SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
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CHAPARRAL RESOURCES, INC.
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statement number, or the form or schedule and the date of its filing.
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CHAPARRAL
CHAPARRAL RESOURCES, INC.
Notice and Proxy Statement
September 23, 2005
Dear Stockholder:
We are pleased to invite you to the Annual Meeting of Stockholders of
Chaparral Resources, Inc. The meeting will be held on November 10, 2005 at 10.00
a.m; at Hotel Royal Monceau, 37 Avenue Hoche, 75008 Paris, France.
At the meeting, you and the other stockholders will be asked to vote on the
following:
1. the election of five directors to the Board of Directors of Chaparral;
and
2. the ratification of the appointment of Ernst & Young LLP as the
independent auditors of Chaparral for fiscal year 2005.
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, 2004.
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 September 23, 2005.
We hope you can join us on November 10, 2005. 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/ R. Frederick Hodder
----------------------------------------
R. Frederick Hodder
Chairman of the Board
CHAPARRAL
CHAPARRAL RESOURCES, INC.
Notice of Annual Meeting of Stockholders
To be held November 10, 2005
Chaparral Resources, Inc. will hold its Annual Meeting of Stockholders on
November 10, 2005 at 10:00 a.m; at:
Hotel Royal Monceau
37 Avenue Hoche
75008 Paris
France
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 five directors to the Board of Directors of Chaparral;
2. ratify the appointment of Ernst & Young LLP as the independent
auditors of Chaparral for fiscal year 2005; and
3. consider such other business as may properly come before the meeting
or any adjournment of the meeting.
The Board of Directors has selected September 12, 2005 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 2004 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
White Plains, NY
September 23, 2005
CHAPARRAL
CHAPARRAL RESOURCES, INC.
Annual Meeting of Stockholders
To be held November 10, 2005
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. at Hotel Royal
Monceau, 37 Avenue Hoche, 75008 Paris, France, 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 September 23, 2005.
TABLE OF CONTENTS
-----------------
Page
----
1. General Information.....................................................3
2. Proposals for Shareholder Action:.......................................5
Proposal One: Election of Directors.................................5
Nominees 5
Recommendation of the Board ..................................6
Proposal Two: Ratification of Independent Auditors..................7
Recommendation of the Board.......................................7
3. Other Matters...........................................................7
4. Beneficial Ownership of Certain Stockholders, Directors,
Nominees and Executive Officers.......................................7
5. Section 16(a) Beneficial Ownership Reporting Compliance.................9
6. Equity Compensation Plan Information....................................9
7. Board and Committee Matters.............................................10
Remuneration of Directors.........................................10
Director Interlocks...............................................10
Meetings of the Board and its Committees..........................10
Communication with the Board......................................11
Audit Committee Financial Expert..................................11
Report of the Audit Committee of the Board of Directors.......11
Certain Relationships and Related Transactions................12
8. Executive Compensation..................................................13
Summary Compensation Table........................................14
Options/SAR Grants................................................14
Aggregated Options/SAR Exercises and Year-End
Options/SAR Value...............................................14
Insider Participation in Compensation Decisions and
Compensation Committee
Report on Executive Compensation..........................14
Compensation Philosophy..................................15
Compensation Structure...................................15
Compensation of the Chief Executive Officer..............15
Executive Compensation Deductibility.....................16
Compensation Committee Interlocks and
Insider Participation.................................16
9. Stock Performance Graph.................................................16
Appendix A - Audit Committee Charter.......................................A-1
Appendix B - Corporate Governance Committee Charter........................B-1
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1. 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: R. Frederick Hodder, Nicholas P. Greene , Peter
G. Dilling, Alan D. Berlin, and Simon K. Gill, to the Board; and
o the ratification of the appointment of Ernst & Young LLP as
Chaparral's independent auditors for fiscal year 2005.
Q: Who can vote?
A: Only holders of Chaparral's Common Stock at the close of business on
September 12, 2005, 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,
Charles Talbot and Inga Jarkikh, the proxy holders, will vote your shares
as follows:
o FOR the election of each of the nominees for director; 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.
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
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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 Mr.
Talbot and Ms. Jarkikh, 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, Mr. Talbot and Ms.
Jarkikh, 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 5); and o the
ratification of the appointment of the independent auditors (see page 7).
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 2006 Annual Meeting by April 9,
2006 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., 2 Gannett Drive, Suite 418, White Plains, New York 10604.
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 2004, 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 Chaparral's Secretary, Chaparral
Resources, Inc., 2 Gannett Drive, Suite 418, White Plains, New York 10604.
In addition, copies of all exhibits filed electronically by Chaparral may
be reviewed and printed from the SEC's website at: www.sec.gov.
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2. PROPOSALS FOR SHAREHOLDER ACTION
Proposal 1. Election of Directors
Nominees.
At the Annual Meeting, you and the other stockholders will elect five
individuals to serve as directors until the next annual meeting of stockholders
to be held in 2006, 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
--------------- -------------- --- --------------------------------------------
R. Frederick Hodder 2004 63 Mr. Hodder has served as the Chairman of the Board of
Chaparral since May 2004. He is currently Senior Vice
President of Nelson Resources Limited where he was
previously, from July 2002, Chief Financial Officer. Prior
to joining Nelson, Mr. Hodder was President of Kazakhstan
Investment Management LLP from 1998 to 1999.
Nicholas P. Greene 2004 57 Since January 2005 Mr. Greene has been Chief Financial
Officer of Nelson Resources Ltd; where he was previously
Senior Vice President Corporate Finance. Before this, Mr.
Greene was an independent financial advisor, active in
providing support for cross border trade and acquisitions.
Previously, from 2002 to 2003, Mr. Greene was Senior Vice
President of the Structured Finance Department in AKB
Rosbank, a Russian bank with principal offices in Moscow
and, prior to that, from 1999 to 2002, a Vice President at
Access Industries Inc., a privately owned investment
management company, with offices in New York and Moscow. Mr.
Greene was appointed a Director of Chaparral in May, 2004.
5
Name of Nominee Director Since Age Principal Occupation During the Last 5 Years
--------------- -------------- --- --------------------------------------------
Peter G. Dilling 2002 55 From 1995 to 1997, Mr. Dilling held various positions with
Chaparral, including Vice Chairman of the Board. Since 2000,
Mr. Dilling has served as President and Chief Executive
Officer and as a director 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.
Alan D. Berlin 2002 65 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 Chaparral 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.
Simon K. Gill 2004 49 Mr. Gill was appointed Chief Executive Officer of Chaparral
in May 2004. In January 2005, Mr. Gill was appointed Chief
Operating Officer of Nelson Resources Ltd. Previously, from
October 2003, Mr. Gill served as Aktau Regional Manager of
Nelson Resources Ltd. Prior to this, Mr. Gill was employed
by Texaco (ChevronTexaco) for 24 years where he served as
General Manager of Texaco North Buzachi in Aktau, Kazakhstan
from 1998 to Oct 2003. Mr. Gill is a member of the Society
of Petroleum Engineers.
Recommendation of the Board.
The Board recommends that stockholders vote FOR each of the nominees to
serve as directors of Chaparral.
6
Proposal 2. 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, 2004 and 2005, 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, 2005 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.
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 2005.
3. OTHER MATTERS
As of the date of this proxy statement, the Board of Directors is not
informed of any matters, other than those stated above, that may be brought
before the meeting. The persons named in the enclosed form of proxy or their
substitutes will vote with respect to any such matters in accordance with their
best judgment.
4. BENEFICIAL OWNERSHIP OF CERTAIN STOCKHOLDERS, DIRECTORS, NOMINEES AND
EXECUTIVE OFFICERS
The following table sets forth information as of September 12, 2005, 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 2 Gannett Drive, Suite 418, White Plains,
New York 10604.
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Amount and Nature of Percent of
Beneficial Common
Name of Beneficial Owner Position Ownership (1) Stock (1)
--------------------------------------- ----------------------------------- ------------------------ ------------
NRL Acquisition Corp. ("NRL") -- 26,002,624(2) 62.98%
c/o Corporation Trust Company
1209 Orange Street
Wilmington, DE 19801
Nelson Resources, Limited ("Nelson") -- 26,002,624(3) 62.98%
c/o Commonwealth & British Services,
19 Berkeley Street,
London UK, W1J 8ED
Allen & Company Incorporated -- 4,835,708(4) 12.66%
711 Fifth Avenue
New York, New York 10022
Whittier Ventures, LLC -- 4,113,122 10.76%
1600 Huntington Drive
South Pasadena, California 91030
R. Frederick Hodder Chairman of the Board -- --
Simon K. Gill Director and Chief Executive -- --
Officer
Nicholas P. Greene Director -- --
Peter G. Dilling Director -- --
Alan D. Berlin Director and Corporate Secretary 167 *
Ian Connor Former Director and Chairman of -- --
the Board
Nikolai D. Klinchev Former Director and Chief 500,084 1.31%
Executive Officer
Askar Alshinbayev Former Director -- --
John Duthie Former Director -- --
Nigel Penney VP - Finance and Chief Financial -- --
Officer and Treasurer
Miguel C. Soto Former VP - Finance and Chief -- --
Financial Officer and Treasurer
Jonathan S. Wood Former VP - Finance and Chief -- --
Financial Officer
Richard J. Moore Former VP - Finance and Chief -- --
Financial Officer
All current directors, nominees, and -- 167 *
executive officers as a group (six
persons)
---------
* Represents less than 1% of the shares of Common Stock outstanding.
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(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 NRL with
respect to which NRL disclaim beneficial ownership. Officers and
stockholders of NRL may be deemed to beneficially own shares of the
Common Stock reported to be beneficially owned directly by NRL.
(3) In accordance with Rule 13d-3(d)(1)(i)(A), includes 3,076,923 shares
underlying warrants to purchase shares of Common Stock. Nelson owns
100% of NRL and, as a result, Nelson has a pecuniary interest in the
shares beneficially owned by NRL and has voting power and investment
power over such shares and, thus, may be deemed to beneficially own
such shares. Does not include shares owned directly by officers and
stockholders of Nelson with respect to which Nelson disclaim
beneficial ownership. Officers and stockholders of Nelson may be
deemed to beneficially own shares of the Common Stock reported to be
beneficially owned directly by Nelson.
(4) 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.
5. 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 Forms 3 and 4 and any amendments furnished to
Chaparral during our fiscal year ended December 31, 2004, 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.
6. EQUITY COMPENSATION PLAN INFORMATION
1998 Incentive and Non-statutory Stock Option Plan
On June 26, 1998, the stockholders approved the 1998 Incentive and
Non-statutory Stock Option Plan (the "1998 Plan"), pursuant to which up to
50,000 options to acquire Chaparral's common stock may be granted to officers,
directors, employees, or consultants of Chaparral and its subsidiaries. The
stock options granted under the 1998 Plan may be either incentive stock options
or nonstatutory stock options. The 1998 Plan has an effective term of ten years,
commencing on May 20, 1998. Chaparral has not granted any options under the 1998
Plan as of December 31, 2004.
2001 Stock Incentive Plan
In June 2001, Chaparral's stockholders approved the 2001 Stock Incentive
Plan, which sets aside a total of 2.14 million shares of Chaparral's common
stock for issuance to Chaparral's officers, directors, employees, and
consultants. Chaparral has not made any grants under the 2001 Stock Incentive
Plan as of December 31, 2004.
9
7. BOARD AND COMMITTEE MATTERS
Remuneration of Directors.
During the fiscal year ended December 31, 2002, Chaparral implemented a
standard compensation arrangement for its directors, including providing (i)
$700 in compensation to each director for each board or committee meeting
attended via teleconference, (ii) $1,000 in compensation to each director for
each board or committee meeting attended in person, (iii) $2,000 in compensation
per day while traveling on Chaparral related business, including board meetings,
and (iv) $2,500 in quarterly compensation for serving on Chaparral's Board.
Director Interlocks.
Mr. Greene is Chief Financial Officer of Nelson. Mr. Hodder and Mr. Gill
are employees of Nelson.
Meetings of the Board and its Committees
During the fiscal year 2004, Chaparral held seven Board meetings. The Board
had three committees, namely the Compensation Committee, the Audit Committee,
and the Corporate Governance 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 and
1998 Incentive and Non-statutory Stock Option Plan. During fiscal year 2004,
members of the Compensation Committee included Messrs. Alshinbayev, Connor, and
Klinchev. On May 19, 2004, Mr. Alshinbayev and Mr. Klinchev resigned. Mr. Hodder
and Mr. Greene replaced the departing directors on the Compensation Committee,
effective May 19, 2004. Mr. Connor was replaced on the compensation committee by
Mr. Gill effective May 19, 2004.
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 (see Appendix A).
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 2004, members of the Audit Committee included Messrs. Duthie,
Dilling and Berlin. Messrs. Duthie and Dilling qualified as "independent
directors" as defined by NASD Rule 4200(a)(15). Mr. Berlin does not qualify as
an "independent director" as defined by NASD Rule 4200(a)(15), due to payments
made to Mr. Berlin for services provided as Chaparral's legal counsel. The Board
intends to replace Mr. Berlin as a member of the Audit Committee as soon as a
suitable replacement can be found. Mr. Duthie resigned effective May 19, 2004
and was replaced by Mr. Greene on August 2, 2004.
On December 10, 2002, the Board established the Corporate Governance
Committee to provide oversight on the broad range of issues surrounding the
composition and operation of the Board, including identifying individuals
qualified to become board members, recommending to the Board director nominees
for the next Annual Meeting, and recommending to the Board and overseeing the
implementation of corporate governance guidelines. The Corporate Governance
Committee also provides assistance to the Board in the areas of committee
10
membership selection, evaluation of the effectiveness of the Board and
management, and ongoing consideration of developments in corporate governance
practices. The Corporate Governance Committee operates pursuant to a written
charter (see Appendix B). The Corporate Governance Committee's goal is to assure
that the composition, practices, and operation of the Board contribute to value
creation for and effective representation of Chaparral's shareholders. During
fiscal year 2004, the Corporate Governance Committee, consisted of Messrs.
Berlin, Alshinbayev, Klinchev, and Duthie. Messrs. Alshinbayev, Klinchev, and
Duthie resigned effective May 19, 2004 and were replaced by Messrs. Greene and
Dilling.
Communication with the Board
Shareholders may communicate with the Board of Directors, including the
non-management directors, by sending an e-mail to ir@chaparralresources.com or
by sending a letter to the Chaparral Resources Board of Directors, c/o Corporate
Secretary, Chaparral Resources, Inc., 2 Gannett Drive, Suite 418, White Plains,
New York 10604. The Corporate Secretary has the authority to disregard any
inappropriate communications or to take other appropriate actions with respect
to any such inappropriate communications. If deemed an appropriate
communication, the Corporate Secretary will submit your correspondence to the
Chairman of the Board or to any specific director to whom the correspondence is
directed.
Audit Committee Financial Expert
The Board of Directors has determined that all audit committee members are
financially literate under the current listing standards of the New York Stock
Exchange. The Board also determined that Nicholas P. Greene qualified as an
"audit committee financial expert" as defined by the SEC rules adopted pursuant
to the Sarbanes-Oxley Act of 2002 during the fiscal year ended December 31,
2004.
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 2004 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
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 2004, 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 four meetings during fiscal year
2004.
11
Fees paid to Ernst & Young LLP during fiscal year 2004 amounted to $240,000
composed of the following:
o Audit Fees. Fees for the audit and quarterly reports for the fiscal
year ended December 31, 2004 totaled $219,000;
o Financial Information Systems Design and Implementation. No fees were
incurred during the fiscal year ended December 31, 2004 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, 2004 totaled $21,000. 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, 2004, for filing with the Securities and Exchange Commission.
Audit Committee of the Board of Directors,
Nicholas P. Greene, Chairman
Peter G. Dilling
Alan D. Berlin
March 11, 2005
Certain Relationships and Related Transactions
In May 2002, Chaparral received a total equity and debt capital infusion of
$45 million, which was partially utilized to repay a substantial portion of
Chaparral's loan agreement with Shell Capital. Chaparral received a total
investment of $12 million from Central Asian Industrial Holdings, N.V. ("CAIH"),
including $8 million in exchange for 22,925,701 shares, or 60%, of Chaparral's
outstanding common stock, and $4 million in exchange for a three year note
bearing interest at 12% per annum (the "Note"). Along with the Note, CAIH
received a warrant to purchase 3,076,923 shares of Chaparral's common stock at
$1.30 per share (the "Warrant"). These shares, the Note and the Warrant were
purchased by Nelson Resources Limited ("Nelson") in May 2004.
Additionally, Kazkommertsbank, an affiliate of CAIH, provided KKM with a
credit facility totaling $33 million, consisting of $28 million that was used to
repay a portion of the Shell Capital Loan and $5 million that was made available
for KKM's working capital requirements. Chaparral paid CAIH $1.79 million as a
related restructuring fee. See Note 12 to our consolidated financial statements
for the year ended December 31, 2004 for additional disclosure on loans with
affiliates.
In 2003, Chaparral approved a one-year agreement with OJSC Kazkommerts
Securities ("KKS"), an affiliate of Kazkommertsbank. The agreement was effective
as of January 7, 2003 and provided for KKS to assist Chaparral's senior
management with financial advisory and investment banking services. In
consideration for the services, KKS received a monthly fee of $25,000. This
agreement was extended until April 2004 when it was cancelled.
In August 2004, Chaparral approved a two-year agreement with Nelson to
provide corporate administrative services and financial advisory services (the
"Service Agreement") to support its business activities. The Service Agreement
is effective as of June 1, 2004 and can be terminated upon 30 days written
notice by either party. In consideration for these services Nelson will receive
a fixed monthly fee of $20,000 for administrative services and $25,000 for
financial advisory services (the "Management Fee"). As part of the Service
Agreement, Nelson is also required to provide personnel to cover Chaparral's
12
executive and managerial needs. The cost of executive and managerial personnel
will be allocated on the basis of the cost of personnel involved and on the
percentage of time actually spent by such personnel on matters related to
Chaparral, as mutually agreed by the parties from time to time. In addition,
Nelson will use its greater buying power to obtain more favorable rates for
goods and services, including insurance coverage, for Chaparral. These
expenditures will be passed to Chaparral at cost with a ten percent mark-up. As
of December 31, 2004, Chaparral has booked $682,000 for the Management Fee, the
executive and managerial cost, insurance coverage and the mark-up under the
Service Agreement.
On June 3, 2004, Closed Type JSC Karakudukmunay ("KKM") entered into a
three year agency agreement with Nelson (the "Marketing Agreement"), whereby
Nelson becomes the duly authorized, exclusive agent for the purpose of marketing
crude oil, and is empowered to represent the interests of KKM in relations with
governmental authorities and commercial organizations and also enter into
contracts and agreements and any other documents necessary for and related to
the marketing of crude oil. The Marketing Agreement is effective as of June 1,
2004 and can be terminated upon 90 days written notice by either party. As
consideration for the services provided under the Marketing Agreement, KKM shall
pay Nelson a fixed fee of $20,000 per month and a variable fee of five US cents
per barrel of total production in a reporting calendar month, if the amount of
supplies to the local market in that month is more than 10% of the total amount
of production, or eight US cents per barrel of total production in a reporting
calendar month, if the amount of supplies to the local market in that month is
less than 10% of the total amount of production (the "Marketing Fee"). For 2004,
$274,000 was accrued under the Marketing Agreement.
In November 2004 Chaparral entered into an agreement with its majority
stockholder, Nelson, which provided that in the event Chaparral, through its
subsidiaries, received notice from KazMunayGaz JSC ("KMG") that KMG desired to
sell its 40% equity interest in KKM, then Chaparral would, if requested by
Nelson, exercise its right of first refusal under the Agreement to purchase such
interest at the price and on the terms specified in such notice. In December
2004, pursuant to this agreement, Chaparral, through a subsidiary, exercised its
right of first refusal to purchase from KMG the remaining 40% equity interest in
KKM. Chaparral entered into definitive sale and purchase agreements with both
KMG and Nelson, which provided that upon completion of the acquisition,
ownership of the newly acquired 40% interest in KKM would be transferred to
Nelson. The transfer of the 40% interest from KMG occurred in December 2004, and
the transfer to Nelson was completed in January 2005. The purchase price of
$34.6 million paid to KMG was determined on an open tender, and the funds for
this were made available by Nelson. In addition, Nelson paid Chaparral a fee of
$1.0 million, recorded as part of Other Income, as well as all documentation and
transaction costs relating to the acquisition.
Mr. Berlin, Chaparral's Secretary and a Director, is a partner in a law
firm, Aitken Irvin Berlin & Vrooman, LLP ("AIBV") which provides outside legal
services to Chaparral. Payments to AIBV for such legal services during fiscal
year 2004 amounted to $126,000.
8. EXECUTIVE COMPENSATION
The following table shows the compensation paid by Chaparral for services
rendered during the year by Mr. Gill as Chief Executive Officer of Chaparral,
and his predecessor Mr. Klinchev, and by Mr. Penney as Vice President - Finance
and Chief Financial Officer of Chaparral, and his predecessors, Messrs. Soto,
Wood and Moore. There were no other executive officers of Chaparral whose annual
salary and bonus exceeded $100,000 during the fiscal year 2004.
13
Summary Compensation Table.
-----------------------------------------------------------------------------------------
Annual Compensation Long-Term Compensation
-----------------------------------------------------------------------------------------
Awards Payouts
----------------------------------- ------------
Securities
Underlying
Name and Other Annual Restricted Securities LTIP All Other
Principal Position Year Salary Bonus Compensation Stock Awards ($) Options/SARs (#) Payouts ($) Compensation
------------------ ---- ------ ----- ------------ ---------------- --------------- ---------- ------------
Simon K. Gill 2004 $115,500(1) -- -- -- -- -- --
Chief Executive 2003 -- -- -- -- -- --
Officer (from
05/04 to 01/05)
Nikolai D. Klinchev 2004 $106,887 $250,000 -- -- -- -- $311,323 (2)
Former Chief 2003 $282,000 $290,000 -- -- -- -- $28,000 (3)
Executive Officer
(11/02 to 05/04)
Nigel F. Penney 2004 $101,500 -- -- -- -- -- --
VP-Finance and 2003 -- -- -- -- -- -- --
Chief Financial
Officer (from 08/04)
Miguel C. Soto 2004 $112,126 $50,000 -- -- -- -- $120,000 (4)
Former VP-Finance 2003 $172,000 $67,000 -- -- -- -- --
and Chief
Financial Officer
(05/04 to 08/04)
and former
Treasurer and
Controller (11/02
to 04/04)
Jonathan S. Wood 2004 $100,646 $82,000 -- -- -- -- $222,000 (4)
Former VP-Finance 2003 $ 235,000(5) $136,000(5) -- -- -- -- --
and Chief
Financial Officer
(01/04 to 05/04)
Richard J. Moore 2004 -- -- -- -- -- -- $160,000 (4)
Former VP-Finance 2003 $282,000 $40,000 -- -- -- -- $1,800
and Chief Financial
Officer (11/02 to
12/03)
1. Paid to Nelson for the services of Mr. Gill for the period June to
December 2004.
2. Represents $282,000 severance pay and $29,323 paid by Chaparral for
the education of Mr. Klinchev's daughter.
3. Payments by Chaparral for the education of Mr. Klinchev's daughter.
4. Severance pay.
5. Mr. Wood served as Financial Director of KKM during 2003 for which he
received a salary of $235,000 and bonuses of $136,000.
Options/SAR Grants.
For the fiscal year ended December 31, 2004, we did not grant any options.
Aggregated Options/SAR Exercises and Year-End Options/SAR Value
As of December 31, 2004, there were no unexercised options/SARs and
additionally, no options were exercised in fiscal year 2004.
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 above for the years
in question. The Compensation Committee has furnished the following report on
executive compensation in connection with the Annual Meeting:
14
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 operation, financial and
strategic objectives, and increases in shareholder 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. 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, medium 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 June 2001, Chaparral's stockholders approved the 2001 Stock Incentive
Plan, which sets aside 2.14 million shares of Chaparral's common stock for
issuance to Chaparral's officers, directors, employees, and consultants.
Chaparral has not made any grants under the 2001 Stock Incentive Plan as of
December 31, 2004.
Compensation of the Chief Executive Officer.
During fiscal year 2004, Mr. Klinchev served as Chief Executive Officer of
Chaparral until May 2004 when he was succeeded by Mr. Gill. In establishing
their base salary, the Compensation Committee considered the factors set forth
above, including the level of CEO compensation in other publicly owned/similar
sized development and production companies in the oil and gas industry and their
level of involvement in the day-to-day operations of Chaparral.
15
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.
Mr. Greene is Chief Financial Officer of Nelson. Mr. Hodder and Mr. Gill
are employees of Nelson. There are no other interlocks.
Compensation Committee of the Board of Directors,
R. Frederick Hodder, Chairman
Nicholas P. Greene
Simon Gill
9. 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, 2004.
[GRAPHIC OMITTED]
16
Appendix A
CHAPARRAL RESOURCES, INC.
AUDIT COMMITTEE CHARTER
(Approved as of March 27, 2003)
I. PURPOSE
To assist the board of directors in fulfilling its oversight
responsibilities for (1) the integrity of the Company's financial statements,
(2) the Company's compliance with legal and regulatory requirements, (3) the
independent auditor's qualifications and independence, and (4) the performance
of the Company's internal audit function and independent auditors. The audit
committee will also prepare the report that SEC rules require be included in the
Company's annual proxy statement.
II. AUTHORITY
The audit committee has authority to conduct or authorize investigations
into any matters within its scope of responsibility. It is empowered to:
1. Appoint, compensate, and oversee the work of the public accounting
firm employed by the organization to conduct the annual audit. This
firm will report directly to the audit committee.
2. Resolve any disagreements between management and the auditor regarding
financial reporting.
3. Pre-approve all auditing and permitted non-audit services performed by
the Company's external audit firm.
4. Retain independent counsel, accountants, or others to advise the
committee or assist in the conduct of an investigation.
5. Seek any information it requires from employees - all of whom are
directed to cooperate with the committee's requests - or external
parties.
6. Meet with company officers, external auditors, or outside counsel, as
necessary.
7. The committee may delegate authority to subcommittees, including the
authority to preapprove all auditing and permitted non-audit services,
providing that such decisions are presented to the full committee at
its next scheduled meeting.
III. COMPOSITION
The audit committee will consist of at least three and no more than six
members of the board of directors. The board nominating committee will appoint
committee members and the committee chair.
Each committee member will be financially literate. At least one member
shall be designated as the "financial expert," as defined by applicable
legislation and regulation. No committee member shall simultaneously serve on
the audit committees of more than two other public companies.
IV. MEETINGS
The committee will meet at least four times a year, with authority to
convene additional meetings, as circumstances require. All committee members are
expected to attend each meeting, in person or via tele- or video-conference. The
committee will invite members of management, auditors or others to attend
meetings and provide pertinent information, as necessary. It will meet
separately, periodically, with management, with internal auditors and with
A-1
external auditors. It will also meet periodically in executive session. Meeting
agendas will be prepared and provided in advance to members, along with
appropriate briefing materials. Minutes will be prepared.
V. RESPONSIBILITIES
The committee will carry out the following responsibilities:
Financial Statements
1. Review significant accounting and reporting issues and understand
their impact on the financial statements. These issues include:
o Complex or unusual transactions and highly judgmental areas.
o Major issues regarding accounting principles and financial
statement presentations, including any significant changes in the
Company's selection or application of accounting principles.
o The effect of regulatory and accounting initiatives, as well as
off-balance sheet structures, on the financial statements of the
Company.
2. Review analyses prepared by management and/or the independent auditor
setting forth significant financial reporting issues and judgments
made in connection with the preparation of the financial statements,
including analyses of the effects of alternative GAAP methods on the
financial statements.
3. Review with management and the external auditors the results of the
audit, including any difficulties encountered. This review will
include any restrictions on the scope of the independent auditor's
activities or on access to requested information, and any significant
disagreements with management.
4. Discuss the annual audited financial statements and quarterly
financial statements with management and the external auditors,
including the Company's disclosures under "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
5. Review disclosures made by CEO and CFO during the Forms 10-K and 10-Q
certification process about significant deficiencies in the design or
operation of internal controls or any fraud that involves management
or other employees who have a significant role in the Company's
internal controls.
6. Discuss earnings press releases (particularly use of "proforma," or
"adjusted" non-GAAP, information), as well as financial information
and earnings guidance provided to analysts and rating agencies. This
review may be general (i.e., the types of information to be disclosed
and the type of presentations to be made). The audit committee does
not need to discuss each release in advance.
Internal Control
1. Consider the effectiveness of the Company's internal control system,
including information technology security and control.
A-2
2. Understand the scope of internal and external auditors' review of
internal control over financial reporting, and obtain reports on
significant findings and recommendations, together with management's
responses.
Internal Audit
1. Review with management and the chief audit executive the charter,
plans, activities, staffing, and organizational structure of the
internal audit function.
2. Ensure there are no unjustified restrictions or limitations, and
review and concur in the appointment, replacement, or dismissal of the
chief audit executive.
3. Review the effectiveness of the internal audit function, including
compliance with The Institute of Internal Auditors' Standards for the
Professional Practice of Internal Auditing.
4. On a regular basis, meet separately with the chief audit executive to
discuss any matters that the committee or internal audit believes
should be discussed privately.
External Audit
1. Review the external auditors' proposed audit scope and approach,
including coordination of audit effort with internal audit.
2. Review the performance of the external auditors, and exercise final
approval on the appointment or discharge of the auditors.
In performing this review, the committee will:
o At least annually, obtain and review a report by the independent
auditor describing the firm's internal quality-control
procedures; any material issues raised by the most recent
internal quality-control review, or peer review, of the firm, or
by any inquiry or investigation by governmental or professional
authorities, within the preceding five years, respecting one or
more independent audits carried out by the firm, and any steps
taken to deal with any such issues; and (to assess the auditor's
independence) all relationships between the independent auditor
and the Company.
o Take into account the opinions of management and internal audit.
o Review and evaluate the lead partner of the independent auditor.
o Present its conclusions with respect to the external auditor to
the Board.
3. Ensure the rotation of the lead audit partner every five years and
other audit partners every seven years, and consider whether there
should be regular rotation of the audit firm itself.
4. Present its conclusions with respect to the independent auditor to the
full board.
5. Set clear hiring policies for employees or former employees of the
independent auditors.
6. On a regular basis, meet separately with the external auditors to
discuss any matters that the committee or auditors believe should be
discussed privately.
A-3
Compliance
1. Review the effectiveness of the system for monitoring compliance with
laws and regulations and the results of management's investigation and
follow-up (including disciplinary action) of any instances of
noncompliance.
2. Establish procedures for: (i) The receipt, retention, and treatment of
complaints received by the listed issuer regarding accounting,
internal accounting controls, or auditing matters; and (ii) The
confidential, anonymous submission by employees of the listed issuer
of concerns regarding questionable accounting or auditing matters.
3. Review the findings of any examinations by regulatory agencies, and
any auditor observations.
4. Review the process for communicating the code of conduct to company
personnel, and for monitoring compliance therewith.
5. Obtain regular updates from management and company legal counsel
regarding compliance matters.
Reporting Responsibilities
1. Regularly report to the board of directors about committee activities
and issues that arise with respect to the quality or integrity of the
Company's financial statements, the Company's compliance with legal or
regulatory requirements, the performance and independence of the
Company's independent auditors, and the performance of the internal
audit function.
2. Provide an open avenue of communication between internal audit, the
external auditors, and the board of directors.
3. Report annually to the shareholders, describing the committee's
composition, responsibilities and how they were discharged, and any
other information required by rule, including approval of non-audit
services.
4. Review any other reports the Company issues that relate to committee
responsibilities.
Other Responsibilities
1. Discuss with management the Company's major policies with respect to
risk assessment and risk management.
2. Perform other activities related to this charter as requested by the
board of directors.
3. Institute and oversee special investigations as needed.
4. Review and assess the adequacy of the committee charter annually,
requesting board approval for proposed changes, and ensure appropriate
disclosure as may be required by law or regulation.
5. Confirm annually that all responsibilities outlined in this charter
have been carried out.
6. Evaluate the committee's and individual members' performance at least
annually.
A-4
Appendix B
CHAPARRAL RESOURCES, INC.
CORPORATE GOVERNANCE COMMITTEE CHARTER
(Approved as of August 11, 2003)
I. Purpose
The Corporate Governance Committee (the "Committee") is responsible for
providing oversight on the broad range of issues surrounding the composition and
operation of the Board of Directors (the "Board"), including identifying
individuals qualified to become board members, recommending to the Board
director nominees for the next annual meeting of shareholders, and recommending
to the Board and overseeing the implementation of corporate governance
guidelines. The Committee also provides assistance to the Board in the areas of
committee membership selection, evaluation of the effectiveness of the Board and
management, and ongoing consideration of developments in corporate governance
practices. The committee's goal is to assure that the composition, practices,
and operation of the Board contribute to value creation for and effective
representation of the Company's shareholders.
II. Composition
The Committee shall consist of at least three directors, appointed by the
Board at its annual meeting or at interim meetings when necessary to fill a
vacancy or add a member in the Board's judgment. At least two Committee members
shall, in the opinion of the Board, meet the independence and experience
requirements of the American Stock Exchange (the "AMEX"), the Sarbanes-Oxley Act
of 2002 ("SOX"), the rules of the Securities and Exchange Commission (the "SEC")
and other applicable laws, rules and regulations as in effect from time to time.
The Board shall appoint one or more members of the Committee as chair(s). He or
she shall be responsible for leadership of the Committee assignments and
reporting to the Board. The Committee may delegate such matters to
subcommittees, as it deems appropriate. A Committee member (including the chair)
may be removed at any time, with or without cause, by the Board. The Board may
designate one or more directors as alternate members of the Committee, who may
replace any absent or disqualified member or members at any meetings of the
Committee.
III. Meeting Requirements
The Committee shall meet at least once each year or more frequently as it
determines appropriate. The Committee shall meet at the call of its chair,
preferably in conjunction with regular Board meetings or at the request of any
Committee member. Any notice of meeting shall contain a proposed agenda of the
matters to be considered by the Committee. The Committee may meet by telephone
conference call or by any other means permitted by law or the Company's bylaws.
A majority of members of the Committee shall constitute a quorum. The Committee
shall act on the affirmative vote of a majority of members present at a meeting
at which a quorum is present. The Committee may act without a meeting by
unanimous written consent of all members. The Committee shall determine its own
rules and procedures, including designation of a chair pro tempore, in absence
of chair(s), and designation of a secretary. The secretary need not be a member
of the Committee and shall attend Committee meetings and take and prepare the
minutes thereof. The Committee shall keep written minutes of its meetings, which
shall be recorded or filed with the books and records of the Company. Any member
of the Board shall be provided with copies of such Committee minutes if
requested.
The Committee, as it may determine to be appropriate, may meet in separate
executive sessions or in confidence with other directors, the Chief Executive
Officer of the Company and other employees of the Company, agents or
representatives invited by the Committee.
B-1
The Committee may ask members of the Company's management or others whose
advice and counsel are relevant to the issues then being considered by the
Committee to attend any meetings and to provide such pertinent information as
the Committee may request.
IV. Committee Responsibilities
In carrying out its oversight responsibilities, the Committee's policies
and procedures should remain flexible to enable the Committee to react to
changes in circumstances and conditions so as to ensure the Company remains in
compliance with applicable legal and regulatory requirements. The Committee
shall have the following responsibilities in addition to matters that may be
referred to it by the Board or which the Committee raises on its own initiative.
Board Candidates and Nominees
(a) Develop criteria for the selection of directors and oversee the process
of screening and interviewing candidates for Board positions, including those
recommended by shareholders and management; and
(b) Subject to the terms of any shareholders (or similar) agreement to
which the Company and/or its shareholders may be party to from time to time
affecting the composition of the Board, propose to the Board nominees for
election by the shareholders at the annual meeting of shareholders and
prospective director candidates in the event of the resignation, death, removal
or retirement of directors or a change in Board composition requirements.
Board and Committees
(a) Establish and review policies pertaining to size, composition and
procedures of the Board and the roles and responsibilities of directors;
(b) Determine and monitor whether or not each director and prospective
director is an "independent director" within the meaning of the AMEX listing
standards, SOX and any other laws, rules or regulations in effect from time to
time and applicable to the Company and whether the Board and all committees meet
the criteria for independent composition imposed by the AMEX listing standards
or any other applicable laws, rules or regulations in effect from time to time;
(c) Review and consider possible conflicts of interest that may arise
between the Company and any director or officer; and
(e) Review periodically the Board's committee structure and functioning and
recommend to the Board the establishment of committees and directors to serve as
members of each committee.
Management Evaluation and Development
(a) Consider the recommendations of the Chief Executive Officer for the
appointment of executive officers;
(b) Review, and develop where appropriate, the Company's management
succession plans to help assure proper management planning; and
(c) (i) Establish a procedure for evaluating the Chief Executive Officer's
performance, (ii) annually evaluate such performance, and (iii) have the
Committee chair review, after completion of the annual evaluation, with the
B-2
Chief Executive Officer the results of the Committee's evaluation and to
coordinate with the Compensation Committee of the Board regarding that
evaluation for purposes of establishing the annual compensation of the Chief
Executive Officer.
Corporate Governance
(a) Develop and recommend to the Board corporate governance guidelines,
review the guidelines periodically (not less than annually, on a timetable to
established by the Committee), and recommend changes as necessary in light of
the Board's experience evolving corporate practices and regulatory requirements;
and
(b) Develop and recommend to the Board codes of conduct, business ethics
and business practices, to reflect best practices and the requirements of AMEX
listing standards, SOX and any other laws, rules or regulations in effect from
time to time and applicable to the Company's experience, changes to the AMEX
listing standards or any other applicable laws, rules or regulations in effect
from time to time and evolving corporate practices.
Reporting and Evaluation
(a) Report the Committee's actions and recommendations to the Board after
each Committee meeting; and
(b) Evaluate its performance at least annually on a timetable to be
established by the Committee and review at least annually the adequacy of this
Charter and recommend any proposed changes to the Board for approval.
V. Investigations and Studies
The Committee may conduct or authorize investigations into or studies of
matters within the scope of the Committee's responsibilities as described above,
and may retain, at the expense of the Company, independent counsel or other
consultants necessary to assist the Committee in any such investigations or
studies. In this regard, the Committee has the authority to direct the Chief
Executive Officer to provide such information regarding the Company's affairs
and such assistance of the Company's staff and access to the Company's resources
(including funding) as the Committee shall determine necessary to the
accomplishment of its assigned responsibilities. The Committee shall have sole
authority to retain and terminate any search firm to be used to identify
director candidates, including the sole authority to negotiate and approve the
fees and retention terms of such search firm.
VI. Miscellaneous
Nothing contained in this Charter is intended to expand applicable
standards liability under statutory or regulatory requirements for the directors
of the Company or members of the Committee. Nothing in this Charter is intended
to prelude or impair the protection provided in Section 141(e) or any other
section of the General Corporation Laws of the State of Delaware for good faith
reliance by members of the Committee on reports or other information provided by
others. The purposes and responsibilities outlined in this Charter are meant to
serve as guidelines rather than as inflexible rules and the Committee is
encouraged to adopt such additional procedures and standards as it deems
necessary from time to time to fulfill it responsibilities.
B-3
CHAPARRAL
CHAPARRAL RESOURCES, INC.
PROXY CARD
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR ANNUAL MEETING OF STOCKHOLDERS, NOVEMBER 10, 2005
The undersigned hereby appoints Charles Talbot and Inga Jarkikh, 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 November 10, 2005 at 10:00 a.m. at Hotel Royal Monceau, 37
Avenue Hoche, 75008 Paris, France.
1. Election of directors.
a. R. Frederick Hodder d. Alan D. Berlin
b. Nicholas P. Greene e. Simon K. Gill
c. Peter Dilling
|_| 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. Ratification of the selection of Ernst & Young LLP as Chaparral Resources,
Inc.'s independent auditors for the fiscal year ending December 31, 2005.
|_| 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 RESOURCES, INC.'S BOARD OF
DIRECTORS AND FOR THE RATIFICATION OF ERNST & YOUNG LLP AS 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)