-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Lg74WVSpaZ8PwXsekNwQZquvnJMKynjj8TmyG/gP+Y/K+DEhHxhY++tMoPMw+YJa m4rn+gTWnDGSY9oVSTRuzg== 0001108890-06-000124.txt : 20060323 0001108890-06-000124.hdr.sgml : 20060323 20060323170532 ACCESSION NUMBER: 0001108890-06-000124 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20060315 ITEM INFORMATION: Other Events ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20060323 DATE AS OF CHANGE: 20060323 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CHAPARRAL RESOURCES INC CENTRAL INDEX KEY: 0000019252 STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [1311] IRS NUMBER: 840630863 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-07261 FILM NUMBER: 06706746 BUSINESS ADDRESS: STREET 1: 2 GANNETT DRIVE CITY: WHITE PLAINS STATE: NY ZIP: 10604 BUSINESS PHONE: 2818777100 MAIL ADDRESS: STREET 1: 2 GANNETT DRIVE CITY: WHITE PLAINS STATE: NY ZIP: 10604 8-K 1 chaparral8k-031506.txt PERIOD ENDED 03-15-06 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported): March 15, 2006 CHAPARRAL RESOURCES, INC. ---------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 0-7261 84-0630863 --------------------------- ---------- ----------------- (State or other jurisdiction (Commission (IRS Employer of incorporation) File Number) Identification No.) 2 Gannett Drive, Suite 418, White Plains, New York 77032 -------------------------------------- -------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (866) 559-3822 Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below): [ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) [ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) [ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) [ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) Item 8.01. OTHER EVENTS. On March 20, 2006, Chaparral Resources, Inc. ("Chaparral") was served with two complaints filed against Chaparral, LUKOIL Overseas Holding Limited (`Lukoil") and the directors of Chaparral (collectively, the "defendants") in connection with the previously announced proposed merger of Chaparral with a subsidiary of Lukoil. On March 17, 2006, George S. Brody filed a complaint against the defendants in the Court of Chancery in the State of Delaware in and for New Castle County, and on March 15, 2006, Rebecca Newman filed a complaint against the defendants in the Supreme Court of the State of New York, County of Westchester. Both complaints request, among other things, that the suit be designated a class action in favor of stockholders, that the proposed merger of Chaparral with a subsidiary of Lukoil be enjoined for lack of an adequate price, among other things, unspecified compensatory damages and an unspecified amount for costs and disbursements, including fees of plaintiff's counsel and experts. These complaints also allege that the defendants breached their fiduciary duties to the stockholders of Chaparral. Chaparral believes that the lawsuits are without merit and intends to defend vigorously against the actions. This summary and description of the George S. Brody and Rebecca Newman complaints is qualified in its entirety by reference to the complaints, which have been filed as Exhibits 99.1 and 99.2 and are incorporated herein by this reference. Additionally, as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2005, a complaint was also filed on March 14, 2006 by Robert Kelly against the defendants in the Court of Chancery in the State of Delaware in and for New Castle County requesting, among other things, that the suit be designated a class action in favor of stockholders, that the proposed merger be declared unlawful and unenforceable because it was allegedly entered into in breach of the individual defendants' fiduciary duties, and that the proposed merger be enjoined. The complaint also requests an unspecified amount for cost and disbursements, including fees of plaintiff's counsel and experts. Chaparral believes that the lawsuit is without merit and intends to defend vigorously against the action. This summary and description of the Robert Kelly complaint is qualified in its entirety by reference to the complaint, which has been filed as Exhibit 99.2 to our Annual Report on Form 10-K for the year ended December 31, 2005 and is incorporated herein by this reference. Item 9.01. FINANCIAL STATEMENTS AND EXHIBITS. (c) Exhibits 99.1 Complaint filed in the Court of Chancery in the State of Delaware in and for New Castle County, captioned George S. Brody, on behalf of himself and all others similarly situated, v. Oktay Movsumov, Dmitri Timoshenko, Boris S. Zilbermints, Peter G. Dilling, Alan D. Berlin, LUKOIL Overseas Holding, Ltd. and Chaparral Resources, Inc., Civil Action No. 2013-N, filed March 17, 2006. 99.2 Complaint filed in the Supreme Court of the State of New York, County of Westchester, captioned Rebecca Newman, on behalf of herself and all others similarly situated, v. Oktay Movsumov, Dmitri Timoshenko, Boris S. Zilbermints, Peter G. Dilling, Alan D. Berlin, LUKOIL Overseas Holding, Ltd. and Chaparral Resources, Inc., Civil Action No. 06-04478, filed March 15, 2006. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. Date: March 23, 2006 CHAPARRAL RESOURCES, INC. By: /s/ Alan D. Berlin -------------------------------- Alan D. Berlin Director and Secretary EX-99.1 2 chaparralexhib991-031506.txt COMPLAINT CAPTIONED GEORGE S. BRODY EXHIBIT 99.1 EFiled: Mar 17 2006 1:28PM EST Transaction ID 10825205 IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE IN AND FOR NEW CASTLE COUNTY - ---------------------------------------------------- GEORGE S. BRODY, on behalf of himself and all others X similarly situated, : : Plaintiff, : Civil Action No. : ------- vs. : : OKTAY MOVSUMOV, DMITRI TIMOSHENKO, : BORIS S. ZILBERMINTS, PETER G, DILLING, : ALAN D. BERLIN, LUKOIL OVERSEAS HOLDING, : LTD, and CHAPARRAL RESOURCES, INC., : : Defendants. X - ---------------------------------------------------- SHAREHOLDER'S CLASS ACTION COMPLAINT ------------------------------------ Plaintiff, through counsel, for his complaint against defendants, alleges upon personal knowledge with respect to paragraph 3, and upon information and belief based, inter alia, upon the investigation of counsel, as to all other allegations herein, as follows: NATURE OF THE ACTION -------------------- 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 its controlling shareholder to enjoin certain actions of defendants related to the proposed acquisition of the outstanding shares of Chaparral common stock by its majority controlling shareholder, defendant Lukoil Overseas Holding, Ltd. (the "Proposed Transaction"). 2. The agreed-upon consideration that Lukoil Overseas Holding, Ltd. ("Lukoil") will pay to members of the Class (as defined below) in the Proposed Transaction is unfair and grossly inadequate because, among other things, the intrinsic value of Chaparral's common stock is materially in excess of the amount offered, giving due consideration to the Company's growth and anticipated operating results, net asset value, and future profitability. Moreover, the entire fairness standard of judicial review applies to all aspects of the Proposed Transaction because, as the Company's majority controlling shareholder, Lukoil stands on both sides of the Proposed Transaction. THE PARTIES ----------- 3. Plaintiff George S. Brody is, and at all relevant times has been, the owner of Chaparral common stock. 4. Defendant Chaparral Resources, Inc. is an oil and gas development and production company incorporated in Delaware, with its principle executive offices located at 2 Gannett Drive, Suite 418, White Plains, New York 10604. The Company's only operating asset is through its participation in the development of the Karakuduk Field, in the Republic of Kazakhstan through the operating company KKM, which Chaparral jointly owns with Lukoil. The Company is traded on the Over-The-Counter Bulletin Board under the symbol CHAR.OB. As of November 9, 2005 there were 38,209,502 shares of Chaparral common stock outstanding, held by hundreds if not thousands of shareholders of records. 5. 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 68% of the outstanding shares of Chaparral common stock, and therefore dominates and controls Chaparral. 6. Defendant Oktay Movsumov ("Movsumov") is and has been a director of the Company since 2005. Movsumov is an employee of, and was placed on the Company's Board by, Lukoil's parent company. 7. Defendant Dmitri Timoshenko ("Timoshenko") is and has been a director of the Company since 2005. Timoshenko is an employee of, and was placed on the Company's Board by, Lukoil's parent company. 8. Defendant Boris S. Zilbermints ("Zilbermints") is and has been a director of the Company since 2005. In January 2006, Zilbermints was appointed 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's parent company. 2 9. Defendant Peter G. Dilling ("Dilling") is and has been a director of the Company since 2002 and currently serves on the Company's Audit and Corporate Governance Committees. From 1995 to 1997, Dilling held various positions within the Company, including Vice Chairman of the Board. 10. Defendant Alan D. Berlin ("Berlin") is and has been a director of the Company since 2002. Berlin currently serves as the Company's Corporate Secretary, on the Audit Committee, and as Chairman of the Corporate Governance Committee. 11. Collectively Movsumov, Timoshenko, Zilbermints, Dilling, and Berlin are herein referred to as the "Individual Defendants." 12. By virtue of their positions as directors and/or officers of Chaparral, and/or their exercise of control and dominant ownership over the business and corporate affairs of Chaparral, each and every of the Individual Defendants and Lukoil have, and at all relevant times had, the power to control and influence, and did control and influence and cause Chaparral to engage in the practices complained of herein. Each Individual Defendant and Lukoil owed and owes the Company and its shareholders fiduciary obligations and were and are required to: use their ability to control and manage Chaparral in a fair, just and equitable manner; act in furtherance of the best interests of Chaparral and its shareholders; govern Chaparral in such a manner as to heed the expressed views of its public shareholders; refrain from abusing their positions of control; and not to favor their own interests at the expense of Chaparral and its shareholders. 13. As discussed in detail below, Lukoil and the Individual Defendants, who together control the actions of Chaparral, have breached their fiduciary duties to Chaparral's public shareholders by acting to cause or facilitate Lukoil's acquisition of all of the outstanding shares of Chaparral for unfair and inadequate consideration, and colluding in Lukoil's coercive tactics in accompanying such buyout. 3 14. Each defendant herein is sued individually as a conspirator and aider and abettor, as well as in the case of the Individual Defendants, in their capacity as directors and/or officers of Chaparral, and the liability of each arises from the fact that they have engaged in all or part of the unlawful acts, plans, schemes, or transactions complained of herein. CLASS ACTION ALLEGATIONS 15. Plaintiff brings this action pursuant to Court of Chancery Rule 23 on behalf of himself and all other shareholders of the Company except the defendants herein and any persons, firm, trust, corporation, or other entity related to or affiliated with them and their successors in interest, who are or will be threatened with injury arising from defendants' actions, as more fully described herein (the "Class.") 16. This action is properly maintainable as a class action for the following reasons: a. The Class is so numerous that joinder of all members is impracticable. There are millions of shares of Chaparral common stock that are outstanding, held by hundreds, if not thousands, of shareholders who are members of the Class. b. Members of the Class are scattered throughout the United States and are so numerous that it is impracticable to bring them all before this Court. c. There are questions of law and fact that are common to the Class and that predominate over any questions affecting individual class members. The common questions include, inter alia, the following: (i) Whether defendants have engaged in and are continuing to engage in conduct which unfairly benefits Lukoil at the expense of the members of the Class; (ii) Whether the Individual Defendants, as officers and/or directors of the Company, and Lukoil, as the controlling shareholder of Chaparral, are violating their fiduciary duties to plaintiff and the other members of the Class; 4 (iii) Whether plaintiff and the other members of the Class would be irreparably damaged were defendants not enjoined from the conduct described herein; and (iv) Whether defendants have initiated and/or timed their buyout of Chaparral shares to unfairly benefit Lukoil at the expense of Chaparral's public shareholders. d. The claims of plaintiff are typical of the claims of the other members of the Class in that all members of the Class will be damaged by defendants' actions. e. Plaintiff is committed to prosecuting this action and has retained competent counsel experienced in litigation of this nature. Plaintiff is an adequate representatives of the Class. f. Plaintiff anticipates that there will not be any difficulty in the management of this litigation as a class action. 17. The prosecution of separate actions by or against individual members of the Class would create a risk of inconsistent or varying adjudications with respect to individual members of the Class which would establish incompatible standards of conduct for the party opposing the Class, as well as 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. 18. The party opposing the Class has acted or refused to act on grounds generally applicable to the Class, thereby making appropriate final injunctive relief or corresponding declaratory relief with respect to the Class as a whole. 19. The class action is superior to any other method available for the fair and efficient adjudication of this controversy since it would be impractical and undesirable for each of the members of the Class who has suffered or will suffer damages to bring separate actions in various parts of the country. 5 SUBSTANTIVE ALLEGATIONS ----------------------- 20.On March 13, 2006, the Company announced that it had entered into a definitive merger agreement with Lukoil, whereby Lukoil would acquire the remaining outstanding shares of the Company that it did not own (the "Proposed Transaction"). On the effective date of the Proposed Transaction, all issued and outstanding stock of Chaparral will be exchanged for $5.80 per share in cash, resulting in a payment to minority shareholders of approximately $88.6 billion. This value represents a meager 9.4% premium over the closing trading price of Chaparral common stock at the close of the last trading day before the Proposed Transaction was announced. 21. The Proposed Transaction will be conditioned upon, among other things, approval of a meeting of the Company's shareholders expected to be held in May 2006. At this meeting, according to the Company in a press release, approval of 50% of the outstanding shares will be required to vote in favor of the Proposed Transaction for it to become effective. Because Lukoil already controls 68% of the Company's shares, the approval is a foregone conclusion, and the Company's minority shareholders will have no voice whatsoever in approving or rejecting the Proposed Transaction. Lukoil thus is in a position to ensure effectuation of the transaction without regard to its fairness to Chaparral's public shareholders. 22. Although the Company has stated that a purported special committee of its Board of Directors (the "Special Committee") has negotiated the terms of the Proposed Transaction, it has not disclosed the identity of the Special Committee's members. In addition, the Company has not even confirmed that one or all of the members of the Special Committee were, in fact, independent from Lukoil. This is of significance given Lukoil's majority representation on, and resulting domination of, the Company's Board. 23. Lukoil is the majority owner of Chaparral and is, therefore, well aware of the status of Chaparral's development and success. In making its inadequate offer to acquire the remaining stock of Chaparral, Lukoil has tried to take advantage of the fact that the market price of Chaparral stock does not fully reflect the progress and future value of the Company. 6 24. The agreed-upon value of $5.80 per share to be paid to the members of the Class is unconscionable, 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 is inadequate and 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 defendants 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. 25. The consideration that Lukoil has offered has been dictated by Lukoil to serve its own interests, and is being crammed down by Lukoil and its representatives on Chaparral's Board to force Chaparral's minority shareholders to relinquish their Chaparral shares at a grossly unfair price. Such action constitutes unfair dealing. 26. Precedent transactions within the last year involving companies primarily or entirely with operations in Kazakhstan similar to Chaparral reinforce the inadequacy of the consideration agreed to by the Individual Defendants and Lukoil. Companies such as Chaparral commonly are valued based on their barrels of proven reserves. According to a financial analyst consulted by plaintiff, the Proposed Transaction values the Company's 27.2 million barrels of proven reserves at a mere $9.89 per barrel. However, in a similar transaction in September of last year, Lukoil paid $l2.30 per barrel of proven reserves when it acquired Nelson Resources Limited ("Nelson"). Lukoil thus paid 24.4% more for Nelson, despite the fact that the Company's proven reserves and prospects are strong, especially considering that Kazakhstan has a stable government, there are no political problems for Lukoil in that country, and that Kazakhstan has a better tax regime for oil production as compared to Russia. 7 27. When the Proposed Transaction is recast using the Lukoil valuation in the Nelson Resources transaction, the inadequacy of the price Lukoil is paying for Chaparral further is exposed. If each of Chaparral's 27.2 million barrels of proven reserves was valued at $12.30, the Company's resulting enterprise value would skyrocket to $335 million (excluding debt), from the $269 million that Lukoil has agreed to pay. Applying the Nelson Resources valuation, then, the price in the Proposed Transaction Lukoil would (and should) pay is more akin to $7.52 per share of Chaparral common stock -- an increase of $1.72 per share, or 30% more than the price actually agreed to. 28. A second precedent transaction involving China National Petroleum's acquisition of PetroKazakhstan in August of 2005 also reinforces the inadequacy of the Proposed Transaction. In that acquisition, China National Petroleum paid approximately $10.70 per barrel of proven reserve. Applying that valuation to Chaparral would yield an enterprise value for the Company of $291 million -- or about $638 per share -- still significantly higher than the terms to which Lukoil and the Individual Defendants have agreed. The terms of this second transaction further have significance because Lukoil also tried to acquire PetroKazakhstan for the same price. 29. Because Lukoil is in possession of proprietary corporate information concerning Chaparral's future financial prospects, the degree of knowledge and economic power between Lukoil and the members of the Class is unequal, making it grossly and inherently unfair for Lukoil to obtain the remaining Chaparral shares at the unfair and inadequate price that it has proposed. 30. By offering grossly inadequate value for Chaparral's shares and threatening or planning to use its coercive means of control to force the consummation of the Proposed Transaction, Lukoil is violating its duties as the Company's majority shareholder. 31. Any buyout of Chaparral's public shareholders by Lukoil on the terms agreed to between Lukoil and the Individual Defendants will deny members of the Class their right to share proportionately and equitably in the true value of Chaparral's valuable and profitable business, and future growth in profits and earnings, at a time when the Company is poised to increase its profitability. 8 32. Defendants' fiduciary obligations require them to: a. act independently so that the interests of Chaparral's public shareholders will be protected; b. adequately ensure that no conflicts of interest exist between defendants' own interests and their fiduciary obligation of entire fairness or, if such conflicts exist, to ensure that all the conflicts are resolved in the best interests of Chaparral's public shareholders; and c. provide Chaparral's shareholders with genuinely independent representation in the negotiations with Lukoil. 33. Because Lukoil controls Chaparral, no auction or market check can be effected to establish Chaparral's worth. Thus, Lukoil has the power, and is exercising its power, to acquire Chaparral's minority shares and dictate terms that are in Lukoil's best interest, without competing bids and regardless of the wishes or best interests of the members of the Class or the intrinsic value of Chaparral's stock. 34. By reason of the foregoing, defendants have breached and will continue to breach their duties to the minority public shareholders of Chaparral and are engaging in improper, unfair dealing and wrongful and coercive conduct. 35. Plaintiff and the Class will suffer irreparable harm unless defendants are enjoined from breaching their fiduciary duties and from carrying out the aforesaid plan and scheme. 36. By reason of the foregoing, defendants have violated the fiduciary duties which each of them owes to plaintiff and the other members of the Class. 37. Each of the defendants has colluded in and rendered substantial assistance in the accomplishment of the wrongdoing complained of herein. In taking the actions, as particularized herein, to aid and abet and substantially 9 assist the wrongs complained of, all defendants acted with an awareness of the primary wrongdoing and realized that their conduct would substantially assist the accomplishment of that wrongdoing and were aware of their overall contribution to the conspiracy, common scheme, and course of wrongful conduct. 38. Unless enjoined by this Court, defendants will continue to breach their fiduciary duties owed to plaintiff and the other members of the Class, and are prepared to consummate a buyout on unfair and inadequate terms which will exclude the Class from its fair proportionate share of Chaparral's valuable assets and businesses, all to the irreparable harm of the Class, as aforesaid. 39. Plaintiff and the other members of the Class are immediately threatened by the acts and transactions complained of herein, and lack an adequate remedy at law. WHEREFORE, plaintiff demands judgment and preliminary and permanent relief, including injunctive relief, in his favor and in favor of the Class and against defendants as follows: A. Declaring that this action is properly maintainable as a class action, and certifying plaintiff as class representative; B. Declaring that the defendants and each of them have committed or participated in a gross abuse of trust and have breached their fiduciary duties to plaintiff and other members of the Class or aided and abetted such breaches; C. Enjoining the Proposed Transaction and, if the transaction is consummated, rescinding the transaction; D. Ordering defendants to disclose and/or correct the material omissions and misrepresentations complained of herein; E. Awarding plaintiff and the Class compensatory damages and/or rescissory damages; F. Awarding plaintiff the costs and disbursements of this action, including allowance for plaintiff's attorneys' and experts' fees; and G. Granting such other, and further relief as this Court may deem to be just and proper. 10 DATED: March 17, 2006 MILBERG WEISS BERSHAD & SCHULMAN LLP By: /s/ Seth D. Rigrodsky ------------------------------- Seth D. Rigrodsky (#3147) Brian D. Long (#4347) Sean M. Brennecke (#4686) 919 N. Market Street, Suite 980 Wilmington, DE 19801 Tel: (302) 984-0597 Fax: (302) 984-0870 Attorneys for Plaintiff George S. Brody 11 EX-99.2 3 chaparralexhib992-031506.txt COMPLAINT CAPTIONED REBECCA NEWMAN EXHIBIT 99.2 Received 3/20/06 SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF WESTCHESTER - -------------------------------------------- REBECCA NEWMAN, on behalf of herself and all X Index No. 06-04478 others similarly situated, : : Date Purchased: March 15, 2006 Plaintiff, : : Plaintiff designates vs. : Westchester County : as the place of trial : : OKTAY MOVSUMOV, DMITRI TIMOSHENKO, : BORIS S. ZILBERMINTS, PETER G, DILLING, : The basis of the venue is that ALAN D. BERLIN, LUKOIL OVERSEAS HOLDING, : one or more defendants reside LTD, and CHAPARRAL RESOURCES, INC., : in this County (CPLR 503(a) : and (c)) : Defendants. : SUMMONS : ------- : : Plaintiff resides at : 401 E. 34th Street : New York, NY 10016 X - -------------------------------------------- TO THE ABOVE-NAMED DEFENDANTS: YOU ARE HEREBY SUMMONED to answer the complaint in this action and to serve a copy of your answer, or, if the complaint is not served with this summons, to serve a notice of appearance, on the Plaintiff's attorneys within 20 days after the service of this summons, exclusive of the day of service (or within 30 days after the service is complete if this summons is not personally delivered to you within the State of New York); and in case of your failure to appear or answer, judgment will be taken against you by default for the relief demanded in the complaint. DATED: New York, New York March 15, 2006 MILBERG WEISS BERSHAD & SCHULMAN LLP By: /s/ Benjamin Y. Kaufman ------------------------------- Seth D. Rigrodsky Benjamin Y. Kaufman One Pennsylvania Plaza New York, NY 10119-0165 Tel: (212) 594-5300 Fax: (212) 868-1229 -and- Brian D. Long Sean M. Brennecke 919 N. Market Street, Suite 980 Wilmington, DE 19801 Tel: (302) 984-0597 Fax: (302) 984-0870 Attorneys for Plaintiff Defendants' addresses: Defendants Movsumov, Timoshenko, Zilbermints, Dilling, Berlin and Chaparral Resources, Inc. 2 Gannett Drive, Suite 418 White Plains, New York 10604 Defendant Lukoil Overseas Holding, Ltd. 1, ul. Bolshaya Ordynka, Moscow, 115035, Russia SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF WESTCHESTER - -------------------------------------------- REBECCA NEWMAN, on behalf of herself and all X others similarly situated, : : Plaintiff, : : Index No. 06-04478 vs. : : OKTAY MOVSUMOV, DMITRI TIMOSHENKO, : BORIS S. ZILBERMINTS, PETER G. DILLING, : SHAREHOLDER'S CLASS ALAN D. BERLIN, LUKOIL OVERSEAS HOLDING, : ACTION COMPLAINT LTD, and CHAPARRAL RESOURCES, INC., : : JURY TRIAL DEMANDED Defendants. X - -------------------------------------------- SHAREHOLDER'S CLASS ACTION COMPLAINT ------------------------------------ Plaintiff, through counsel, for her complaint against defendants, alleges upon personal knowledge with respect to paragraph 3, and upon information and belief based, inter alia, upon the investigation of counsel, as to all other allegations herein, as follows: NATURE OF THE ACTION -------------------- 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 to enjoin certain actions of defendants related to the proposed acquisition of the outstanding shares of Chaparral common stock by its majority controlling shareholder, defendant Lukoil Overseas Holding, Ltd. (the "Proposed Transaction"). 2. The agreed-upon consideration that Lukoil Overseas Holding Ltd ("Lukoil") will pay to members of the Class (as defined below) in the Proposed Transaction is unfair and grossly inadequate because, among other things, the intrinsic value of Chaparral's common stock is materially in excess of the amount offered, giving due consideration to the Company's growth and anticipated operating results, net asset value, and future profitability. Moreover, the entire fairness standard of' judicial review applies to all aspects of the Proposed Transaction because, as the Company's majority controlling shareholder, Lukoil stands on both sides of the Proposed Transaction. THE PARTIES ----------- 3. Plaintiff Rebecca Newman is, and at all relevant times has been, the owner of Chaparral common stock. 4. Defendant Chaparral Resources, Inc. is an oil and gas development and production company incorporated in Delaware, with its principle executive offices located at 2 Gannett Drive, Suite 418, White Plains, New York 10604. The Company's only operating asset is through its participation in the development of the Karakuduk Field, in the Republic of Kazakhstan through the operating company KKM, which Chaparral jointly owns with Lukoil. The Company is traded on the Over-The-Counter Bulletin Board under the symbol CHAR. OB. As of November 9, 2005 there were 38,209,502 shares of Chaparral common stock outstanding, held by hundreds if not thousands of shareholders of records. 5. 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 68% of the outstanding shares of Chaparral common stock, and therefore dominates and controls Chaparral. 6. Defendant Oktay Movsumov ("Movsumov") is and has been a director of the Company since 2005. Movsumov is an employee of, and was placed on the Company's Board by, Lukoil's parent company. 7. Defendant Dmitri Timoshenko ("Timoshenko") is and has been a director of the Company since 2005 Timoshenko is an employee of, and was placed on the Company's Board by, Lukoil's parent company. 8. Defendant Boris S. Zilbermints ("Zilbermints") is and has been a director of the Company since 2005. In January 2006, Zilbermints was appointed 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's parent company. 2 9. Defendant Peter G. Dilling ("Dilling") is and has been a director of the Company since 2002 and currently serves on the Company's Audit and Corporate Governance Committees. From 1995 to 1997, Dilling held various positions within the Company, including Vice Chairman of the Board. 10. Defendant Alan D. Berlin ("Berlin") is and has been a director of the Company since 2002. Berlin currently serves as the Company's Corporate Secretary, on the Audit Committee, and as Chairman of the Corporate Governance Committee. 11. Collectively Movsumov, Timoshenko, Zilbermints, Dilling, and Berlin are herein referred to as the "Individual Defendants." 12. By virtue of their positions as directors and/or officers of Chaparral, and/or their exercise of control and dominant ownership over the business and corporate affairs of Chaparral, each and every of the Individual Defendants and Lukoil have, and at all relevant times had, the power to control and influence, and did control and influence and cause Chaparral to engage in the practices complained of herein. Each Individual Defendant and Lukoil owed and owes the Company and its shareholders fiduciary obligations and were and are required to: use their ability to control and manage Chaparral in a fair, just and equitable manner; act in furtherance of the best interests of Chaparral and its shareholders; govern Chaparral in such a manner as to heed the expressed views of its public shareholders; refrain from abusing their positions of control; and not to favor their own interests at the expense of Chaparral and its shareholders. 13. As discussed in detail below, Lukoil and the Individual Defendants, who together control the actions of Chaparral, have breached their fiduciary duties to Chaparral's public shareholders by acting to cause or facilitate Lukoil's acquisition of all of the outstanding shares of Chaparral for unfair and inadequate consideration, and colluding in Lukoil's coercive tactics in accompanying such buyout. 3 14. Each defendant herein is sued individually as a conspirator and aider and abettor, as well as in the case of the Individual Defendants, in their capacity as directors and/or officers of Chaparral, and the liability of each arises from the fact that they have engaged in all or part of the unlawful acts, plans, schemes, or transactions complained of herein. JURISDICTION AND VENUE ---------------------- 15. Jurisdiction and venue are proper in this Court because Chaparral and the Individual Defendants are domiciled in and/or conduct business within the State. N.Y.C.P.L.R. ss. 302. CLASS ACTION ALLEGATIONS ------------------------ 16. Plaintiff brings this action on behalf of herself and all other shareholders of the Company except the defendants herein and any persons, firm, trust, corporation, or other entity related to or affiliated with them and their successors in interest, who are or will be threatened with injury arising from defendants' actions, as more fully described herein (the "Class.") 17. This action is properly maintainable as a class action for the following reasons: a. The Class is so numerous that joinder of all members is impracticable. There are millions of shares of Chaparral common stock that are outstanding, held by hundreds, if not thousands, of shareholders who are members of the Class. b. Members of the Class are scattered throughout the United States and are so numerous that it is impracticable to bring them all before this Court. c. There are questions of law and fact that are common to the Class and that predominate over any questions affecting individual class members. The common questions include, inter alia, the following: (i) Whether defendants have engaged in and are continuing to engage in conduct which unfairly benefits Lukoil at the expense of the members of the Class; (ii) Whether the Individual Defendants, as officers and/or directors of the Company, and Lukoil, as the controlling shareholder of Chaparral, are violating their fiduciary duties to plaintiff and the other members of the Class; 4 (iii) Whether plaintiff and the other members of the Class would be irreparably damaged were defendants not enjoined from the conduct described herein; and (iv) Whether defendants have initiated and/or timed their buyout of Chaparral shares to unfairly benefit Lukoil at the expense of Chaparral's public shareholders. d. The claims of plaintiff are typical of the claims of the other members of the Class in that all members of the Class will be damaged by defendants' actions. e. Plaintiff is committed to prosecuting this action and has retained competent counsel experienced in litigation of this nature. Plaintiff is an adequate representatives of the Class. f. Plaintiff anticipates that there will not be any difficulty in the management of this litigation as a class action. 18. The prosecution of separate actions by or against individual members of the Class would create a risk of inconsistent or varying adjudications with respect to individual members of the Class which would establish incompatible standards of conduct for the party opposing the Class, as well as 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. 19. The party opposing the Class has acted or refused to act on grounds generally applicable to the Class, thereby making appropriate final injunctive relief or corresponding declaratory relief with respect to the Class as a whole. 20. The class action is superior to any other method available for the fair and efficient adjudication of this controversy since it would be impractical and undesirable for each of the members of the Class who has suffered or will suffer damages to bring separate actions in various parts of the country. 5 SUBSTANTIVE ALLEGATIONS ----------------------- 21. On March 13, 2006, the Company announced that it had entered into a definitive merger agreement with Lukoil, whereby Lukoil would acquire the remaining outstanding shares of the Company that it did not own (the "Proposed Transaction"). On the effective date of the Proposed Transaction, all issued and outstanding stock of Chaparral will be exchanged for $5.80 per share in cash, resulting in a payment to minority shareholders of approximately $88.6 billion, This value represents a meager 94% premium over the closing trading price of Chaparral common stock at the close of the last trading day before the Proposed Transaction was announced. 22. The Proposed Transaction will be conditioned upon, among other things, approval of a meeting of the Company's shareholders expected to be held in May 2006. At this meeting, according to the Company in a press release, approval of 50% of the outstanding shares will be required to vote in favor of the Proposed Transaction for it to become effective. Because Lukoil already controls 68% of the Company's shares, the approval is a foregone conclusion, and the Company's minority shareholders will have no voice whatsoever in approving or rejecting the Proposed Transaction. Lukoil thus is in a position to ensure effectuation of the transaction without regard to its fairness to Chaparral's public shareholders. 23. Although the Company has stated that a purported special committee of its Board of Directors (the "Special Committee") has negotiated the terms of the Proposed Transaction, it has not disclosed the identity of the Special Committee's members. In addition, the Company has not even confirmed that one or all of the members of the Special Committee were, in fact, independent from Lukoil. This is of significance given Lukoil's majority representation on, and resulting domination of, the Company's Board. 24. Lukoil is the majority owner of Chaparral and is, therefore, well aware of the status of Chaparral's development and success. In making its inadequate offer to acquire the remaining stock of Chaparral, Lukoil has tried to take advantage of the fact that the market price of Chaparral stock does not fully reflect the progress and future value of the Company. 6 25. The agreed-upon value of $5.80 per share to be paid to the members of the Class is unconscionable, 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 is inadequate and offers an inadequate premium to the public shareholders of Chaparral; and (c) the $5.80 value was fixed arbitrarily by Lukoil's to "cap" the market price of Chaparral stock, as part of a plan for defendants 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. 26. The consideration that Lukoil has offered has been dictated by Lukoil to serve its own interests, and is being crammed down by Lukoil and its representatives on Chaparral's Board to force Chaparral's minority shareholders to relinquish their Chaparral shares at a grossly unfair price. Such action constitutes unfair dealing. 27. Because Lukoil is in possession of proprietary corporate information concerning Chaparral's future financial prospects, the degree of knowledge and economic power between Lukoil and the members of the Class is unequal, making it grossly and inherently unfair for Lukoil to obtain the remaining Chaparral shares at the unfair and inadequate price that it has proposed. 28. By offering grossly inadequate value for Chaparral's shares and threatening or planning to use its coercive means of control to force the consummation of the Proposed Transaction, Lukoil is violating its duties as the Company's majority shareholder. 29. Any buyout of Chaparral's public shareholders by Lukoil on the terms agreed to between Lukoil and the Individual Defendants will deny members of the Class their right to share proportionately and equitably in the true value of Chaparral's valuable and profitable business, and future growth in profits and earnings, at a time when the Company is poised to increase its profitability. 7 30. Defendants' fiduciary obligations require them to: a. act independently so that the interests of Chaparral's public shareholders will be protected; b. adequately ensure that no conflicts of interest exist between defendants' own interests and their fiduciary obligation of entire fairness or, if such conflicts exist, to ensure that all the conflicts are resolved in the best interests of Chaparral's public shareholders; and c. provide Chaparral's shareholders with genuinely independent representation in the negotiations with Lukoil 31. Because Lukoil controls Chaparral, no auction or market check can be effected to establish Chaparral's worth. Thus, Lukoil has the power, and is exercising its power, to acquire Chaparral's minority shares and dictate terms that are in Lukoil's best interest, without competing bids and regardless of the wishes or best interests of the members of the Class or the intrinsic value of Chaparral's stock. 32. By reason of the foregoing, defendants have breached and will continue to breach their duties to the minority public shareholders of Chaparral and are engaging in improper, unfair dealing and wrongful and coercive conduct. 33. Plaintiff and the Class will suffer irreparable harm unless defendants are enjoined from breaching their fiduciary duties and from carrying out the aforesaid plan and scheme. 34. By reason of the foregoing, defendants have violated the fiduciary duties which each of them owes to plaintiff and the other members of the Class. 35. Each of the defendants has colluded in and rendered substantial assistance in the accomplishment of' the wrongdoing complained of herein. In taking the actions, as particularized herein, to aid and abet and substantially assist the wrongs complained of, all defendants acted with an awareness of the primary wrongdoing and realized that their conduct would substantially assist the accomplishment of that wrongdoing and were aware of their overall contribution to the conspiracy, common scheme, and course of wrongful conduct. 8 36. Unless enjoined by this Court, defendants will continue to breach their fiduciary duties owed to plaintiff and the other members of the Class, and are prepared to consummate a buyout on unfair and inadequate terms which will exclude the Class from: its fair proportionate share of Chaparral's valuable assets and businesses, all to the irreparable harm of the Class, as aforesaid. 37. Plaintiff and the other members of the Class are immediately threatened by the acts and transactions complained of herein, and lack an adequate remedy at law. WHEREFORE, plaintiff demands judgment and preliminary and permanent relief, including injunctive relief, in their favor and in favor of the Class and against defendants as follows: A. Declaring that this action is properly maintainable as a class action, and certifying plaintiff as class representative; B. Declaring that the defendants and each of them have committed or participated in a gross abuse of trust and have breached their fiduciary duties to plaintiff and other members of the Class or aided and abetted such breaches; C. Enjoining the Proposed Transaction and, if the transaction is consummated, rescinding the transaction; D. Ordering defendants to disclose and/or correct the material omissions and misrepresentations complained of herein; E. Awarding plaintiff and the Class compensatory damages and/or rescissory damages; F. Awarding plaintiff the costs and disbursements of this action, including allowance for plaintiff's attorneys' and experts' fees; and G. Granting such other, and further relief as this Court may deem to be just and proper. 9 JURY DEMAND ----------- Plaintiff respectfully requests a trial by jury. DATED: March 15, 2006 MILBERG WEISS BERSHAD & SCHULMAN LLP By: /s/ Benjamin Y. Kaufman -------------------------------- Seth D. Rigrodsky Benjamin Y. Kaufman One Pennsylvania Plaza New York, NY 10119-0165 Tel: (212) 594-5300 Fax: (212) 868-1229 -and- Brian D. Long Sean M. Brennecke 919 N. Market Street, Suite 980 Wilmington, DE 19801 Tel: (302) 984-0597 Fax: (302) 984-0870 Attorneys for Plaintiff 10 -----END PRIVACY-ENHANCED MESSAGE-----