-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KMr2/ZDl8eZxWqsRnr6fyVYVQeq0WwCFwO5c+zlvFoPEI80/NWr2PvNcWgCfQAFW gjVQbGQ321BxACms2sk0eg== 0001000096-97-000959.txt : 19971203 0001000096-97-000959.hdr.sgml : 19971203 ACCESSION NUMBER: 0001000096-97-000959 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19971031 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19971202 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: CHAPARRAL RESOURCES INC CENTRAL INDEX KEY: 0000019252 STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [1311] IRS NUMBER: 840630863 STATE OF INCORPORATION: CO FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 000-07261 FILM NUMBER: 97731370 BUSINESS ADDRESS: STREET 1: 3400 BISSONNET STREET STREET 2: SUITE 135 CITY: HOUSTON STATE: TX ZIP: 77005 BUSINESS PHONE: 713-669-09 MAIL ADDRESS: STREET 1: 621 17TH STREET SUITE 1301 CITY: DENVER STATE: CO ZIP: 80293 8-K 1 FORM 8-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported) October 31, 1997 CHAPARRAL RESOURCES, INC. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Colorado 0-7261 84-0630863 - ---------------------------- --------------------- ------------------- (State or other jurisdiction (Commission File No.) (I.R.S. Employer of incorporation) Identification No.) 3400 Bissonnet Street, Suite 135, Houston, Texas 77005 ---------------------------------------------------- ---------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (713) 669-0932 Item 5. OTHER EVENTS. - --------------------- On October 31, 1997, Ted Collins, Jr. and Michael J. Muckleroy were appointed directors of Chaparral Resources, Inc. ("Company") to fill the vacancies on the Board of Directors of the Company created by the resignation as a director on October 1, 1997, of Jay W. McGee and created by an increase in the number of directors. Mr. Collins, age 59, has been the President of Collins & Ware, Inc., an independent oil and gas company, since 1988. Mr. Collins was the President of Enron Oil & Gas Co., an oil and gas company, from 1982 to 1988 and was the Executive Vice President and a director of American Quasar Petroleum Co., from 1969 to 1982. Mr. Collins is a director of Norgasco, Inc., Hanover Compression Company and Mid Louisiana Gas Corp. Mr. Muckleroy, age 67, has been an independent oil operator since 1994. Mr. Muckleroy was the Chairman and the Chief Executive Officer of Enron Liquid Fuels, a subsidiary of Enron Corp., which is engaged in the processing and marketing of oil and gas and the manufacture of appliances and the distribution of liquid gas, from 1984 to 1994. On November 24, 1997, the Company executed a Subscription Agreement ("Agreement") with an investor ("Investor") which was not affiliated with the Company. Pursuant to the Agreement, the Company agreed to sell to the Investor 75,000 shares of the Company's Series A Preferred Stock, no par value ("Series A Preferred Stock"), for a purchase price of $100.00 per share or an aggregate purchase price of Seven Million Five Hundred Thousand Dollars ($7,500,000), 75,000 shares of the Company's Series B Preferred Stock, no par value ("Series B Preferred Stock"), for a purchase price of $100.00 per share or an aggregate purchase price of Seven Million Five Hundred Thousand Dollars ($7,500,000), and 75,000 shares of the Company's Series C Preferred Stock, no par value ("Series C Preferred Stock"), for a purchase price of $100.00 per share or an aggregate purchase price of Seven Million Five Hundred Thousand Dollars ($7,500,000). The purchase and sale of the Series A, B and C Preferred Stock will occur at four separate closings. The funds for the first purchase, which consists of 50,000 shares of Series A Preferred Stock for a purchase price of $5,000,000, were received on November 25, 1997. The second closing, with respect to the purchase and sale of the remaining 25,000 shares of Series A Preferred Stock for a purchase price of $2,500,000, will occur on a date mutually agreeable to the parties to the Agreement but in no event later than January 31, 1998. The third closing, with respect to the purchase and sale of 75,000 shares of Series B Preferred Stock for a purchase price of $7,500,000, will occur on a date mutually agreeable to the parties to the Agreement but in no event later than April 30, 1998. The fourth closing, with respect to the purchase and sale of 75,000 shares of Series C Preferred Stock for a purchase price of $7,500,000, will occur on a date mutually agreeable to the parties to the Agreement but in no event later than June 30, 1998. 2 The Series A, B and C Preferred Stock will be entitled to receive cumulative dividends at the annual rate of $5.00 per share and will have a redemption price of $100.00 plus any unpaid dividends. Commencing on November 30, 2002, April 30, 2003 and June 30, 2003, the Company will be required to redeem the Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock, respectively, to the extent of the lesser of (i) the number of shares of the respective series outstanding on each scheduled redemption date or (ii) one-third of the largest number of shares of each respective series outstanding at any time prior to the first scheduled redemption date for such series. The Company has the right to redeem all or any portion of any shares of Series A, B and C Preferred Stock prior thereto. Each holder of shares of Series A, B and C Preferred Stock is entitled to vote on all matters in an amount equal to the largest number of full shares of common stock into which all shares of the Series A, B and C Preferred Stock held by such holders are convertible. Further, the Series A, B and C Preferred Stock is convertible at the option of the holders thereof at any time or from time to time on or prior to the redemption date into common stock. The conversion price of the Series A Preferred Stock is initially $2.25 per share; the conversion price of the Series B Preferred Stock is initially $3.00 per share; and the conversion price of the Series C Preferred Stock is initially $4.25 per share. The number of shares of common stock issuable upon conversion of each share of Series A, B and C Preferred Stock will be determined by dividing $100 by the conversion price per share. The holders of the Series A, B and C Preferred Stock have demand registration rights with respect to the underlying common stock and the Company has agreed to register the underlying common stock on most registration statements filed by the Company. Allen & Company Incorporated acted as placement agent in connection with the sale of the Series A, B and C Preferred Stock. Allen & Company Incorporated elected to receive its fees in the form of warrants to purchase 900,000 shares of the Company's common stock that are exercisable for six years for a total of $10.00. Item 7. FINANCIAL STATEMENTS AND EXHIBITS. - ------------------------------------------ (c) Exhibits. Exhibit 3.1 Articles of Amendment to the Restated Articles of Incorporation + Amendments dated November 25, 1997. Exhibit 10.19 Form of Subscription Agreement dated November 21, 1997. 3 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. Date: December 2, 1997 CHAPARRAL RESOURCES, INC. By: /s/ Howard Karren -------------------------------------- Howard Karren, President 4 EXHIBIT INDEX Exhibit 3.1 Articles of Amendment to the Restated Articles of Incorporation + Amendments dated November 25, 1997. Exhibit 10.19 Form of Subscription Agreement dated November 21, 1997. 5 EX-3.(I) 2 ARTICLES OF INCORPORATION ARTICLES OF AMENDMENT TO THE RESTATED ARTICLES OF INCORPORATION + AMENDMENTS OF CHAPARRAL RESOURCES, INC. Pursuant to the provisions of the Colorado Business Corporation Act, the undersigned corporation adopts the following Articles of Amendment to its Restated Articles of Incorporation + Amendments: FIRST: The name of the corporation is Chaparral Resources, Inc. SECOND: The following amendments to the Restated Articles of Incorporation + Amendments were duly adopted by the board of directors of Chaparral Resources, Inc. ("Company") on November 10, 1997, in accordance with Section 7-106-102 of the Colorado Business Corporation Act. Pursuant to the Company's Restated Articles of Incorporation + Amendments and the Colorado Business Corporation Act, shareholder action is not required to authorize or approve these Articles of Amendment. Article Fourth of the Restated Articles of Incorporation + Amendments is hereby amended by adding the following provisions as Paragraph 3 to Article Fourth: Paragraph 3: 225,000 shares of the Company's preferred stock shall consist of three series of the no par value preferred stock of the Company. The rights, preferences, privileges and restrictions imposed upon these three series of preferred stock are as follows: Section 1. Designation and Amount. The shares of such series shall be designated as follows: Series A Preferred Stock and the number of shares constituting such series initially shall be 75,000; Series B Preferred Stock and the number of shares constituting such series initially shall be 75,000; and Series C Preferred Stock and the number of shares constituting such series initially shall be 75,000. Section 2. Definitions. The following definitions shall apply to the designations of the Preferred Stock under Article Fourth, Paragraph 3 of the Restated Articles: "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 Company 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 Company. "Commitment Date" shall mean the date immediately prior to the date of original issuance of any Preferred Stock created by this Paragraph 3. 1 "Common Stock" shall mean the Common Stock, par value $0.10 per share, of the Company. "Company" shall mean this corporation. "Company Optional Redemption Value" shall mean, with respect to each series of Preferred Stock, a price per share that equals or exceeds the then Conversion Price of such series of Preferred Stock by at least 50%. "Conversion Price" shall mean, (i) with respect to the Series A Preferred Stock, the initial Series A Conversion Price per share of $2.25, as adjusted from time to time as provided by Section 7 of this Paragraph 3, (ii) with respect to the Series B Preferred Stock, the initial Series B Conversion Price per share of $3.00, as adjusted from time to time as provided by Section 7 of this Paragraph 3 and, (iii) with respect to the Series C Preferred Stock, the initial Series C Conversion Price per share of $4.25, as adjusted from time to time as provided by Section 7 of this Paragraph 3. "Majority of the Preferred Stock" shall mean more than 50% of the outstanding shares of Preferred Stock. "Paragraph 3" shall mean Paragraph 3 of Article Fourth of the Company's Restated Articles. "Person" shall include all natural persons, corporations, business trusts, associations, companies, partnerships, joint ventures and other entities, governments, and agencies and political subdivisions. "Preferred Stock" shall mean the collective reference to the Series A Preferred Stock, the Series B Preferred Stock and the Series C Preferred Stock of the Company. "Redemption Price" shall mean with respect to a series of Preferred Stock, the Redemption Price set forth in Section 5(b) of this Paragraph 3, as such may be adjusted from time to time as provided in Section 5. "Restated Articles" shall mean the Restated Articles of Incorporation + Amendments of the Company. "Series A Conversion Price" shall mean the initial conversion price for the Series A Preferred Stock of $2.25 per share, as adjusted from time to time as provided by Section 7 of this Paragraph 3. "Series A Preferred Stock" shall mean the Series A Preferred Stock, no par value, of the Company. 2 "Series B Conversion Price" shall mean the initial conversion price for the Series B Preferred Stock of $3.00 per share, as adjusted from time to time as provided by Section 7 of this Paragraph 3. "Series B Preferred Stock" shall mean the Series B Preferred Stock, no par value, of the Company. "Series C Conversion Price" shall mean the initial conversion price for the Series C Preferred Stock of $4.25 per share, as adjusted from time to time as provided by Section 7 of this Paragraph 3. "Series C Preferred Stock" shall mean the Series C Preferred Stock, no par value, of the Company. "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 Company 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. Section 3. Dividends. (a) Right to Dividends. The holders of the then outstanding 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 commencing May 31, 1998. 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. (b) Priority. Each share of each series of Preferred Stock shall rank equally in all respects with each share of each other series of Preferred Stock with respect to dividends; provided, however, that the Company shall not declare or pay dividends which are insufficient to pay all accrued dividends on each series of Preferred Stock outstanding unless such dividends are declared and paid to each series of Preferred Stock pro rata based on the accrued dividends with respect to such series as a percentage of accrued dividends for all series of Preferred Stock. Unless full accumulated and accrued dividends on the 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. 3 Section 4. Liquidation Rights of Preferred. In the event of any liquidation, dissolution or winding up of the Company, whether voluntary or involuntary, the holders of the Preferred Stock then outstanding shall be entitled to be paid out of the assets of the Company 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. If upon any liquidation, dissolution, or winding up of the Company, whether voluntary or involuntary, the assets to be distributed to the holders of the Preferred Stock shall be insufficient to permit the payment of the full respective preferential amounts to the holders of Preferred Stock, then such assets of the Company shall be distributed ratably to the holders of each series of Preferred Stock on the basis of the full preferential amounts due with respect to each such series. Section 5. Redemptions. (a) 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 Company shall have funds legally available for such payment, the Company shall redeem the lesser of (i) the number of shares of Series A Preferred Stock outstanding on such scheduled redemption date or (ii) 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 among the holders of shares of Series A Preferred Stock. Commencing on April 30, 2003 and on the last day of April of each year thereafter (each such date being referred to as a "scheduled redemption date"), so long as any shares of Series B Preferred Stock shall be outstanding and to the extent the Company shall have funds legally available for such payment, the Company shall redeem the lesser of (i) the number of shares of Series B Preferred Stock outstanding on such scheduled redemption date or (ii) one-third of the largest number of shares of Series B Preferred Stock outstanding at any time prior to the first scheduled redemption date for the Series B Preferred Stock. The shares to be redeemed shall be determined pro rata among the holders of shares of Series B Preferred Stock. Commencing on June 30, 2003 and on the last day of June of each year thereafter (each such date being referred to as a "scheduled redemption date"), so long as any shares of Series C Preferred Stock shall be outstanding and to the extent that the Company shall have funds legally available for such payment, the Company shall redeem the lesser of (i) the number of shares of Series C Preferred Stock outstanding on such scheduled redemption date or (ii) one-third of the largest number of shares of Series C Preferred Stock outstanding at any time prior to the first scheduled redemption date for the Series C Preferred Stock. The shares to be redeemed shall be determined pro rata among the holders of shares of Series C Preferred Stock. 4 If the Company shall fail to discharge all or any part of any scheduled redemption obligation pursuant to this subsection (a) because insufficient funds are legally available therefor, funds legally available therefore shall be applied pro rata to each series of Preferred Stock based upon the amount of matured but unpaid Redemption Price applicable to each such series. The balance of such scheduled redemption obligation shall be discharged as soon as the Company 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. (b) Company Optional Redemption. The Company shall have the right, but not the obligation, to redeem all or any portion of any series of Preferred Stock, if the average closing price of the Common Stock for any thirty (30) consecutive trading day period equals or exceeds the Company Optional Redemption Value for such series. If the Company redeems less than all of the Preferred Stock of a particular series, such redemption shall be made pro rata among the holders of such series. (c) Redemption Price. The redemption price of the 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. (d) Redemption Notice. The Company shall, not less than thirty (30) days nor more then 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 Preferred Stock to be redeemed at such holder's post office address last shown on the records of the Company. The Redemption Notice shall state: (1) The total number of shares of each class of Preferred Stock which the Company intends to redeem; (2) The number of shares of each class of Preferred Stock held by the holder which the Company intends to redeem; (3) The Redemption Date and Redemption Price; (4) That the holder's right to convert the Preferred Stock will terminate on the day preceding the Redemption Date; and (5) The time, place and manner in which the holder is to surrender to the Company the certificate or certificates representing the shares of Preferred Stock to be redeemed. (e) Surrender of Stock. On or before the Redemption Date, each holder of Preferred Stock to be redeemed, unless the holder has exercised his right to convert the shares as provided in Section 7 of this Paragraph 3, shall surrender the certificate or certificates representing such shares to the Company, in the 5 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. (f) 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 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 7 hereof. (g) Adjustment for Stock Splits and Combinations. If the Company at any time or from time to time after the Commitment Date for a class of Preferred Stock effects a subdivision of the outstanding shares of such class of Preferred Stock, the Redemption Price for such class of Preferred Stock then in effect immediately before the subdivision shall be proportionately decreased, and conversely, if the Company at any time or from time to time after the Commitment Date for a class of Preferred Stock combines the outstanding shares of such class of Preferred Stock into a smaller number of shares, the Redemption Price for such class of Preferred Stock then in effect immediately before the combination shall be proportionately increased. Any adjustment under this subsection (g) shall become effective at the close of business on the date the subdivision or combination becomes effective. (h) Adjustment for Certain Dividends and Distributions. If the Company at any time or from time to time after the Commitment Date for the Preferred Stock makes or issues, or fixes a record date for the determination of holders of shares of Preferred Stock entitled to receive, a dividend or other distribution payable in additional shares of a series of Preferred Stock, then and in each such event the Redemption Price for such series of Preferred Stock 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 for such series of Preferred Stock then in effect by a fraction (1) the numerator of which is the total number of shares of such series of 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 such series of 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 such series of 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 for such series of Preferred Stock shall be recomputed accordingly as of the close of business on such record date and thereafter the Redemption Price for such series of Preferred Stock shall be adjusted pursuant to this subsection (h) as of the time of actual payment of such dividends or distributions. 6 Section 6. Voting Rights. Each holder of shares of 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 Preferred Stock held by such holder could be converted, pursuant to the provisions of Section 7 of this Paragraph 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 Preferred Stock is entitled shall also apply in all cases in which the holders of shares of Preferred Stock have the right to vote separately as a class. Section 7. Conversion. The holders of Preferred Stock shall have the following conversion rights: (a) Right to Convert. Each share of 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. (b) 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 Class A Conversion Price per share in effect at the time of conversion. The initial Series A Conversion Price per share shall be $2.25 and shall be subject to adjustment from time to time as provided below. Each share of Series B Preferred Stock shall be convertible into the number of shares of Common Stock which results from dividing $100.00 by the Series B Conversion Price per share in effect at the time of conversion. The initial Series B Conversion Price per share shall be $3.00, which shall be subject to further adjustment from time to time as provided below. Each share of Series C Preferred Stock shall be convertible into the number of shares of Common Stock which results from dividing $100.00 by the Series C Conversion Price per share in effect at the time of conversion. The initial Series C Conversion Price per share shall be $4.25 and shall be subject to adjustment from time to time as provided below. (c) Mechanics of Conversion. Each holder of 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 Company or of any transfer agent for the Preferred Stock or Common Stock, and shall give written notice to the Company at such office that such holder elects to convert the same and shall state therein the number of shares of Preferred Stock being converted. Thereupon the Company 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 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 Preferred Stock who converts any shares of Preferred Stock shall not be entitled to any accrued but unpaid dividends with respect to the Preferred Stock so converted. 7 (d) Adjustment for Stock Splits and Combinations. If the Company at any time or from time to time after the Commitment Date for the Preferred Stock effects a subdivision of the outstanding Common Stock, the Conversion Price for each series of Preferred Stock then in effect immediately before the subdivision shall be proportionately decreased, and conversely, if the Company at any time or from time to time after the Commitment Date for the Preferred Stock combines the outstanding shares of Common Stock into a smaller number of shares, the Conversion Price for the Preferred Stock then in effect immediately before the combination shall be proportionately increased. Any adjustment under this subsection (d) shall become effective at the close of business on the date the subdivision or combination becomes effective. (e) Adjustment for Certain Dividends and Distributions. If the Company at any time or from time to time after the Commitment Date for the Preferred Stock 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 for the Preferred Stock 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 for each series of Preferred Stock 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 for such series of Preferred Stock shall be recomputed accordingly as of the close of business on such record date and thereafter the Conversion Price for such series of Preferred Stock shall be adjusted pursuant to this subsection (e) as of the time of actual payment of such dividends or distributions. (f) Adjustments for Other Dividends and Distributions. In the event the Company at any time or from time to time after the Commitment Date for the Preferred Stock 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 Company other than shares of Common Stock, then and in each such event provision shall be made so that the holders of the 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 Company which they would have received had their 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 7 with respect to the rights of the holders of the Preferred Stock. 8 (g) Adjustments for Reclassification, Exchange and Substitution. In the event that at any time or from time to time after the Commitment Date for the Preferred Stock, the Common Stock issuable upon the conversion of the 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 7), then and in any such event each holder of such class of Preferred Stock shall have the right thereafter to convert such 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 Preferred Stock could have been converted immediately prior to such recapitalization, reclassification or change, all subject to further adjustment as provided herein. (h) Reorganizations, Mergers, Consolidations or Sales of Assets. Subject to Section 3 of this Paragraph 3, 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 7) or a merger or consolidation of the Company with or into another corporation, or the sale of all or substantially all of the Company's properties and assets to any other person, then, as a part of such reorganization, merger, consolidation or sale, provision shall be made so that the holders of each series of Preferred Stock shall thereafter be entitled to receive upon conversion of such Preferred Stock the number of shares of stock or other securities or property of the Company, 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 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 7 with respect to the rights of the holders of such Preferred Stock after the reorganization, merger, consolidation or sale to the end that the provisions of this Section 7 (including adjustment of the Conversion Price then in effect and the number of shares purchasable upon conversion of such Preferred Stock) shall be applicable after that event and be as nearly equivalent as may be practicable. (i) Sale of Shares Below Conversion Price. (1) If at any time or from time to time after the Commitment Date for the Preferred Stock, the Company 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 subsection 7(e) above and other than upon a subdivision or combination of shares of Common Stock as provided in subsection 7(d) above, for an Effective Price (as hereinafter defined) less than the then existing Conversion Price for such series of Preferred Stock, then and in each such case 9 the then existing Conversion Price for such series of Preferred Stock 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 for such series 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 Company 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 subsection (i), 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 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 (i), the consideration received by the Company 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 Company after deduction of any expenses payable by the Company and any underwriting or similar commissions, compensation, or concessions paid or allowed by the Company 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 Company 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 (i), if the Company issues or sells any rights or options for the purchase of, or stock or other securities convertible or exchangeable, with or without consideration, into 10 or for, Additional Shares of Common Stock (such convertible or exchangeable stock or securities being herein referred to as "Convertible Securities") and if the Effective Price of such Additional Shares of Common Stock is less than the Conversion Price of a series of Preferred Stock then in effect, then in each case the Company 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 Company 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 Company 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 Company (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 for such series of Preferred Stock, 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 for such series of Preferred Stock 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 so issued were the 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 Company upon such exercise, plus the consideration, if any, actually received by the Company 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 Company (other than by cancellation of liabilities or obligations evidenced by such Convertible Securities) on the conversion or exchange of such Convertible Securities. 11 (4) For the purpose of the adjustment required under this subsection (i), if the Company 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 for any series of Preferred Stock then in effect, then in each such case the Company 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 Additional Shares of Common Stock an amount equal to the amount of consideration, if any, received by the Company for the issuance of such rights or options, plus the minimum amounts of consideration, if any, payable to the Company upon the exercise of such rights or options and plus the minimum amount of consideration, if any, payable to the Company (other than by cancellation of liabilities or obligations evidenced by such Convertible Securities) upon the conversion or exchange of such Convertible Securities. No further adjustment of the Conversion Price for such series of Preferred Stock, adjusted upon the issuance of such rights or options, shall be made as a result of the actual 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 7(i)(3) above for the readjustment of the Conversion Price for such series of Preferred Stock 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 7. (5) "Additional Shares of Common Stock" shall mean all shares of Common Stock issued by the Company after the Commitment Date for the Preferred Stock, whether or not subsequently reacquired or retired by the Company, other than (i) shares of Common Stock issued upon conversion of the 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 Company or any Subsidiary pursuant to Approved Transactions, (iii) shares of Common Stock issuable upon exercise of Convertible Securities outstanding on the Commitment Date for the Preferred Stock and (iv) shares of Common Stock or options or warrants to acquire Common Stock issued in connection with investment banking or financial advisory services provided to the Company. 12 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 Company under this subsection (i), into the aggregate consideration received, or deemed to have been received by the Company for such issuance under this subsection (i), for such Additional Shares of Common Stock. (j) Accountants' Certificate of Adjustment. In each case of an adjustment or readjustment of the Conversion Price of any series of Preferred Stock or the number of shares of Common Stock or other securities issuable upon conversion of any series of Preferred Stock, the Company, at its expense, shall cause independent public accountants of recognized standing selected by the Company (who may be the independent public accountants then auditing the books of the Company) 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 Preferred Stock at the holder's address as shown in the Company'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 Company for any Additional Shares of Common Stock issued or sold or deemed to have been issued or sold, (2) the Conversion Price for each series of Preferred Stock 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 Preferred Stock. (k) Notices of Record Date. In the event of (i) any taking by the Company 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 Company, any reclassification or recapitalization of the capital stock of the Company, any merger or consolidation of the Company with or into any other corporation, or any transfer of all or substantially all of the assets of the Company to any other Person or any voluntary or involuntary dissolution, liquidation or winding up of the Company, the Company shall mail to each holder of 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. (l) Fractional Shares. No fractional shares of Common Stock shall be issued upon conversion of Preferred Stock. If more than one share of 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 Preferred Stock so surrendered. In lieu of any fractional share to which the holder would otherwise be entitled, the Company shall pay cash equal to the product of such fraction multiplied by the fair market value of one share of the Company's Common Stock on the date of conversion as determined by the Board. 13 (m) Reservation of Stock Issuable Upon Conversion. The Company 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 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 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 of all then outstanding shares of the Preferred Stock, the Company 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. (n) Notices. All notices and other communications required by the provisions of this Section 7 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 Company. 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. (o) Payment of Taxes. The Company will pay all taxes (other than taxes based upon 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 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 Preferred Stock so converted were registered. (p) No Dilution or Impairment. The Company shall not amend its Restated Articles 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 Company, 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. (q) Rounding of Calculations; Minimum Adjustment. All calculations under this Section 7 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 7 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. 14 Section 8. Waivers. With the written consent of a Majority of the Preferred Stock, the obligations of the Company and the rights of the holders of the Preferred Stock under this Paragraph 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 Company shall promptly give written notice thereof to the holders of Preferred Stock who have not previously consented thereto in writing. Section 9. Determination of Percentages. Whenever this Certificate of Designations requires the calculation of a percentage of Preferred Stock, such calculation shall be made as if the Preferred Stock has been fully converted into Common Stock. Dated: November 25, 1997 CHAPARRAL RESOURCES, INC., a Colorado corporation By: /s/ Howard Karren -------------------------------------- Howard Karren, Chairman of the Board 15 EX-10.19 3 SUBSCRIPTION AGGREEMENT November 21, 1997 Chaparral Resources, Inc. Attn: Howard Karren, Chairman and CEO 3400 Bissonnet Houston, Texas 77005 Gentlemen: 1. Subscription. The undersigned, (the "Subscriber"), intending to be legally bound, irrevocably applies to purchase from Chaparral Resources, Inc., a corporation organized under the laws of the State of Colorado (the "Company") (i) 75,000 shares of the Company's Series A Preferred Stock, no par value ("Series A Preferred Stock"), for a purchase price of $100.00 per share or an aggregate purchase price of Seven Million Five Hundred Thousand Dollars ($7,500,000), (ii) 75,000 shares of the Company's Series B Preferred Stock, no par value ("Series B Preferred stock"), for a purchase price of $100.00 per share (or an aggregate purchase price of Seven Million Five Hundred Thousand Dollars ($7,500,000)) and (iii) 75,000 shares of the Company's Series C Preferred Stock no par value ("Series C Preferred Stock") for a purchase price of $100.00 per share (or an aggregate purchase price of Seven Million Five Hundred Thousand Dollars ($7,500,000)). The Series A Stock, Series B Stock and Series C Preferred Stock are collectively referred to herein as the "Preferred Stock". The purchase and sale of the Preferred Stock will occur at four closings (each, a "Closing, and, collectively, the "Closings") as follows: (i) the first Closing shall occur with respect to the purchase and sale of 50,000 shares of Series A Preferred Stock for a purchase price of $5,000,000 as soon as practicable after the date hereof and in no event later than two business days after the Company's execution and delivery of this Subscription Agreement; (ii) the second Closing shall occur with respect to the purchase and sale of the remaining 25,000 shares of Series A Preferred Stock for a purchase price of $2,500,000 on a date mutually agreeable to the Subscriber and the Company, but in no event later than January 31, 1998; (iii) the third Closing shall occur with respect to the purchase and sale of the 75,000 shares of Series B Preferred Stock for a purchase price of $7,500,000 on a date mutually agreeable to the Subscriber and the Company, but in no event later than April 30, 1998; and (iv) the fourth Closing shall occur with respect to the purchase and sale of the 75,000 shares of Series C Preferred Stock for a purchase price of $7,500,000 on a date mutually agreeable to the Subscriber and the Company, but in no event later than June 30, 1998. 1 The Preferred Stock issued hereunder shall have the rights and preferences set forth on Exhibit A hereto. The Preferred Stock is being offered to the Subscriber without registration under the Securities Act of 1933, as amended (the "Securities Act"). 2. Acceptance. The subscription shall be deemed accepted by the Company upon execution of this Agreement by the Company and receipt by the Company at each Closing of the purchase price for the Preferred Stock to be acquired at such Closing. The purchase price shall be paid at each Closing by wire transfer of immediately available funds payable to the Company. 3. Delivery of Certificate for Shares. As soon as practicable after receipt of the purchase price at each Closing, the Company will deliver to the Subscriber a certificate or certificates representing the Preferred Stock subscribed for hereby and purchased at such Closing, registered in the name of the Subscriber. 4. Representations Warranties and Covenants of Subscriber. In order to induce the Company to sell the Preferred Stock to the Subscriber, the Subscriber hereby represents, warrants and covenants to the Company as follows: (a) The Subscriber is acquiring the Preferred Stock solely for investment purposes only and not with a view to resale or distribution, or for the account, in whole or in part, of others. No other person has or will have a direct or indirect beneficial interest in the Preferred Stock. (b) The Subscriber recognizes the restrictions on the transferability of the Preferred Stock and the Subscriber is able to bear the substantial economic risk of an investment therein, including a complete loss thereof, for an indefinite period of time. (c) The Subscriber understands that the sale of the Preferred Stock hereunder is intended to be exempt from registration under the Securities Act, by virtue of Section 4(2) and/or Section 4(6) thereof (and the rules and regulations promulgated under the Securities Act) and applicable state securities laws. The Subscriber will not sell or otherwise transfer any or all of the Preferred Stock without registration under the Securities Act or an exemption therefrom. (d) The Subscriber acknowledges and agrees that the certificate or certificates representing the Preferred Stock shall bear a legend restricting the transfer of the Preferred Stock. (e) The Subscriber further represents and warrants that in order to make an informed decision in connection with the purchase of the Preferred Stock: (i) the Subscriber has reviewed the merits and risks of an investment in the Preferred Stock; and (ii) the Subscriber recognizes that an investment in the Preferred Stock involves a number of significant risks; the Subscriber has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of an investment in the Preferred Stock. 2 (f) The Subscriber is not subscribing to purchase the Preferred Stock as a result of or subsequent to any advertisement, article, notice or other communication published in any newspaper, magazine or similar media or broadcast over television or radio, or presented at any seminar or meeting, or any solicitation of a subscription by a person not previously known to the Subscriber in connection with investments in securities generally. (g) The Subscriber understands that all documents, records and books pertaining to this investment have been made available for inspection by the undersigned, the undersigned's attorney and/or accountant including, but not limited to, the Company's Annual Report on Form 10-K for the fiscal year ended November 30, 1996, the Company's Quarterly Reports on Form 10-Q for the quarterly periods ended February 28, 1997, June 30, 1997 and September 30, 1997 and the Company's Current Reports on Form 8-K dated April 17, 1997, May 29, 1997 and November 6, 1997. (h) The Subscriber has had a reasonable opportunity to ask questions of and receive answers from a person or persons acting on behalf of the Company concerning the Company and the offering of the Preferred Stock contemplated hereby, and all such questions have been answered to the full satisfaction of the undersigned. The representations of the Subscriber contained in this Section 4 shall be deemed to be made again at each Closing and shall be true and correct on the date of each Closing. 5. Representations and Warranties of the Company. The Company hereby represents and warrants to the Subscriber that the Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Colorado and has all corporate power and authority to own and lease its properties and to conduct its business as presently conducted. The Company further represents and warrants to the Subscriber that the issuance of the Preferred Stock has been duly authorized and, upon the issuance thereof and payment therefor in the manner provided herein, will be duly authorized, validly issued, fully-paid and non-assessable. 6. Registration Rights. (a) Definitions. For purposes of this Section 6, the following terms shall have the respective meanings set forth below: (i) "Commission" shall mean the Securities and Exchange Commission or any other Federal agency at the time administering the Securities Act. (ii) The term "holder or holders of Registrable Stock" shall mean any holder of any Common Stock issued or issuable upon conversion of the Preferred Stock issued pursuant to this Agreement, including any transferee of any Subscriber. 3 (iii) The terms "register," "registered" and "registration" refer to a registration effected by preparing and filing a registration statement or similar document in compliance with the Securities Act, and the declaration or ordering of effectiveness of such registration statement or document by the Commission. (iv) The term "Registrable Stock" means (a) the Common Stock issuable upon conversion of the Preferred Stock issued pursuant to this Agreement; provided, however, that shares of Registrable Stock shall cease to be Registrable Stock if they are sold or transferred pursuant to a registered public offering or other transaction which does not result in restrictions on resale being imposed on the transfer by virtue of Federal or state securities laws; and provided further that Registrable Stock shall cease to be Registrable Stock if the holder could sell or transfer all such Registrable Stock held by the holder in one transaction pursuant to Rule 144 promulgated under the Securities Act. (b) Demand Registration. (i) Upon the written request of any holder or holders ("Initiating Holders") of at least 30% of the shares of Registrable Stock, which request shall state the intended method of disposition by such Initiating Holders and shall request that the Company effect the registration of all or part of the Registrable Stock under the Securities Act, the Company shall promptly give written notice of such requested registration to all other holders, if any, of Registrable Stock. If, after the expiration of thirty days from the giving of such notice to the holders of Registrable Stock, the Company shall have received written requests to register at least 50% of the shares of Registrable Stock, which requests shall state the intended method of disposition of such securities by such holders, the Company shall use all reasonable efforts to prepare and file with the Commission a registration statement and such other documents, including a prospectus, as may be necessary to permit a public offering and sale of such Registrable Stock in the United States in compliance with the provisions of the Securities Act, all to the extent required to permit the disposition (in accordance with the intended methods thereof as aforesaid) by the holders of the Registrable Stock so to be registered (the "Participating Holders"). If such sale of Registrable Stock is to be pursuant to an underwritten offering, the underwriter shall be selected by the Initiating Holders and shall be reasonably acceptable to the Company. If the underwriter selected determines that the number of shares of Registrable Stock so to be included is required to be limited due to market conditions or otherwise, the holders of Registrable Stock proposing to sell their shares of Registrable Stock in such underwritten registration shall share pro rata (according to the number of shares of Registrable Stock requested to be registered) in the number of shares of Registrable Stock being underwritten (as determined by such underwriter) and 4 registered for their account. The Company shall only be required to effect one registration pursuant to this Section 6(b); provided, however, that, (i) if at the time of the exercise of the rights of a Participating Holder under this Section 6(b), the Company is not permitted by law to register all of the Registrable Stock, the Company may be required to effect one additional registration pursuant to this Section 6(b) and (ii) if at the time of such additional registration the Company is still not permitted by law to register all of the Registrable Stock, the Company may be required to effect one additional registration pursuant to this Section 6(b). (ii) The Company shall not be required to effect any registration under this Section 6(b) within nine months after the completion of any public offering of its securities pursuant to which the holders of Registrable Stock were afforded the right to register as many shares of their Registrable Stock as requested nor within six months after any other public offering by the Company. (iii) The Company shall have the right to include in any registration statement or post-effective amendment filed pursuant to this Section 6(b) other securities of the Company then proposed to be distributed, except that, to the extent consistent with the rights of other holders of the Company's securities, if and to the extent that the underwriter or underwriters acting with respect of such public offering reasonably determine that the inclusion of such other securities may substantially prejudice or hinder the offering of Registrable Stock, the number of such other securities shall be reduced or eliminated prior to any reduction in the number of shares of Registrable Stock so to be registered. (iv) If the registration under this paragraph (b) is effected on a Form S-3 (or any successor form thereto), and the effectiveness of such registration statement can be maintained without significant additional expense to the Company, then the Company agrees to maintain the effectiveness of such registration statement for a period of two years after its initial effective date. Otherwise, the Company shall not be required to maintain the effectiveness of such registration statement for a period in excess of six months after its initial effective date. (c) Incidental Registration. (i) If the Company at any time or from time to time proposes to file with the Commission a registration statement under the Securities Act with respect to any proposed distribution of any of its securities (other than a registration to be effected on Form S-4, S-8 or other similar limited purpose form), whether for sale for its own account or for the account of any other person holding registration rights with respect to the securities of the Company, then the Company shall give written notice of such proposed filing to the holders of Registrable Stock at least thirty (30) days before the anticipated filing date, and such notice shall describe in detail the proposed registration and 5 distribution (including those jurisdictions where registration or qualification under the securities or blue sky laws is intended) and shall offer the holders of Registrable Stock the opportunity to register such number of shares of Registrable Stock as the holders of Registrable Stock may request. Upon receipt by the Company by the anticipated filing date of written requests from Participating Holders for the Company to register their Registrable Stock, the Company shall permit, or in the event of an underwritten offering, shall use its best efforts to cause the managing underwriter or underwriters of such proposed underwritten offering to permit, the Participating Holders to include such securities in such offering on the same terms and conditions as any similar securities of the Company included therein; provided, however, that if in the opinion of the managing underwriter or underwriters of such offering, the inclusion of the total amount or kind of securities which it or the Company, and any other persons or entities, intend to include in such offering would interfere, hinder, delay, reduce or prevent the effectiveness or sale of the Company's shares of Common Stock proposed to be so registered or would otherwise adversely affect the success of such offering, then the amount or kind of securities to be offered for the accounts of the Company and each holder of Common Stock (including without limitation Registrable Stock) or securities convertible into or exercisable for Common Stock proposed to be registered (other than any persons exercising demand registration rights) shall be reduced (or eliminated) in proportion to their respective values to the extent necessary to reduce the total amount of securities to be included in such offering on behalf of such holders of securities to the amount recommended by such managing underwriter. For purposes of this Section, "value" shall mean principal amount with respect to debt securities and the proposed offering price per share with respect to equity securities. Notwithstanding the foregoing, if, at any time after giving written notice of its intention to register Common Stock or other securities convertible into or exercisable for Common Stock and prior to the effectiveness of the registration statement filed in connection with such registration, the Company determines for any reason either not to effect such registration or to delay such registration, the Company may, at its election, by delivery of written notice to the Participating Holders, (i) in the case of a determination not to effect registration, relieve itself of its obligations to register any Registrable Stock in connection with such registration, or (ii) in the case of determination to delay the registration, delay the registration of such Registrable Stock for the same period as the delay in the registration of such other shares of Common Stock or other securities convertible into or exercisable for Common Stock. (ii) Exception. The Company shall not be required to include any of the Registrable Stock of a Participating Holder in any registration statement or post-effective amendment prepared at its own instance unless such Participating Holder shall furnish such information and sign such documents as may be required by the Commission or reasonably requested by the Company in accordance with generally accepted practices, in connection with such proposed distribution. 6 (d) Covenants of the Company with Respect to Registration. In connection with any registration under this Section 6, the Company shall, as expeditiously as is reasonably possible: (i) Prepare and file with the Commission a registration statement with respect to such Participating Holders and, subject to the last sentence of Section 6(c)(i) hereof, use its best efforts to cause such registration statement to become effective. (ii) Prepare and file with the Commission such amendments and supplements to such registration statement and prospectus used in connection with such registration statement as may be necessary to comply with the provisions of the Securities Act with respect to the disposition of all Registrable Stock covered by such registration statement. (iii) Furnish to the Participating Holders such numbers of copies of a prospectus, including, if applicable, a preliminary prospectus, in conformity with the requirements of the Securities Act, and such other documents as the selling shareholders may reasonably request in order to facilitate the disposition of Registrable Stock owned by the Participating Holders. (iv) Use its best efforts to register and qualify the securities covered by such registration statement under such other securities or blue sky laws of such jurisdictions within the United States as shall be reasonably requested by the Participating Holders, provided, however, that the Company shall not be required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of process in any such states or jurisdictions. (v) in the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in usual and customary form, with the managing underwriter of such offering. The Participating Holders shall also enter into and perform their obligations under such an agreement. (vi) Notify the Participating Holders, at any time when a prospectus relating to Registrable Stock covered by such registration statement is required to be delivered under the Securities Act, of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing. 7 (e) The Company shall pay all costs, fees and expenses in connection with all registration statements filed under this Section 6 including, without limitation, the Company's legal and accounting fees, printing expenses and blue sky fees and expenses, but not including the fees and expenses of counsel and accountants and advisors for the Participating Holders in connection with such registration. However, the Company shall not pay for underwriting discounts and commissions and underwriters' expenses allocable to the Registrable Stock being registered or state transfer taxes. (f) Indemnification. (i) The Company shall indemnify each Participating Holder, its officers and directors and any person controlling it within the meaning of Section 15 of the Securities Act or Section 20(a) of the Securities Exchange Act of 1934, as amended, against any loss, claim, damage, expense or liability (including without limitation all expenses reasonably incurred in investigating, preparing, or defending against any claim whatsoever, such expenses to be reimbursed by the Company as they are incurred) to which it may become subject under the Securities Act, the Exchange Act or otherwise, arising out of or based upon (i) any untrue statement or alleged untrue statement of a material fact contained in any registration statement or prospectus or any amendments or supplements thereto in which Registrable Stock is included or in any application, statement or other document filed by the Company with the Commission or any securities exchange or in any jurisdiction in connection with qualifying such shares under the securities laws thereof, or (ii) the omission or alleged omission therefrom of a material fact required to be stated therein or necessary to make the statements therein not misleading, unless such statement or omission is made in reliance upon and in conformity with written information furnished to the Company by or on behalf of such Participating Holder or an underwriter expressly for use in any such registration statement or other document. (ii) Each Participating Holder shall, as a condition to such registration of Registrable Stock, agree to indemnify the Company, its officers and directors and any person controlling the Company within the meaning of Section 15 of the Securities Act or Section 20(a) of the Exchange Act, against any loss, claim, damage or expense or liability (including without limitation all expenses reasonably incurred in investigating, preparing or defending against any claim whatsoever, such expenses to be reimbursed by the undersigned as they are incurred) to which they may become subject under the Securities Act, the Exchange Act or otherwise, arising out of or based upon (i) any untrue statement or alleged untrue statement of a material fact contained in any registration statement or prospectus or any amendments or supplements thereto in which Registrable Stock is included or in any application, statement or other document filed by the Company with the Commission or any securities exchange or in any jurisdiction in connection with qualifying such shares under the securities laws thereof, or (ii) the omission or alleged omission therefrom of a material fact 8 required to be stated therein or necessary to make the statements therein not misleading, provided in each case that such statement or omission is made in reliance upon and in conformity with written information furnished to the Company by or on behalf of such Participating Holder expressly for use in any such registration statement or other document. (iii) Promptly upon receipt by a party claiming indemnification hereunder of notice of the commencement of any action involving a claim referred to above, such indemnified party will, if a claim in respect thereof is to be made against a party which may be required to indemnify such party hereunder, give written notice to the latter of the commencement of such action. In case any such action is brought against an indemnified party, the indemnifying party shall be entitled to participate in and to assume the defense of such action, to the extent that it may wish, with counsel reasonably satisfactory to such indemnified party. Except as set forth herein, the indemnified party and any party cooperating in the defense of such claim shall not settle or compromise any such claim or admit liability without the express written consent of the indemnifying party. The indemnified party shall have the right to be represented by an advisory counsel and accountants, at its own expense, and the indemnified party shall be kept fully informed of such action, suit or proceeding at all stages thereof whether or not the indemnified party is so represented. Notwithstanding the foregoing, the indemnified party may immediately cause to be paid or discharged any asserted claim the non-payment of which would have an immediate substantial adverse impact on the indemnified party and any claim which the indemnifying party has not disputed within thirty days of notice as provided above. (iv) If the indemnification provided for in this Section 6(f) is unavailable or insufficient to hold harmless an indemnified party under such Section in respect of any losses, claims, damages or liabilities or action in respect thereof or referred to therein, then each indemnifying party shall in lieu of indemnifying such indemnified party contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages, liabilities or actions in such proportion as is appropriate to reflect the relative fault of the Company, on the one hand, and the Participating Holder, on the other, in connection with the statements or omissions which resulted in such losses, claims, damages, liabilities or actions as well as any other relevant equitable considerations, including the failure to give the notice required under such Section. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact relates to information supplied by the Company on the one hand, or the Participating Holders on the other hand, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company and the Participating Holder agree that it would not 9 be just and equitable if contribution pursuant to this Section 6(f)(iv) were determined by pro rata allocation or by any other method of allocation which did not take account of the equitable considerations referred to above in this subsection. No person guilty of fraudulent misrepresentations (within the meaning of Section 11(f) of the Securities Act), shall be entitled to contribution from any person who is not guilty of such fraudulent misrepresentations. (v) The obligations of the Company and the Participating Holder under this Section 6(f) shall survive the completion of any offering of Registrable Stock in a registration statement under this Section 6. (vi) The rights of indemnification contained in this Section 6 shall not be deemed to be the exclusive remedy of the parties hereto and such rights shall be in addition to any other rights or remedies which any party hereto may have at law or equity. (g) Assignment of Registration Rights. The undersigned's rights and obligations set forth in this Section 6 shall automatically be deemed assigned to any transferee or assignee of Registrable Stock, provided that immediately following such transfer the further disposition of such securities by the transferee or assignee is restricted under the Securities Act; provided however, that, the termination of registration rights in respect of any shares of Registrable Stock by reason of the operation of Section 6(a) shall be binding upon any transferee of such shares. Upon the request of any such holder, the Company will confirm in writing to any transferee of such holder's Registrable Stock the Company's continuing obligation to afford such transferee the benefits of the Company's agreements contained in this Section 6, but no failure of the Company to confirm such obligations shall in any way impair such transferee's rights under this Section 6. 7. Information Rights. As long as the Subscriber holds at least 10% of the Preferred Stock acquired hereunder, the Company will provide the Subscriber with the Company's audited financial statements within 10 days after such financial statements are filed with the Commission. 8. Confidentiality. The Subscriber shall hold and shall cause its consultants and advisors to hold in strict confidence, unless compelled to disclose by judicial or administrative process or by other requirements of law, all documents and information concerning the Company furnished to it (except to the extent that such information can be shown to have been (a) previously known by the party to which it was furnished, (b) in the public domain through no fault of such party or (c) later lawfully acquired from other sources by the party to which it was furnished), and Subscriber shall not release or disclose such information to any other person or entity, except its auditors, attorneys, financial advisors, bankers and other consultants and advisors in connection with this Agreement. Subscriber shall be deemed to have satisfied its obligation to hold confidential information concerning or supplied to it if it exercises the same care as it takes to preserve confidentiality for its own similar information. 10 9. Governing Law. This Agreement has been made in, and shall be construed in accordance with, the laws of the State of Texas applicable to contracts made and to be fully performed therein. 10. Entire Agreement. This Agreement contains the entire understanding and agreement of the parties with respect to the subject matter hereof and supersedes all negotiations, representations and other agreements made by and between such parties with respect hereto. 11. Assignment. The Subscriber may assign its rights to acquire shares of Preferred Stock hereunder with the prior written consent of the Company, which consent shall not be unreasonably withheld. By: ---------------------------------------- Name: -------------------------------------- Title: ------------------------------------- Taxpayer Identification Number : ------------------------------------------- Address: ----------------------------------- ------------------------------------------- ------------------------------------------- Agreed to and accepted this 24th day of November, 1997. CHAPARRAL RESOURCES, INC. By: ----------------------------- Name: Howard Karren Title: Chairman & CEO 11 -----END PRIVACY-ENHANCED MESSAGE-----