SCHEDULE 14A
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CHAPARRAL
CHAPARRAL RESOURCES, INC.
Notice and Proxy Statement
November 8, 2002
Dear Stockholder:
We are pleased to invite you to the Annual Meeting of Stockholders of
Chaparral Resources, Inc. The meeting will be held on December 10, 2002 at 10:00
a.m., Eastern Standard Time, at The Inter-Continental Hotel, 111 East 48th
Street, New York, New York 10017.
At the meeting, you and the other stockholders will be asked to vote on the
following:
1. the election of six directors to the Board of Directors of Chaparral;
2. the approval of the new Article IV to Chaparral's Amended and Restated
Certificate of Incorporation;
3. the approval of the new Article V to Chaparral's Amended and Restated
Certificate of Incorporation; and
4. the ratification of the appointment of Ernst & Young LLP as the
independent auditors of Chaparral for fiscal year 2002.
You will also hear an overview of Chaparral's 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, including
its audited financial statements for the year ended December 31, 2001.
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 November 8, 2002.
We hope you can join us on December 10, 2002. Regardless of whether you
expect to attend the meeting in person, please read the 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/ Ian Connor
--------------
Ian Connor
Chairman of the Board
CHAPARRAL
CHAPARRAL RESOURCES, INC.
Notice of Annual Meeting of Stockholders
To be held December 10, 2002
Chaparral Resources, Inc. will hold its Annual Meeting of Stockholders on
December 10, 2002 at 10:00 a.m., Eastern Standard Time, at:
The Inter-Continental Hotel
111 East 48th Street
New York, New York 10017
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. elect six directors to the Board of Directors of Chaparral;
2. approve the new Article IV to Chaparral's Amended and Restated
Certificate of Incorporation;
3. approve the new Article V to Chaparral's Amended and Restated
Certificate of Incorporation;
4. ratify the appointment of Ernst & Young LLP as the independent
auditors of Chaparral for fiscal year 2002; and
5. consider such other business as may properly come before the meeting
or any adjournment of the meeting.
The Board of Directors has selected October 30, 2002 as the record date for
determining stockholders entitled to notice of and to vote at the meeting and
any adjournment of the meeting. A list of stockholders as of the record date
will be available for inspection at the corporate headquarters of Chaparral 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's 2001 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
November 8, 2002
CHAPARRAL
CHAPARRAL RESOURCES, INC.
Annual Meeting of Stockholders
To Be Held December 10, 2002
This Proxy Statement is furnished to stockholders of Chaparral for use at
the Annual Meeting of Stockholders to be held at 10:00 a.m., Eastern Standard
Time, on December 10, 2002, at The Inter-Continental Hotel, 111 East 48th
Street, New York, New York 10017, or at any postponements or adjournments of the
meeting 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 November 8, 2002.
TABLE OF CONTENTS
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Page
----
General Information..........................................................3
Proposal One: Election of Directors..........................................6
Nominees............................................................6
Remuneration of Directors...........................................7
Recommendation of the Board.........................................7
Certain Relationships and Related Transactions...............................7
Meetings of the Board and its Committees.....................................9
Report of the Audit Committee of the Board of Directors......................9
Beneficial Ownership of Certain Stockholders, Directors, Nominees and
Executive Officers.......................................................11
Section 16(a) Beneficial Ownership Reporting Compliance......................12
Executive Compensation.......................................................13
Summary Compensation Table..........................................13
Aggregated Option/SAR Exercises and Year-End Option/SAR
Value Table.....................................................13
Director Interlocks.................................................13
Stock Performance Graph......................................................14
Insider Participation in Compensation Decisions and Compensation Committee
Report on Executive Compensation........................................15
Compensation Philosophy.............................................15
Compensation Structure..............................................15
Compensation of the Chief Executive Officer.........................16
Executive Compensation Deductibility................................16
Compensation Committee Interlocks and Insider Participation.........16
Proposal Two: Approval of the New Article IV to Chaparral's Amended and
Restated Certificate of Incorporation...................................17
Recommendation of the Board.........................................17
Proposal Three: Approval of the New Article V to Chaparral's Amended and
Restated Certificate of Incorporation...................................18
Recommendation of the Board.........................................19
Proposal Four: Ratification of Independent Auditors..........................20
Recommendation of the Board.........................................20
Other Business...............................................................20
Appendix A...................................................................A-1
2
GENERAL INFORMATION
Q: Who is soliciting my proxy?
A: We, the Board of Directors of Chaparral (the "Board"), are sending you this
Proxy Statement in connection with our solicitation of proxies for use at
Chaparral's Annual Meeting of Stockholders. Specified directors, officers,
and employees of Chaparral may also solicit proxies on our behalf by mail,
phone, fax, or in person.
Q: Who is paying for this solicitation?
A: Chaparral 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 election of Askar Alshinbayev, Ian Connor, Peter G. Dilling, John
Duthie, Alan D. Berlin, and Nikolai D. Klinchev, to the Board;
o the approval of the new Article IV to Chaparral's Amended and Restated
Certificate of Incorporation;
o the approval of the new Article V to Chaparral's Amended and Restated
Certificate of Incorporation; and
o the ratification of the appointment of Ernst & Young LLP as
Chaparral's independent auditors for fiscal year 2002.
Q: Who can vote?
A: Only holders of Chaparral's Common Stock at the close of business on
October 30, 2002, 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.
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-paid 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 vote at the meeting by providing Chaparral's
Secretary written notice of your revocation or by submitting a later-dated
proxy. If you return your proxy but do not mark your voting preferences,
Natalie S. Hairston and Miguel C. Soto, the proxy holders, will vote your
shares as follows:
o FOR the election of each of the nominees for director;
o FOR the approval of the new Article IV to Chaparral's Amended and
Restated Certificate of Incorporation;
o FOR the approval of the new Article V to Chaparral's Amended and
Restated Certificate of Incorporation; and
o FOR the ratification of the appointment of the independent auditors.
Q: What constitutes a quorum?
A: On the record date, Chaparral had 38,209,502 shares of Common Stock issued
and outstanding. In order for the Annual Meeting to be properly held, a
majority of the outstanding shares (a quorum) must be present at the
meeting or represented by proxy.
3
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 NASD, 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"). Broker
non-votes 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 properly presented by stockholders. We
have not received notice from any stockholder as to any matter to come
before the Annual Meeting other than as set forth herein. If any other
matter is presented at the Annual Meeting, your signed proxy gives Ms.
Hairston and Mr. Soto, 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, Ms. Hairston and Mr.
Soto, the proxy holders, will vote in accordance with the recommendations
of the Board. The Board recommends a vote FOR:
o the election of the nominated slate of directors (see page 6);
o the approval of the new Article IV to Chaparral's Amended and Restated
Certificate of Incorporation; (see page 17);
o the approval of the new Article V to Chaparral's Amended and Restated
Certificate of Incorporation (see page 18); and
o the ratification of the appointment of the independent auditors (see
page 20).
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.
Q: What is the deadline for stockholder proposals for next year's Annual
Meeting?
A: Stockholders may submit proposals on matters appropriate for stockholder
action at future annual meetings by following the rules of the Securities
and Exchange Commission. If we do not receive notice of any other matter
that a stockholder wishes to raise at our 2003 Annual Meeting by March 31,
2003 and a matter is raised at that meeting, the proxies will have
discretionary authority to vote on the matter. All proposals and
notifications should be addressed to Chaparral's Secretary: Chaparral
Resources, Inc., 16945 Northchase Drive, Suite 1620, Houston, Texas 77060.
4
Q: How do I get copies of the exhibits filed with Chaparral's Form 10-K?
A: A copy of Chaparral's Annual Report for 2001, which contains Chaparral's
Form 10-K and consolidated financial statements, was delivered to you with
this Proxy Statement. Chaparral will provide to any stockholder as of the
record date, who so specifically requests in writing, copies of the
exhibits filed with Chaparral's 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 may
be reviewed and printed from the SEC's website at: www.sec.gov.
5
PROPOSAL ONE
ELECTION OF DIRECTORS
Nominees.
At the Annual Meeting, you and the other stockholders will elect six
individuals to serve as directors until the next annual meeting of stockholders
to be held in 2003, until their successors are duly elected or appointed or
until their death, resignation, or removal. 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 that 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:
Name of Nominee Director Since Age Principal Occupation During the Last 5 Years
- --------------- -------------- --- --------------------------------------------
Ian Connor 2002 36 Mr. Connor has served as the Chairman of the Board of
Chaparral since November 2002. Since April 2001, Mr. Connor
has served as a Managing Director of Open Joint Stock
Company Kazkommertsbank, a commercial bank incorporated in
Kazakhstan. Prior to joining Kazkommertsbank, Mr. Connor
held several senior executive positions, including Chief
Executive Officer at Global Menkul Degerler A.S., an
Istanbul-based brokerage and investment house, from May 1997
to March 2001.
Nikolai D. Klinchev 2002 44 Mr. Klinchev has been the Chief Executive Officer of
Chaparral since November 2002. From June 2002 to November
2002, he served as Vice President - Business Development of
Chaparral Mr. Klinchev has served as the General Director
and as a board member of Closed Joint Stock Company
Karakudukmunai since 1996. Mr. Klinchev graduated from the
Institute of Energy in Almaty, Kazakhstan, as a power
engineer in 1980 and studied production management in St.
Petersburg (formerly Leningrad), Russia, graduating in 1988.
Askar Alshinbayev 2002 37 Mr. Alshinbayev has served as Managing Director and Chief
Executive Officer of Central Asian Industrial Holdings, N.V.
since May 2002. Since 1998, Mr. Alshinbayev has served as a
Managing Director of Open Joint Stock Company
Kazkommertsbank, a commercial bank incorporated in
Kazakhstan. From 1994 to 1998, he served as Deputy Chairman
of the Management Board of Kazkommertsbank. Mr. Alshinbayev
also serves on the Board of Directors of Hurricane
Hydrocarbons Ltd. and Nelson Resources, Ltd.
6
Name of Nominee Director Since Age Principal Occupation During the Last 5 Years
- --------------- -------------- --- --------------------------------------------
Peter G. Dilling 2002 53 From 1995 to 1997, Mr. Dilling held various positions with
Chaparral, including Vice Chairman of the Board. Since
1999, Mr. Dilling has served as President and Chief
Executive Officer of Trinidad Exploration and Development,
Ltd., an oil and gas exploration company. He has served as
President and Chief Executive Officer, and as a Director of
Anglo-African Energy, Inc., an exploration and production
company, since 1999. Prior to joining Anglo-African, Mr.
Dilling was President and a director of M-D International
Petroleum, Inc., an exploration and production company, from
1994 to 1997. Mr. Dilling also serves on the Board of
Directors of Trinidad Exploration and Development, Ltd.
John Duthie 2002 59 Mr. Duthie has served as General Manager for Westdeutsche
Landesbank Turkey, a commercial bank headquartered in
Germany, since 1994. He previously held various positions
with Merrill Lynch & Co., a stock brokerage house and
investment bank, and Deutsche Bank, a commercial bank and
financial institution.
Alan D. Berlin 2002 62 Since 1995, Mr. Berlin has been a partner of the law firm
Aitken Irvin Berlin & Vrooman, LLP. He was engaged in the
private practice of law for over five years prior to joining
Aitken Irvin. Mr. Berlin served as a Director of Chaparral
in 1997 and was the Secretary of Chaparral from January 1996
to August 1997. Since June 1998, he has served the Company
in the same position. From 1985 to 1987, Mr. Berlin was the
President of the International Division of Belco Petroleum
Corp. and held various other positions with Belco Petroleum
Corp. and Belco Oil and Gas Corp. from 1977 to 2001. Mr.
Berlin has been appointed an Honorary Associate of the
Centre for Petroleum and Mineral Law and Policy at the
University of Dundee, Scotland, and is a member of the
Association of International Petroleum Negotiators.
Remuneration of Directors.
During the fiscal year 2001, Chaparral paid a quarterly fee of $2,500 to
each non-employee director and $1,500 to each non-employee director for each
Board meeting or Committee meeting attended. There were no other arrangements
for the compensation of directors in effect for the fiscal year 2001.
Recommendation of the Board.
The Board recommends that stockholders vote FOR each of the nominees to
serve as directors of Chaparral.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On May 10, 2002, Central Asian Industrial Holdings N.V. ("CAIH") acquired a
beneficial ownership interest in 26,002,624 shares, or 62.98%, of the Common
Stock of Chaparral as part of an overall debt and equity restructuring of
Chaparral. CAIH, a private investment holding company, is a significant investor
in the Kazakh oil sector.
7
CAIH invested $12 million into Chaparral, consisting of an $8 million
equity contribution in exchange for 22,925,701 shares of Chaparral's Common
Stock and a $4 million investment into Chaparral's wholly-owned subsidiary,
Central Asian Petroleum (Guernsey) Limited ("CAP-G"), in exchange for a
three-year note bearing interest at 12% per annum issued jointly and severally
by Chaparral and CAP-G. As part of the note, CAIH also received a warrant to
purchase 3,076,923 shares of Chaparral's Common Stock at an exercise price of
$1.30 per share.
As part of the restructuring, Open Joint Stock Company Kazkommertsbank
("Kazkommertsbank"), an affiliate of CAIH, provided a total credit facility of
$33 million to Closed Joint Stock Company Karakudukmunai ("KKM") at an annual
interest rate of 14% repayable in five years. The loan from Kazkommertsbank
consisted of $28 million that was used to repay a substantial portion of
Chaparral's loan with Shell Capital Inc. (the "Shell Capital Loan") on May 7,
2002, and $5 million to be used for KKM's working capital requirements.
Chaparral paid CAIH a $1.788 million restructuring fee.
On May 7, 2002, the Shell Capital Loan was transferred from Shell Capital
to CAIH. On May 10, 2002, (i) the remaining balance of the Shell Capital Loan
was written down to $2.45 million and restructured to reflect a 14% interest
rate, (ii) the warrant for 1,785,455 shares of Chaparral's Common Stock
previously issued to Shell Capital was cancelled, (iii) Shell Capital's 40% net
profits interest in CAP-G was reacquired for a nominal amount and cancelled,
(iv) Chaparral acquired an additional 10% interest in KKM from Dardana Limited
for $1.2 million and 1 million shares of Chaparral's Common Stock, and (v)
Chaparral redeemed 50,000 shares of its outstanding Series A Preferred Stock
held by the Exeter Finance Group for $2.3 million. In May 2002, Chaparral repaid
$2.35 million of the remaining principal outstanding on the Shell Capital Loan
held by CAIH. In June 2002, CAP-G also repaid $2.0 million of the outstanding
principal balance of the $4.0 million note held by CAIH.
As a condition of the restructuring, Allen & Company Incorporated and
Whittier Ventures, LLC., which collectively owned a majority of the outstanding
shares of Chaparral's Common Stock prior to the issuance of Common Stock to CAIH
on May 10, 2002, entered into agreements with Chaparral whereby they agreed to
vote all of the shares of Common Stock held by them in favor of certain
amendments to Chaparral's certificate of incorporation and in favor of up to
five directors to be designated by CAIH and two directors to be designated by
Chaparral's incumbent directors.
In connection with the restructuring, four of Chaparral's incumbent
directors voluntarily resigned as directors, including Messrs. John G.
McMillian, Chaparral's then Co-Chairman and Chief Executive Officer, Richard L.
Grant, David A. Dahl, and Ted Collins. The Board adopted a resolution increasing
the size of the Board to not more than seven directors. Mr. Jeffs remained as a
director. Messrs. Alshinbayev, Connor, Duthie, Klinchev, and Dilling, a former
director of Chaparral, were appointed to Chaparral's Board effective May 10,
2002. Mr. Berlin was appointed to Chaparral's Board effective November 5, 2002.
Mr. Jeffs resigned as a member of the Board effective October 28, 2002.
Mr. Alshinbayev is a Managing Director of Kazkommertsbank and the Chief
Executive Officer of CAIH. Mr. Connor, Chaparral's current Chairman, is also a
Managing Director of Kazkommertsbank. Mr. Klinchev, Chaparral's current Chief
Executive Officer, has acted as KKM's General Director since 1996 and was the
beneficial owner of the additional 10% interest in KKM acquired by Chaparral.
During fiscal year 2001, Mr. Jeffs, who resigned as the Chairman and Chief
Executive Officer of the Company effective October 28, 2002, acted as an officer
or director to Whittier Ventures or one of its affiliates. In addition to
serving as the Managing Director and as the Chief Investment Officer for The
Whittier Trust Company, Mr. Jeffs is a Vice President of Whittier Ventures and a
Director of Whittier Energy Company. Mr. Berlin, Chaparral's Secretary and a
Director, is a partner in a law firm, Aitken, Irvin, Berlin & Vrooman, LLP,
which provides outside legal services to Chaparral. The fees incurred are not in
excess of 5% of the law firm's gross revenues for the year ended December 31,
2001.
8
MEETINGS OF THE BOARD AND ITS COMMITTEES
During the fiscal year 2001, Chaparral held eight Board meetings. The Board
had several committees, including the Compensation Committee, the Nominations
Committee, and the Audit Committee. The following discussion details the
composition and role of each committee.
The Compensation Committee recommends cash and non-cash compensation for
Chaparral's executives to the full Board and reviews and recommends to the full
Board stock plans for adoption by Chaparral for its directors, officers,
employees, and consultants. The Compensation Committee is also responsible for
developing Chaparral's executive compensation program. The Compensation
Committee monitors and grants awards according to Chaparral's executive
compensation program and administers Chaparral's 2001 Stock Incentive Plan.
During fiscal year 2001, members of the Compensation Committee, which met on two
occasions, included Messrs. Jeffs, Grant and Dahl. Messrs. Grant and Dahl
resigned effective May 10, 2002 and Mr. Jeffs resigned effective October 28,
2002. Messrs. Connor, Dilling and Klinchev replaced the departing directors on
the Compensation Committee, effective November 5, 2002.
The Nominations Committee has oversight for recruiting and recommending
candidates for election to the Board and for evaluating director independence
and performance. During fiscal year 2001, the Nominations Committee, consisting
of Messrs. Jeffs, Grant and McMillian, met on one occasion. Messrs. Grant and
McMillian resigned effective May 10, 2002 and have not been replaced. Mr. Jeffs
resigned effective October 28, 2002 and has not been replaced. The Board plans
to appoint new members to its Nominations Committee after the Annual Meeting.
The Audit Committee oversees Chaparral's financial reporting process on
behalf of the Board. Management has the primary responsibility for the financial
statements and the reporting process including the systems of internal controls.
The Audit Committee operates pursuant to a written charter, which was approved
and adopted by the Board in August 2000. Chaparral's independent accountants,
Ernst & Young LLP, are responsible for expressing an opinion on the conformity
of Chaparral's audited financial statements to accounting principles generally
accepted in the United States. During fiscal year 2001, members of the Audit
Committee included Messrs. Grant and Collins and Judge Burton B. Roberts, all of
whom qualified as "independent directors" as defined by NASD Rule 4200(a)(15).
Judge Roberts resigned effective January 18, 2002 and was not replaced. Messrs.
Grant and Collins resigned effective May 10, 2002 and have been replaced by
Messrs. Duthie, Dilling and Berlin, effective November 5, 2002.
REPORT OF THE AUDIT COMMITTEE OF
THE BOARD OF DIRECTORS
In fulfilling its oversight responsibilities, the Audit Committee reviewed
and discussed the audited financial statements in Chaparral's 2001 Annual Report
with management, including a discussion of the quality, and not just the
acceptability, of the accounting principles, the reasonableness of significant
judgments, and the clarity of disclosures in the financial statements. The Audit
Committee met with the independent accountants, with and without management
present, to discuss the scope and plans for the audit, results of their
examinations, their evaluations of Chaparral's internal controls, and the
overall quality of Chaparral's financial reporting. The Audit Committee reviewed
with the independent accountants the acceptability of Chaparral's accounting
9
principles and such other matters as are required to be discussed with the Audit
Committee under generally accepted auditing standards, including those described
in the Statement on Auditing Standards No. 61, as amended, "Communication with
Audit Committees." In addition, during fiscal year 2001, the Audit Committee
discussed with the independent auditors the auditors' independence from
management and Chaparral, and received the written disclosures required by the
Independence Standards Board Standard No. 1, "Independence Discussions with
Audit Committees." The Audit Committee held five meetings during fiscal year
2001.
Fees paid to Ernst & Young LLP during fiscal year 2001 amounted to
$280,000, composed of the following:
o Audit Fees. Fees for the audit and quarterly reports for the fiscal
year ended December 31, 2001 totaled $221,000;
o Financial Information Systems Design and Implementation. No fees were
incurred during the fiscal year ended December 31, 2001 for financial
information systems design and implementation; and
o All Other Fees. All other fees paid to our independent auditors during
the fiscal year ended December 31, 2001 totaled $59,000. All non-audit
services were compatible with maintaining Ernst & Young LLP's
independence.
In reliance on the reviews and discussions referred to above, the Audit
Committee recommended to the Board, and the Board approved, that the audited
financial statements be included in the Annual Report on Form 10-K for the year
ended December 31, 2001, for filing with the Securities and Exchange Commission.
Fiscal year 2001 Audit Committee
of the Board of Directors,
Richard L. Grant, Chairman
Ted Collins, Jr.
Judge Burton B. Roberts
10
BENEFICIAL OWNERSHIP OF CERTAIN STOCKHOLDERS, DIRECTORS, NOMINEES,
AND EXECUTIVE OFFICERS
The following table sets forth information as of November 5, 2002, with
respect to directors, nominees, named executive officers of Chaparral and each
person who is known by Chaparral to own beneficially more than 5% of our Common
Stock, and with respect to shares owned beneficially by all directors, nominees,
and executive officers of Chaparral as a group. The address for all directors
and executive officers of Chaparral is 16945 Northchase Drive, Suite 1620,
Houston, Texas 77060.
Amount and Nature of Percent of
Beneficial Ownership Common
Name of Beneficial Owner Position (1) Stock (1)
- --------------------------------------- ------------------------- -------------------- ----------
Central Asian Industrial Holdings, N.V. -- 26,002,624(2) 62.98%
c/o Kazkommertsbank
3rd Floor, Broughton House
6-8 Sackville Street
London W1, United Kingdom
Allen & Company Incorporated -- 5,697,921(3) 14.90%
711 Fifth Avenue
New York, New York 10022
Whittier Ventures, LLC -- 4,227,044(4) 11.06%
1600 Huntington Drive
South Pasadena, California 91030
Ian Connor Chairman of the Board -- *
Nikolai D. Klinchev Director and Chief Executive 1,000,084(5) 2.62%
Officer
Askar Alshinbayev Director 26,002,624(6) 62.98%
Peter G. Dilling Director 7,083(7) *
John Duthie Director *
Alan D. Berlin Corporate Secretary and Director 584(8) *
James A. Jeffs Former Chairman and CEO 10,329(9) *
John G. McMillian Former Co-Chairman and CEO 386,303(10) 1.01%
David A. Dahl Former Director 1,418(11) *
Ted Collins, Jr. Former Director -- (12) *
Richard L. Grant Former Director -- (13) *
Judge Burton B. Roberts Former Director -- (14) *
Richard J. Moore Vice President - Finance and -- *
Chief Financial Officer
Michael B. Young Vice President - Finance, 1,835(15) *
Treasurer, and Chief Financial
Officer**
All current directors, nominees, and -- 27,012,210 65.41%
executive officers as a group (seven
persons)
11
- ----------
* Represents less than 1% of the shares of Common Stock outstanding.
** Mr. Young's employment with the Company will cease effective December 15,
2002.
(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, has the right to acquire beneficial
ownership within 60 days or acquires such securities with the purpose
or effect of changing or influencing the control of Chaparral.
(2) In accordance with Rule 13d-3(d)(1)(i)(A), includes 3,076,923 shares
underlying warrants to purchase shares of Common Stock. Does not
include shares owned directly by officers and stockholders of CAIH
with respect to which CAIH disclaim beneficial ownership. Officers and
stockholders of CAIH may be deemed to beneficially own shares of the
Common Stock reported to be beneficially owned directly by CAIH.
(3) In accordance with Rule 13d-3(d)(1)(i)(A), includes 31,250 shares
underlying warrants to purchase shares of Common Stock. Allen &
Company is a wholly owned subsidiary of Allen Holding Inc., and,
consequently, Allen Holding may be deemed to beneficially own the
shares beneficially owned by Allen & Company. Does not include shares
owned directly by officers and stockholders of Allen Holding and Allen
& Company with respect to which Allen Holding and Allen & Company
disclaim beneficial ownership. Officers and stockholders of Allen
Holding and Allen & Company may be deemed to beneficially own shares
of the Common Stock reported to be beneficially owned directly by
Allen Holding and Allen & Company.
(4) In accordance with Rule 13d-3(d)(1)(i)(A), includes 334 shares
underlying currently exercisable warrants and 8,334 shares underlying
a currently exercisable option.
(5) In accordance with Rule 13d-3(d)(1)(i)(A), includes 1,000,000 shares
beneficially owned by NK Cayman Limited.
(6) In accordance with Rule 13d-3(d)(1)(i)(A), includes 3,076,923 shares
underlying warrants to purchase shares of Common Stock. Mr.
Alshinbayev has a pecuniary interest in the shares beneficially owned
by CAIH and has voting power and investment power over such shares
and, thus, may be deemed to beneficially own such shares.
(7) In accordance with Rule 13d-3(d)(1)(i)(A), includes 7,083 shares
underlying currently exercisable options owned by Mr. Dilling.
(8) Includes 167 shares owned by Mr. Berlin and 417 shares underlying
currently exercisable options.
(9) Mr. Jeffs resigned as a director of Chaparral effective October 28,
2002.
(10) In accordance with Rule 13d-3(d)(1)(i)(A), includes 417 shares
underlying a currently exercisable option and 417 shares underlying a
currently exercisable warrant. Mr. McMillian resigned as the
Co-Chairman and Chief Executive Officer of Chaparral effective May 10,
2002.
(11) In accordance with Rule 13d-3(d)(1)(i)(A), includes 1,418 shares
underlying currently exercisable options owned by Mr. Dahl. Mr. Dahl
resigned as a director of Chaparral effective May 10, 2002.
(12) Mr. Collins resigned as a director of Chaparral effective May 10,
2002.
(13) Mr. Grant resigned as a director of Chaparral effective May 10, 2002.
(14) Judge Roberts resigned as a director of Chaparral effective January
18, 2002.
(15) Includes 668 shares owned by Mr. Young and 1,167 shares underlying
currently exercisable options.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under U.S. securities laws, directors, 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 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 during our fiscal year 2001, and Form 5 and any
amendments furnished to Chaparral with respect to the same fiscal year, we
believe that our directors, officers, and greater than 10% beneficial owners
complied with all applicable Section 16 filing requirements.
12
EXECUTIVE COMPENSATION
The following table shows the compensation paid by Chaparral for services
rendered by Mr. McMillian, who was the Chief Executive Officer and Co-Chairman
of the Board, Mr. Jeffs who was the Chairman of the Board and Chief Executive
Officer of Chaparral, and Mr. Young, who was the Vice President - Finance,
Treasurer, and Chief Financial Officer of Chaparral. There were no other
executive officers of Chaparral whose annual salary and bonus exceeded $100,000
during the fiscal year 2001.
Summary Compensation Table.
Annual Compensation Long-Term Compensation
------------------------------------ -----------------------------------------------
Awards Payouts
--------------------------------- -----------
Name and Other Restricted Securities LTIP All Other
Principal Position Year Salary Bonus Annual Stock Awards Underlying Payouts ($) Compensation
Compensation ($) Options/SARs (#)
- -----------------------------------------------------------------------------------------------------------------------------------
John G. McMillian 2001 $162,000(1) -- -- -- -- -- --
Chairman and Chief 2000 $137,500 -- -- -- -- -- --
Executive Officer 1999 --
(1/99 to 5/02)
James A. Jeffs 2001 $162,000(2) -- -- -- -- -- --
Co-Chairman
(5/99 to 5/02)
Chairman and Chief
Executive Officer
(5/02 to 11/02)
Michael B. Young 2001 $162,000 -- -- -- -- -- --
Treasurer and 2000 $150,000 -- -- -- -- -- --
Controller (2/98 1999 $89,167 $42,500(3) -- -- -- -- --
to 6/02)
Chief Financial
Officer (6/02 to
12/02)
- ----------
1. Mr. McMillian received cash compensation of $114,750 in December 31,
2001. The remaining $47,250 has been recorded in Chaparral's financial
statements as accrued compensation.
2. Mr. Jeffs' did not receive any cash compensation during the year 2001.
The outstanding balance of $162,000 has been recorded in Chaparral's
financial statements as accrued compensation.
3. Mr. Young received $42,500 in cash bonuses during 1999.
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, 2001 December 31, 2001
------------------------------ ---------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ---------------- ------------------------------ ---------------------------------
Michael B. Young 1,167 -- -- --
No options were exercised in fiscal year 2001.
Director Interlocks.
During our last fiscal year, Messrs. Jeffs, the Company's former Chairman
and Chief Executive Officer, and Dahl served on the Compensation Committee of
the Board and acted as officers or directors to Whittier Ventures or one of its
affiliates. Mr. Jeffs is a Vice President of Whittier Ventures and a Director of
Whittier Energy Company. Mr. Dahl is President of both Whittier Ventures and
Whittier Energy Company. Whittier Ventures currently owns approximately 11% of
the outstanding Common Stock of Chaparral.
13
Messrs. Connor, currently serving as Chaparral's Chairman, and Alshinbayev,
serve as directors of Chaparral and each act as an officer or director of CAIH
or one of its affiliates. Messrs. Alshinbayev and Connor are managing directors
of Kazkommertsbank, an affiliate of CAIH. Mr. Connor serves on the Compensation
Committee of the Board. CAIH beneficially owns approximately 63% of Chaparral's
outstanding Common Stock.
STOCK PERFORMANCE GRAPH
Comparison of Five Year Cumulative Total Return
The following line graph compares the total returns (assuming reinvestment
of dividends) of our Common Stock, the Nasdaq Market Index and the SIC Code
Index for the five year period ending December 31, 2001.
1996 1997 1998 1999 2000 2001
---- ---- ---- ---- ---- ----
CHAPARRAL RESOURCES, INC. 100.00 228.56 31.43 12.00 5.52 2.30
SIC CODE INDEX 100.00 101.56 81.35 99.37 126.24 115.83
NASDAQ MARKET INDEX 100.00 122.04 172.13 303.59 190.82 152.11
14
INSIDER PARTICIPATION IN COMPENSATION DECISIONS
AND COMPENSATION COMMITTEE
REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board determined the compensation of the
executive officers named in the Summary Compensation Table on page 13 for the
years in question. 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. The Compensation Committee is
responsible for establishing appropriate compensation goals for the executive
officers of Chaparral, evaluating the performance of such executive officers in
meeting such goals and making recommendations to the Board with regard to
executive compensation. Chaparral's 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 stockholder value. The Compensation
Committee regularly reviews the compensation packages of Chaparral's executive
officers, taking into account factors which it considers relevant, such as
business conditions within and outside the industry, Chaparral's 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's compensation programs for executive
officers are described below.
Compensation Structure.
The base compensation for the executive officers of Chaparral 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's executive compensation program are:
o to compensate the executive officers of Chaparral fairly for their
contributions to Chaparral's short-term and long-term performance; and
o to allow Chaparral to attract, motivate and retain the management
personnel necessary to Chaparral's success by providing an executive
compensation program comparable to that offered by companies with
which Chaparral competes for management personnel.
The elements of Chaparral's 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.
In July 2001, Chaparral's stockholders approved the 2001 Stock Incentive
Plan, which sets aside shares of Chaparral's Common Stock for issuance to
Chaparral's officers, directors, employees, and consultants. Chaparral did not
make any grants under the 2001 Stock Incentive Plan during fiscal year 2001.
15
Compensation of the Chief Executive Officer.
During fiscal year 2001, Mr. McMillian served as Chief Executive Officer of
Chaparral. In establishing Mr. McMillian's base salary, the Compensation
Committee considered the factors set forth above, including the level of CEO
compensation in other publicly owned/similar sized exploration and production
companies in the oil and gas industry and Mr. McMillian's level of involvement
in the day-to-day operations of Chaparral.
Executive Compensation Deductibility.
Chaparral intends that amounts paid under Chaparral's 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 according to Section
162(m) of the Internal Revenue Code of 1986.
Compensation Committee Interlocks and Insider Participation.
No executive officer or director of Chaparral serves as a 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.
Fiscal Year 2001 Compensation Committee
of the Board of Directors,
Richard L. Grant, Chairman
James A. Jeffs
David A. Dahl
16
PROPOSAL TWO
APPROVAL OF THE NEW ARTICLE IV TO CHAPARRAL'S AMENDED
AND RESTATED CERTIFICATE OF INCORPORATION
The Board believes that the best interests of Chaparral and its
stockholders will be served by amending Chaparral's Certificate of Incorporation
to insert a new Article IV and by restating Chaparral's Certificate of
Incorporation to include this new provision. The background and reasons for this
amendment are discussed below. The entire "Chaparral Resources, Inc. Amended and
Restated Certificate of Incorporation" is attached hereto as Appendix "A". The
new provisions of Article IV are underlined in the attachment for ease of
identification.
Master Agreement. On May 9, 2002, in connection with the refinancing of
Chaparral and related entities, Chaparral entered into a Master Agreement with
CAIH (the "Master Agreement"). The Master Agreement required that, as a
condition of the transaction, the Board of Chaparral adopt certain amendments to
restate its Certificate of Incorporation. The Board unanimously determined that
the amendment and restatement of Chaparral's Certificate of Incorporation is in
the best interest of Chaparral and its stockholders. In addition, the Board
directed that the Certificate of Incorporation, as Amended and Restated to
include new Article IV, be submitted to a vote of the stockholders for their
approval. CAIH, which owns 62.98% of the outstanding Common Stock of Chaparral,
has indicated that it intends to vote in favor of this proposal. As a condition
of the restructuring, Allen & Company Incorporated and Whittier Ventures, LLC,
which collectively own 25.96% of the outstanding Common Stock of Chaparral, have
agreed to vote in favor of this amendment to Chaparral's Certificate of
Incorporation.
Amended and Restated Certificate of Incorporation. If new Article IV is
approved by the requisite majority of the stockholders of Chaparral, the Amended
and Restated Certificate of Incorporation will be filed with the Secretary of
State of Delaware. Chaparral will pay all filing fees and other expenses deemed
necessary to cause the Amended and Restated Certificate of Incorporation to
become valid and in full force and effect with the Secretary of State of
Delaware.
New Article IV. Section 228 of the General Corporation Law of the State of
Delaware ("GCL") provides that unless the certificate of incorporation of a
company provides otherwise, any action that is either required or permitted to
be taken at an annual or special meeting of the stockholders of a corporation,
may be taken without a meeting, without prior notice and without a vote if a
consent in writing is signed by the holder(s) of the minimum number of votes
that would be required to authorize or take such action if a meeting were held
and all shares entitled to vote were present and voting. Since CAIH holds a
majority of the shares outstanding and entitled to vote, and since Section 216
of the GCL permits most action to be taken by majority vote, the Board and CAIH
decided that it would be in the best interest of all of the Chaparral
stockholders if the Certificate of Incorporation were amended to eliminate this
right to take action without a meeting, and to provide that any action that is
required or permitted to be taken by the stockholders of Chaparral can only be
taken at a duly called annual or special meeting. This assures that all of the
stockholders of Chaparral will receive notice and an opportunity to be heard and
vote on matters affecting Chaparral.
Recommendation of the Board.
The Board recommends that stockholders vote FOR approval of the new Article
IV to Chaparral's Amended and Restated Certificate of Incorporation.
17
PROPOSAL THREE
APPROVAL OF THE NEW ARTICLE V TO CHAPARRAL'S AMENDED
AND RESTATED CERTIFICATE OF INCORPORATION
The Board believes that the best interests of Chaparral and its
stockholders will be served by amending Chaparral's Certificate of Incorporation
to insert a new Article V and by restating Chaparral's Certificate of
Incorporation to include this new provision. The background and reasons for this
amendment are discussed below. The entire "Chaparral Resources, Inc. Amended and
Restated Certificate of Incorporation" is attached hereto as Appendix "A". The
new provisions of Article V are underlined in the attachment for ease of
identification.
Master Agreement. On May 9, 2002, in connection with the refinancing of
Chaparral and related entities, Chaparral entered into the Master Agreement with
CAIH. The Master Agreement required that, as a condition of the transaction, the
Board of Chaparral adopt certain amendments to restate its Certificate of
Incorporation. As in the case of Article IV discussed above, the Board
unanimously determined that the amendment and restatement of Chaparral's
Certificate of Incorporation is in the best interest of Chaparral and its
stockholders. In addition, the Board directed that the Certificate of
Incorporation, as Amended and Restated to include new Article V, be submitted to
a vote of the stockholders for their approval. CAIH, which owns 62.98% of the
outstanding Common Stock of Chaparral, has indicated that it intends to vote in
favor of this proposal. As a condition of the restructuring, Allen & Company
Incorporated and Whittier Ventures, LLC, which collectively own 25.96% of the
outstanding Common Stock of Chaparral, have agreed to vote in favor of this
amendment to Chaparral's Certificate of Incorporation.
Amended and Restated Certificate of Incorporation. If new Article V is
approved by the requisite majority of the stockholders of Chaparral, the Amended
and Restated Certificate of Incorporation will be filed with the Secretary of
State of Delaware. Chaparral will pay all filing fees and other expenses deemed
necessary to cause the Amended and Restated Certificate of Incorporation to
become valid and in full force and effect with the Secretary of State of
Delaware.
New Article V. As a result of the refinancing of Chaparral, CAIH became a
significant stockholder of Chaparral. Since Chaparral and CAIH, including their
respective affiliated entities, may engage in the same or similar lines of
business - the exploration and production of oil - a new Article V has been
inserted into Chaparral's Certificate of Incorporation to regulate and define
the conduct and relationship of CAIH, as a principal stockholder of Chaparral,
with regard to certain contractual relationships and other business
opportunities and relations between CAIH and Chaparral, its subsidiaries and
their respective officers and directors.
More specifically, the amendments clarify that CAIH will not breach its
fiduciary obligation to Chaparral if it engages in the same or similar lines of
business as Chaparral, does business with an entity that is also a customer of
Chaparral, or employs any officer, director or employee of Chaparral. The
amendment also sets forth rules as to when a corporate opportunity will be
considered as belonging to either Chaparral or CAIH where it is presented to an
officer and/or director of Chaparral who is also an officer and/or director of
CAIH. Therefore, if a director or officer of Chaparral, who is also a director
or officer of CAIH, acquires knowledge of a potential transaction which may be a
corporate opportunity for both companies, CAIH will not be liable to Chaparral
for breach of any fiduciary duty by reason of the fact that CAIH pursues or
acquires such corporate opportunity for itself, directs such corporate
opportunity to another person, or does not communicate information regarding
such corporate opportunity to Chaparral.
18
The amendment also provides that when a corporate opportunity is offered in
writing to an officer and/or director of Chaparral, who is also an officer
and/or director of the CAIH, solely in his or her designated capacity with one
of the two companies, such opportunity will belong to whichever corporation was
so designated. Otherwise, a corporate opportunity offered in writing to a person
who is an officer or officer and director of Chaparral and also a director of
CAIH will belong to Chaparral. Similarly, a corporate opportunity offered in
writing to a person who is a director of Chaparral and who is also an officer
and/or director of CAIH will belong to CAIH.
In addition, if Chaparral enters into any contract, agreement, arrangement
or transaction with any officer or director of CAIH or any affiliate or related
entity, all of the material facts as to such contract, agreement, arrangement or
transaction must be disclosed to the Board, or any committee thereof, which is
going to approve such transaction. If such material facts are disclosed, then
the officers or directors of Chaparral or CAIH may be present at and participate
in the meeting of the Board which authorizes such transaction and will be deemed
to have acted in good faith and not to have breached their duty of loyalty to
Chaparral and its stockholders and not to have derived any improper personal
benefit therefrom.
Recommendation of the Board.
The Board recommends that stockholders vote FOR approval of the new Article
V to Chaparral's Amended and Restated Certificate of Incorporation.
19
PROPOSAL FOUR
RATIFICATION OF INDEPENDENT AUDITORS
The Board has appointed Ernst & Young LLP, certified public accountants, as
auditors to examine the consolidated financial statements of Chaparral for the
fiscal years ending December 31, 2001 and 2002, 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, 2002 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 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's independent auditors for fiscal
year 2002.
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 of
the meeting, 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
November 8, 2002
20
CHAPARRAL
CHAPARRAL RESOURCES, INC.
PROXY CARD
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR ANNUAL MEETING OF STOCKHOLDERS
The undersigned hereby appoints Natalie S. Hairston and Miguel C. Soto,
either of them, jointly and severally, with power of substitution, to represent
and to vote as designated all shares of Common Stock which the undersigned would
be entitled to vote at the Annual Meeting of Stockholders of Chaparral
Resources, Inc., to be held December 10, 2002 at The Inter-Continental Hotel,
111 East 48th Street, New York, New York 10017, at 10:00 a.m., Eastern Standard
Time, or any adjournment thereof.
1. Election of directors.
a. Askar Alshinbayev d. Peter G. Dilling
b. Alan D. Berlin e. John Duthie
c. Ian Connor f. Nikolai D. Klinchev
|_| FOR |_| AGAINST |_| ABSTAIN
INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, STRIKE A
LINE THROUGH OR OTHERWISE STRIKE THE NOMINEE'S NAME.
2. Approval of the new Article IV to Chaparral's Amended and Restated
Certificate of Incorporation.
|_| FOR |_| AGAINST |_| ABSTAIN
3. Approval of the new Article V to Chaparral's Amended and Restated
Certificate of Incorporation.
|_| FOR |_| AGAINST |_| ABSTAIN
4. Ratification of the selection of Ernst & Young LLP as Chaparral's
independent auditors for the fiscal year ending December 31, 2002.
|_| 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 ELECTION OF ALL NOMINEES TO CHAPARRAL'S BOARD OF DIRECTORS, FOR THE
APPROVAL OF THE NEW ARTICLE IV TO CHAPARRAL'S AMENDED AND RESTATED CERTIFICATE
OF INCORPORATION, FOR THE APPROVAL OF THE NEW ARTICLE V TO CHAPARRAL'S AMENDED
AND RESTATED CERTIFICATE OF INCORPORATION, AND FOR THE RATIFICATION OF ERNST &
YOUNG LLP AS CHAPARRAL'S 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)
Appendix A
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
CHAPARRAL RESOURCES, INC.
THE UNDERSIGNED, acting as the incorporator of a corporation under and in
accordance with the General Corporation Law of the State of Delaware, hereby
adopts the following Certificate of Incorporation for such corporation:
ARTICLE I
The name of the corporation is Chaparral Resources, Inc. (the
"Corporation").
ARTICLE II
The purpose for which the Corporation is organized is the transaction of
any or all lawful acts and activities for which corporations may be incorporated
under the General Corporation Law of the State of Delaware.
ARTICLE III
3.1 The aggregate number of shares of capital stock that the Corporation
shall have authority to issue is 101,000,000, of which (a) 100,000,000 shares
shall be common stock, par value 0.0001 per share, and (b) 1,000,000 shares
shall be preferred stock, no par value per share. Unless specifically provided
otherwise herein, the holders of such shares shall be entitled to one vote for
each share held in any stockholder vote in which any of such holders is entitled
to participate.
3.2 The board of directors may determine the powers, designations,
preferences and relative, participating, optional or other special rights,
including voting rights, and the qualifications, limitations or restrictions
thereof, of each class of capital stock and of each series within any such class
and may increase or decrease the number of shares within each such class or
series; provided, however, that the board of directors may not decrease the
number of shares within a class or series to less than the number of shares
within such class or series that are then issued and may not increase the number
of shares within a series above the total number of authorized shares of the
applicable class for which the powers, designations, preferences and rights have
not otherwise been set forth herein.
3.3 Series A Preferred Stock. 75,000 shares of the Corporation's preferred
stock shall consist of the Series A Preferred Stock, no par value per share,
with the rights, preferences, privileges and restrictions as follows:
(a) Definitions. The following definitions shall apply to the designations of
the preferred stock under this Section 3.3:
"Approved Transaction" shall mean a transaction approved by a majority of
the Board for the sale, grant, award or issuance to management, directors
or employees of, or consultants to, the Corporation of shares of Common
Stock or options to purchase such shares pursuant to which transaction any
such sale, grant or award must be approved by the Board or a committee
thereof prior to such sale, grant, award or issuance.
"Board" shall mean the Board of Directors of the Corporation.
"Commitment Date" means the date of original issuance of the Series A
Preferred Stock.
"Common Stock" shall mean the Common Stock, par value $0.0001 per share, of
the Corporation.
"Corporation Optional Redemption Value" means a price per share that equals
or exceeds the then Conversion Price by at least 50%.
A-1
"Conversion Price" means the initial conversion price for the Series A
Preferred Stock of $128.4696 per share, as adjusted form time to time as
provided by Section 3.3(f).
"Majority of the Series A Preferred Stock" shall mean more than 50% of the
outstanding shares of Series A Preferred Stock.
"Person" shall include all natural persons, corporations, business trusts,
associations, companies, partnerships, joint ventures and other entities,
governments, and agencies and political subdivisions.
"Redemption Price" means the Redemption Price set forth in Section
3.3(d)(iii), as such may be adjusted from time to time as provided in
Section 3.3(d).
"Series A Preferred Stock" shall mean the Series A Preferred Stock, no par
value, of the Corporation.
"Subsidiary" shall mean any corporation, partnership, joint venture,
association or other business entity at least fifty percent (50%) of the
outstanding voting stock or voting interest of which is at the time owned
directly or indirectly by the Corporation or by one or more of such
subsidiary entities, or both.
The foregoing definitions shall be equally applicable to both the singular
and plural forms of the defined terms.
(b) Dividends.
(i) Right to Dividends. The holders of the then outstanding Series A
Preferred Stock shall be entitled to receive, when and as declared by the
Board, and out of any funds legally available therefor, cumulative
dividends at the annual rate of $5.00 per share, payable semiannually in
cash on the last day of May and November of each year. Such dividends shall
be cumulative so that, if such dividends in respect of any previous or
current semi-annual dividend period, at the annual rate specified above,
shall not have been paid or declared and a sum sufficient for the payment
thereof set apart, the deficiency shall first be fully paid before any
dividend or other distribution shall be paid or declared and set part for
the Common Stock.
(ii) Priority. Unless full accumulated and accrued dividends on the
Series A Preferred Stock for all past dividend periods and the then current
dividend period shall have been paid or declared and a sum sufficient for
the payment thereof set apart, no dividend whatsoever other than a dividend
payable solely in Common Stock shall be paid or declared, and no
distribution shall be made, on any Common Stock.
(c) Liquidation Rights of Preferred. In the event of any liquidation,
dissolution or winning up of the Corporation, whether voluntary or
involuntary, the holders of the Series A Preferred Stock then outstanding
shall be entitled to be paid out of the assets of the Corporation available
for distribution to its stockholders, whether such assets are capital,
surplus, or earnings, before any payment or declaration and setting apart
for payment of any amount shall be made in respect of the Common Stock, an
amount equal to $100.00 plus all accrued and unpaid dividends thereon.
(d) Redemptions.
(i) Scheduled Redemption. Commencing on November 30, 2002 and on the
last day of November of each year thereafter (each such date being referred
to as a "Scheduled Redemption Date"), so long as any shares of Series A
Preferred Stock shall be outstanding and to the extent the Corporation
shall have funds legally available for such payment, the Corporation shall
redeem the lesser of (x) the number of shares of Series A Preferred Stock
outstanding on such scheduled redemption date or (y) one-third of the
largest number of shares of Series A Preferred Stock outstanding at any
time prior to the first Scheduled Redemption Date for the Series A
Preferred Stock. The shares to be redeemed shall be determined pro rata
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among the holders of shares of Series A Preferred Stock. If the Corporation
shall fail to discharge all or any part of any scheduled redemption
obligation pursuant to this Subsection (i) because insufficient funds are
legally available therefor, funds legally available therefore shall be
applied pro rata to the holders of the Series A Preferred Stock. The
balance of such scheduled redemption obligation shall be discharged as soon
as the Corporation shall have funds legally available to permit such
redemption, at which time the Board shall promptly fix a date for such
redemption and so notify the holders of such shares in writing.
(ii) Corporation Optional Redemption. The Corporation shall have the
right, but not the obligation, to redeem all or any portion of the Series A
Preferred Stock, if the average closing price of the Common Stock for any
thirty (30) consecutive trading day period equals or exceeds the
Corporation Optional Redemption Value. If the Corporation redeems less than
all of the Series A Preferred Stock, such redemption shall be made pro rata
among the holders of such series.
(iii) Redemption Price. The redemption price of the Series A Preferred
Stock (the "Redemption Price") shall be an amount per share equal to
$100.00 plus all unpaid dividends thereon which have accrued, whether or
not earned or declared. Even though the Redemption Price and the Conversion
Price are both initially $100.00, they have no connection with, or
relationship to, one another.
(iv) Redemption Notice. The Corporation shall, not less than thirty
(30) days nor more than sixty (60) days prior to the date fixed for
redemption ("Redemption Date"), mail written notice ("Redemption Notice"),
postage prepaid, to each holder of shares of record of the Series A
Preferred Stock to be redeemed at such holder's post office address last
shown on the records of the Corporation. The Redemption Notice shall state:
(1) the total number of shares Series A Preferred Stock which the
Corporation intends to redeem;
(2) the Redemption Date and Redemption Price;
(3) that the holder's right to convert the Series A Preferred
Stock will terminate on the day preceding the Redemption Date; and
(4) the time, place and manner in which the holder is to
surrender to the Corporation the certificate or certificates
representing the shares of Series A Preferred Stock to be redeemed.
(v) Surrender of Stock. On or before the Redemption Date, each holder
of Series A Preferred Stock to be redeemed, unless the holder has exercised
his right to convert the shares as provided in Section 3.3(f), shall
surrender the certificate or certificates representing such shares to the
Corporation, in the manner and at the place designated in the Redemption
Notice, and thereupon the Redemption Price for such shares shall be payable
to the order of the person whose name appears on such certificate or
certificates as the owner thereof, and each surrendered certificate shall
be cancelled and retired. In the event less than all of the shares
represented by such certificate are redeemed, a new certificate shall be
issued representing the unredeemed shares.
(vi) Termination of Rights. If the Redemption Notice is duly given,
and if on or prior to the Redemption Date the Redemption Price is either
paid or made available for payment, then notwithstanding that the
certificates evidencing any of the shares of Series A Preferred Stock so
called for redemption have not been surrendered, all rights with respect to
such shares shall forthwith after the Redemption Date cease and terminate,
except only (i) the right of the holders to receive the Redemption Price
without interest upon surrender of their certificates therefor or (ii) the
right to receive Common Stock upon exercise of the conversion rights as
provided in Section 3.3(f).
(vii) Adjustment for Stock Splits and Combinations. If the Corporation
at any time or from time to time after the Commitment Date effects a
subdivision of the outstanding shares of Series A Preferred Stock, the
Redemption Price then in effect immediately before the subdivision shall be
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proportionately decreased, and conversely, if the Corporation at any time
or from time to time after the Commitment Date combines the outstanding
shares of Series A Preferred Stock into a smaller number of shares, the
Redemption Price then in effect immediately before the combination shall be
proportionately increased. Any adjustment under this Subsection (vii) shall
become effective at the close of business on the date the subdivision or
combination becomes effective.
(viii) Adjustment for Certain Dividends and Distributions. If the
Corporation at any time or from time to time after the Commitment Date
makes or issues, or fixes a record date for the determination of holders of
shares of Series A Preferred Stock entitled to receive, a dividend or other
distribution payable in additional shares of Series A Preferred Stock, then
and in each such event the Redemption Price then in effect shall be
decreased as of the time of such issuance or, in the event such record date
is fixed, as of the close of business on such record date, by multiplying
the Redemption Price then in effect by a fraction (1) the numerator of
which is the total number of shares of Series A Preferred Stock issued and
outstanding immediately prior to the time of such issuance or the close of
business on such record date, and (2) the denominator of which shall be the
total number of shares of Series A Preferred Stock issued and outstanding,
immediately prior to the time of such issuance or the close of business on
such record date plus the total number of shares of Series A Preferred
Stock issuable in payment of such dividend or distribution; provided,
however, that if such record date is fixed and such dividend is not fully
paid or if such distribution is not fully made on the date fixed therefor,
the Redemption Price shall be recomputed accordingly as of the close of
business on such record date and thereafter the Redemption Price shall be
adjusted pursuant to this Subsection (viii) as of the time of actual
payment of such dividends or distributions.
(e) Voting Rights. Each holder of shares of Series A Preferred Stock shall be
entitled to vote on all matters and, except as otherwise expressly provided
herein, shall be entitled to the number of votes equal to the largest
number of full shares of Common Stock into which all shares of Series A
Preferred Stock held by such holder could be converted, pursuant to the
provisions of this Section 3.3, at the record date for the determination of
the stockholders entitled to vote on such matters or, if no such record
date is established, at the date such vote is taken or any written consent
of stockholders is first executed. This provision for determination of the
number of votes to which each holder of Series A Preferred Stock is
entitled shall also apply in all cases in which the holders of shares of
Series A Preferred Stock have the right to vote separately as a class.
(f) Conversion. The holders of Series A Preferred Stock shall have the
following conversion rights:
(i) Right to Convert. Each share of Series A Preferred Stock shall be
convertible, at the option of the holders thereof, at any time or from time
to time and prior to the Redemption Date for such share, into fully paid
and nonassessable shares of Common Stock.
(ii) Conversion Price. Each share of Series A Preferred Stock shall be
convertible into the number of shares of Common Stock which results from
dividing $100.00 by the Conversion Price per share in effect at the time of
conversion. The initial Conversion Price per share shall be $128.4696 and
shall be subject to adjustment from time to time as provided below.
(iii) Mechanics of Conversion. Each holder of Series A Preferred Stock
who desires to convert the same into shares of Common Stock shall surrender
the certificate or certificates therefor, duly endorsed, at the office of
the Corporation or of any transfer agent for the Series A Preferred Stock
or Common Stock, and shall give written notice to the Corporation at such
office that such holder elects to convert the same and shall state therein
the number of shares of Series A Preferred Stock being converted. Thereupon
the Corporation shall promptly issue and deliver at such office to such
holder a certificate or certificates for the number of shares of Common
Stock to which such holder is entitled. Such conversion shall be deemed to
have been made immediately prior to the close of business on the date of
such surrender of the certificate representing the shares of Series A
Preferred Stock to be converted, and the person entitled to receive the
shares of Common Stock issuable upon such conversion shall be treated for
all purposes as the record holder of such shares of Common Stock on such
date. A holder of Series A Preferred Stock who converts any shares of
Series A Preferred Stock shall not be entitled to any accrued but unpaid
dividends with respect to the Series A Preferred Stock so converted.
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(iv) Adjustment for Stock Splits and Combinations. If the Corporation
at any time or from time to time after the Commitment Date effects a
subdivision of the outstanding Common Stock, the Conversion Price then in
effect immediately before the subdivision shall be proportionately
decreased, and conversely, if the Corporation at any time or from time to
time after the Commitment Date combines the outstanding shares of Common
Stock into a smaller number of shares, the Conversion Price then in effect
immediately before the combination shall be proportionately increased. Any
adjustment under this Section 3.3(f) shall become effective at the close of
business on the date the subdivision or combination becomes effective.
(v) Adjustment for Certain Dividends and Distributions. If the
Corporation at any time or from time to time after the Commitment Date
makes or issues, or fixes a record date for the determination of holders of
Common Stock entitled to receive, a dividend or other distribution payable
in additional shares of Common Stock, then and in each such event the
Conversion Price then in effect shall be decreased as of the time of such
issuance or, in the event such record date is fixed, as of the close of
business on such record date, by multiplying the Conversion Price then in
effect by a fraction (1) the numerator of which is the total number of
shares of Common Stock issued and outstanding immediately prior to the time
of such issuance or the close of business on such record date, and (2) the
denominator of which shall be the total number of shares of Common Stock
issued and outstanding immediately prior to the time of such issuance or
the close of business on such record date plus the number of shares of
Common Stock issuable in payment of such dividend or distribution;
provided, however, that if such record date is fixed and such dividend is
not fully paid or if such distribution is not fully made on the date fixed
therefor, the Conversion Price shall be recomputed accordingly as of the
close of business on such record date and thereafter the Conversion Price
shall be adjusted pursuant to this Section 3.3(f) as of the time of actual
payment of such dividends or distributions.
(vi) Adjustments for Other Dividends and Distributions. In the event
the Corporation at any time or from time to time after the Commitment Date
makes or issues, or fixes a record date for the determination of holders of
Common Stock entitled to receive, a dividend or other distribution payable
in securities of the Corporation other than shares of Common Stock, then
and in each such event provision shall be made so that the holders of the
Series A Preferred Stock shall receive upon conversion thereof, in addition
to the number of shares of Common Stock receivable thereupon, the amount of
securities of the Corporation which they would have received had their
Series A Preferred Stock been converted into Common Stock on the date of
such event and had they thereafter, during the period from the date of such
event to and including the conversion date, retained such securities
receivable by them as aforesaid during such period, subject to all other
adjustments called for during such period under this Section 3.3(f) with
respect to the rights of the holders of the Series A Preferred Stock.
(vii) Adjustments for Reclassification, Exchange and Substitution. In
the event that at any time or from time to time after the Commitment Date,
the Common Stock issuable upon the conversion of the Series A Preferred
Stock is changed into the same or a different number of shares of any class
or classes of stock, whether by recapitalization, reclassification or
otherwise (other than a subdivision or combination of shares or stock
dividend or a reorganization, merger, consolidation or sale of assets,
provided for elsewhere in this Section 3.3(f)), then and in any such event
each holder of Series A Preferred Stock shall have the right thereafter to
convert such Series A Preferred Stock into the kind and amount of stock and
other securities and property receivable upon such recapitalization,
reclassification or other change, by holders of the number of shares of
Common Stock into which such shares of Series A Preferred Stock could have
been converted immediately prior to such recapitalization, reclassification
or change, all subject to further adjustment as provided herein.
(viii) Reorganization, Mergers, Consolidations or Sales of Assets.
Subject to Section 3.3(b), if at any time or from time to time there is a
capital reorganization of the Common Stock (other than a recapitalization,
subdivision, combination, reclassification or exchange of shares provided
for elsewhere in this Section 3.3(f)) or a merger or consolidation of the
Corporation with or into another corporation, or the sale of all or
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substantially all of the Corporation's properties and assets to any other
person, then, as part of such reorganization, merger, consolidation or
sale, provision shall be made so that the holders of the Series A Preferred
Stock shall thereafter be entitled to receive upon conversion of such
Series A Preferred Stock the number of shares of stock or other securities
or property of the Corporation, or of the successor corporation resulting
from such merger or consolidation or sale, to which a holder of the number
of shares of Common Stock deliverable upon conversion of such Series A
Preferred Stock would have been entitled in such capital reorganization,
merger, consolidation, or sale. In any such case, appropriate adjustment
shall be made in the application of the provisions of this Section 3.3(f)
with respect to the rights of the holders of such Series A Preferred Stock
after the reorganization, merger, consolidation or sale to the end that the
provisions of this Section 3.3(f) (including adjustment of the Conversion
Price then in effect and the number of shares purchasable upon conversion
of the Series A Preferred Stock) shall be applicable after that event and
be as nearly equivalent as may be practicable.
A. Sale of Shares Below Conversion Price.
(1) If at any time or from time to time after the Commitment
Date, the Corporation issues or sells, or is deemed by the express
provisions of this Subsection (i) to have issued or sold, Additional
Shares of Common Stock (as hereinafter defined), other than as a
dividend or other distribution on any class of stock as provided in
Section 3.3(f)(v) and other than upon a subdivision or combination of
shares of Common Stock as provided in Section 3.3(f)(iv), for an
Effective Price (as hereinafter defined) less than the then existing
Conversion Price, then the currently existing Conversion Price shall
be reduced, as of the opening of business on the date of such issuance
or sale, to a price determined by multiplying that Conversion Price by
a fraction (i) the numerator of which shall be (A) the number of
shares of Common Stock outstanding at the close of business on the day
next preceding the date of such issuance or sale, plus (B) the number
of shares of Common Stock which the aggregate consideration received
(or by the express provisions hereof deemed to have been received) by
the Corporation for the total number of Additional Shares of Common
Stock so issued would purchase at such Conversion Price, and (ii) the
denominator of which shall be the number of shares of Common Stock
outstanding at the close of business on the date of such issuance
after giving effect to such issuance of Additional Shares of Common
Stock. For the purpose of the calculation described in this Section
3.3(f)(viii)(A), the number of shares of Common Stock outstanding
shall include (A) the number of shares of Common Stock into which the
then outstanding shares of Series A Preferred Stock could be fully
converted on the day next preceding the issuance or sale of Additional
Shares of Common Stock and (B) the number of shares of Common Stock
which could be obtained through the conversion of all Convertible
Securities (as hereinafter defined) which are convertible on the day
next preceding the issuance or sale of Additional Shares of Common
Stock.
(2) For the purpose of making any adjustment required under this
Subsection 3.3(f)(viii)(A), the consideration received by the
Corporation for any issuance or sale of securities shall (A) to the
extent it consists of cash be computed at the net amount of cash
received by the Corporation after deduction of any expenses payable by
the Corporation and any underwriting or similar commissions,
compensation, or concessions paid or allowed by the Corporation in
connection with such issuance or sale, (B) to the extent it consists
of property other than cash, be computed at the fair value of that
property as reasonably determined in good faith by the Board, and (C)
if Additional Shares of Common Stock, Convertible Securities (as
hereinafter defined) or rights or options to purchase either
Additional Shares of Common Stock or Convertible Securities are issued
or sold together with other stock or securities or other assets of the
Corporation for a consideration which covers both, be computed as the
portion of the consideration so received that may be reasonably
determined in good faith by the Board to be allocable to such
Additional Shares of Common Stock, Convertible Securities or rights or
options.
(3) For the purpose of the adjustment required under this
Subsection 3.3(f)(viii)(A), the Corporation issues or sells any rights
or options for the purchase of, or stock or other securities
convertible or exchangeable, with or without consideration, into or
for, Additional Shares of Common Stock (such convertible or
exchangeable stock or securities being herein referred to as
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"Convertible Securities") and if the Effective Price of such
Additional Shares of Common Stock is less than the Conversion Price
then in effect, then in each case the Corporation shall be deemed to
have issued at the time of the issuance of such rights or options or
Convertible Securities the maximum number of Additional Shares of
Common Stock issuable upon exercise, conversion or exchange thereof
and to have received as consideration for the issuance of such shares
an amount equal to the total amount of the consideration, if any,
received by the Corporation for the issuance of such rights or options
or Convertible Securities, plus, in the case of such rights or
options, the minimum amounts of consideration, if any, payable to the
Corporation upon the exercise of such rights or options, plus, in the
case of Convertible Securities, the minimum amounts of consideration,
if any, payable to the Corporation (other than by cancellation of
liabilities or obligations evidenced by such Convertible Securities)
upon the conversion or exchange thereof. No further adjustment of the
Conversion Price, adjusted upon the issuance of such rights, options
or Convertible Securities, shall be made as a result of the actual
issuance of Additional Shares of Common Stock on the exercise of any
such rights or options or the conversion or exchange of any such
Convertible Securities. If any such rights or options or the
conversion or exchange privilege represented by any such Convertible
Securities shall expire without having been exercised, the Conversion
Price adjusted upon the issuance of such rights, options or
Convertible Securities shall be readjusted to the Conversion Price
which would have been in effect had an adjustment been made on the
basis that the only Additional Shares of Common Stock, if any,
actually issued or sold on the exercise of such rights or options or
rights of conversion or exchange of such Convertible Securities, and
such Additional Shares of Common Stock, if any, were issued or sold
for the consideration actually received by the Corporation upon such
exercise, plus the consideration, if any, actually received by the
Corporation for the granting of all such rights or options, whether or
not exercised, plus the consideration received for issuing or selling
the Convertible Securities actually converted or exchanged, plus the
consideration, if any, actually received by the Corporation (other
than by cancellation of liabilities or obligations evidenced by such
Convertible Securities) on the conversion or exchange of such
Convertible Securities.
(4) For the purpose of the adjustment required under this Section
3.3(f)(viii)(A), if the Corporation issues or sells any rights or
options for the purchase of Convertible Securities and if the
Effective Price of the Additional Shares of Common Stock underlying
such Convertible Securities is less than the Conversion Price then in
effect, then the Corporation shall be deemed to have issued at the
time of the issuance of such rights or options the maximum number of
Additional Shares of Common Stock issuable upon conversion or exchange
of the total amount of Convertible Securities covered by such rights
or options and to have received as consideration for the issuance of
such rights or options, plus the minimum amounts of consideration, if
any, payable to the Corporation upon the exercise of such rights or
options and plus the minimum amount of consideration, if any, payable
to the Corporation (other than by cancellation of liabilities or
obligations evidenced by such Convertible Securities) upon the
conversion or exchange or such Convertible Securities. No further
adjustment of the Conversion Price adjusted upon the issuance of the
Convertible Securities upon the exercise of such rights or options or
upon the actual issuance of Additional Shares of Common Stock upon the
conversion or exchange of such Convertible Securities. The provisions
of Section 3.3(f)(viii)(A)(3) above for the readjustment of the
Conversion Price upon the expiration of rights or options or the
rights of conversion or exchange of Convertible Securities shall apply
to the rights, options and Convertible Securities referred to in this
Section 3.3(f).
(5) "Additional Shares of Common Stock" shall mean all shares of
Common Stock issued by the Corporation after the Commitment, whether
or not subsequently reacquired or retired by the Corporation, other
than (i) shares of Common Stock issued upon conversion of the Series A
Preferred Stock, (ii) shares of Common Stock or options or warrants to
acquire Common Stock issued to management, directors or employees of,
or consultants to, the Corporation or any Subsidiary pursuant to
Approved Transactions, (iii) share of Common Stock issuable upon
exercise of Convertible Securities outstanding on the Commitment Date
and (iv) shares of Common Stock or options or warrants to acquire
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Common Stock issued in connection with investment banking or financial
advisory services provided to the Corporation. The "Effective Price"
of Additional Shares of Common Stock shall mean the quotient
determined by dividing the total number of Additional Shares of Common
Stock issued or sold, or deemed to have been issued or sold by the
Corporation under this Subsection 3.3(f)(viii)(A), into the aggregate
consideration received, or deemed to have been received by the
Corporation for such issuance under this Subsection 3.3(f)(viii)(A),
for such Additional Shares of Common Stock.
(ix) Accountants' Certificate of Adjustment. In each case of an
adjustment or readjustment of the Conversion Price or the number of shares
of Common Stock or other securities issuable upon conversion of the Series
A Preferred Stock, the Corporation, at its expense, shall cause independent
public accountants of recognized standing selected by the Corporation (who
may be the independent public accountants then auditing the books of the
Corporation) to compute such adjustment or readjustment in accordance with
the provisions hereof and prepare a certificate showing such adjustment or
readjustment, and shall mail such certificate, by first class mail, postage
prepaid, to each registered holder of the Series A Preferred Stock at the
holder's address as shown in the Corporation's books. The certificate shall
set forth such adjustment or readjustment, showing in detail the facts upon
which such adjustment or readjustment is based, including a statement of
(1) the consideration received or deemed to be received by the Corporation
for any Additional Shares of Common Stock issued or sold or deemed to have
been issued or sold, (2) the Conversion Price at the time in effect, (3)
the number of Additional Shares of Common Stock and (4) the type and
amount, if any, of other property which at the time would be received upon
conversion of the Series A Preferred Stock.
(x) Notices of Record Date. In the event (i) any taking by the
Corporation of record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend or other distribution, or (ii) any capital reorganization of the
Corporation, any reclassification or recapitalization of the capital stock
of the Corporation, any merger or consolidation of the Corporation with or
into any other corporation, or any transfer of all or substantially all of
the assets of the Corporation to any other Person or any voluntary or
involuntary dissolution, liquidation or winding up of the Corporation, the
Corporation shall mail to each holder of Series A Preferred Stock at least
thirty (30) days prior to the record date specified therein, a notice
specifying (1) the date on which any such record is to be taken for the
purpose of such dividend or distribution and a description of such dividend
or distribution, (2) the date on which any such reorganization,
reclassification, transfer, consolidation, merger, dissolution, liquidation
or winding up is expected to become effective, and (3) the date, if any,
that is to be fixed, as to when the holders of record of Common Stock (or
other securities) shall be entitled to exchange their shares of Common
Stock (or other securities) for securities or other property deliverable
upon such reorganization, reclassification, transfer, consolidation,
merger, dissolution, liquidation or winding up.
(xi) Fractional Shares. No fractional shares of Common Stock shall be
issued upon conversion of Series A Preferred Stock. If more than one share
of Series A Preferred Stock shall be surrendered for conversion at any one
time by the same holder, the number of full shares of Common Stock issuable
upon conversion thereof shall be computed on the basis of the aggregate
number of shares of Series A Preferred Stock so surrendered. In lieu of any
fractional share to which the holder would otherwise be entitled, the
Corporation shall pay case equal to the product of such fraction multiplied
by the fair market value of one share of the Corporation's Common Stock on
the date of conversion as determined by the Board.
(xii) Reservation of Stock Issuable Upon Conversion. The Corporation
shall at all times reserve and keep available out of its authorized but
unissued shares of Common Stock, solely for the purpose of effecting the
conversion of the shares of the Series A Preferred Stock, such number of
its shares of Common Stock as shall from time to time be sufficient to
effect the conversion of all outstanding shares of the Series A Preferred
Stock; and if at any time the number of authorized but unissued shares of
Common Stock shall not be sufficient to effect the conversion for all then
outstanding shares of the Series A Preferred Stock; the Corporation shall
promptly take such corporate action as may, in the opinion of its counsel,
be necessary to increase its authorized but unissued shares of Common Stock
to such number of shares as shall be sufficient for such purpose.
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(xiii) Notices. All notices and other communications required by the
provisions of this Section 3.3(f) shall be in writing and shall be deemed
to have been duly given if delivered personally, mailed by certified mail
(return receipt requested) or sent by overnight delivery service, cable,
telegram, facsimile transmission or telex to each holder of record at the
address of such holder appearing on the books of the Corporation. Notice so
given shall, in the case of notice so given by mail, be deemed to be given
and received on the fourth calendar day after posting, in the case of
overnight delivery service on the date of actual delivery and, in the case
of notice so given by cable, telegram, facsimile transmission, telex or
personal delivery, on the date of actual transmission or, as the case may
be, personal delivery.
(xiv) Payment of Taxes. The Corporation will pay all taxes (other than
taxes based on income) and other governmental charges that may be imposed
with respect to the issuance or delivery of shares of Common Stock upon
conversion of shares of Series A Preferred Stock, including without
limitation any tax or other charge imposed in connection with any transfer
involved in the issuance and delivery of shares of Common Stock in a name
other than that in which the shares of Series A Preferred Stock so
converted were registered.
(xv) No Dilution or Impairment. The Corporation shall not amend or
restate this Certificate of Incorporation or participate in any
reorganization, transfer of assets, consolidation, merger, dissolution,
issuance or sale of securities or any other voluntary action, for the
purpose of avoiding or seeking to avoid the observance or performance of
any of the terms to be observed or performed hereunder by the Corporation,
but will at all times in good faith assist in carrying out all such action
as may be reasonably necessary or appropriate in order to protect the
conversion rights of the holders of the Preferred Stock against dilution or
other impairment.
(xvi) Rounding of Calculation; Minimum Adjustment. All calculations
under this Section 3.3(f) shall be made to the nearest one thousandth
(1/1,000th) cent or to the nearest one thousandth (1/1,000th) of a share,
as the case may be. Any provision of this Section 3.3(f) to the contrary
notwithstanding, no adjustment in any Conversion Price shall be made if the
amount of such adjustment would be less than $0.001, but any such amount
shall be carried forward and an adjustment with respect thereto shall be
made at the time of and together with any such subsequent adjustment which,
together with such amount and any other amount or amounts so carried
forward, shall aggregate $0.001 or more.
(xvii) Waivers. With the written consent of a majority of the Series A
Preferred Stock, the obligations of the Corporation and the rights of the
holders of the Series A Preferred Stock under this Section 3.3 may be
waived (either generally or in a particular instance, either retroactively
or prospectively and either for a specified period of time or
indefinitely). Upon the effectuation of each such waiver, the Corporation
shall promptly give written notice thereof to the holders of Series A
Preferred Stock who have not previously consented thereto in writing.
(xviii) Determination of Percentages. Whenever this Certificate of
Incorporation requires the calculation of a percentage of preferred stock,
such calculation shall be made as if the Series A Preferred Stock has been
fully converted into Common Stock.
ARTICLE IV
Any action required or permitted to be taken by the stockholders of the
Corporation must be effected at a duly called annual or special meeting of such
holders and may not be effected by any consent in writing by such stockholders.
ARTICLE V
5.1 In anticipation that
(a) Central Asian Industrial Holdings NV, including any person that
controls, is controlled by or is under direct or indirect common
control with Central Asian Industrial Holdings NV, and all their
successors by way of merger, consolidation or sale of all or
substantially all of its or their assets, but not including the
Corporation and its subsidiaries (the "Stockholder"), will be and will
remain a substantial stockholder of the Corporation,
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(b) the Corporation and the Stockholder may engage in the same or similar
activities or lines of business and have an interest in the same areas
of corporate opportunities,
(c) the Corporation and the Stockholder may enter into contracts or
otherwise transact business with each other and that the Corporation
may derive benefits therefrom, and
(d) the Corporation may from time to time enter into contractual,
corporate or business relations with one or more of its directors or
officers or one of more corporations, partnerships, limited liability
companies or other business entities in which one or more of its
directors or officers has a financial interest (collectively, "Related
Entities"), and in recognition of the benefits to be derived by the
Corporation through its continued contractual, corporate and business
relations with the Stockholder (including service of officers and
directors of the Stockholder as officers and directors of the
Corporation), the provisions of this Article V are set forth to
regulate and define the conduct of certain affairs, contractual
relationships and other business relations of the Corporation as they
may involve the Stockholder, Related Entities and their respective
officers and directors, and the powers, rights, duties and liabilities
of the Corporation and its officers, directors and the Stockholders in
connection therewith. The following provisions of this Article V are
in addition to, and not in limitation of, the provisions of the
Delaware General Corporation Law and the other provisions of this
Amended and Restated Certificate of Incorporation.
5.2 The Stockholder will have no duty to refrain from
(a) engaging the same or similar activities or lines of business as the
Corporation,
(b) doing business with any customer of the Corporation or
(c) employing or otherwise engaging any officer, director or employee of
the Corporation, and neither the Stockholder nor any officer or
director thereof (except as provided in Section 5.3) will be liable to
the Corporation or its stockholders for breach of any fiduciary duty
by reason of any such activities of the Stockholder or of such
person's participation therein. If the Stockholder acquires knowledge
of a potential transaction or matter which may be a corporate
opportunity for both the Stockholder and the Corporation, the
Stockholder will have no duty to communicate or offer such corporate
opportunity to the Corporation and will not be liable to the
Corporation or its stockholders for breach of any fiduciary duty as a
stockholder of the Corporation by reason of the fact that the
Stockholder pursues or acquires such corporate opportunity for itself,
directs such corporate opportunity to another person, or does not
communicate information regarding such corporate opportunity to the
Corporation.
5.3 In the event that a director or officer of the Corporation, who is
also a director or officer of the Stockholder, acquires knowledge of a potential
transaction or matter which may be a corporate opportunity for both the
Corporation and the Stockholder, such director or officer of the Corporation
(a) will be deemed to have fully satisfied and fulfilled the fiduciary
duty of such director or officer to the Corporation and its
stockholders with respect to such corporate opportunity,
(b) will not be liable to the Corporation or its stockholders for breach
of any fiduciary duty by reason of the fact that the Stockholder
pursues or acquires such corporate opportunity for itself or directs
such corporate opportunity to another person or does not communicate
information regarding such corporate opportunity to the Corporation,
(c) will be deemed to have acted in good faith and in a manner such person
reasonably believes to be in and not opposed to the best interests of
the Corporation and
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(d) will be deemed not to have breached his or her duty of loyalty to the
Corporation or its stockholders and not to have derived an improper
personal benefit therefrom, if such director or officer acts in a
manner consistent with the following policy:
When a corporate opportunity is offered in writing to an officer
and/or director of the Corporation who is also an officer and/or director
of the Stockholder, solely in his or her designated capacity with one of
the two companies, such opportunity will belong to whichever corporation
was so designated. Otherwise,
(i) a corporate opportunity offered to any person who is an
officer or officer and director of the Corporation, and who is also a
director of the Stockholder will belong to the Corporation,
(ii) a corporate opportunity offered to any person who is a
director of the Corporation and who is also an officer and/or director
of the Stockholder will belong to the Stockholder,
(iii) a corporate opportunity offered to any person who is an
officer, but not a director, of both the Corporation and the
Stockholder will belong to the Stockholder,
(iv) a corporate opportunity offered to any person who is an
officer and director of both the Corporation and the Stockholder will
belong to the Stockholder, and
(v) a corporate opportunity offered to any person who is an
officer or an officer and director of the Corporation and who is also
an officer or an officer and director of the Stockholder will belong
to the Stockholder.
5.4 If any contract, agreement, arrangement or transaction between the
Corporation and the Stockholder involves a corporate opportunity and is approved
in accordance with the procedures set forth in Section 5.5, the Stockholder and
its officers and directors will have fully satisfied and fulfilled their
fiduciary duties to the Corporation and its stockholders with respect thereto
under this Article V. Any such contract, agreement, arrangement or transaction
involving a corporate opportunity not so approved will not by reason thereof
result in any breach of any fiduciary duty, but will be governed by the other
provisions of this Article V, this Amended and Restated Certificate of
Incorporation, the Bylaws of the Corporation, the Delaware General Corporation
Law and applicable law.
5.5 No contract, agreement, arrangement or transaction between the
Corporation and the Stockholder or between the Corporation and one or more of
the directors or officers of the Corporation, the Stockholder or any Related
Entity or between the Corporation and any Related Entity will be void or
voidable for the reason that the Stockholder, any Related Entity or one or more
of the officers or directors of the Corporation, the Stockholder or any Related
Entities are parties thereto, or because any such directors or officers are
present at or participate in the meeting of the Board of Directors of the
Corporation or committee thereof which authorizes the contract, agreement,
arrangement or transaction, or because his, her or their votes are counted for
such purpose, and the Stockholder, any Related Entity and such directors and
officers
(a) will be deemed to have fully satisfied and fulfilled their fiduciary
duties to the Corporation and its the Stockholders with respect
thereto,
(b) will not be liable to the Corporation or its stockholders for any
breach of fiduciary duty by reason of any entering into, performance
or consummation of any such contract, agreement, arrangement or
transaction,
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(c) will, in the case of officers and directors of the Corporation, be
deemed to have acted in good faith and in a manner such person
reasonably believes to be in and not opposed to the best interests of
the Corporation and
(d) will, in the case of officers and directors of the Corporation, be
deemed not to have breached their duties of loyalty to the Corporation
and its stockholders and not to have derived an improper personal
benefit therefrom, if:
(i) the material facts as to the contract, agreement, arrangement
or transaction are disclosed or are known to the Board of Directors of
the Corporation or the committee thereof which authorizes the
contract, agreement, arrangement or transaction, and the Board of
Directors or such committee in good faith authorizes the contract,
agreement, arrangement or transaction by the affirmative vote of a
majority of the disinterested directors, even though the disinterested
directors be less than a quorum; or
(ii) the material facts as to the contract, agreement,
arrangement or transaction are disclosed or are known to the holders
of capital stock entitled to vote, and the contract, agreement,
arrangement or transaction is specifically approved in good faith by
vote of the holders of a majority of the combined voting power of the
then outstanding shares of capital stock of the Corporation entitled
to vote generally in the election of directors.
Directors of the Corporation who are also directors or officers of the
Stockholder or any Related Entity may be counted in determining the presence of
a quorum at a meeting of the Board of Directors or of a committee which
authorizes the contract, agreement, arrangement or transaction.
5.6 Any person purchasing or otherwise acquiring any interest in shares of
the capital stock of the Corporation will be deemed to have notice of and to
have consented to the provisions of this Article V.
5.7 For the purposes of this Article V:
(a) a director of the Corporation who is Chairman or Vice Chairman of the
Board of Directors of the Corporation or chairman of a committee
thereof will not be deemed to be an officer of the Corporation by
reason of holding such position (without regard to whether such
position is deemed an office of the Corporation under the Bylaws of
the Corporation), unless such person is a full-time employee of the
Corporation;
(b) the "Corporation" will include all subsidiary corporations and all
partnerships, limited liability companies, joint ventures,
associations and other business entities in which the Corporation owns
(directly or indirectly) fifty percent or more of the outstanding
voting stock, voting power, partnership interests or similar ownership
interest; and any contract, agreement, arrangement or transaction with
any such entity, or with any officer or director thereof, will be
deemed to be a contract, agreement, arrangement or transaction with
the Corporation; and
(c) "Corporate opportunities" will include, but not be limited to,
business opportunities which the Corporation is financially able to
undertake, which are, by their nature, in the line of the
Corporation's business and are of practical advantage to it, which are
opportunities in which the Corporation has an interest or a reasonable
expectancy, and as to which, by embracing the opportunity, the
self-interest of the Stockholder or the officer or director, as the
case may be, will be brought into conflict with that of the
Corporation.
5.8 Any contract or business relation which does not comply with the rules
set forth in this Article V will not by reason thereof be deemed void or
voidable or result in any breach of any fiduciary duty, but will be governed by
the provisions of this Amended and Restated Certificate of Incorporation, the
Bylaws of the Corporation, the Delaware General Corporation Law and applicable
law.
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ARTICLE VI
The street address of the initial registered office of the Corporation is
1209 Orange Street, Wilmington, New Castle County, Delaware 19801, and the name
of its initial registered agent at such address is The Corporation Trust
Corporation.
ARTICLE VII
To the fullest extent permitted by the General Corporation Law of the State
of Delaware, as the same exists or may hereafter be amended, a director of the
Corporation shall not be liable to the Corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director. Any repeal or
amendment of this Article IX by the stockholders of the Corporation or by
changes in applicable law shall, to the extent permitted by applicable law, be
prospective only, and shall not adversely affect any limitation on the personal
liability of any director of the Corporation at the time of such repeal or
amendment.
ARTICLE VIII
The Corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative, arbitrative or
investigative, any appeal in such an action, suit or proceeding and any inquiry
or investigation that could lead to such an action, suit or proceeding (whether
or not by or in the right of the Corporation), by reason of the fact that such
person is or was a director, officer, employee or agent of the Corporation or is
or was serving at the request of the Corporation as a director, officer,
partner, venturer, proprietor, trustee, employee, agent or similar functionary
of another Corporation, partnership, joint venture, sole proprietorship, trust,
nonprofit entity, employee benefit plan or other enterprise, against all
judgments, penalties (including excise and similar taxes), fines, settlements
and expenses (including attorneys' fees and court costs) actually and reasonably
incurred by such person in connection with such action, suit or proceeding to
the fullest extent permitted by any applicable law, and such indemnity shall
inure to the benefit of the heirs, executors and administrators of any such
person so indemnified pursuant to this Article X. The right to indemnification
under this Article VII shall be a contract right and shall include, with respect
to directors and officers, the right to be paid by the Corporation the expenses
incurred in defending any such proceeding in advance of its disposition;
provided, however, that, if the General Corporation Law of the State of Delaware
requires, the payment of such expenses incurred by a director or officer in
advance of the final disposition of a proceeding shall be made only upon
delivery to the Corporation of an undertaking, by or on behalf of such director
or officer, to repay all amounts so advanced if it shall ultimately be
determined that such director or officer is not entitled to be indemnified under
this Article VII or otherwise. The Corporation may, by action of its board of
directors, pay such expenses incurred by employees and agents of the Corporation
upon such terms as the board of directors deems appropriate. The indemnification
and advancement of expenses provided by, or granted pursuant to, this Article
VII shall not be deemed exclusive of any other right to which those seeking
indemnification may be entitled under any law, bylaw, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in such
person's official capacity and as to action in another capacity while holding
such office. Any repeal or amendment of this Article VII by the stockholders of
the Corporation or by changes in applicable law shall, to the extent permitted
by applicable law, be prospective only, and not adversely affect the
indemnification of any person who may be indemnified at the time of such repeal
or amendment.
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ARTICLE IX
No contract or other transaction between the Corporation and any other
corporation and no other acts of the Corporation with relation to any other
corporation shall, in the absence of fraud, in any way be invalidated or
otherwise affected by the fact that any one or more of the directors or officers
of the Corporation are pecuniarily or otherwise interested in, or are directors
or officers of, such other corporation. Any director or officer of the
Corporation individually, or any firm or association of which any director or
officer may be a member, may be a party to, or may be pecuniarily or otherwise
interested in, any contract or transaction of the Corporation, provided that the
fact that such person individually or as a member of such firm or association is
such a party or is so interested shall be disclosed or shall have been known to
the board of directors or a majority of such members thereof as shall be present
at any meeting of the board of directors at which action upon any such contract
or transaction shall be taken; and any director of the Corporation who is also a
director or officer of such other corporation or who is such a party or so
interested may be counted in determining the existence of a quorum at any
meeting of the board of directors during which any such contract or transaction
shall be authorized and may vote thereat to authorize any such contract or
transaction, with like force and effect as if such person were not such a
director or officer of such other corporation or not so interested. Any director
of the Corporation may vote upon any contract or any other transaction between
the Corporation and any subsidiary or affiliated corporation without regard to
the fact that such person is also a director or officer of such subsidiary or
affiliated corporation.
Any contract, transaction or act of the Corporation or of the directors
that shall be ratified at any annual meeting of the stockholders of the
Corporation, or at any special meeting of the stockholders of the corporation,
or at any special meeting called for such purpose, shall, insofar as permitted
by law, be as valid and as binding as though ratified by every stockholder of
the Corporation; provided, however, that any failure of the stockholders to
approve or ratify any such contract, transaction or act, when and if submitted,
shall not be deemed in any way to invalidate the same or deprive the
Corporation, its directors, officers or employees, of its or their right to
proceed with such contract, transaction or act.
Subject to any express agreement that may from time to time be in effect,
any stockholder, director or officer of the Corporation may carry on and conduct
in such person's own right and for such person's own personal account, or as a
partner in any partnership, or as a joint venturer in any joint venture, or as
an officer, director or stockholder of any corporation, or as a participant in
any syndicate, pool, trust or association, any business that competes with the
business of the Corporation and shall be free in all such capacities to make
investments in any kind of property in which the Corporation may make
investments.
ARTICLE X
Election of directors need not be by written ballot. Any director or the
entire board of directors may be removed, with or without cause, by the holders
of a majority of the shares then entitled to vote at an election of directors,
except as otherwise provided by law. In furtherance and not in limitation of the
powers conferred by statute, the board of directors of the Corporation is
expressly authorized to adopt the original bylaws of the Corporation, to amend
or repeal the bylaws or to adopt new bylaws, subject to any limitations that may
be contained in such bylaws.
IN WITNESS WHEREOF, the undersigned officer of the Corporation has caused
this Amended and Restated Certificate of Incorporation to be duly executed as of
December 10, 2002.
/s/ Alan D. Berlin
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Alan D. Berlin, Corporate Secretary
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