4.3 CRI will pay all of Whittier's expenses incurred in connection with this
transaction and the securing of the Lever of Credit, including without
limitation the fee charged by the UBOC (which is expected to be approximately
$10,000) and attorney's fees (subject to a maximum of $5,000); said payments
shall be made to Whittier on or before July 22, 1997.
4.4 In the event of a Default, CRI shall pay or reimburse Whittier for all costs
and expenses incurred by it, including reasonable attorney's fees, in connection
with the sale of the Shares or otherwise enforcing its rights hereunder,
including representation at any bankruptcy or similar proceeding.
4.5 In the event that a demand is made against the Letter of Credit, CRI shall
pay Whittier interest at the rate of ten percent (10%) per annum on the amount
drawn until said amount is paid in full by CRI.
5. Restructure of CAP-G
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Whittier understands that it is contemplated that CAP-G may be restructured
through either a merger, consolidation, reincorporation, liquidation or
otherwise. In the event that a Default has not occurred, Whittier agrees that it
will cooperate with CRI and will permit CRI to take all necessary steps and do
all things reasonably necessary to accomplish such restructuring; provided
however that (l) the shares of the restructured entity shall be substituted for
those of CAP-G and shall thereafter be deemed the Shares, subject to all the
terms and conditions set forth herein, (ii) Whittier shall not be required to
take any action which will impair its rights under this Agreement and (iii)
Whittier shall incur no cost, expense or liability in connection therewith.
6. Default
Each of the following is an event of default ("Default"):
6.1 CRI fails to perform or observe any term, covenant or condition set forth
herein, or any representation or warranty of this Agreement is materially false
or misleading.
6.2 CRI has received notice that it is in default under the Bank Loan, and if
such default is curable, such default has not been cured within the appropriate
time period.
6.3 Demand is made against the Letter of Credit.
6.4 Whittier has received notice under the Bank Loan that CRI is in default and
that Whittier will be required to make a payment under the Letter of Credit, and
CRI has not either cured such default within the time specified or paid off the
Bank Loan.
6.5 CRI is unable to or admits in writing its inability to pay its debts when
due or makes an assignment for the benefit of creditors, petitions or applies to
any tribunal for the appointment of a custodian, receiver or trustee for all or
a substantial part of its assets or commences any proceeding under any
bankruptcy, reorganization arrangement, readjustment of debt, dissolution or
liquidation, has any such petition filed, or any such proceeding has been
commenced against it, in which an adjudication is made or order for relief is
entered or which remains undismissed for a period of thirty (30) days, or has a
receiver, custodian or trustee appointed for all or a substantial part of its
property.
7. Remedies
Upon the occurrence of a Default, Whittier shall have the following rights
and remedies:
7.1 Whittier shall have all the rights and remedies with respect to the Shares
of a secured party under the UCC (whether or not the UCC is in effect in the
jurisdiction where the rights are asserted) and, in accordance therewith shall
have the rights, powers and remedies provided in this Agreement, as well as such
additional rights and remedies to which a secured party is entitled under the
UCC and/or under the laws which are in effect in the jurisdiction where such
rights and remedies are asserted, including without limitation any one or more
of the following:
(a) Whittier may proceed to sell the Shares in any manner permitted by
law, or in any manner provided for in this Agreement; provided that Whittier
shall not sell the Shares for a period of at least 15 days following the date
upon which the Default first occurred;
(b) Whittier may sell, assign, transfer or otherwise dispose of all,
or from time to time any part of, the Shares at public or private sale, for cash
or credit or for other property, for immediate or future delivery, and on terms
and in such manner as Whittier may determine, and Whittier or anyone else may
purchase the Shares, or any portion thereof, at any such sale, taking such
Shares free from any claim or right including, without limitation, any equity of
redemption of CRI, which right CRI expressly waives. CRI agrees to take any
action requested by Whittier to enable or assist it to sell the Shares;
(c) Whittier is authorized to restrict the prospective bidders or
purchasers to persons who will represent and agree that they are purchasing for
their own account, for investment, and not with a view to distribution or sale
of any of the Shares; and
(d) Whittier may collect for CRI all distributions, whether capital or
income, or both, in whatever form, whether consisting of cash or property, or
both, which CRI otherwise would be entitled to receive or in which CRI has any
right, title or interest.
7.2 If it has not already obtained physical delivery of the Shares, Whittier may
demand that the custodian thereof promptly deliver or cause to be delivered to
Whittier or its designated agent or representative at such location in the
United States as Whittier may designate, the Shares together with such evidence
of title as Whittier may reasonably deem necessary or advisable to enable it to
obtain possession of the Shares.
7.3 Every right, power and remedy herein granted to Whittier shall be cumulative
and in addition to every other right, power and remedy given or now or hereafter
existing in equity, at law or by statute; and each and every right, power and
remedy whether specifically given herein or otherwise existing, may be exercised
from time to time and so often and in such order as may be deemed expedient by
Whittier, and the exercise, or the beginning of the exercise, of any such right,
power or remedy shall not be deemed a waiver of the right to exercise, at the
same time or thereafter any other right, power or remedy. CRI hereby waives any
and all rights it may have to plead or assert any election of remedies if
Whitter should realize on any other collateral given to Whittier to secure the
obligations of CRI or require Whittier to pursue any other particular remedy.
7.4 If a Default shall have occurred, Whittier shall apply all monies realized
by it from dividends or other distributions received by it from the Shares or
upon the sale or other disposition of the Shares, as follows:
(a) First, to the payment of all costs and expenses incurred by
Whittier in the collection or sale thereof, including reasonable attorney's
fees.
(b) Second, to the payment of all other costs and expenses incurred by
Whittier under the terms of this Agreement for which Whittier has not
theretofore been reimbursed by CRI.
(c) Third, to the payment of any amounts drawn upon the Letter of
Credit, any other amounts owing to Whittier hereunder and all accrued and unpaid
interest thereon.
(d) Fourth, if and to the extent that the Letter of Credit has not
been released, to the payment of the Bank Loan.
(e) Finally, to CRI.
7.5 Whittier may, to the extent permitted by any applicable law, enforce the
performance of the obligations of CRI under the Bank Loan.
8. Assignment
This Agreement shall be binding upon, enforceable by and inure to the
benefit of the respective successors and assigns of each of the parties hereto.
9. Notices
All notices authorized or required between the parties hereto shall be
addressed and effective when delivered to such persons as designated below. Each
party shall have the right to change its address at any time and/or designate
that copies of all such Notices be directed to another person at another
address, by giving notice thereof to all other parties.
If to Whittier:
Whittier Ventures, LLC
Whittier Trust Company
1600 Huntington Drive
South Pasadena, CA 91030
Attention: David A. Dahl
Telephone: (626) 441-5111
Fax: (626) 441-0420
If to CRI:
Chaparral Resources, Inc.
2211 Norfolk, Suite 1150
Houston, TX 77096
Attention: Howard Karren
Telephone: (713) 807-7100
Fax: (713) 607-7561
With a copy to:
Aitken Irvin Lewin Benin Vrooman & Cohn, LLP
2 Gannett Drive
White Plains, NY 10604
Attention: Alan D. Berlin, Esq.
Telephone: (914) 694-5717
Fax: (914) 694-1647
10. Applicable Law and dispute Resolution
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10.1 This Agreement shall be governed by, construed, interpreted and enforced in
accordance with the substantive laws of the State of Texas, to the exclusion of
any conflicts of law rules which would refer the matter to the laws of another
jurisdiction.
10.2 Any dispute, controversy or claim arising out of or in relation to or in
connection with this Agreement or the operations carried out under this
Agreement, including without limitation any dispute as to the construction,
validity, interpretation, enforceability or breach of this Agreement, shall be
exclusively and finally settled by arbitration, and any Party may submit such a
dispute, controversy or claim to arbitration.
10.3 A single arbitrator shall be appointed by unanimous consent of the
Parties. If the Parties, however, cannot reach agreement on an arbitrator within
thirty (30) days of the submission of a notice of arbitration, the appointing
authority for the implementation of such procedure shall be the President of the
Association of International Petroleum Negotiators, who shall appoint an
independent arbitrator who does not have any financial interest in the dispute,
controversy or claim. If such person refuses or fails to act as the appointing
authority within ninety (90) days after being requested to do so, then the
appointing authority shall be the President of the American Arbitration
Association, who shall appoint an independent arbitrator who does not have any
financial interest in the dispute, controversy or claim.
10.4 Unless otherwise expressly agreed in writing by the Parties to the
arbitration proceedings:
(l) The arbitration proceedings shall be held at Whittier's option either in
Houston, Texas or Los Angeles County, California;
(ii) The arbitration proceedings shall be conducted in the English language and
the arbitrator(s) shall be fluent in the English language;
(iii) The arbitrator shall be and remain at all times wholly independent and
impartial;
(iv) The arbitration proceedings shall be conducted in accordance with the
Commercial Arbitration Rules of the American Arbitration Association, in effect
on the Effective Date.
(v) Any procedural issues not determined under the arbitral rules selected
pursuant to this Agreement shall be determined by the law of the place of
arbitration, other than those laws which would refer the matter to another
jurisdiction;
(vi) The costs of the arbitration proceedings (including attorneys' fees and
costs) shall be borne in the manner determined by the arbitrator;
(vii) The decision of the arbitrator shall be reduced to writing; final and
binding without the right of appeal; the sole and exclusive remedy regarding any
claims, counterclaims, issues or accounting presented to the arbitrator; made
and promptly paid in U.S. dollars free of any deduction or offset; and any costs
or fees incident to enforcing the award, shall to the maximum extent permitted
by law, be charged against the Party resisting such enforcement;
(viii) Consequential, punitive or other similar damages shall not be allowed;
provided, however, the award may include appropriate punitive damages where a
Party has engaged in delaying and dilatory actions;
(lx) The award shall include interest from the date of any breach or violation
of this Agreement, as determined by the arbitral award until paid in full;
(x) Judgment upon the award may be entered in any court having jurisdiction over
the person or the assets of the Party owing the judgment or application may be
made to such court for a judicial acceptance of the award and an order of
enforcement, as the case may be; and
11. Miscellaneous
11.1 This Agreement may be executed in any number of counterparts and each such
counterpart shall be deemed an original Agreement for all purposes; provided no
party shall be bound by the terms of this Agreement unless and until all parties
have executed a counterpart.
11.2 This Agreement is the entire agreement of the parties and supersedes all
prior understandings and negotiations of the parties.
11.3 The invalidity, illegality or unenforceability of any provision of this
Agreement shall not be deemed to affect the validity, legality or enforceability
of any other provision hereof.
11.4 No waiver of any default or breach of any of the terms or provisions hereof
by Whittier shall be implied from the failure of Whittier to take action on
account of such default or breach. No waiver shall affect any default other than
the default specified in any written waiver by Whittier. No waiver of any term
or provision contained herein by Whittier shall be construed as a waiver of any
subsequent breach of the same term or provision. The consent or approval by
Whittier to, or of, any act by any other party requiring further consent or
approval shall not be deemed to waive or render unnecessary Whittier's consent
or approval to, or of, any subsequent similar acts.
IN WITNESS WHEREOF, The Parties hereto have executed this Agreement as of the
date first above written.
Whittier Ventures LLC
By
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David A. Dahl, President
Chaparral Resources Inc.
By
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Howard Karren, Chairman & CEO
IN WITNESS THEREOF, The Parties hereto have executed this Agreement as of the
date first above written.
Whittier Ventures LLC
By:
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David A. Dahl, President
Chaparral Resources,Inc.
By:
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Howard Karren, Chairman & CEO