SUBORDINATED LOAN AGREEMENT


     THIS  SUBORDINATED  LOAN AGREEMENT (this  "Agreement")  dated as of June 4,
1998 between Chaparral Resources, Inc., a Colorado corporation, (the "Borrower")
and Allen & Company Incorporated, a corporation organized and existing under the
laws of the State of New York (hereinafter,  "Allen" and,  collectively with its
successors and assigns, the "Lenders").

                              Preliminary Statement
                              ---------------------

     The Borrower  has retained  Allen as its  financial  advisor and  placement
agent in connection with one or more equity  financings.  Pending  completion of
such  financings,  the  Borrower  has  requested  that the  Lenders  provide the
Borrower with loans in the aggregate amount of One Million Dollars  ($1,000,000)
for use as  described  herein,  and the  Lenders  are willing to lend up to such
amount to the  Borrower as a loan,  subject to, and on the terms and  conditions
of, this Agreement in exchange for the Company's  Subordinated  Promissory Notes
and  Warrants  of  even  date  therewith  to  be  issued  to  the  Lenders.  The
relationship between the parties hereto is that of debtor and creditors, and not
of fiduciaries.

     NOW,  THEREFORE,  in  consideration  of the  foregoing  and other  good and
valuable  consideration,  the sufficiency of which is hereby  acknowledged,  the
parties hereto agree as follows:

                                    Article 1
                                Subordinated Loan
                                -----------------

     1.1 Subordinated Loan.

          (a) Subject to the terms and conditions  contained in this  Agreement,
the  Lenders  shall  make  a  subordinated  loan  (the  "Loan"),  to  be  funded
concurrently  with the execution of this Agreement,  in the aggregate  principal
amount of One Million  Dollars  ($1,000,000).  The Loan shall be  evidenced by a
Promissory  Note in the form of Exhibit  1.1 hereto.  Each Lender  shall lend to
Borrower,  and  Borrower  shall be  responsible  to repay such Lender  for,  the
principal amount set forth in Exhibit 1.1(a) hereto. Such Promissory Notes shall
be of even date  herewith  and shall be payable  to the order of the  Lenders in
full in one  installment  in an amount equal to all  outstanding  principal  and
interest  accrued  thereon,  on the  earlier of (a) six months  from the date of
funding  of the Loan,  or (b ) the date on which the  Borrower  receives  equity
investments  (whether or not from or through any Lender) in an aggregate  amount
of at least $10 million.

          (b) Concurrent with the execution of this Agreement and the Promissory
Note and in connection with the making of the Loan hereunder,  the Lenders shall
deliver to the  Borrower by wire  transfer,  or such other method as the Lenders
and the Borrower deem appropriate, an amount equal to $1,000,000.

<PAGE>


     1.2  Interest.  The Loan shall bear  interest from the date of funding at a
per annum  rate  equal to seven  percent  (7%).  Interest  shall be  payable  at
maturity as specified in Section 1.1(a) and shall be calculated based upon a 360
day year and  actual  days  elapsed.  Any  amount  not paid when d ue shall bear
interest until repaid at twelve  percent (12%) per annum,  unless the failure to
make such  repayment is due to the failure of the Borrower to receive the amount
of equity investment specified in 1.1(a) above.

     1.3 Prepayment.  The Borrower may prepay the Loan in full or in part at any
time without  penalty,  with accrued  interest on the principal being prepaid to
the date of such prepayment.
            
     1.4  Repayment  in Stock.  Each  Lender  may elect to have any  payment  of
principal or interest  made to it under the loan  payable  either (i) in cash or
(ii) in the form of the Common  Stock,  par value  $.10 per share  (the  "Common
Stock"), of the Company, valued at the current Market Price of the Common Stock.
"Market  Price," as used with  reference to any share of stock on any  specified
date, shall mean:
            

     (i) if such  stock is listed  and  registered  on any  national  securities
     exchange  or traded on The Nasdaq  Stock  Market  ("Nasdaq"),  (A) the last
     reported  sale  price  on such  exchange  or  Nasdaq  of such  stock on the
     business day immediately preceding the date of conversion,  or (B) if there
     shall have been no such  reported  sale price of such stock on the business
     day immediately  preceding the date of conversion,  the average of the last
     reported  sale  price on such  exchange  or on  Nasdaq  on (x) the day next
     preceding the date of conversion  for which there was a reported sale price
     and (y) the day next  succeeding the date of conversion for which there was
     a reported sale price; or

     (ii) if such stock is not at the time listed on any such exchange or traded
     on Nasdaq but is traded on the  over-the-counter  market as reported by the
     National Quotation Bureau or other comparable  service,  (A) the average of
     the  closing  bid and  asked  prices  for such  stock on the  business  day
     immediately  preceding the date of  conversion,  or (B) if there shall have
     been no such  reported  bid and asked prices for such stock on the business
     day immediately  preceding the date of conversion,  the average of the last
     bid and asked prices on (x) the day next  preceding  the date of conversion
     for which such information is available and (y) the day next succeeding the
     date of conversion for which such information is available; or

     (iii) if clauses (i) and (ii) above are not applicable,  the fair value per
     share of such stock as determined  in good faith and on a reasonable  basis
     by the board of directors of the  Borrower and the Lender  requesting  such
     payment in stock.

                                       2
<PAGE>

                                    Article 2
                    Representations, Warranties and Covenants
                    -----------------------------------------

          To induce  the  Lenders to make  available  to the  Borrower  the Loan
hereunder,  the  Borrower  hereby  make  the  representations,  warranties,  and
covenants included in this Article 2.

     2.1 Payment and Performance of Obligations. The Borrower shall pay the Loan
when due and shall promptly,  punctually, and faithfully perform each and all of
its obligations hereunder.
          
     2.2 Due  Organization  and  Corporate  Authorization.  The Borrower is duly
organized,  validly  existing  as a  corporation  in good  standing in the state
Colorado and is, and shall hereafter remain, duly qualified and in good standing
in every state in which,  by reason of the nature or location of the  Borrower's
assets or  operation  of the  Borrower's  business,  such  qualification  may be
necessary  and where the  failure  to so qualify  would have a material  adverse
affect  on  (i)  the  financial  condition  of the  Borrower,  and/or  (ii)  the
Borrower's  ability to conduct its business.  The execution and delivery of this
Agreement and of any other documents,  instruments,  and agreements  executed in
connection  herewith  constitute  representations by the individual signing this
Agreement  and said  instruments  and by the Borrower  that such  execution  and
delivery have received all such corporate  authorization  as may be necessary to
permit such  execution  and  delivery  to, and that they do, bind the  Borrower,
except as such  enforceability  may be  limited by (i)  bankruptcy,  insolvency,
reorganization or other similar laws and legal and equitable principles limiting
or affecting the rights of creditors generally and/or (ii) general principles of
equity, regardless of whether considered in a proceeding in equity or at law.

     2.3 No  Conflicting  Agreements.  There is no  provision in the Articles of
Incorporation or By-laws or other organizational  documents of the Borrower,  or
in any document by which the Borrower may be bound which  prohibits or adversely
affects the execution and delivery of this Agreement, or of any other instrument
or agreement which prohibits or adversely affects the Borrower's carrying out of
the terms hereof.
           
     2.4 Statutory  Compliance.  The Borrower is in compliance  with,  and shall
hereafter  comply  with and use its assets in  compliance  with,  all  statutes,
regulations  and  orders  of  every  federal,   state,   municipal,   and  other
governmental  authority which has or claims jurisdiction over the Borrower,  any
of the Borrower's  assets,  or any person in any capacity for which the Borrower
would be  responsible  for the conduct of such person,  which if the Borrower is
not so in compliance  would have a material  adverse  effect upon the Borrower's
financial  condition or its ability to conduct its business as such  business is
presently conducted.

     2.5 Pay Taxes.  The Borrower has, and  hereafter  shall pay, as they become
due and  payable,  all  taxes and  unemployment  contributions  and other  valid
charges of any kind or nature levied,  assessed or claimed  against the Borrower
by any person or entity  whose claim  could  result in a lien upon the assets of
the  Borrower or by any  governmental  authority,  properly  exercise  any trust
responsibilities  imposed  upon the  Borrower  by  reason  of  withholding  from
employees'  pay and timely file all tax and other returns and other reports with
each  governmental  authority  to whom the  Borrower  is  obligated  so to file.
Nothing  contained  herein shall prevent  Borrower from  challenging  any tax or
charge which it in good faith believes to be improper or erroneous.

                                       3
<PAGE>


     2.6 Litigation.  Except as set forth on Exhibit 2.6, there is not presently
pending or, to the  Borrower's  best  knowledge  and belief  after due  inquiry,
threatened  by  or  against  the  Borrower  any  suit,  action,   proceeding  or
investigation  which,  if  determined  adversely to the  Borrower,  would have a
material  adverse effect upon the Borrower's  financial  condition or ability to
conduct its business as such business is presently conducted.
            
     2.7 Dividends or  Investments.  Until all amounts under the Loan shall have
been paid in full, the Borrower shall not:
            
          (a) pay any  dividend,  other  than a  common  stock  dividend  of the
Borrower's own capital stock;

          (b) redeem, retire, purchase, or acquire any of the Borrower's capital
stock;

          (c)  invest  in or  purchase  any  stock or  securities  or  rights to
purchase any such stock or securities, of any corporation or other entity;

          (d) merge or consolidate or be merged or consolidated with or into any
other corporation or other entity; or

          (e) except as expressly  approved by the  Lenders,  make any change in
the capital  structure of the  Borrower,  whether by issuance of  securities  or
otherwise.

     2.8 Corporate Loans; Capitalization.  The Borrower shall not make any loans
or advances to any individual,  firm,  corporation,  or other entity  including,
without limitation, any affiliate, officer, employee, director,  shareholder, or
salesperson of the Borrower.
           
     2.9 Line of Business.  The Borrower  shall not engage in any business other
than the business in which it is  currently  engaged,  or a business  reasonably
allied thereto.
            
     2.10 Adequacy of Disclosure.  (a) Except as otherwise  disclosed in writing
to the  Lenders,  all  financial  statements  furnished  to the  Lenders  by the
Borrower have been prepared in accordance  with  generally  accepted  accounting
principles (except that interim financial statements exclude stat ements of cash
flows and notes to financial statements) consistently applied and fairly present
the condition of the Borrower at the date(s)  thereof.  There has been no change
in the financial  condition of the Borrower  since the date(s) of such financial
statements, other than changes in the ordinary course of business, which changes
have not been materially  adverse,  either  singularly or in the aggregate other
than those previously disclosed to the Lenders.

                                       4
<PAGE>


          (b) The  Borrower  does not have any material  contingent  liabilities
pursuant to the execution of guaranties or otherwise not noted in the Borrower's
financial statements furnished to the Lenders.

          (c) No document, instrument,  agreement, or paper given to the Lenders
by or on  behalf  of the  Borrower  in  connection  with its  execution  of this
Agreement, when taken together, contains any untrue statement of a material fact
or omits to state a  material  fact  necessary  in order to make the  statements
therein not misleading.  There is no fact which has a material adverse effect on
the financial  condition of the Borrower which has not been disclosed in writing
to the Lenders.

     2.11 Use of Proceeds.  The Borrower confirms and warrants that all proceeds
of the Loan shall be used by it in the operating of its business.
             
     2.12 Senior  Indebtedness.  Except for the  indebtedness  listed in Exhibit
2.12 hereto (collectively,  "Senior Indebtedness"),  there is no indebtedness of
the Borrower currently outstanding which would be senior to, or pari passu with,
the  obligation  of the  Borrower to repay the Lenders any a nd all amounts owed
hereunder.  The Borrower  further  covenants that for so long as any amounts are
due hereunder,  no indebtedness (other than ordinary course equipment financing)
shall be incurred by the Borrower  which would be senior to, or pari passu with,
that of the Lenders  hereunder.  The obligations of the Lenders to fund the Loan
shall be conditional upon the Company receiving the prior written consent to the
Loan of each holder of Senior  Indebtedness  that may have rights  thereunder to
requi re such consent.

     2.13 Other  Covenants.  The Borrower shall not indirectly do or cause to be
done any act which, if done directly by the Borrower,  would breach any covenant
contained in this Agreement.
           

                                    Article 3
                              Concurrent Conditions
                              ---------------------

     3.1  Concurrent  with the  making  of the Loan  hereunder,  there  shall be
delivered to the Lenders:

          (i)  this Agreement, duly executed and delivered by the Borrower;

          (ii) the  Promissory  Note in the amount of the Loan duly executed and
               delivered by the Borrower;

          (iii)a favorable opinion of counsel for the Borrower  addressed to the
               Lenders  and dated the date of the making of the Loan  hereunder,
               in the form attached as Exhibit 3.1(iii) hereof; and

          (iv) a certificate of an authorized  officer or  representative of the
               Borrower in the form and substance acceptable to the Lenders.

                                       5
<PAGE>

                                    Article 4
                                     Default
                                     -------

          Upon  the  occurrence  of any  one or  more  of the  following  events
(herein, "Events of Default"), the Loan and any and all other amounts due to the
Lenders hereunder shall become immediately due and payable, at the option of the
Lenders and without notice or demand.

     4.1 Failure to Pay Loan. The failure by the Borrower to pay any amount when
due in connection with the Loan made hereunder or the failure by the Borrower to
pay when due any other amount due to the Lenders under this Agreement.
          
     4.2 Business Failure. Any act by, against, or relating to the Borrower,  or
its property or assets,  which act constitutes the application  for, consent to,
or  sufferance  of the  appointment  of a  receiver,  trustee  or other  person,
pursuant to court action or otherwise,  over all, or any part of the  Borrower's
property;  the  occurrence  of  any  voluntary  or  involuntary  liquidation  or
extension of debt  agreement for the Borrower;  the entry of an order for relief
or similar order with respect to the Borrower in any proceeding  pursuant to any
federal bankruptcy law; the filing of any complaint, application, or petition by
or against the Borrower initiating any matter in which the Borrower is or may be
granted  any relief  from the debts of the  Borrower  pursuant to any federal or
state  bankruptcy or insolvency  statute or procedure;  or the initiation of any
other judicial or non-judicial  proceeding or agreement by, against or including
the  Borrower  which  seeks  or  intends  to  accomplish  a  reorganization   or
arrangement with creditors.

     4.3  Change  in  Ownership.  Any  change  in the  identity,  authority,  or
responsibilities  of any person  having  management  and policy  authority  with
respect to the  Borrower  and/or any direct or indirect  change  (including  any
change in beneficial ownership) of more than 20% in the ownership of th e issued
and  outstanding  capital  stock of the Borrower on the date of the execution of
this Agreement.
       


                                    Article 5
                                  Subordination
                                  -------------

     5.1 Each of the Borrower  hereby  warrants and agrees with the Lenders that
all obligations and  indebtedness of the Borrower of every kind and description,
whether now or hereafter existing,  (the "Subordinated Debt") shall, for so long
as any amounts are due hereunder,  be  subordinated  to the  indebtedness of the
Borrower due to the Lenders hereunder in such manner that no payment or security
shall be paid by the Borrower for or on account of the Subordinated  Debt, other
than trade claims and equipment loans and leases payable in the ordinary course,
until the indebtedness  owed to the Lenders  hereunder has been paid in full and
the Loan has been  terminated  or until the Borrower  have obtained the specific
written consent of the Lenders.

                                       6
<PAGE>



                                    Article 6
                                     General
                                     -------

     6.1  Set-Off.  Any and all  deposits  or other  sums at any time due to the
Borrower  at any  time in the  possession  of any of the  Lenders  or any of its
affiliates,  whether  held on behalf of the  Borrower  or  otherwise,  or in the
possession of any third party acting on any of the Lender's  behalf  (regardless
of the reason the such Lender may have  received the same),  including,  but not
limited to, any and all amounts  held,  on behalf of the  Borrower by any of the
Lenders,  shall at all times  constitute  security  for any and all  amounts due
hereunder and may be applied or set-off by the Lenders  against any and all such
amounts  at any time,  whether  or not any or all such  amounts  are then due or
whether alternative sources of payment are available to the Lenders.

     6.2 Notices.  All notices and other  correspondence  to the Borrower by the
Lenders in connection with this Agreement shall be deemed effective upon mailing
to the Borrower's address provided to the Lenders,  which address may be changed
on seven (7) days  written  notice  given to the  Lenders by the  Borrower.  All
notices and other  correspondence  to the Lenders by the Borrower in  connection
with this Agreement shall be deemed effective upon receipt by the Lenders at the
Lender's principal offices, or elsewhere as the Lenders may specify from time to
time, and shall be sent by certified mail, return receipt requested.

     6.3 Severability. Any determination that any provision of this Agreement or
any application  thereof is invalid,  illegal or unenforceable in any respect in
any instance shall not affect the validity,  legality or  enforceability of such
provision in any other instance, or the validity,  legality or enforceability of
any other provision of this Agreement.
           
     6.4 Amendments.  No  modification,  amendment or waiver of any provision of
this Agreement or of any provision of any other  agreement  between the Borrower
and the  Lenders  is  effective  unless  executed  in writing by the party to be
charged with such  modification,  amendment and waiver, and if such party be the
Lenders, then by a duly authorized officer thereof. No failure by the Lenders to
give  notice to the  Borrower  of the  Borrower's  having  failed to observe and
comply with any warranty or covenant  included herein shall  constitute a waiver
of  such  warranty  or  covenant  or  the  amendment  of the  within  Agreement.
Notwithstanding any other provision of this Agreement, however, Allen may assign
any portion of the Loan to one or more additional lenders,  each of which shall,
upon  execution of an agreement  assuming the rights and  obligations  set forth
herein, shall be deemed a Lender pursuant to this Agreement.

                                       7
<PAGE>


     6.5  Costs and  Expenses  of this  Agreement.  The  Borrower  shall pay all
expenses  (including  reasonable  fees and  expenses to counsel to the  Lenders)
incurred by the Lenders in  connection  with the  preparation,  negotiation  and
consummation  of the  agreements  contemplated  by the Loan,  up to an aggregate
amount of $15,000.
           
     6.6 Governing Law. This Agreement and all rights and obligations hereunder,
including matters of construction,  validity and performance,  shall be governed
by the  laws of the  State of New  York.  The  Borrower  submits  itself  to the
jurisdiction  of the  Courts  of the  State of New York  for all  purposes  with
respect to this Agreement and the Borrower's relationship with the Lenders.
            
     6.7  Indemnification.  Except for claims brought or threatened  against the
Lenders by shareholders of the Lenders,  the Borrower shall  indemnify,  defend,
and hold the  Lenders  harmless  of and from any  claim  brought  or  threatened
against  the  Lenders  by the  Borrower,  or any other  person  (as well as from
attorneys'  reasonable fees and expenses in connection  therewith) on account of
Lenders'  loan  relationship  with the Borrower  (each of which may be defended,
compromised,  settled  or  pursued  by the  Lenders  with  counsel  of  Lenders'
selection, but at the expense of the Borrower). The within indemnification shall
survive  payment  of the Loan  and/or  any  termination,  release  or  discharge
executed by the Lenders in favor of the Borrower.

     6.8  Counterparts.  This Agreement may be executed by the parties hereto in
several counterparts and by different parties in separate counterparts,  each of
which  shall be  deemed  to be an  original  and all of which  shall  constitute
together but one and the same Agreement.
             
     6.9. Cooperation. The Borrower agrees to use its best efforts to co-operate
with the Lenders to take such steps as are  reasonably  necessary to give effect
to the transactions contemplated hereby, including without limitation,  promptly
duly executing and delivering  such financing  statements as may be necessary to
perfect the security interests contemplated hereby.
    

                                       8
<PAGE>




     IN WITNESS  WHEREOF,  the parties have caused to be executed this Agreement
as of the date first shown above and agrees to be bound by this Agreement.



                                        CHAPARRAL RESOURCES, INC.


                                        By:________________________________
                                           Name:
                                           Title:


                                        ALLEN & COMPANY INCORPORATED


                                        By:________________________________
                                           Name:
                                           Title:



                                           ---------------------------------
                                           Howard Karren

                                       9
<PAGE>



                          SUBORDINATED PROMISSORY NOTE


$1,000,000                                                    New York, New York
                                                                    June 4, 1998



     FOR VALUE RECEIVED,  Chaparral Resources, Inc., a Colorado corporation (the
"Borrower"), hereby promises to pay to the order of Allen & Company Incorporated
and its successors or assigns (collectively,  the "Lenders"), in lawful money of
the United States of America in freely  transferable U.S. Dollars in immediately
available  funds,  for the account of the Lenders as the Lenders may direct,  in
writing,  the principal sum of One Million Dollars  ($1,000,000),  with interest
calculated  thereon from the date hereof until maturity at a rate equal to seven
percent  (7%) per  annum  (except  as  otherwise  provided  the  Loan  Agreement
described  below),  payable in one  installment on the earlier of (a) the Fourth
(4th) of December,  1998 or (b) the date on which the Borrower  receives  equity
investments  (whether or not from or through any Lender) in an aggregate  amount
of at least $10 million.  Interest shall be calculated on the basis of a 360 day
year.

     This  Promissory  Note  is the  Promissory  Note  referred  to in the  Loan
Agreement  of even date  herewith by and among the Borrower and the Lenders (the
"Loan Agreement"),  and the holders hereof are entitled to the benefits thereof.
In the event of the occurrence of an Event of Default under the Loan  Agreement,
the holders hereof may, at their option,  without notice or demand, declare this
Promissory  Note  immediately  due  and  payable.  After  the  maturity  of this
Promissory Note, whether by acceleration or otherwise, it shall bear interest as
provided in the Loan Agreement.

     If default  be made in the  payment  of any of the  indebtedness  evidenced
hereby and this  Promissory  Note be placed with attorneys for  collection,  the
parties  hereto agree to pay, in addition to all unpaid  principal and interest,
all costs of collection hereof,  including reasonable  attorney's fees. The word
"parties" or "any party  hereto"  shall  include  makers,  endorsers,  sureties,
guarantors and assignors.

     The Borrower  hereby waives demand,  presentment  for payment,  protest and
notice of protest and of non-payment.

     This Promissory Note is subject to voluntary prepayment in part or in full,
without  premium  or  penalty.  At the  election  of the  holders  hereof,  this
Promissory  Note may be paid by the  issuance of Common Stock of the Borrower as
provided in the Loan Agreement.

<PAGE>



     In the  event any one or more of the  provisions  of this  Promissory  Note
shall for any reason be held to be invalid,  illegal or unenforceable,  in whole
or in  part  or in any  respect,  or in the  event  that  any one or more of the
provisions of this  Promissory  Note operate or would  prospectively  operate to
invalidate  this  Promissory  Note,  then and in  either of those  events,  such
provision or provisions  only shall be deemed null and void and shall not effect
any other provision of this Promissory Note and the remaining provisions of this
Promissory Note shall remain operative and in full force and effect and shall in
no way be affected, prejudiced or disturbed thereby.

     All rights, benefits and privileges arising hereunder shall be governed and
construed  according  to the laws of the  State of New  York  applicable  to the
agreement  made and fully  performed  thereon.  Any legal  action or  proceeding
arising out of or  relating to this  Promissory  Note may be  instituted  in the
courts of the State of New York, and the Borrower hereby irrevocably  submits to
the jurisdiction of such court. In any such action or proceeding,  the foregoing
shall not limit the Lenders'  right to bring any legal action or  proceeding  in
any other appropriate jurisdiction.

     The  Borrower  hereby  consents  to  service of  process  by  certified  or
registered mail at Borrower's address as set forth below.

     THE BORROWER HEREBY WAIVES TRIAL BY JURY.

                                      - 2 -


<PAGE>




     IN WITNESS WHEREOF,  the Borrower has caused to be executed this Promissory
Note as of the date first shown above and agrees to be bound hereby.



CHAPARRAL RESOURCES, INC.                        Address for Notices:
                                                     2211 Norfolk
                                                     Suite 1150
                                                     Houston, Texas 77098

By:___________________________
    Name:
    Title:


                                      - 3 -


<PAGE>

                                                                  EXHIBIT 1.1(A)

                                     Lenders


Name/Address                                                    Principal Amount
------------                                                    ----------------

Allen & Company Incorporated                                       $1,000,000
711 Fifth Avenue
New York, New York  10022


TOTAL:                                                             $1,000,000

                                      - 4 -


<PAGE>


                                                                     EXHIBIT 2.6

                                   Litigation


     On November 14, 1997,  Heartland,  Inc. of Wichita and Collins & Mcllhenny,
Inc.   ("Plaintiffs")  filed  a  lawsuit  against  Chaparral   Resources,   Inc.
("Chaparral"),  Howard Karren, the CEO of Chaparral,  Whittier Trust Company and
James A. Jeffs in the District  Court of Harris  County,  Texas.  The Plaintiffs
claim that  Chaparral and Mr.  Karren  breached an alleged  agreement  with them
whereby  Plaintiffs  were to raise  capital  for  Chaparral  through  a  private
placement of  Chaparral's  securities,  and that  Chaparral  and Mr. Karren made
false  representations in connection with the alleged contract and that Whittier
Trust Company and James A. Jeffs interfered with Chaparral's  performance of the
alleged contract.

     Plaintiffs'  motion for  summary  judgment  was denied by the court and the
lawsuit is proceeding through the discovery phase.

                                      - 5 -


<PAGE>

                                                                    EXHIBIT 2.12

                               Senior Indebtedness

     Challenger  Oil  Service,  PLC  ("Challenger")  has entered into a drilling
contract dated April 7, 1998 ("Drilling  Contract") with Karakuduk  Munay,  Inc.
("KKM"),  a joint  stock  company  organized  under the laws of the  Republic of
Kazakstan whereby  Challenger will drill certain wells for KKM in t he Karakuduk
Oil Field in Kazakstan  ("Karakuduk").  Chaparral  Resources Inc.  ("CRI") has a
fifty percent (50%) interest in KKM through its wholly owned subsidiary, Central
Asian Petroleum  (Guernsey)  Limited, in order to assist Challenger in arranging
financing  from a  commercial  bank (the  "Bank  Loan") in order to enable it to
winterize the drilling rig and to provide an inventory of tools and spare parts.

     In the event of a default by Challenger or by KKM in the payment of the day
rates under the Drilling Contract,  CRI agreed to be liable for and to reimburse
Whittier Trust Company  ("Whittier") for any amounts Whittier is required to pay
under a Letter of Credit that it has agreed to issue to the commercial bank as a
credit  enhancement  for the Bank Loan.  Challenger has also granted  Whittier a
security interest in the drilling rig as additional collateral for the Letter of
Credit.


                                      - 6 -


<PAGE>
                                                                EXHIBIT 3.1(iii)


                               Form of Opinion of
                               Borrower's Counsel

     (a) The Borrower is duly organized,  validly  existing and in good standing
under the laws of the State of Colorado and has the  requisite  corporate  power
and corporate authority to own, lease and operate its properties and to carry on
its business.

     (b) The Borrower is duly  qualified  and in good standing in every state in
which,  by reason of the nature or  location of its assets or  operation  of its
business,  such  qualification  may be  necessary  and where the  failure  to so
qualify would have a material  adverse affect on (i) the financial  condition of
the Borrower, and/or (ii) the Borrower's ability to conduct its business.

     (c) The Borrower has the requisite  corporate power and corporate authority
to execute and deliver,  and to perform its obligations under the Loan Agreement
dated  June  ____,  1998  by  and  among  the  Borrower  and  the  Lenders  (the
"Agreement") and all agreements, documents or instruments executed in connection
therewith  (collectively,  the  "Documents").  The execution and delivery of the
Documents and the performance by the Borrower of its obligations thereunder, has
been duly authorized by all necessary corporate action of the Borrower,  and the
Documents have been duly executed and delivered by an authorized  officer of the
Borrower  and  constitute  the valid and  binding  obligation  of the  Borrower,
enforceable  against the Borrower in accordance with their terms,  except to the
extent that  enforceability of the Borrower'  obligations under the Documents is
subject to and affected by applicable  bankruptcy,  insolvency,  reorganization,
arrangement  or other laws affecting the  enforcement  of creditors'  rights and
general principles of equity (whether  enforcement is considered in a proceeding
in equity or at law).

     (d) The  execution,  delivery,  performance  and compliance by the Borrower
with the terms of the  Documents  do not  violate (i) to the best  knowledge  of
counsel after due inquiry, any provision of any judgment,  writ, decree or order
binding upon the Borrower, the violation of which wo uld have a material adverse
effect on the  Borrower,  or (ii) any  provision of the  Borrower's  Articles of
Incorporation or By-Laws. The execution, delivery, performance and compliance by
the Borrower  with the terms of the Agreement do not conflict with or constitute
a default under the provisions of any material agreement, document or instrument
to which the  Borrower is a party or by which it is bound and the  violation  of
which would have a material adverse effect on the Borrower.

     (e)  Except  as  set  forth  in  Section  2.6,  no  action,  proceeding  or
investigation  is pending  or, to the best of  knowledge  of  counsel  after due
inquiry,  threatened  against the Borrower  which  questions the validity of the
Agreement,  or which might result,  either individually or in the aggregate,  in
any material  adverse change in the assets,  condition,  affairs or prospects of
the Borrower.

     (f) To the best knowledge of counsel after due inquiry, the Borrower is not
in violation of any provisions of its Articles of Incorporation or Bylaws.


                                      - 7 -