SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
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CHAPARRAL RESOURCES, INC.
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CHAPARRAL
CHAPARRAL RESOURCES, INC.
Notice and Proxy Statement
June 28, 2004
Dear Stockholder:
We are pleased to invite you to the Annual Meeting of Stockholders of
Chaparral Resources, Inc. The meeting will be held on August 2, 2004 at 9:00
a.m., Greenwich Mean Time, at the Inter-Continental London, One Hamilton Place,
Hyde Park Corner, London W1J 7QY.
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 as the
independent auditors of Chaparral for fiscal year 2004.
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, 2003.
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 June 28, 2004.
We hope you can join us on August 2, 2004. 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,
/x/ R. Frederick Hodder
-----------------------
R. Frederick Hodder
Chairman of the Board
CHAPARRAL
CHAPARRAL RESOURCES, INC.
Notice of Annual Meeting of Stockholders
To be held August 2, 2004
Chaparral Resources, Inc. will hold its Annual Meeting of Stockholders on
August 2, 2004 at 9:00 a.m., Greenwich Mean Time, at:
The Inter-Continental London
One Hamilton Place
Hyde Park Corner
London W1J 7QY
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 as the independent auditors of
Chaparral for fiscal year 2004; 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 June 22, 2004 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 2003 Annual Report is enclosed. Please read the
Annual Report in its entirety.
By Order of the Board of Directors,
/x/ Alan D. Berlin
------------------
Alan D. Berlin
Secretary
White Plains, NY
June 28, 2004
1
CHAPARRAL
CHAPARRAL RESOURCES, INC.
Annual Meeting of Stockholders
To Be Held August 2, 2004
This Proxy Statement is furnished to stockholders of Chaparral for use at
the Annual Meeting of Stockholders to be held at 9:00 a.m., Greenwich Mean Time,
at the Inter-Continental London, One Hamilton Place, Hyde Park Corner, London
W1J 7QY, 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 June 28, 2004.
TABLE OF CONTENTS
-----------------
Page
----
1. General Information.........................................................3
2. Proposal 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...........................................13
Option/SAR Grants....................................................13
Aggregated Option/SAR Exercises and Year-End Option/SAR Value
Table...............................................................14
Insider Participation in Compensation Decisions and
Compensation Committee
Report on Executive Compensation...................................14
Compensation Philosophy..........................................14
Compensation Structure...........................................14
Compensation of the Chief Executive Officer......................15
Executive Compensation Deductibility.............................15
Compensation Committee Interlocks and Insider Participation......15
9. Stock Performance Graph....................................................16
Appendix A - Audit Committee Charter.........................................A-1
Appendix B - Corporate Governance Committee Charter..........................B-1
2
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 as Chaparral's
independent auditors for fiscal year 2004.
Q: Who can vote?
A: Only holders of Chaparral's Common Stock at the close of business on June
22, 2004, 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,
Marina Townsley and Nick Imboden, 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
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.
3
Q: What if my shares are held in "street name?"
A: If you hold your shares in "street name" through a broker or other nominee,
your broker or nominee may only exercise voting discretion with respect to
matters deemed routine by NASD, such as the election of directors and the
selection of independent auditors. On a non-routine matter, a broker or
other nominee cannot cast a vote (a so-called "broker non-vote"). Broker
non-votes will not be treated as votes cast, and therefore, will not affect
the outcome of the matters referred to above.
Q: Can I vote on other matters?
A: The matters presented at an annual meeting are limited to those properly
presented by the Board and those properly presented by stockholders. We
have not received notice from any stockholder as to any matter to come
before the Annual Meeting other than as set forth herein. If any other
matter is presented at the Annual Meeting, your signed proxy gives Ms.
Townsley and Mr. Imboden, the proxy holders, authority to vote your shares.
Q: How does the Board recommend I vote on the proposals?
A: Unless you give other instructions on your proxy card, Ms. Townsley and Mr.
Imboden, 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 2005 Annual Meeting by March 1,
2005 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 2003, 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.
4
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 2005, 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 62 Mr. Hodder has served as Chief Financial Officer of
Nelson Resources Limited since July 2002. From 1998 to
1999, Mr. Hodder was President of Kazakhstan Investment
Management LLP. From 1995 to 1998, he served as Senior
Vice President of the Central Asian-American Enterprise
Fund. Mr. Hodder has been appointed as Chairman of the
Board of Directors of Chaparral on May 2004.
Nicholas P. Greene 2004 56 Since 2003, Mr. Greene has been an independent financial
advisor, active in providing support for cross border
trade and acquisitions. Previously, Mr. Greene was
Senior Vice President of the Structured Finance
Department in AKB Rosbank, a Russian universal bank with
principal offices in Moscow and, prior to that, a Vice
President at Access Industries Inc, a privately owned
investment management company, with offices in New York
and Moscow. Prior to joining Access Industries Inc, Mr.
Greene was with WestLB Girozentrale in Duesseldorf,
Germany, as Executive Director of the Structured
Commodity Trade Finance Group, and in New York, as
Managing Director of the Leveraged Capital Group. Before
joining WestLB, Mr. Greene worked in various executive
capacities at Dresdner Bank and Chase Manhattan Bank.
Mr. Greene was appointed a Director of Chaparral on May
19, 2004.
5
Name of Nominee Director Since Age Principal Occupation During the Last 5 Years
--------------- -------------- --- --------------------------------------------
Peter G. Dilling 2002 54 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. Prior to joining
Anglo-African, Mr. Dilling was President and a director
of M-D International Petroleum, Inc., an exploration and
production company, from 1994 to 1997.
Alan D. Berlin 2002 64 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 48 Mr. Gill has been the Chief Executive Officer of
Chaparral since May 2004. Since October 2003, Mr. Gill
has served as Aktau Regional Manager of Nelson Resources
Ltd.. Prior to October 2003, Mr. Gill was employed by
Texaco (ChevronTexaco) for 24 years. Between 1979 and
1990 he filled a number of engineering positions in
Trinidad and Angola, before moving into management
positions as Offshore Operations Manager - Angola, Asst.
to the General Manager - Trinidad, Exploration Team
Leader - Houston and from 1998 to Oct 2003 as General
Manager of Texaco North Buzachi in Aktau, Kazakhstan.
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, certified public accountants, as
auditors to examine the consolidated financial statements of Chaparral for the
fiscal years ending December 31, 2003 and 2004, 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, 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, 2004 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 is ratified, the Board, in its discretion, may
direct the appointment of a new independent accounting firm at any time during
the year if the Board feels that such a change would be in the best interests of
Chaparral and its stockholders.
Representatives of Ernst & Young will be present at the Annual Meeting,
will have an opportunity to make a statement if they desire to do so and will be
available to respond to appropriate questions. This proposal will be approved if
it receives the affirmative vote of holders of a majority of the shares of
Common Stock voted or represented and entitled to vote at the Annual Meeting.
Recommendation of the Board.
The Board recommends that stockholders vote FOR the proposal to ratify the
appointment of Ernst & Young as Chaparral's independent auditors for fiscal year
2004.
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 June 22, 2004, 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.
7
Amount and Nature of Percent of
Beneficial Ownership Common
Name of Beneficial Owner Position (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, 7th Fl.
London UK, W1J 8ED
Allen & Company Incorporated -- 5,642,578(4) 14.77%
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 26,002,624(5) 62.98%
Ian Connor Director - Former Chairman of the -- --
Board
Nicholas P. Greene Director -- --
Peter G. Dilling Director -- --
Alan D. Berlin Director and Corporate Secretary 167(6) *
Simon K. Gill Director and Chief Executive -- --
Officer
Miguel C. Soto VP - Finance and Chief Financial -- --
Officer and Treasurer
Nikolai D. Klinchev Former Director and Chief 500,084(7) 1.31%
Executive Officer
Askar Alshinbayev Former Director -- --
John Duthie Former Director -- --
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 -- 26,002,791 55.53%
executive officers as a group (seven
persons)
---------
* Represents less than 1% of the shares of Common Stock outstanding.
8
(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 Acquisition Corp. 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) In accordance with Rule 13d-3(d)(1)(i)(A), includes 3,076,923 shares
underlying warrants to purchase shares of Common Stock. Mr. Hodder 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.
(6) Includes 167 shares owned by Mr. Berlin.
(7) In accordance with Rule 13d-3(d)(1)(i)(A), includes 500,000 shares
beneficially owned by NK Cayman Limited.
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, 2003, 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, except that Mr.
Klinchev failed to file, on a timely basis, a report representing one
transaction for fiscal year ended December 31, 2003.
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, 2003.
9
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, 2003.
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. Hodder, a Director and current Chairman of Chaparral, is the Chief
Financial Officer for Nelson. Mr. Gill, a Director and current Chief Executive
Officer, currently serves as Aktau Regional Manager of Nelson Resources Limited.
Meetings of the Board and its Committees
During the fiscal year 2003, Chaparral held six Board meetings. The Board
had several committees, including 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 2003,
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, 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 2003, members of the Audit Committee included Messrs. Duthie
10
and 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 the Board is currently searching for a replacement for Mr. Duthie.
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
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 2003, 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. Gill 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 Plain
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 Mr. Duthie 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, 2003.
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 2003 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
11
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 2003, the Audit Committee
discussed with the independent auditors the auditors' independence from
management and Chaparral, and received the written disclosures required by the
Independence Standards Board Standard No. 1, "Independence Discussions with
Audit Committees." The Audit Committee held five meetings during fiscal year
2003.
Fees paid to Ernst & Young during fiscal year 2003 amounted to $273,000
composed of the following:
o Audit Fees. Fees for the audit and quarterly reports for the fiscal
year ended December 31, 2003 totaled $261,000;
o Financial Information Systems Design and Implementation. No fees were
incurred during the fiscal year ended December 31, 2003 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, 2003 totaled $12,000. All non-audit
services were compatible with maintaining Ernst & Young'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, 2003, for filing with the Securities and Exchange Commission.
Audit Committee of the Board of Directors,
John Duthie, Chairman
Peter G. Dilling
Alan D. Berlin
March 17, 2004
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 "CAIH Note"). Along with the CAIH Note,
CAIH received a warrant to purchase 3,076,923 shares of Chaparral's common stock
at $1.30 per share (the "CAIH Warrant"). 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 11 to our consolidated financial statements for the year ended December
31, 2003 for additional disclosure on loans with affiliates. On May 17, 2004,
Nelson acquired from CAIH a majority interest in the Company. Nelson purchased
from CAIH 22,925,701 shares, representing 60% of Chaparral's issued and
outstanding common stock, a Stock Purchase Warrant exercisable for an additional
3,076,923 shares of common stock of Chaparral, and promissory note of Chaparral
payable to CAIH, with a principal amount of US$4 million for an aggregate
purchase price of US$23.9 million.
12
In 2003, Chaparral approved a one-year agreement with OJSC Kazkommerts
Securities ("KKS"), an affiliate of Kazkommertsbank, The agreement is effective
as of January 7, 2003 and provides for KKS to assist the Chaparral's senior
management with financial advisory and investment banking services. In
consideration for the services, KKS received a monthly fee of $25,000 (the
"Advisory Fee").
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 2003 amounted to $126,000.
8. EXECUTIVE COMPENSATION
The following table shows the compensation paid by Chaparral for services
rendered by Mr. Moore, who was the Vice President - Finance, and Chief Financial
Officer of Chaparral, Mr. Klinchev, who was the Chief Executive Officer of
Chaparral, Mr. Wood, who replaced Mr. Moore as the Vice President - Finance and
Chief Financial Officer of Chaparral, and Mr. Soto, who was the Treasurer and
Controller of Chaparral during 2003 and is currently Vice President - Finance
and Chief Financial Officer of Chaparral. There were no other executive officers
of Chaparral whose annual salary and bonus exceeded $100,000 during the fiscal
year 2003.
Summary Compensation Table.
Annual Compensation Long-Term Compensation
------------------------------------ ------------------------------------------------
Awards Payouts
----------------------------------- -----------
Securities
Name and Other Annual Restricted Underlying LTIP All Other
Principal Position Year Salary Bonus Compensation Stock Awards ($) Options/SARs (#) Payouts ($) Compensation
------------------ ---- ------ ----- ------------ ---------------- ---------------- ----------- ------------
Nikolai D. Klinchev 2003 $282,000 $290,000 -- -- -- -- $28,000(1)
Chief Executive 2002 $164,500(1) -- -- -- -- --
Officer (11/02 to
5/04)
Jonathan S. Wood 2003 $235,000(2) $136,000(2) -- -- -- -- --
VP-Finance and
Chief Financial
Officer (01/04 to
5/04)
Richard J. Moore 2003 $282,000 $40,000 -- -- -- -- $1,800
VP-Finance and 2002 $164,500(3) $90,000 -- -- -- -- --
Chief Financial
Officer (11/02 to
12/03)
Miguel C. Soto 2003 $172,000 $67,000 -- -- -- -- --
VP-Finance and 2002 $116,933 $35,000 -- -- -- -- --
Chief Financial
Officer and
Treasurer (5/04 to
present) Controller
(11/02 to present)
----------
1. Represents compensation paid to Mr. Klinchev from June 2002 to December 31,
2002. In addition, $28,000 was paid by Chaparral for the education for Mr.
Klinchev's daughter during 2003.
2. Mr. Wood served as Financial Director of KKM during 2003 for which he
received salary of $235,000 and bonuses in the amount $136,000.
3. Represents compensation paid to Mr. Moore from June 2002 to December 31,
2002.
Options/SAR Grants.
For the fiscal year ended December 31, 2003, we did not grant any options.
13
Aggregated Option/SAR Exercises and Year-End Option/SAR Value.
As of December 31, 2003, there were no unexercised options/SARs and
additionally, no options were exercised in fiscal year 2003.
Insider Participation in Compensation Decisions and Compensation Committee
Report on Executive Compensation
The Compensation Committee of the Board determined the compensation of the
executive officers named in the Summary Compensation Table on page 13 for the
years in question. The Compensation Committee has furnished the following report
on executive compensation in connection with the Annual Meeting:
Compensation Philosophy.
As members of the Compensation Committee, it is our duty to administer the
executive compensation program for Chaparral. The Compensation Committee is
responsible for establishing appropriate compensation goals for the executive
officers of Chaparral, evaluating the performance of such executive officers in
meeting such goals and making recommendations to the Board with regard to
executive compensation. Chaparral's compensation philosophy is to ensure that
executive compensation be directly linked to continuous improvements in
corporate performance, achievement of specific 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.
14
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, 2002.
Compensation of the Chief Executive Officer.
During fiscal year 2003, Mr. Klinchev served as Chief Executive Officer of
Chaparral. In establishing Mr. Klinchev's base salary, the Compensation
Committee considered the factors set forth above, including the level of CEO
compensation in other publicly owned/similar sized exploration and production
companies in the oil and gas industry and Mr. Klinchev's level of involvement in
the day-to-day operations of Chaparral.
Executive Compensation Deductibility.
Chaparral intends that amounts paid under Chaparral's compensation plans
generally will be deductible compensation expenses. The Compensation Committee
does not currently anticipate that the amount of compensation paid to executive
officers will exceed the amounts specified as deductible according to Section
162(m) of the Internal Revenue Code of 1986.
Compensation Committee Interlocks and Insider Participation.
No executive officer or director of Chaparral serves as an executive
officer, director, or member of a compensation committee of any other entity,
for which an executive officer, director, or member of such entity is a member
of the Board or the Compensation Committee of the Board. There are no other
interlocks.
Compensation Committee of the Board of Directors,
Ian Connor, Chairman
Askar Alshinbayev
Nikolai D. Klinchev
15
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, 2003.
[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
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.
A-1
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
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.
B-2
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, AUGUST 2, 2004
The undersigned hereby appoints Marina Townsley and Nick Imboden, 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 August 2, 2004 at 9:00 a.m., Greenwich Mean Time, at the
Inter-Continental London, One Hamilton Place, Hyde Park Corner, London W1J 7QY,
or any adjournment thereof.
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 as Chaparral Resources,
Inc.'s independent auditors for the fiscal year ending December 31, 2004.
|_| 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' BOARD OF DIRECTORS, FOR
THE APPROVAL OF THE AMENDMENTS TO CHAPARRAL'S AMENDED AND RESTATED CERTIFICATE
OF INCORPORATION, FOR THE APPROVAL OF CHAPARRAL'S 2002 PROFIT SHARING BONUS
PROGRAM, 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)