EXHIBIT 1.01
[GRAPHIC OMITTED]
November 24, 2004
Board of Directors
Chaparral Resources Inc. ("CRI")
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Re: JSC Karakudukmunai ("KKM")
Gentlemen:
This letter sets out a proposal by ▇▇▇▇▇▇ Resources Ltd ("NRL"), a company
incorporated under the laws of Bermuda, to CRI for the future ownership of that
portion of the outstanding capital stock of KKM that is currently owned by JSC
KazMunayGaz ("KMG"), which is wholly owned by the Government of the Republic of
Kazakhstan.
Introduction
NRL currently owns approximately sixty percent (60%) of the outstanding stock of
CRI. CRI in turn owns directly or indirectly all of the outstanding capital
stock of Central Asian Petroleum (Guernsey), Ltd., ("CAP-G"), a Guernsey
corporation, and Korporatsiya Mangistau Terra International Limited ("MTI"),
incorporated under the laws of Kazakhstan. CAP-G, MTI and KMG are the sole
shareholders of KKM, owning fifty percent (50%), ten percent (10%) and forty
percent (40%) respectively. KMG has indicated that its 40% interest in KKM (the
"KMG Interest") is not a strategic investment and accordingly, it wishes to sell
its shares in KKM. In a public announcement made by KMG on or about November 3,
2004, KMG stated that it intended to conduct a public auction (the "Auction")
for the sale of the KMG Interest, with the starting price being Tenge 3.695
billion (approximately US$28.1 million) (the "Starting Price").
Pursuant to an agreement dated April 14, 1999 among the shareholders of KKM (the
"Foundation Agreement"), should any shareholder (the "Selling Shareholder") wish
to sell some or all of its shares to a third party, the selling shareholder is
obligated to first offer the shares to the other shareholders (the "Non-Selling
Shareholders"). The Non-Selling Shareholders have the right (the "First Refusal
Right"), within thirty (30) days of the receipt of notice of such third party
offer, to purchase the shares which are the subject of such third party offer at
the same price offered by the third party.
NRL Proposal
NRL is interested in acquiring the KMG Interest should it become available at an
acceptable price. NRL also understands that CRI does not have sufficient funds
to purchase the KMG Interest for its own account given the Starting Price in the
Auction. NRL therefore proposes that CRI shall, and shall cause CAP-G and MTI
to, take the following actions:
(a) If CRI either directly, or through CAP-G and/or MTI, receives notice
from KMG pursuant to the Foundation Agreement that KMG desires to sell
the KMG Interest and is therefore first offering such KMG Interest to
CAP-G, MTI and/or CRI (whether at a price which has been offered by a
third party pursuant to the Auction, or otherwise), then CRI will
immediately inform NRL of this notice and agrees, if requested by NRL,
to accept such offer, within 30 days of such notice, for such KMG
Interest at a price and on terms consistent with the price and terms
set forth in such notice from KMG (or on such other terms as notified
to CRI by NRL).
(b) Prior to (and thus as a condition precedent to) CRI being required to
accept the offer from KMG as contemplated by clause (a) above, CRI and
NRL agree to enter into an agreement (the "Purchase and Sale
Agreement") whereby (x) NRL will make available to CRI (the "NRL
Payment"), either directly or indirectly, the funds necessary to
enable CRI to cause CAP-G and/or MTI to exercise the First Refusal
Right and purchase the KMG Interest, and (y) CRI will agree to
transfer and/or to cause CAP-G and MTI to transfer, such KMG Interest
to NRL in repayment of the NRL Payment. It is contemplated by the
parties hereto that the Purchase and Sale Agreement, which shall be
negotiated in good faith, will provide that:
(i) the NRL Payment will be sufficient to fund both (A) the exercise
of the First Refusal Right; and (B) all reasonable documentation
and transaction costs associated with the NRL Payment and
transfer of ownership of the KMG Interest to NRL described above,
including without limitation, reasonable attorneys fees
associated with the negotiation and execution of the Purchase and
Sale Agreement; and
(ii) that as consideration for utilizing the First Refusal Right for
the ultimate benefit of NRL, NRL will pay to CRI, upon transfer
to NRL of the KMG Interest, a fee in the amount of the lower of
(i) 3.0% (three percent) of the amount paid to KMG for the KMG
Interest, and (ii) US$1,000,000 (one million US Dollars). It is
understood that this fee may take the form of a sale price to NRL
that is higher than the actual price paid by CRI to KMG for the
KMG Interest.
(c) CRI agrees not to, and shall cause CAP-G and MTI not to, from the date
of this proposal and until the earlier of its rightful expiration or
termination, waive, amend or otherwise diminish, whether directly or
indirectly, any rights it may have under the Foundation Agreement, or
any other documents relating to KKM, to the First Refusal Right, or to
otherwise take any action which might reasonably interfere, obstruct
or otherwise diminish the transactions contemplated hereby.
(d) CRI agrees to, and to cause CAP-G and MTI to, take such other actions
as reasonably requested by NRL to effect the transactions contemplated
above, including (i) effecting the acquisition by CRI (whether
directly or through CAP-G and/or MTI) of the KMG Interest and (ii)
enforcing (at, for the avoidance of doubt, NRL's cost) the First
Refusal Right to the extent KMG or any other party challenges or
otherwise seeks to avoid its application or exercise.
Disclosure
Except as and to the extent required by law, without the prior written consent
of the other party, neither NRL nor CRI will make, directly or indirectly, any
public comment, statement, or communication with respect to, or otherwise
disclose or permit the disclosure of, this proposal or of a possible transaction
between the parties hereto or any of the terms, conditions, or other aspects of
the transactions proposed herein. If either NRL or CRI is required by law to
make any such disclosure, it must first provide to the other party the content
of the proposed disclosure, the reasons that such disclosure is required by law,
the time and place that the disclosure will be made, and a reasonable
opportunity for the other party to comment on such proposed disclosure.
Termination
This proposal will automatically terminate on June 30, 2005. Upon termination of
this proposal, the parties will have no further obligations hereunder.
Counterparts
This proposal may be executed in one or more counterparts, each of which will be
deemed to be an original copy of and all of which, when taken together, will be
deemed to constitute one and the same agreement.
Binding Agreement; Amendments
This proposal constitutes a binding agreement between CRI and NRL and may not be
amended without the written consent of the parties hereto.
Governing Law
This proposal shall be governed by, and construed in accordance with, the laws
of the State of New York, United States of America, without giving effect to any
conflicts of laws principles thereof which would result in the application of
the laws of another jurisdiction.
Conclusion
If you are in agreement and accept the above proposal, please acknowledge such
agreement by signing the acceptance below.
Sincerely,
▇▇▇▇▇▇ Resources Ltd.
By: /s/ E.N. Zana
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▇▇▇▇ ▇▇▇▇
Chief Executive Officer
AGREED AND ACCEPTED as of November 24 , 2004:
Chaparral Resources, Inc.
By: /s/ ▇▇▇▇▇ ▇▇▇▇
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CEO
