NOTICE OF PENDENCY OF CLASS ACTION DETERMINATION

Transcription

1 IN THE COURT OF CHANCERY IN THE STATE OF DELAWARE IN AND FOR NEW CASTLE COUNTY IN RE CHAPARRAL RESOURCES, INC. SHAREHOLDERS LITIGATION CONSOLIDATED C.A. NO VCL NOTICE OF PENDENCY OF CLASS ACTION DETERMINATION TO: ALL RECORD HOLDERS AND BENEFICIAL OWNERS OF COMMON STOCK OF CHAPARRAL RESOURCES, INC. ( CHAPARRAL OR THE COMPANY ) AT ANY TIME FROM AND INCLUDING MARCH 13, 2006, THROUGH AND INCLUDING SEPTEMBER 29, 2006, INCLUDING THE LEGAL REPRESENTATIVES, HEIRS, SUCCESSORS IN INTEREST, TRANSFEREES AND ASSIGNS OF ALL SUCH FOREGOING HOLDERS OR PERSONS, BUT EXCLUDING DEFENDANTS AND THE LEGAL REPRESENTATIVES, HEIRS, SUCCESSORS IN INTEREST, TRANSFEREES AND ASSIGNS OF DEFENDANTS. PLEASE READ THIS NOTICE CAREFULLY. YOUR RIGHTS WILL BE AFFECTED BY THE LEGAL PROCEEDINGS IN THIS ACTION. IF YOU HELD COMMON STOCK OF CHAPARRAL FOR THE BENEFIT OF ANOTHER, PLEASE PROMPTLY TRANSMIT THIS DOCUMENT TO SUCH BENEFICIAL OWNER. I. PURPOSE OF THE NOTICE The purpose of this Notice is to inform you of this lawsuit and of a pending motion (the Motion ) by plaintiffs that seeks: (1) the certification of the action as a class action pursuant to Delaware Court of Chancery Rules 23(a), 23(b)(1) and 23(b)(2) on behalf of a class consisting of all persons who owned common stock of Chaparral (excluding defendants and the legal representatives, heirs, successors in interest, transferees and assigns of defendants) for the period from and including March 13, 2006 through and including September 29, 2006, including any and all of their legal representatives, heirs, successors in interest, transferees and assigns of all such foregoing holders or persons (the Class ); and (2) the appointment of plaintiffs Arc I, Inc. and Rolf H. Henel (the Representative Plaintiffs ) as class representatives. Additionally, the purpose of this Notice is to provide members of the putative Class the opportunity to indicate whether they consider the representation of the putative Class by the Representative Plaintiffs and their counsel to be fair and adequate. Specifically, one purpose of this Notice is to inform members of the putative Class that Bouchard, Margules & Friedlander, P.A. ( BMF ), which serves as Co-Lead Counsel on their behalf, represents in unrelated litigation affiliates of Liberty Insurance Underwriters, Inc. ( Liberty Insurance ), which is the insurer for Chaparral s primary layer of directors and officers liability insurance policies. This primary layer accounts for $5 million out of a total of $30 million of Chaparral s directors and officers liability insurance policies with various insurers. If you do not object at this time to any of the matters raised in this Notice, then you will be barred from raising such an objection to the fairness and adequacy of representation, on the basis of the information set forth in this Notice, at any later stage of the litigation. This Notice describes the Motion and what steps you may, but are not required to, take in relation to the Motion.

2 THE FOLLOWING RECITATION DOES NOT CONSTITUTE FINDINGS OF THE COURT. IT IS BASED ON STATEMENTS OF THE PARTIES AND SHOULD NOT BE UNDERSTOOD AS AN EXPRESSION OF ANY OPINION OF THE COURT AS TO THE MERITS OF ANY OF THE CLAIMS OR DEFENSES RAISED BY ANY OF THE PARTIES. II. BACKGROUND OF THE ACTION A. The present lawsuit (the Action ) was initiated when three purported class actions were filed on March 14, 2006, March 15, 2006, and March 17, 2006, each on behalf of a putative class of stockholders of Chaparral and challenging a proposed transaction announced on March 13, 2006, whereby Chaparral s majority stockholder, NRL Acquisition Corp. ( NRL ), an indirect subsidiary of Lukoil Overseas Holding, Ltd. ( Lukoil Overseas ), would merge with Chaparral and acquire the publicly owned shares of Chaparral common stock for a cash price of $5.80 per share (the Merger ). Other than the shares controlled by Lukoil Overseas, there were over 12 million shares of Chaparral common stock outstanding as of the date of the Merger. B. On March 31, 2006, the Court of Chancery entered an Order consolidating the three putative class actions into this Action (the Order of Consolidation ). C. On April 28, 2006, Arc 1, Inc., Rolf Henel and certain other shareholders of Chaparral filed a motion to intervene as plaintiffs, amend the Order of Consolidation and seek the appointment of their counsel, BMF, as new lead counsel (the Motion to Intervene ). A representative of Allen & Company Incorporated, which, together with its affiliates, owned 3,035,594 shares of Chaparral common stock, submitted an affidavit in support of the Motion to Intervene. D. Following argument on the Motion to Intervene, the Court of Chancery entered an Order on May 19, 2006, permitting the intervention. On June 2, 2006, the Court of Chancery entered an Order designating BMF and Lerach Coughlin Stoia Geller Rudman & Robbins LLP ( Lerach Coughlin ) as Co-Lead Counsel and designating BMF as Delaware Liaison Counsel. E. On July 3, 2006, plaintiffs filed a First Amended Consolidated Complaint against Lukoil Overseas and the individual members of Chaparral s Board of Directors (the Board ), which consisted of special committee members Alan Berlin and Peter Dilling and Lukoil Overseas designees Oktay Movsumov, Boris Zilbermints and Dmitry Timoshenko. On September 5, 2006, plaintiffs filed a Second Amended Consolidated Complaint that added NRL as a defendant. While the Merger was pending, Co-Lead Counsel obtained tens of thousands of pages of documents from defendants and deposed the following individuals: Alan Berlin; Peter Dilling; Oktay Movsumov; Charles Talbot, Chaparral s Chief Financial Officer; and a representative of Petrie Parkman & Co., the financial advisor to the special committee. F. Chaparral attached plaintiffs First Amended Consolidated Complaint to its publicly filed preliminary proxy statement and attached plaintiffs Second Amended Consolidated Complaint to the final proxy statement that it distributed to Chaparral s stockholders. G. On September 11, 2006, the special committee directors sent a letter to Lukoil Overseas formally requesting various categories of documents, including certain documents that the plaintiffs had sought in discovery. On September 19, 2006, Chaparral issued a supplemental proxy disclosure that attached the special committee s letter of September 11, 2006 and stated that the special committee was not in a position to determine whether any of the additional information requested from Lukoil Overseas would be material or would cause the special committee to alter its recommendation that Chaparral stockholders vote in favor of the Merger. H. On August 30, 2006, plaintiffs filed a motion for preliminary injunction which asked the Court of Chancery to enjoin defendants preliminarily from taking a vote on the Merger until additional supplemental disclosures were provided to Chaparral s stockholders. On September 22, 2006, the Court of Chancery denied plaintiffs motion for preliminary injunction. The Merger closed on September 29,

3 I. On November 1, 2006, plaintiffs filed a Third Amended Consolidated Complaint that added as a defendant Open Joint Stock Company Oil Company Lukoil ( OAO Lukoil ), the corporate parent of Lukoil Overseas. The Third Amended Consolidated Complaint seeks damages in an unspecified amount. The Third Amended Consolidated Complaint may be viewed at the following link: J. OAO Lukoil filed a motion to dismiss the claims against it, in part, on the grounds that OAO Lukoil is not subject to personal jurisdiction in the State of Delaware. Briefing on that motion has been stayed pending the completion of jurisdictional discovery against OAO Lukoil. K. On December 13, 2006, the Court of Chancery issued a Scheduling Order that sets a trial date of October 22, Since the issuance of the Scheduling Order, Co-Lead Counsel has obtained tens of thousands of additional pages of documents from defendants and third parties, completed the depositions of Alan Berlin and Peter Dilling, deposed the lawyer who represented the special committee during the merger negotiations, deposed the Canadian firm that estimated reserves at the oil and gas field controlled by Chaparral, deposed the President of Lukoil Overseas and scheduled further depositions. III. THE MOTION Plaintiffs filed the Motion on November 28, The Motion, as amended, seeks the certification of the Class pursuant to Court of Chancery Rules 23(a), 23(b)(1) and 23(b)(2) and the appointment of plaintiffs Arc 1, Inc. and Rolf Henel as class representatives. On January 17, 2007, the Court of Chancery entered a Stipulation and Order dismissing the Action without prejudice as to all plaintiffs other than Arc 1, Inc., Rolf Henel and Emilia Henel. Pursuant to Court of Chancery Rule 23(a), certification of the Class requires a showing that: (1) the Class is so numerous that joinder of all members is impracticable, (2) there are questions of law and fact common to the Class, (3) the claims of the Representative Plaintiffs are typical of claims of the Class, and (4) the Representative Plaintiffs and their counsel have fairly and adequately protected the interests of the Class. Court of Chancery Rule 23(b)(1) is satisfied if the prosecution of separate actions by 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. Court of Chancery Rule 23(b)(2) is satisfied if 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. None of the defendants has opposed the Motion. Arc 1, Inc. owned 50,000 shares of Chaparral common stock at all relevant times. Arc 1, Inc. is wholly owned by Peter Bommer, who separately owned 41,920 shares of Chaparral common stock through various IRA accounts as of the date of the Merger. Rolf Henel beneficially owned shares of Chaparral common stock at all relevant times. As of the date of the Merger, he owned 12,787 shares of Chaparral common stock jointly with his wife, Emilia Henel, and he separately owned an additional 10,000 shares of Chaparral common stock through an IRA account as of the date of the Merger. BMF and Lerach Coughlin are both experienced in litigating shareholder class actions. BMF is a litigation boutique based in Wilmington, Delaware that has successfully represented individuals and institutions in prosecuting a wide variety of stockholder actions in the Delaware Court of Chancery on a contingent basis, including actions involving Hollinger International, Inc., PeopleSoft, Inc., Ford Motor Company, WorldPort Communications, TeleCorp PCS Inc. and Dairy Mart Convenience Stores, Inc. Lerach Coughlin is a 180- lawyer law firm with nine offices in the United States that engages in a nationwide practice of complex litigation, emphasizing securities, consumer, insurance, healthcare, human rights, employment discrimination and antitrust class actions. Profiles of BMF and Lerach Coughlin, respectively, may be viewed at and 3

4 As explained below, BMF represents in unrelated litigation affiliates of Liberty Insurance, which is the underwriter for Chaparral s primary layer of directors and officers liability insurance policies in the amount of $5 million. Chaparral has a total of $30 million of directors and officers insurance liability policies, $25 million of which is underwritten by insurers unaffiliated with Liberty Insurance. There is a possibility that defense costs in this lawsuit will exhaust the $5 million layer from Liberty Insurance. Since 2003, BMF has represented Liberty Mutual Insurance Company ( Liberty ) or one of its affiliates in four insurance-coverage disputes unrelated to Chaparral. Two of those actions (involving disputes with Oxford Health Plans, Inc. and Nextcard, Inc.) have concluded. The other two actions (involving disputes with Bernard L. Schwartz and Oplink Communications, Inc.) are open. From January 1, 2002 through March 31, 2007, BMF billings to Liberty accounted for approximately 6.5% of the firm s fee revenues during this period. Defendants have raised concerns that BMF s representation of Liberty may be a potential conflict of interest that could prevent BMF from fairly and adequately representing the interests of the putative class. Co-Lead Counsel do not believe BMF has a conflict of interest with respect to this representation. BMF does not represent Liberty with respect to its insurance policy with Chaparral and has not had any substantive communications with Liberty respecting Chaparral. BMF lawyers have deposed seven of the eight witnesses who have provided deposition testimony in this action. To date, BMF has invested more than 2,100 hours of attorney time and expended more than $300,000 in out-of-pocket expenses in the prosecution of this action. BMF and Lerach Coughlin are handling this matter on a contingent basis and will be compensated for their work on this action only if a benefit is obtained for the Class. In such circumstance, any request for attorneys fees and the reimbursement of expenses will be subject to the approval of the Court of Chancery. IV. RIGHT TO BE HEARD ON THE MOTION One purpose of this Notice is to provide members of the putative Class with an opportunity to indicate whether they consider the representation of the putative Class by the Representative Plaintiffs and their counsel to be fair and adequate. Any member of the putative Class who objects to, or wishes to be heard concerning, the Motion or the adequacy of representation by Representative Plaintiffs or their counsel may file a written objection or statement by July 15, 2007 with the Register in Chancery, New Castle County Courthouse, 500 North King Street, Wilmington, Delaware Such objection or statement must attach proof of membership in the Class and state the reasons for your objection or statement, as well as documents or writings you desire the Court to consider. Also, on or before the date you file such papers, you must serve them by hand or overnight courier upon each of the following attorneys of record: Joel Friedlander Raymond J. DiCamillo Bouchard Margules & Friedlander, P.A. Richards, Layton & Finger, P.A. 222 Delaware Avenue, Suite 1400 One Rodney Square, P.O. Box 551 Wilmington, DE Wilmington, DE Kenneth J. Nachbar Brian C. Ralston Morris Nichols Arsht & Tunnell LLP Potter Anderson & Corroon LLP 1201 N. Market Street 1313 N. Market Street Wilmington, DE Wilmington, DE Any Class member who does not wish to be heard regarding the Motion or any of the matters discussed above need not do anything at this time. 4

5 Unless the Court otherwise directs, no person will be entitled to object to the Motion, or otherwise to be heard, except by serving and filing written objections or statements as described above. Any person who fails to object to the matters raised in this Notice in the manner described above shall be deemed to have waived the right to object (including the right to appeal) and will be forever barred from raising such objection in this or any other action or proceeding. V. NOTICE TO PERSONS OR ENTITIES HOLDING OWNERSHIP ON BEHALF OF OTHERS Brokerage firms, banks and/or other persons or entities who held shares of Chaparral common stock for the benefit of others are directed promptly to send this Notice to all of their respective beneficial owners. If additional copies of the Notice are needed for forwarding to such beneficial owners, any requests for such additional copies may be made to Co-Lead Counsel: Joel Friedlander, Bouchard Margules & Friedlander, P.A, 222 Delaware Avenue, Suite 1400, Wilmington, Delaware 19801; and Randall J. Baron, Lerach Coughlin Stoia Geller Rudman & Robbins LLP, 655 West Broadway, Suite 1900, San Diego, California VI. SCOPE OF THE NOTICE This notice is not all-inclusive. The references in this Notice to the pleadings in the Action, the Motion and other papers and proceedings are only summaries and do not purport to be comprehensive. For the full details of the Action, members of the Class are referred to the Court files in the Action. You or your attorney may examine the Court files during regular business hours of each business day at the office of the Register in Chancery, New Castle County Courthouse, 500 North King Street, Wilmington, Delaware Questions or comments may be directed to Co-Lead Counsel: Joel Friedlander, Bouchard Margules & Friedlander, P.A, 222 Delaware Avenue, Suite 1400, Wilmington, Delaware 19801; and Randall J. Baron, Lerach Coughlin Stoia Geller Rudman & Robbins LLP, 655 West Broadway, Suite 1900, San Diego, California DO NOT WRITE OR TELEPHONE THE COURT Dated: June 4, 2007 BY ORDER OF THE COURT Register in Chancery 5