Exhibit 99.1
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EFiled: Mar 15 2006 4:10 PM EST
Transaction ID 10805433
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
IN AND FOR NEW CASTLE COUNTY
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ROBERT J. FEENEY, :
: Civil Action No.
Plaintiff, :
:
v. :
:
CHAPARRAL RESOURCES, INC., :
LUKOIL OVERSEAS HOLDING, LTD, :
OKTAY MOVSUMOV, DMITRI TIMOSHENKO, :
BORIS S. ZILBERMINTS, PETER G. DILLING, and :
ALAN D. BERLIN, :
:
Defendants. :
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CLASS ACTION COMPLAINT
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Plaintiff, Robert J. Feeney, by his attorneys, alleges upon information and
belief, except as to paragraph 2 which is alleged upon personal knowledge, as
follows;
NATURE OF THE ACTION
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1. This is a shareholder's class action on behalf of the public
shareholders of defendant Chaparral Resources, Inc. ("Chaparral" or the
"Company"), against certain of its officers and directors and the controlling
shareholder of Chaparral, Lukoil Overseas Holding, Ltd. ("Lukoil"), to enjoin
certain actions of defendants related to the proposed acquisition of all of the
outstanding shares of Chaparral common stock that it does not already own by
Lukoil.
THE PARTIES
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2. Plaintiff Robert J. Feeney ("plaintiff") is the owner of common stock of
Chaparral and has been the owner of such shares continuously since prior to the
wrongs complained of herein.
3. Chaparral, a corporation duly existing and organized under the laws of
the State of Delaware, with its principal executive offices located in White
Plains, New York, is an independent oil and gas exploration and development
company. It has a total net 60% interest in ZAO Karakudukmunay ("KKM") that
holds a governmental licence to develop the Karakuduk field in western
Kazakhstan. The Company is traded on the Over-The-Counter Bulletin Board under
the symbol CHAR.OB.
4. Defendant Lukoil is a wholly owned subsidiary of OAO LUKOIL, an
international oil and gas production and refining company. Lukoil is the
indirect owner of 63% of the outstanding shares of Chaparral common stock, and
therefore dominates and controls Chaparral. As the majority and controlling
shareholder of Chaparral, Lukoil owes fiduciary duties of good faith, fair
dealing, loyalty, candor, and due care to plaintiff and the other members of the
Class.
5. Defendant Boris S. Zilbermints ("Zilbermints") is and at all relevant
times has been a director of the Company. Since January 2006, Zilbermints has
served as Chief Executive Officer of the Company. Zilbermints is also Lukoil's
Regional Director for Kazakhstan. He was placed on the Company's Board by Lukoil
after Lukoil's acquisition of its controlling interest in Chaparral in December
2005,
6. Defendant Peter G. Dilling ("Dilling") is and at all relevant times has
been a director of the Company. From 1995 to 1997, Dilling held various
positions within the Company, including Vice Chairman of the Board.
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7. Defendant Oktay Movsumov ("Movsumov") is and has been a director of the
Company since December 2005. Movsumov is an employee of, and was placed on the
Company's Board by, Lukoil's parent company when Lukoil acquired its controlling
interest in Chaparral.
8. Defendant Dmitri Timoshenko ("Timoshenko") is and has been a director of
the Company since December 2005. Timoshenko is an employee of, and was placed on
the Company's Board by, Lukoil's parent company when Lukoil acquired its
controlling interest in Chaparral.
9. Defendant Alan D. Berlin ("Berlin") is and at all relevant times has
been a director of the Company.
10. The Individual Defendants (named in paragraphs 5 through 9), as
directors and/or officers of the Company, and Lukoil, as the Company's
controlling stockholder, are in a fiduciary relationship with plaintiff and the
other public stockholders of Chaparral, and owe them the highest obligations of
good faith, fair dealing, due care, loyalty and full and candid and adequate
disclosure.
CLASS ACTION ALLEGATIONS
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11. Plaintiff brings this action pursuant to Court of Chancery Rule 23, on
behalf of himself and the public shareholders of Chaparral common stock (the
"Class"). Excluded from the Class are defendants herein and any person, firm,
trust, corporation or other entity related to or affiliated with any of the
defendants.
12. This action is properly maintainable as a class action.
(a) The Class is so numerous that joinder of all members is
impracticable. As of March 15, 2005, there were approximately 14.78 million
publicly-held shares of Chaparral common stock outstanding held by hundreds if
not thousands of shareholders of records.
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(b) There are questions of law and fact which are common to the Class
including, inter alia, the following:
(i) whether the proposed transaction described herein is
grossly unfair to the Class;
(ii) whether defendants have breached their fiduciary and
other common law duties owed by them to plaintiff and the other
members of the Class; and
(iii) whether plaintiff and the other members of the Class
would be irreparably damaged were the transactions complained of
herein consummated.
(c) Plaintiff is committed to prosecuting this action and has retained
competent counsel experienced in litigation of this nature. Plaintiffs claims
are typical of the claims of the other members of the Class and plaintiff has
the same interests as the other members of the Class. Accordingly, plaintiff is
an adequate representative of the Class and will fairly and adequately protect
the interests of the Class.
13. The prosecution of separate actions by individual members of the Class
would create the risk of inconsistent or varying adjudications with respect to
individual members of the Class which would establish incompatible standards of
conduct for defendants, or adjudications with respect to individual members of
the Class which would as a practical matter be dispositive of the interests of
the other members not parties to the adjudications or substantially impair or
impede their ability to protect their interests.
14. Defendants have acted, or refused to act, on grounds generally
applicable to, and causing injury to, the Class and, therefore, preliminary and
final injunctive relief on behalf of the Class as a whole is appropriate.
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SUBSTANTIVE ALLEGATIONS
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15. On or about December 5, 2005, Chaparral announced that its majority
shareholder, Nelson Resources Limited ("Nelson"), merged with and into Caspian
Investments Resources Ltd. ("Caspian"), a wholly-owned subsidiary of Lukoil (the
"Lukoil-Nelson Merger"), thus making Lukoil the new majority shareholder of
Chaparral with control over approximately 63% of the Company's outstanding
stock.
16. In connection with the Lukoil-Nelson Merger, three of the five
directors of Chaparral, including R. Frederick Hodder, Nicholas P. Greene and
Simon Gill, who had been employees of Nelson, resigned from the Board of
Directors of Chaparral. Mr. Hodder also resigned as Chairman of the Board.
Lukoil replaced Messrs. Hodder, Greene and Gill on the Board with defendants
Timoshenko, Movsumov, and Zilbermints, who are employees of Lukoil. The other
two members of the Company's Board of Directors, defendants Berlin and Dilling,
continued to serve on the Company's board after Lukoil took over the Company.
17. On March 13, 2006, the Company released its unaudited preliminary
operating results for the year ended December 31, 2005. Specifically, the
Company reported a 92% increase in total revenue, a 262% increase in net income,
record annual production (an increase of 25% to 3,534,000 barrels) and a 12%
increase in proved reserves.
18. On that same date, the Company announced that it had entered into a
definitive merger agreement with Lukoil pursuant to which Chaparral shareholders
will receive $5.80 per share in cash for each share of Chaparral common stock
they own, for an aggregate value of $88,646 million. Pursuant to the terms of
the merger agreement, the proposed transaction only requires approval from 50%
of the outstanding shares. Thus, in light of Lukoil's ownership of more than 60%
of the Company's shares, approval of the proposed transaction is assured.
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19. The proposed consideration to be paid to the members of the Class is
unfair and grossly inadequate and constitutes unfair dealing because, among
other things, (a) the intrinsic value of the stock of Chaparral is materially in
excess of the $5.80 value, giving due consideration to the possibilities of
growth and profitability of Chaparral in light of its business, earnings and
earnings power, present and future; (b) the $5.80 value offers an inadequate
premium to the public shareholders of Chaparral; and (c) the $5.80 value was
fixed arbitrarily by Lukoil to "cap" the market price of Chaparral stock, as
part of a plan for Lukoil to obtain complete ownership of Chaparral's assets and
business at the lowest possible price. The intrinsic unfairness in defendants'
actions is also the product of the currently undervalued price of the shares in
the marketplace.
20. Lukoil has timed the proposal to freeze out Chaparral's public
shareholders in order to capture for itself Chaparral's future potential without
paying an adequate or fair price to the Company's public shareholders.
21. Lukoil timed the announcement of the proposed buyout to place an
artificial lid on the market price of Chaparral's stock so that the market would
not reflect Chaparral's improving potential, thereby purporting to justify an
unreasonably low price.
22. Lukoil has access to internal financial information about Chaparral,
its true value, expected increase in true value and the benefits of 100%
ownership of Chaparral to which plaintiff and the Class members are not privy.
Lukoil is using such non-public information to benefit itself in this
transaction, to the detriment of the Chaparral' public stockholders.
23. Lukoil has clear and material conflicts of interest and is acting to
better its own interests at the expense of Chaparral's public shareholders.
Lukoil, with the acquiescence of the Company's Board of directors, a majority of
whom it controls, is engaging in self-dealing and not acting in good faith
toward plaintiff and the other members of the Class. By reason of the foregoing,
Defendants have breached and are breaching their fiduciary duties to the members
of the Class.
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24. Unless the proposed transaction is enjoined by the Court, defendants
will continue to breach their fiduciary duties owed to plaintiff and the members
of the Class to the irreparable harm of the members of the Class.
25. Plaintiff and the Class have no adequate remedy at law.
WHEREFORE, plaintiff prays for judgment and relief as follows:
A. Ordering that this action may be maintained as a class action and
certifying plaintiff as the Class representative;
B. Preliminarily and permanently enjoining defendants and all persons
acting in concert with them, from proceeding with, consummating or closing the
proposed transaction;
C. In the event the proposed transaction is consummated, rescinding it and
setting it aside or awarding rescissory damages to the Class;
D. Directing defendants to account to Class members for their damages
sustained as a result of the wrongs complained of herein;
E. Awarding plaintiff the costs of this action, including reasonable
allowance for plaintiff's attorneys' and experts' fees;
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F. Granting such other and further relief as this Court may deem just and
proper.
ROSENTHAL, MONHAIT & GODDESS, P.A.
By: /s/ Carmella P. Keener
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Carmella P. Keener (DSBA No. 2810)
919 N. Market Street, Suite 1401
Citizens Bank Center
Wilmington, DE 19801
(302) 656-4433
Of Counsel:
Patricia C. Weiser
THE WEISER LAW FIRM, P.C.
121 N. Wayne Avenue, Suite 100
Wayne, PA 19087
Telephone: (610) 225-2677
Facsimile: (610) 225-2678
Eric J. Belfi
Olga Fort
MURRAY, FRANK & SAILER LLP
275 Madison Avenue
New York, New York 10016
Telephone: (212) 682-1818
Facsimile: (212) 682-1892
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