UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, For Use of the
[X] Definitive Proxy Statement Commission Only (as permitted
[ ] Definitive Additional Materials by Rule 14a-6(e)(2))
[ ] Soliciting Material Pursuant to
Rule 14a-11(c) or Rule 14a-12
CHANCELLOR GROUP, INC.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined):
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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[ ] Fee paid previously with preliminary materials:
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.
1) Amount previously paid:
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2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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CHANCELLOR GROUP, INC.
216 SOUTH PRICE ROAD
PAMPA, TEXAS 79065
(806) 688-9697
ASSET SALE PROPOSED--YOUR VOTE IS VERY IMPORTANT
You are cordially invited to attend the special meeting of shareholders of
Chancellor Group, Inc. to be held on Monday, December 12, 2011 at 10 a.m.
(Pacific Time) at The Meeting Room, 100 South Doheny, Beverly Hills, California
90048. At this important meeting, you will be asked to consider and vote on (1)
the approval of a purchase and sale agreement which provides for the sale of
substantially all of the assets of Gryphon Production Company, LLC, a wholly
owned subsidiary of Chancellor Group, Inc., and (2) the approval of an amendment
to Chancellor Group, Inc.'s bylaws reducing the amount of shares of common stock
needed for a quorum. Chancellor Group, Inc.'s common stock is listed on the
Over-The-Counter Bulletin Board market and trades under the symbol CHAG.OB. As
of October 31, 2011, there were 67,560,030 shares of Chancellor Group, Inc.
common stock issued and outstanding.
We cannot complete the asset sale and we cannot amend the bylaws unless the
holders of at least a majority of the outstanding shares of Chancellor Group,
Inc. common stock approve the purchase and sale agreement and the bylaw
amendment. Chancellor is asking its shareholders to consider and vote on this
asset sale proposal and bylaw amendment proposal at a special meeting of
shareholders. Whether or not you plan to attend the special meeting, please take
the time to vote by completing and returning (via first class mail, facsimile,
e-mail of a PDF copy or other electronic transmission) the enclosed proxy card
to Chancellor Group, Inc. or Quicksilver Stock Transfer, Chancellor's transfer
agent. If you sign, date and return your proxy card without indicating how you
want to vote, your proxy will be counted as a vote FOR the purchase and sale
agreement and a vote FOR the amendment to the bylaws. If you do not return your
proxy card, or if you do not instruct your broker how to vote any shares held
for you in "street name," the effect will be a vote against the purchase and
sale agreement and amendment to the bylaws.
This document contains a more complete description of the special meeting
and the terms of the purchase and sale agreement and bylaw amendment. We urge
you to review this entire document carefully. You may also obtain information
about Chancellor Group, Inc. from documents that Chancellor has filed with the
Securities and Exchange Commission. We enthusiastically support the asset sale
and bylaw amendment and recommend that you vote in favor of the two proposals.
By order of the Board of Directors,
/s/ Maxwell Grant
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Maxwell Grant
Chairman of the Board
Proxy statement dated November 28, 2011
and first mailed to shareholders of Chancellor Group on or about
November 30, 2011
HOW TO OBTAIN ADDITIONAL INFORMATION
IMPORTANT BUSINESS AND FINANCIAL INFORMATION ABOUT CHANCELLOR CAN BE FOUND
IN DOCUMENTS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION THAT HAVE NOT
BEEN INCLUDED IN OR DELIVERED WITH THIS DOCUMENT. THIS INFORMATION IS DESCRIBED
UNDER "WHERE YOU CAN FIND MORE INFORMATION." YOU CAN OBTAIN FREE COPIES OF THIS
INFORMATION BY WRITING OR CALLING:
CHANCELLOR GROUP, INC.
216 SOUTH PRICE ROAD
PAMPA, TEXAS 790065
ATTENTION: MAXWELL GRANT, CHAIRMAN AND CHIEF EXECUTIVE OFFICER
TELEPHONE (806) 688-9697
To obtain timely delivery of the documents before the special meeting of
Chancellor, you must request the information by December 7, 2011.
PLEASE NOTE
We have not authorized anyone to provide you with any information other
than the information included in this document and the documents to which we
refer you. If someone provides you with other information, please do not rely on
it as being authorized by us.
THIS PROXY STATEMENT HAS BEEN PREPARED AS OF NOVEMBER 28, 2011. THERE MAY
BE CHANGES IN THE AFFAIRS OF CHANCELLOR SINCE THAT DATE, WHICH ARE NOT REFLECTED
IN THIS DOCUMENT.
CHANCELLOR GROUP, INC.
216 SOUTH PRICE ROAD
PAMPA, TEXAS 79065
(806) 688-9697
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NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
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A special meeting of shareholders of Chancellor Group, Inc. will be held on
Monday, December 12, 2011 at 10 a.m. (Pacific Time), at The Meeting Room, 100
South Doheny, Beverly Hills, California 90048, for the following purposes:
1. to consider and vote upon a proposal to approve the Purchase and Sale
Agreement, dated as of October 18, 2011, by and between Gryphon
Production Company, LLC, a wholly owned subsidiary of Chancellor and
LCB Resources, an Oklahoma limited liability company, pursuant to
which LCB Resources will purchase substantially all of the assets of
Gryphon, all on and subject to the terms and conditions contained in
the purchase and sale agreement;
2. to consider and vote upon a proposal to amend the bylaws of Chancellor
Group, Inc. changing the quorum requirement from a majority of the
stock issued and outstanding, either in person or by proxy, to at
least twenty-five percent (25%) of the stock issued and outstanding,
either in person or by proxy; and
3. to transact such other business as may properly come before the
meeting.
Only shareholders of record at the close of business on October 31, 2011
will be entitled to notice of and to vote at the meeting.
By order of the Board of Directors,
/s/ Maxwell Grant
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Maxwell Grant
Chairman of the Board
Pampa, Texas
November 28, 2011
THE BOARD OF DIRECTORS OF CHANCELLOR UNANIMOUSLY RECOMMENDS THAT YOU VOTE
FOR THE APPROVAL OF THE PURCHASE AND SALE AGREEMENT AND FOR THE APPROVAL OF THE
BYLAW AMENDMENT. WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE COMPLETE,
SIGN, DATE AND RETURN THE ENCLOSED PROXY TO US OR OUR TRANSFER AGENT,
QUICKSILVER STOCK TRANSFER (VIA FIRST CLASS MAIL, FACSIMILE, E-MAIL OF A PDF
COPY OR OTHER ELECTRONIC TRANSMISSION).
YOUR VOTE IS VERY IMPORTANT
A proxy card is enclosed. Whether or not you plan to attend the special meeting,
please complete, sign and date the proxy card and promptly return to us or our
transfer agent, Quicksilver Stock Transfer (via first class mail, facsimile,
e-mail of a PDF copy or other electronic transmission). You may revoke your
proxy card in the manner described in the proxy statement at any time before it
is exercised. If you attend the special meeting, you may vote in person if you
wish, even if you have previously returned your proxy card.
TABLE OF CONTENTS
PAGE
----
QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING............................ 1
SUMMARY.................................................................... 3
A WARNING ABOUT FORWARD-LOOKING STATEMENTS................................. 5
GENERAL INFORMATION........................................................ 6
CHANCELLOR SPECIAL MEETING................................................. 6
PROPOSAL TO APPROVE THE PURCHASE AND SALE AGREEMENT........................ 8
BUSINESS OF CHANCELLOR..................................................... 12
PROPOSAL TO APPROVE THE AMENDMENT TO THE BYLAWS............................ 14
BENEFICIAL OWNERSHIP OF CHANCELLOR COMMON STOCK BY MANAGEMENT, DIRECTORS
AND PRINCIPAL SHAREHOLDERS OF CHANCELLOR................................... 15
OTHER MATTERS.............................................................. 16
WHERE YOU CAN FIND MORE INFORMATION........................................ 16
APPENDIX A - PURCHASE AND SALE AGREEMENT................................... A-1
APPENDIX B - BYLAW AMENDMENT............................................... B-1
QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING
Q: WHAT ARE CHANCELLOR SHAREHOLDERS BEING ASKED TO VOTE UPON?
A: The shareholders of Chancellor are being asked to vote upon a proposal to
approve the purchase and sale agreement providing for the sale of
substantially all of the assets of Gryphon Production Company, LLC and to
vote on a proposal to amend Chancellor's bylaws to reduce the number of
shares needed for a quorum from a majority of the stock issued and
outstanding, either in person or by proxy, to at least twenty-five percent
(25%) of the stock issued and outstanding, either in person or by proxy.
Q: WHEN AND WHERE WILL THE CHANCELLOR SHAREHOLDER MEETING BE HELD?
A: The Chancellor shareholder meeting is scheduled to take place at 10 a.m.
(Pacific Time), on Monday, December 12, 2011, 2011 at The Meeting Room, 100
South Doheny, Beverly Hills, California 90048.
Q: WHAT VOTES ARE REQUIRED FOR APPROVAL OF THE PURCHASE AND SALE AGREEMENT AND
BYLAW AMENDMENT?
A: Approval of the purchase and sale agreement and the bylaw amendment by
Chancellor shareholders requires the affirmative vote of the holders of at
least a majority of the shares of Chancellor common stock outstanding on
October 31, 2011.
Q: WHO IS ENTITLED TO VOTE AT THE SPECIAL SHAREHOLDERS MEETING?
A: You may vote at the special meeting of Chancellor shareholders if you owned
Chancellor common stock at the close of business on October 31, 2011. You
can cast one vote for each share of Chancellor common stock you owned at
that time. As of October 31, 2011, there were 67,560,030 shares of
Chancellor common stock issued and outstanding on.
Q: HOW DOES THE BOARD OF DIRECTORS RECOMMEND THAT I VOTE?
A: The board of directors of Chancellor has unanimously approved and adopted
the purchase and sale agreement and the amendment to the bylaws and
recommends that the shareholders of Chancellor vote FOR approval of the
purchase and sale agreement and FOR approval of the bylaw amendment.
Members of Chancellor's management are expected to vote their shares for
approval of the purchase and sale agreement and amendment to the bylaws.
Q: WHAT DO I NEED TO DO NOW?
A: After you have thoroughly read and considered the information contained in
this proxy statement, simply indicate on the proxy card applicable to your
Chancellor common stock how you want to vote and sign, date and return your
proxy card (via first class mail, facsimile, e-mail of a PDF copy or other
electronic transmission) as soon as possible so that your shares of
Chancellor common stock may be represented at the special meeting.
Q: WHAT HAPPENS IF I DON'T RETURN A PROXY CARD?
A: Because approval of the purchase and sale agreement and the amendment to
the bylaw requires affirmative approval of at least a majority of the
outstanding shares of Chancellor common stock, the failure to return your
proxy card will have the same effect as a vote against the purchase and
sale agreement and bylaw amendment, unless you attend the special meeting
in person and vote for approval of the proposals.
Q: MAY I VOTE IN PERSON?
A: Yes. Even if you have previously completed and returned your proxy card,
you may attend the special meeting and vote your shares in person.
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Q: MAY I CHANGE MY VOTE AFTER I HAVE SUBMITTED MY PROXY CARD?
A: Yes. You may change your vote at any time before your proxy is voted at the
special meeting by attending the special meeting and voting your shares in
person or by submitting a new proxy card bearing a later date.
Q: IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE MY
SHARES FOR ME?
A: Your broker will vote your shares only if you provide instructions on how
to vote. You should instruct your broker how to vote your shares, following
the directions your broker provides. If you do not provide instructions to
your broker, your shares will not be voted, which will have the same effect
as a vote against the proposals.
Q: WHO CAN HELP ANSWER MY QUESTIONS?
A: If you have additional questions about the asset sale or proposed bylaw
amendment, you should contact Maxwell Grant, Chancellor Group, Inc., 216
South Price Road, Pampa, Texas 79065, telephone (806) 688-9697.
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SUMMARY
THIS SECTION SUMMARIZES MATERIAL INFORMATION PRESENT IN GREATER DETAIL
ELSEWHERE IN THIS PROXY STATEMENT AND DOES NOT CONTAIN ALL OF THE INFORMATION
THAT MAY BE IMPORTANT TO YOU. WE URGE YOU TO CAREFULLY READ THIS ENTIRE DOCUMENT
AND THE DOCUMENTS SET FORTH AS APPENDICES TO THIS PROXY STATEMENT. THESE
DOCUMENTS WILL GIVE YOU A MORE COMPLETE DESCRIPTION OF THE PROPOSALS. WE HAVE
INCLUDED PAGE REFERENCES IN THIS SUMMARY TO DIRECT YOU TO OTHER PLACES IN THIS
PROXY STATEMENT WHERE YOU CAN FIND A MORE COMPLETE DESCRIPTION OF THE TOPICS WE
HAVE SUMMARIZED.
THE COMPANIES
CHANCELLOR GROUP, INC.
216 South Price Road
Pampa, Texas 79065
(806) 688-9697
Chancellor Group, Inc. is an independent oil and gas exploration and
development company focused on building and revitalizing oil and gas properties
all of which are currently located in the State of Texas. Chancellor Group, Inc.
and its wholly-owned subsidiaries, Gryphon Production Company, LLC and Gryphon
Field Services, LLC, own 134 wells, of which 19 are water disposal wells and 2
are gas wells, although "associated" gas is also produced from some oil wells.
In addition, Chancellor Group, Inc. owns approximately 4,420 acres of production
rights on nine leases.
LCB RESOURCES, LLC
406 N. Main Street
Kingfisher, Oklahoma 73750
(405) 375-3700
LCB Resources LLC is a private company whose main shareholder is Lenard
Briscoe. Mr. Briscoe has been active in the oil and gas industry for over 45
years. LCB Resources LLC currently operates approximately 120 oil and gas wells
in Oklahoma and has also operated wells in Texas and Arkansas in the past. The
company's main focus is recompletion and repairs to existing wells, both for its
benefit and for the company's clients. The company from time to time will also
engage in drilling and exploration.
THE PROPOSED ASSET SALE (PAGE 9)
Pursuant to the terms of the purchase and sale agreement, LCB Resources
will purchase and Gryphon Production Company, LLC will sell all of its right
title and interest in certain leases, wells, equipment, contracts, data and
other designated property representing substantially all of the assets of
Gryphon. The assets to be sold to LCB Resources constitute approximately 82% of
our consolidated assets as of September 30, 2011 and contributed approximately
95% and 77%, respectively, of our consolidated gross revenues and total expenses
for the nine months then ended. The assets also represent approximately 97% of
our proved reserves, based on our most recent reserve study dated December 31,
2010.
PURCHASE PRICE (PAGE 9)
The aggregate purchase price is $2,050,000.00, subject to increase or
decrease as further set forth in the purchase and sale agreement.
USE OF PROCEEDS (PAGE 10)
The consideration to be paid in the proposed transaction consists entirely
of cash, and the completion of the proposed transaction is not contingent upon
the availability of financing. The proceeds from the asset sale will be used to
provide working capital to Gryphon and for future corporate purposes including,
but not limited to, possible acquisitions and other corporate programs and
purposes that have yet to be identified.
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EFFECTIVE TIME OF THE ASSET SALE (PAGE 10)
We are working to complete the asset sale during the fourth quarter of
2011, although delays could occur.
CONDITIONS TO COMPLETION OF THE ASSET SALE (PAGE 11)
The completion of the transaction depends on a number of conditions being
met. These include, among others:
* approval of the purchase and sale agreement by the shareholders of
Chancellor;
* accuracy of each party's representations and warranties as of the
closing date of the transaction;
* absence of any suit, action or other proceeding by a third party which
seeks substantial damages, fines, penalties or other relief or any
event that would prohibit, restrict or delay the consummation of the
transaction; and
* performance or compliance in all material respects by each party with
its respective covenants and obligations required by the purchase and
sale agreement.
REGULATORY APPROVALS (PAGE 11)
Chancellor is not aware of any federal or state regulatory approval needed
to consummate the proposed transaction.
MODIFICATIONS OR WAIVER (PAGE 11)
We may amend the purchase and sale agreement and each of us may waive our
right to require the other party to adhere to any term or condition of the
purchase and sale agreement.
TERMINATION OF THE PURCHASE AND SALE AGREEMENT (PAGE 12)
If the transactions contemplated in the purchase and sale agreement have
not closed on or before December 15, 2011, the purchase and sale agreement will
automatically terminate unless LCB and Gryphon agree in writing to an extension.
DISSENTER'S RIGHTS
Since the transaction involves the sale of assets, Chancellor shareholders
are not afforded dissenter's rights under Nevada law.
COMPARISON OF SHAREHOLDERS' RIGHTS
The rights of Chancellor shareholders will remain unchanged following
consummation of the proposed asset sale.
ACCOUNTING AND TAX MATTERS (PAGE 12)
The proposed transaction will be accounted for as an ordinary sale of
assets. Accordingly, any gain from the sale of the assets to LCB Resources will
be accounted for under customary gain recognition rules and reported
accordingly. The transaction is not expected to result in any material federal
income tax consequences.
CHANCELLOR'S REASONS FOR THE ASSET SALE AND RECOMMENDATIONS OF CHANCELLOR'S
BOARD (PAGE 8)
The board of directors of Chancellor believes that the asset sale is fair
to the Company and in the best interests of the Company's shareholders, and
unanimously recommends that you vote FOR the proposal to approve the purchase
and sale agreement. For a discussion of the circumstances surrounding the asset
sale and the factors considered by the Chancellor's board of directors in
approving the purchase and sale agreement, see page 8.
4
A WARNING ABOUT FORWARD-LOOKING STATEMENTS
Certain statements contained in this proxy statement that are not
statements of historical fact constitute forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995 that are subject
to risks and uncertainties. These forward-looking statements include information
about possible or assumed future results of operations of Chancellor after the
transaction is completed as well as information about the asset sale. Words such
as "believes," "expects," "anticipates," "estimates," "intends," "continue,"
"should," "may," or similar expressions, are intended to identify
forward-looking statements, but are not the exclusive means of identifying such
statements. Many possible events or factors could affect the future results and
performance of our company before the asset sale or after the asset sale, and
could cause those results or performance to differ materially from those
expressed in the forward-looking statements.
A forward-looking statement may include a statement of the assumptions or
bases underlying the forward-looking statement. We believe we have chosen these
assumptions or bases in good faith and that they are reasonable. However, we
caution you that assumptions or bases almost always vary from actual results,
and the differences between assumptions or bases and actual results can be
material. Therefore, we caution you not to place undue reliance on our
forward-looking statements. The forward-looking statements are made as of the
date of this proxy statement. We undertake no obligation to publicly update or
otherwise revise any forward-looking statements, whether as a result of new
information, future events or otherwise.
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GENERAL INFORMATION
This document constitutes a proxy statement of Chancellor Group, Inc.
("we", "us", "Chancellor" or the "Company") and is being furnished to all record
holders of Chancellor common stock in connection with the solicitation of
proxies by the board of directors of Chancellor to be used at a special meeting
of shareholders of Chancellor to be held on Monday, December 12, 2011.
The purpose of the Chancellor special meeting is to consider and vote upon a
proposal to approve the Purchase and Sale Agreement, dated as of October 18,
2011, by and between Gryphon Production Company, LLC, a wholly owned subsidiary
of Chancellor, and LCB Resources, an Oklahoma limited liability company, which
provides, among other things, for the sale of substantially all of the assets of
Gryphon to LCB, and to consider and vote upon a proposal to approve an amendment
to the bylaws of Chancellor Group, Inc. changing the quorum requirement from a
majority of the stock issued and outstanding, either in person or by proxy, to
at least twenty-five percent (25%) of the stock issued and outstanding, either
in person or by proxy.
CHANCELLOR SPECIAL MEETING
DATE, PLACE AND TIME OF THE SPECIAL MEETING
The special meeting of shareholders of Chancellor will be held on Monday,
December 12, 2011 at 10:00 a.m. (Pacific Time), at The Meeting Room, 100 South
Doheny, Beverly Hills, California 90048.
MATTERS TO BE CONSIDERED
The purpose of the special meeting is to consider and vote upon (1) a
proposal to approve the Purchase and Sale Agreement, dated as of October 18,
2011, by and between Gryphon Production Company, LLC, a wholly owned subsidiary
of Chancellor and LCB Resources, an Oklahoma limited liability company, pursuant
to which LCB Resources will purchase substantially all of the assets of Gryphon,
all on and subject to the terms and conditions contained in the purchase and
sale agreement, and (2) a proposal to approve an amendment to the bylaws of
Chancellor Group, Inc. changing the quorum requirement from a majority of the
stock issued and outstanding, either in person or by proxy, to at least
twenty-five percent (25%) of the stock issued and outstanding, either in person
or by proxy.
At this time, the board of directors of Chancellor is unaware of any
matter, other than the matters set forth above, that may be presented for action
at the special meeting.
SHARES ENTITLED TO VOTE, QUORUM AND VOTE REQUIRED
The holders of record of the outstanding shares of Chancellor common stock
at the close of business on October 31, 2011 will be entitled to notice of and
to vote at the special meeting. At the close of business on that date, there
were 67,560,030 shares of Chancellor common stock issued and outstanding and
entitled to vote at the special meeting.
At the special meeting, the shareholders of Chancellor will be entitled to
one vote for each share of common stock owned of record on October 31, 2011. The
holders of a majority of the shares of Chancellor common stock entitled to vote
at the special meeting must be present, either in person or by proxy, to
constitute a quorum at the special meeting. The affirmative vote of at least a
majority of the issued and outstanding Chancellor common stock is required to
approve each of the two proposals.
Abstentions and shares held of record by a broker or nominee that are voted
on any matter are included in determining whether a quorum exists. The proposal
to approve the purchase and sale agreement and the amendment to the bylaws are
"non-discretionary" items, meaning that brokers and banks who hold shares in an
account for customers who are the beneficial owners of such shares may not give
a proxy to vote those shares without specific instructions from their customers.
Any abstentions and broker non-votes on a particular proposal will have the same
effect as a vote against such proposal or a failure to vote on such proposal.
Accordingly, our board of directors encourages you to complete, date and sign
the accompanying proxy card and return it promptly to us or our transfer agent,
6
Quicksilver Stock Transfer (via first class mail, facsimile, e-mail of a PDF
copy or other electronic transmission).
On the record date, the directors and executive officers of Chancellor were
entitled to vote, in the aggregate, 23,781,300 shares of Chancellor common
stock, or 35.20% of the outstanding shares of common stock entitled to vote at
the special meeting.
THE BOARD OF DIRECTORS OF CHANCELLOR UNANIMOUSLY RECOMMENDS THAT YOU VOTE
FOR THE PROPOSAL TO APPROVE THE PURCHASE AND SALE AGREEMENT AND FOR THE PROPOSAL
TO APPROVE THE BYLAW AMENDMENT.
VOTING AND REVOCATION OF PROXIES
Proxies, in the form enclosed, which are properly executed by the
shareholders and returned to Chancellor and not subsequently revoked, will be
voted in accordance with the instructions indicated on the proxies. Any properly
executed proxy on which voting instructions are not specified will be voted FOR
the proposal to approve the purchase and sale agreement and FOR the proposal to
approve the bylaw amendment. The proxy also grants authority to the persons
designated in the proxy to vote in accordance with their own judgment if an
unscheduled matter is properly brought before the special meeting.
If you are the record holder of your shares, you may revoke any proxy given
pursuant to this solicitation by the board of directors of Chancellor at any
time before it is voted at the special meeting by:
* giving written notice to the Chief Executive Officer of Chancellor;
* executing a proxy bearing a later date and delivering that proxy with
the Chief Executive Officer of Chancellor at or before the special
meeting; or
* attending and voting in person at the special meeting.
All written notices of revocation and other communications with respect to
revocation or proxies should be sent to: Chancellor Group, Inc., 216 South Price
Road, Pampa, Texas 79065, Attention: Maxwell Grant, Chief Executive Officer. If
you hold your shares in street name with a bank or broker, you must contact such
bank or broker if you wish to revoke your proxy.
SOLICITATION OF PROXIES; EXPENSES
This proxy solicitation is made by the board of directors of Chancellor.
Chancellor is responsible for its expenses incurred in preparing, assembling,
printing, and mailing this proxy statement. Proxies will be solicited through
the mail. Additionally, directors of Chancellor intend to solicit proxies
personally or by telephone or other means of communication. The directors will
not be additionally compensated. Chancellor will reimburse banks, brokers and
other custodians, nominees and fiduciaries for their reasonable expenses in
forwarding the proxy materials to beneficial owners.
7
PROPOSAL TO APPROVE THE PURCHASE AND SALE AGREEMENT
The following information describes material aspects of the asset sale. It
is not intended to be a complete description of all information relating to the
transaction and is qualified in its entirety by reference to more detailed
information contained in the copy of the purchase and sale agreement (excluding
exhibits and schedules) included as APPENDIX A and incorporated herein by
reference. You are urged to read Appendix A in its entirety.
BACKGROUND OF THE ASSET SALE
From time to time, Chancellor's and/or Gryphon's board of directors and
management have reviewed future prospects for earnings and asset growth and the
viability of Gryphon's continued operations as an independent oil and gas
company. During late 2010 and the first half of 2011, the board of directors and
management began discussions regarding the strategic alternatives available to
Chancellor and Gryphon for maximizing shareholder value including, among other
things, continued independence and a strategic sale or affiliation with another
comparable oil and gas company. In order to conduct a thorough evaluation of
alternatives as well as market conditions, the board of directors believed it
would be beneficial to employ an energy auction broker experienced in advising
and assisting entities in examining alternatives available to oil and gas
companies and their shareholders, including a possible sale or business
combination.
Sprouse Shrader Smith, P.C. was contacted and retained as Chancellor's
legal counsel for potential negotiations and for overall safeguarding of
Chancellor and its shareholders. The firm was informed that management and the
directors were in the preliminary stages of the evaluation process and had not
selected an energy auction broker. During May 2011, management interviewed
several potential energy advisors and/or brokers, including Midwest Energy
Auction, LLC ("Midwest"). After consideration of each possibility, management
decided to recommend Midwest to the board and on June 8, 2011 Chancellor engaged
Midwest to render broker services in connection with a possible sale transaction
with another oil and gas company.
In the following weeks, management compiled the items necessary to prepare
a confidential descriptive memorandum presenting data on Chancellor and its
business. Working with Midwest, a process was developed to contact and elicit
interest from a group of logical prospective strategic partners who would be
provided the memorandum, subject to the prior execution of a confidentiality
agreement. Midwest began contacting potential strategic partners, including LCB
Resources, and distributed confidentiality agreements to those who expressed an
initial interest, including two interested parties who visited the property and
a third interested party not introduced to Chancellor by Midwest who inspected
the property.
On September 6, 2011, Chancellor's management (after authorization from the
board of an acceptable price range) met with Midwest and the owner of LCB onsite
at the Gryphon properties. After LCB's inspection of the properties, a verbal
agreement was reached with LCB, subject to entering into a letter of intent,
which was subsequently signed by LCB and delivered to Gryphon on September 9,
2011. After continued discussions and diligence, a transaction with LCB
presented the best strategic opportunity for Chancellor. As part of the decision
process, Chancellor's board considered the aggregate value of the proposal, the
form of the consideration offered, the organization's ability to complete the
transaction in a timely manner, as well as the party's general culture. On
September 13, 2011, following approval from Chancellor's board and review by its
attorneys, Chancellor countersigned the LCB letter of intent. Thereafter, LCB
and Gryphon and their respective legal counsels began to negotiate the terms of
a definitive purchase and sale agreement.
On Monday, October 18, 2011, Gryphon and LCB entered into the purchase and
sale agreement.
CHANCELLOR'S REASONS FOR THE ASSET SALE AND RECOMMENDATIONS OF THE BOARD OF
CHANCELLOR
In approving the purchase and sale agreement, Chancellor's board of
directors consulted with its oil and gas advisor and broker with respect to the
financial aspects of the proposed sale and with its legal counsel as to its
legal duties and the terms of the purchase and sale agreement and related
agreements. Chancellor did not engage any outside party to prepare any reports,
opinions or appraisals relating to the potential transaction.
8
The terms of the purchase and sale agreement were the result of arm's
length negotiations between representatives of Gryphon and representatives of
LCB. In arriving at its determination to approve the purchase and sale
agreement, Chancellor's board of directors considered a number of factors,
including the following:
* The current oil and gas industry environment including increased
competition and consolidation trends.
* Information regarding the financial condition and operations of LCB
and future prospects of LCB.
* The ability of LCB to pay the purchase price consideration in cash.
* The non-economic terms of the transaction, including the impact on
existing operations.
* The ability of LCB to integrate the operations of Gryphon.
The reasons set forth above for the asset sale are not intended to be
exhaustive but include the material factors considered by the board of directors
of Chancellor in approving the transaction and the purchase and sale agreement.
In reaching its determination, the board of directors of Chancellor did not
assign any relative or specific weight to different factors and individual
directors may have given weight to different factors. Based on the reasons
stated above, the board of directors of Chancellor believes that the transaction
is in the best interests of Chancellor and its shareholders and therefore the
board of directors of Chancellor unanimously approved the purchase and sale
agreement and the transaction. Each member of the Chancellor board of directors
has agreed to vote the stock of Chancellor over which he has voting authority in
favor of the purchase and sale agreement and the transaction.
PURCHASE AND SALE AGREEMENT
THE ASSET SALE
The purchase and sale agreement provides for the purchase by LCB Resources
of all of Gryphon Production Company, LLC's right, title and interest in certain
oil and gas leases, oil and gas wells and properties within the leases,
equipment, contracts, production, data and other properties (collectively, the
"Assets"). The Assets represent substantially all of the assets of Gryphon
Production Company, LLC. More specifically, the assets to be sold to LCB
Resources constitute approximately 82% of our consolidated assets as of
September 30, 2011 and contributed approximately 95% and 77%, respectively, of
our consolidated gross revenues and total expenses for the nine months then
ended. The assets also represent approximately 97% of our proved reserves, based
on our most recent reserve study dated December 31, 2010.
PURCHASE PRICE
The aggregate purchase price is $2,050,000.00, subject to increase or
decrease as further set forth below and in the purchase and sale agreement.
The purchase price consideration may be increased by the following:
* the amount of all direct costs and expenditures chargeable to the
Assets for periods on and after the effective time (as defined in the
purchase and sale agreement) and incurred and paid by or on behalf of
Gryphon, including (i) those attributable to drilling, completion,
recompletion, reworking, operation and repair of the Assets, (ii)
bonuses, lease rentals and shut-in payments, (iii) ad valorem,
property and other taxes and (iv) amounts relating to obligations
arising under contracts with respect to operations or production;
* the actual value of the oil inventory in storage attributable to the
Assets net of all taxes and burdens; and
* any other amount agreed to by LCB and Gryphon.
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The purchase price consideration may be decreased by the following:
* the amount of all gross proceeds for hydrocarbons (net of burdens)
produced from and attributable to Gryphon's interest in the Assets on
or after the effective time;
* the amount of all other proceeds and/or revenue attributable to
Gryphon's interest in and to the Assets on or after the effective
time; and
* any other amount agreed to by LCB and Gryphon.
Because the purchase price is subject to increase or decrease as described
above, you will not know the exact amount of the purchase price in connection
with the transaction when you vote on the purchase and sale agreement.
USE OF PROCEEDS
Following consummation of the transaction, Gryphon will maintain a total of
four (4) producing wells and one (1) water disposal well. Gryphon will also
retain an operator's license with the Texas Railroad Commission and continue to
operate the Hood Leases itself. The proceeds from the asset sale will be used to
provide working capital to Gryphon and for future corporate purposes including,
but not limited to, possible acquisitions and other corporate programs and
purposes that have yet to be identified.
EFFECTIVE TIME OF THE TRANSACTION
The asset sale will become effective at the date and time specified in the
purchase and sale agreement. If the shareholders of Chancellor approve the
transaction and the purchase and sale agreement at the special meeting, and if
all other conditions to the parties' obligations to effect the transaction are
met or waived by the party entitled to do so, we anticipate that the transaction
will be completed in the fourth quarter of 2011, although delays could occur.
We cannot assure you that we can obtain the necessary shareholder approvals
or that the other conditions to completion of the transaction can or will be
satisfied.
CONDUCT OF BUSINESS PENDING EFFECTIVE TIME
From the date of the purchase and sale agreement to and including the
closing date, Gryphon shall:
* not operate or in any manner deal with, incur obligations with respect
to, or undertake any transactions relating to, the Assets except (1)
in the normal, usual and customary manner for a reasonable and prudent
operator, (2) of a nature and in an amount consistent with prior
practice, (3) in the ordinary and regular course of business of owning
and operating the Assets; and
* not (1) sell, dispose of, encumber, relinquish or otherwise alienate
any of the Assets; (2) waive, compromise or settle any right or claim
that would have a material adverse effect on the ownership, operation
or value of any of the Assets after the effective time; or (3) commit
to any operation, services or related activities, which would or could
reasonably be expected to require future expenditures (capital,
maintenance, expense or otherwise) of the Assets in excess of $25,000
as to Gryphon's interest in any particular Asset, or terminate,
materially amend or extend any agreements affecting the Assets, or
allow any of the leases to lapse, terminate, or otherwise expire,
without the consent of LCB, which consent shall not be unreasonably
withheld.
We refer you to the purchase and sale agreement (excluding exhibits and
schedules), which is attached as APPENDIX A to this proxy statement, for
additional restrictions on the conduct of the business of Gryphon pending
consummation of the transaction.
10
CONDITIONS TO COMPLETION OF THE TRANSACTION
The purchase and sale agreement contains a number of conditions to the
obligations of LCB and Gryphon to complete the transaction which must be
satisfied as of the closing date, including, but not limited to, the following:
* approval of the purchase and sale agreement by the holders of at least
a majority of the outstanding shares of Chancellor common stock;
* the other party's representations and warranties being true in all
material respects as of the date of the purchase and sale agreement
and as of the date of the closing;
* absence of any suit, action or other proceeding by a third party which
seeks substantial damages, fines, penalties or other relief or any
event that would prohibit, restrict or delay the consummation of the
transaction; and
* performance or compliance in all material respects by each party with
its respective covenants and obligations required by the purchase and
sale agreement.
Any condition to the consummation of the transaction, except the required
shareholder approval, and the absence of an order or ruling prohibiting the
transaction, may be waived in writing by the party to the purchase and sale
agreement entitled to the benefit of such condition.
REGULATORY APPROVALS
Chancellor is not aware of any approval or other action by any government
or governmental administrative or regulatory authority or agency, domestic or
foreign, that would be required to consummation the acquisition by LCB
Resources.
REPRESENTATIONS AND WARRANTIES OF GRYPHON AND LCB
In the purchase and sale agreement, Gryphon has made representations and
warranties to LCB, and LCB has made representations and warranties to Gryphon.
The more significant of these relate to (among other things):
* corporate organization and existence;
* authority and power to execute the purchase and sale agreement and to
complete the transactions contemplated by the purchase and sale
agreement;
* the absence of conflicts between the execution of the purchase and
sale agreement and completion of the transactions contemplated by the
purchase and sale agreement and certain other agreements;
* pending or threatened litigation and other proceedings;
* compliance with applicable laws and regulatory filings;
* the absence of certain changes and events; and
* the accuracy of information to be supplied for inclusion in state and
federal reports and filings.
AMENDMENT OR WAIVER OF THE PURCHASE AND SALE AGREEMENT
No termination, cancellation, modification, amendment, deletion, addition
or other change in the purchase and sale agreement, or any provision thereof, or
waiver of any right or remedy therein provided, shall be effective for any
11
purpose unless specifically set forth in a writing signed by the party or
parties to be bound thereby. The waiver of any right or remedy in respect to any
occurrence or event on one occasion shall not be deemed a waiver of such right
or remedy in respect to such occurrence or event on any other occasion.
TERMINATION OF THE PURCHASE AND SALE AGREEMENT
If the transactions contemplated in the purchase and sale agreement have
not closed on or before December 15, 2011, the purchase and sale agreement will
automatically terminate unless LCB and Gryphon agree in writing to an extension.
If the purchase and sale agreement is terminated it will be void and have
no effect, without liability on the part of any party or the directors, officers
or shareholders of any party, except as specifically contemplated in the
purchase and sale agreement.
ACCOUNTING TREATMENT AND TAX CONSEQUENCES
The proposed transaction will be accounted for as an ordinary sale of
assets. Accordingly, any gain from the sale of the assets to LCB Resources will
be accounted for under customary gain recognition rules and reported
accordingly. The transaction is not expected to result in any material federal
income tax consequences.
EXPENSES
Gryphon and LCB will each pay their respective expenses incurred in
connection with the preparation and performance of their respective obligations
under the purchase and sale agreement, whether or not the transactions provided
for in the purchase and sale agreement are consummated, including, but not
limited to, fees and expenses of their own counsel, financial or other
consultants, and accountants. Similarly, each of Gryphon and LCB agreed to
indemnify the other party against any cost, expense or liability (including
reasonable attorneys' fees) in respect of any claim made by any party for
certain claims.
CHANCELLOR'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT
CHANCELLOR SHAREHOLDERS VOTE IN FAVOR OF THE
PURCHASE AND SALE AGREEMENT AND THE TRANSACTION.
BUSINESS OF CHANCELLOR
GENERAL
Chancellor Group, Inc., a Nevada corporation, was organized under the laws
of the state of Utah in 1986 and subsequently reorganized under the laws of
Nevada in 1993. We are an independent oil and gas exploration and development
company focused on building and revitalizing our oil and gas properties all of
which are currently located in the State of Texas. The Company is organized as a
producing oil and gas company and licensed as an operator by the Texas Railroad
Commission. We are in the business of acquisition, exploration, and development
of oil and natural gas properties. Our common stock is quoted on the
Over-The-Counter Bulletin Board market and trades under the symbol CHAG.OB. As
of October 31, 2011, we had 67,560,030 shares of Chancellor common stock issued
and outstanding.
BUSINESS DEVELOPMENTS
In April 2007, we commenced operations with what were 84 actual producing
wells in Gray and Carson Counties in Texas. On October 30, 2007, we had filed
for reorganization under Chapter 11 of the United States Bankruptcy Code with
the United States Bankruptcy Court, Northern District of Texas. On July 22,
2008, we entered into an agreement, effective as of June 1, 2008, with Legacy
Reserves Operating LP ("Legacy") for the sale of certain of our oil and gas
wells, accounting for approximately 84% of our oil and gas production, for a
purchase price of $13,250,000. We operated in the bankruptcy proceeding until
August 15, 2008, when the Bankruptcy Court, based on the agreement with Legacy,
12
issued an order dismissing our bankruptcy case. Upon consummation of the Legacy
transaction on August 29, 2008, all of the debt held by our lenders, plus
accrued interest thereon, was paid in full.
DESCRIPTION OF PROPERTIES
Currently, the Company and its wholly-owned subsidiaries, Gryphon
Production Company, LLC and Gryphon Field Services, LLC, own 134 wells, of which
19 are water disposal wells and 2 are gas wells, although "associated" gas is
also produced from some oil wells. As of September 30, 2011, approximately 67
oil wells were actively producing. Production capacity from these 67 producing
wells in Gray County was estimated to be approximately 30 bopd and 47 mcfd gas
as of September 30, 2011. The oil is light sweet crude and the natural gas has
very high heat content, 1600 to 2600 btu/scf. We also own and operate our 15.9
acre property, with its shop, yard and office complex. Company equipment
includes two work-over rigs as well as other oil field related equipment.
In addition, we own approximately 4,420 acres of production rights on nine
leases, which includes 500 acres of undrilled acreage also in Gray County,
approximately 300 acres of which was previously owned by Mobil, and the balance
of approximately 200 acres on the Worley Combs lease. Three of the leases we own
are located in Hutchinson County, Texas. The nine leases have the production
rights for oil, casing-head gas and natural gas.
Following consummation of the transaction, Gryphon will maintain a total of
four (4) producing wells and one (1) water disposal well. Gryphon will also
retain an operator's license with the Texas Railroad Commission and continue to
operate the Hood Leases itself.
EMPLOYEES
As of October 31, 2011, we had 7 full-time employees, all of which are
located at our headquarters in Pampa, Texas. Management of Chancellor considers
its relations with its employees to be good.
LEGAL PROCEEDINGS
Chancellor is from time to time involved in legal proceedings arising in
the normal course of business. Other than proceedings incidental to Chancellor's
business, and a current proceeding against Gryphon (Cause no. 36433 in the 223rd
District Court in Gray County, Texas) in which Gryphon has made a counterclaim
for declaratory judgment, Chancellor is not a party to, nor is any of their
property the subject of, any material legal proceedings. Although the amount of
any ultimate liability with respect to such matters cannot be determined, in the
opinion of Chancellor's management, any such liability will not have a material
adverse effect upon Chancellor's financial condition, results of operations or
cash flows.
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PROPOSAL TO APPROVE THE AMENDMENT TO THE BYLAWS
Our board of directors voted to adopt, subject to the affirmative vote of
the holders of at least a majority of the outstanding shares of Chancellor
common stock, an amendment to the bylaws of the Company changing the quorum
requirement from a majority of the stock issued and outstanding, either in
person or by proxy, to at least twenty-five percent (25%) of the stock issued
and outstanding, either in person or by proxy.
Our current bylaws provide that a quorum, for purposes of a shareholders
meeting, shall exist when a majority of the stock issued and outstanding is
present, either in person or by proxy, at the meeting. Our board of directors
voted to adopt, subject to the affirmative vote of the holders of at least a
majority of the outstanding shares of Chancellor common stock, an amendment to
the bylaws of the Company to provide that a quorum shall exist when at least
twenty-five (25%) of the stock issued and outstanding is present, either in
person or by proxy, at the meeting.
The board of directors believes that the proposed amendment gives the board
of directors the requisite flexibility to call and conduct a shareholder meeting
to consider important matters which require shareholder feedback. Many of the
Company's shareholders are located in geographic regions which make it difficult
for the Company to receive, in a timely fashion, proxy materials with respect to
shareholder meetings. The board of directors believes that the proposed
amendment will allow it to more efficiently call and conduct shareholder
meetings in a more timely manner.
The greater flexibility provided by the proposed amendment is expected to
reduce the cost of soliciting proxies, which the Company may otherwise be
required to incur to insure the requisite level of shareholder participation at
the meeting. The advantages, including the potential cost savings and greater
efficiency in calling and conducting shareholder meetings, outweigh the benefits
of maintain the higher quorum requirement, in the judgment of the board of
directors.
The affirmative vote of the holders of at least a majority of the
outstanding shares of Chancellor common stock entitled to vote at the meeting is
required to approve the proposed amendment to the bylaws. If the proposal is
approved, the quorum requirement will be reduced effective upon the adoption of
the amendment. The full text of the proposed amendment is attached to this proxy
statement as APPENDIX B.
CHANCELLOR'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT CHANCELLOR
SHAREHOLDERS VOTE IN FAVOR OF THE AMENDMENT TO THE BYLAWS.
14
BENEFICIAL OWNERSHIP OF CHANCELLOR COMMON STOCK BY
MANAGEMENT, DIRECTORS AND PRINCIPAL SHAREHOLDERS OF CHANCELLOR
The following table sets forth certain information regarding the beneficial
ownership of Chancellor common stock as of October 31, 2011, by (1) each
director and executive officer of Chancellor, (2) each person who is known by
Chancellor to own beneficially 5% or more of the common stock and (3) all
directors and executive officers as a group. Unless otherwise indicated, based
on information furnished by such shareholders, management of Chancellor believes
that each person has sole voting and dispositive power over the shares indicated
as owned by such person and the address of each shareholder is the same as the
address of Chancellor.
Number of Shares Percentage
Name of Beneficial Owner Beneficially Owned Beneficially Owned(1)
------------------------ ------------------ ---------------------
Principal Shareholders who are not also
Directors or Executive Officers
Robert Gordon.......................................... 5,384,800 7.97%
Directors and Executive Officers
Maxwell Grant(2)....................................... 24,303,800 34.69%
Dudley Muth(3)......................................... 2,977,500 4.34%
Directors and Executive Officers
as a Group (2 persons)(4)............................. 27,281,300 38.39%
----------
* Indicates ownership which does not exceed 1.0%.
(1) The percentage beneficially owned was calculated based on 67,560,030 shares
of Chancellor common stock issued and outstanding as of October 31, 2011.
The percentage assumes the exercise by the shareholder or group named in
each row of all options or warrants for the purchase of Chancellor common
stock held by such shareholder or group and exercisable within sixty (60)
days.
(2) Includes 21,803,800 shares held of record by Koala Pictures Proprietary
Ltd. of which Mr. Grant is the sole owner and warrants to purchase
2,500,000 shares of common stock at an exercise price of $0.20 per share.
(3) Includes warrants to purchase 1,000,000 shares of common stock at an
exercise price of $0.20 per share.
(4) Includes warrants to purchase an aggregate of 3,500,000 shares of common
stock.
15
OTHER MATTERS
As of the date of this proxy statement, the board of directors of
Chancellor knows of no matters that will be presented for consideration at the
special meeting of shareholders other than as described in this proxy statement.
However, if any other matters are properly brought before the special meeting or
any adjournment or postponement thereof, it is intended that the proxies will
act in accordance with their best judgment unless otherwise indicated in the
appropriate box on the proxy.
WHERE YOU CAN FIND MORE INFORMATION
Chancellor files reports and other information with the Securities and
Exchange Commission under the Securities Exchange Act of 1934. You may read and
copy this information at the SEC's Public Reference Room, 100 F Street, N.E.,
Washington, D.C. 20549.
You may obtain information on the operation of the Public Reference Room by
calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet site that
contains reports, proxy and information statements and other information about
issuers, like Chancellor, who file electronically with the SEC. The address of
that site is http://www.sec.gov.
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APPENDIX A
PURCHASE AND SALE AGREEMENT
THIS PURCHASE AND SALE AGREEMENT (this "Agreement") is entered into this
18th day of October, 2011, between, GRYPHON PRODUCTION COMPANY, LLC, a wholly
owned subsidiary of Chancellor Group, Inc., with offices at 216 South Price
Road, Pampa, Texas 79065 (herein "Seller"), and LCB RESOURCES, an Oklahoma
limited liability company with offices at 406 N. Main Street, Kingfisher,
Oklahoma 73750-2322 (herein "Buyer"),
RECITALS
A. The Seller is the owner of its undivided, pro rata share of interests in
and to the following:
(i) The oil and gas leases (and any and all amendments, corrections
and modifications thereto whether or not described on Exhibit "A-1") described
on Exhibit "A-1," insofar as the leases cover the lands described on Exhibit
"A-1" (the "Leases"); and the oil and gas wells on the leases
described on Exhibit "A-2" (the "Wells");
(ii) The personal property, equipment and fixtures, located on or
about the Leases and used in connection with operation of the Leases and Wells
described on Exhibit "A-2" (the "Equipment"), including the personal property
described in the attached Exhibit "B;"
(iii) The land (the "Land") described in the attached Exhibit "C;"
(iv) The rights and obligations existing under the instruments,
contracts and agreements that benefit or burden the Leases and Wells, including,
but not limited to, operating agreements, unitization agreements, pooling
agreements, pooling orders, spacing orders, declarations of pooling or
unitization, farm out agreements, rights of way, easements, surface agreements,
permits, licenses, assignments, gas sale contracts, and gas processing contracts
(collectively, the "Contracts");
(v) The oil, gas, casinghead gas, condensate, distillate, liquid
hydrocarbons, gaseous hydrocarbons, products refined and manufactured therefrom,
other minerals, and the accounts and proceeds from the sale of all of the
foregoing (the "Production") under the terms of the Leases and the Contracts;
and
(vi) The files, records, data, including geophysical and seismic data,
and other documentary information of Seller pertaining to the Wells, the Leases,
the Equipment, the Land, the Contracts, and the Production, (collectively, the
"Data").
The Leases, Wells, Equipment, Land, Contracts, Production, and Data are
collectively called the "Properties".
B. Buyer wishes to purchase and Seller wishes to sell, all of Seller's
right, title and interest in the Properties.
A-1
C. The Properties sold and assigned under this Agreement do not include and
Seller hereby retains and reserves:
(i) Proprietary seismic, geological, geochemical, and geophysical data
or interpretations of data and other information relating to the Leases and
Wells that are restricted from transfer or distribution by any legal
constraints, obligations of confidence or prior agreements with third parties;
(ii) Trade credits, accounts, deposits with utilities, and notes
receivable and adjustments or refunds (including without limitation
transportation tariff refunds, take-or-pay claims, audit adjustments claims for
under-or-non-payment and over, inaccurate or excessive billings, and claims with
respect to breach of contract) arising under the Contracts and attributable to
the Properties with respect to any period before the Effective Time, including,
without limitation, any claim Seller may have for refunds or reimbursement of
money that may have been paid by Seller to any current or prior operator of the
Properties on account of over-billings, excessive billings and inaccurate
billings or otherwise made by such operator as a result of Seller's interest in
the Properties;
(iii) Oil, gas, casinghead gas, condensate, distillate, liquid
hydrocarbons, gaseous hydrocarbons, products refined and manufactured therefrom,
and other minerals produced from the Properties prior to the Effective Time; and
(iv) All claims and causes of action Seller may have as of the Closing
Date.
CONSIDERATION AND AGREEMENT
In consideration of the covenants and conditions contained in this
Agreement and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, Buyer agrees to purchase all of Seller's
right, title and interest in and to the Properties from Seller, and Seller
agrees to sell all of Seller's right, title and interest in and to the
Properties to Buyer on the terms set forth below.
TERMS
1. PURCHASE PRICE. The Purchase Price shall be Two Million Fifty Thousand
Dollars ($2,050,000.00), adjusted as provided herein. Immediately upon the
execution hereof, Buyer shall pay, by bank wire transfer into an escrow account
established by Midwest Energy Auction LLC, (the "Escrow Agent") at BancFirst
Oklahoma City, as earnest money ("Deposit") equal to One Hundred Thousand
Dollars, to be credited towards the Purchase Price. At closing, Buyer shall pay,
by bank wire transfer, the remaining net balance of the Purchase Price due to
the Seller, to the escrow agent. Escrow agent will disburse the net proceeds
from the sale to the Seller per a certain "Escrow Agreement" between Buyer,
Seller, and Escrow Agent. Seller is responsible for the four percent (4%) of the
sales price commission owed to Midwest Energy Auction (MEA) in accordance with
the service agreement between Seller and MEA. Escrow Agent shall prepare and
deliver to Buyer and Seller for approval no later than three (3) business days
prior to Closing, a Preliminary Settlement Statement reflecting the appropriate
adjustments for approval by Buyer and Seller, as follows:
A-2
(A) UPWARD ADJUSTMENTS. The Purchase Price shall be adjusted upward by the
following:
(i) the amount of all direct costs and expenditures chargeable to the
Properties for periods on and after the Effective Time (as hereinafter defined)
and incurred and paid by or on behalf of Seller in accordance with the terms and
provisions of this Agreement, including:
(A) those that are attributable to the drilling, completion,
recompletion, reworking, operation, repair and maintenance of the Properties for
the period on and after the Effective Time, through and including the Closing
Date;
(B) bonuses, lease rentals and shut-in payments due and paid for
the period on and after the Effective Time through and including the Closing
Date;
(C) ad valorem, property and other taxes that are allocated to
the Buyer pursuant to Section 13 of this Agreement; and
(D) amounts relating to obligations arising under contracts with
respect to operations or production for the period on and after the Effective
Time through and including the Closing Date;
(ii) the actual value of the oil inventory in storage attributable to
the Properties as of the Effective Time, net of all taxes and burdens, which
value shall be determined based on the price of oil the day Buyer sells the oil;
and
(iii) any other amount agreed by Seller and Buyer.
(B) DOWNWARD ADJUSTMENTS. The Purchase Price shall be adjusted downward by
the following:
(i) the amount of all gross proceeds (net of burdens) for hydrocarbons
produced from and attributable to Seller's interest in the Properties on or
after the Effective Time through the Closing Date;
(ii) the amount of all other proceeds and/or revenue attributable to
Seller's interest in and to the Properties on or after the Effective Time
through the Closing Date;
(iii) any other amount agreed upon by Seller and Buyer.
(c) At the Effective Time, Seller shall gauge the oil in storage
attributable to the Properties unless Buyer and Seller agree otherwise. Buyer
shall have the right to have a representative present when Seller gauges the oil
in storage.
2. CLOSING. Subject to the conditions and adjustments set forth herein, the
consummation of the transaction contemplated hereby (the "Closing") shall be
held on or before December 3, 2011 (the "Closing Date") at Seller's office in
A-3
Pampa, Texas. At Closing, the following events shall occur, each being a
condition precedent to the others:
(a) Seller shall execute, acknowledge and deliver to Buyer one or more
assignments, bills of sale and conveyances (in sufficient multiple originals to
facilitate recording) in substantially the form of Exhibit D conveying Seller's
interests in the Properties to Buyer;
(b) Buyer shall deliver to Escrow Agent the Purchase Price, direct bank or
wire transfer in immediately available federal funds to the Escrow Account as
agreed upon in writing no less than five (5) business days prior to the Closing
Date;
(c) The parties shall execute such other documents, notices, waivers, and
agreements as are necessary in order to carry out the intent of this Agreement;
(d) Seller shall execute and deliver to Buyer, on forms prepared by Seller
and reasonably acceptable to Buyer, transfer orders or letters in lieu thereof
directing all purchasers of production to make payment to Buyer of proceeds
attributable to production from the Properties from and after the Effective
Time; and
(e) Seller shall provide Buyer with executed change of operator forms on
all wells (active or inactive) operated by Seller, as required by the applicable
state regulatory body, to effect a change of operator for the Properties,
subject to any applicable operating agreement, but only to the extent allowed or
permitted by such operating agreements.
3. EFFECTIVE TIME. The ownership of Seller's interest in the Properties shall be
transferred from Seller to Buyer on the Closing Date, effective as of 11:59 p.m.
in the time zone applicable to the location of the Properties on December 1,
2011 (the "Effective Time").
4. DATA. Seller makes no representations or warranties as to the accuracy or
completeness of the Data. Seller shall not allow Buyer access to geophysical or
seismic data if, by so doing, Seller would be in breach of any unaffiliated
third party contract or agreement. Buyer agrees to allow Seller access to the
Data upon reasonable notice. After Closing, Seller shall have the right from
time to time to make copies of any part of the Data during Buyer's regular
business hours. Buyer shall keep all of the Data for at least five (5) years
after Closing.
5. OTHER ASSURANCES. Seller shall reasonably cooperate with Buyer, and shall
provide all conveyances, agreements, consents, information, forms, and other
materials or acts reasonably necessary to vest Buyer with ownership of Seller's
interest in the Properties.
6. RISK OF LOSS. Risk of loss of the Properties shall pass from Seller to Buyer
as of 11:59 p.m. Central time on the Closing Date. Seller represents and
warrants to Buyer that the Properties are insured for amounts and risk coverages
that are standard and customary in the industry for properties of a similar
nature. In the event of the destruction or taking of all or any part of the
Properties during the period of time from the Effective Time through the Closing
Date, at the Closing Date, Seller shall pay to Buyer all sums paid to Seller by
third parties, if any, by reason of such destruction or taking of all or any
portion of the Properties, and shall assign, transfer and set over unto Buyer
all of the right, title and interest of Seller in and to any unpaid awards or
other payments from third parties arising out of the destruction, taking or
pending or threatened taking as to the Properties.
A-4
7. CONTRACTS AND LEASES. Upon Closing, Buyer shall assume and agree to perform
the Contracts and the obligations of Seller under the Leases as of the Closing
Date and the payment obligations of Seller under the Leases, and the surface
agreements and other agreements described in Schedule 4. Buyer shall use
commercially reasonable efforts to obtain a release of Seller of all obligations
under the Leases and the surface agreements and other agreements described in
Schedule 4. Buyer shall indemnify, save and hold harmless Seller and Seller's
officers, directors, managers, agents, employees, successors and assigns from
and against any and all costs, losses, liabilities, damages, lawsuits, claims,
and expenses, including (without limitation) reasonable attorney's fees, arising
from and after the Closing Date from any of the Leases or the surface agreements
or other agreements described in Schedule 4.
8. SELLER'S WARRANTIES AND REPRESENTATIONS. Each Seller, severally and only to
the extent of such Seller's (i) individual entity, with respect to entity
related representations and warranties, or (ii) Ownership Share, with respect to
Property related representations and warranties, makes the following
representations and warranties.
(a) The assignment of Seller's interest in the Properties to Buyer shall be
made by special warranty of title as to only those claims, liens and
encumbrances arising by, through and under Seller, but not otherwise. Subject to
all of the terms and provisions of this Agreement and except with respect to
those matters that would result in a breach of the special warranty of title,
Buyer assumes the risk of condition of the Properties as set out in the
Assignment and Bill of Sale, including compliance with all laws, rules, orders
and regulations affecting the environment, whether existing before, on or after
the Closing Date. The Assignment and Bill of Sale from Seller to Buyer shall
disclaim any warranty of merchantability or fitness for particular purpose as to
the Properties, and Buyer shall accept the Properties AS IS, WHERE IS, and in
their present location and condition.
(b) Seller is duly qualified to carry on its business and is in good
standing in each state where the nature of its business requires qualification.
The consummation of the transactions contemplated by this Agreement will not
violate or be in conflict with (i) any provision of Seller's organizational
documents, and (ii) any provision of any agreement to which Seller is a party or
by which Seller is bound or any judgment, decree, order, statute, rule or
regulation applicable to Seller.
(c) Seller has the power to enter into and perform this Agreement and the
transactions contemplated hereby. The execution, delivery and performance of
this Agreement and the transactions contemplated hereby have been duly and
validly authorized by all requisite limited liability company action on the part
of Seller. This Agreement has been duly executed and delivered on behalf of
Seller and, at Closing, all documents and instruments required hereunder to be
executed and delivered by Seller shall have been fully executed and delivered.
(d) This Agreement constitutes a legal, valid and binding obligation of
Seller enforceable in accordance with its terms, subject, however, to the
effects of bankruptcy, insolvency, reorganization, moratorium and similar laws,
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as well as to principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law).
(e) Except as set forth in Schedule 1 hereto, there are no pending or, to
Seller's knowledge, threatened, suits, actions, or other proceedings naming
Seller as a party and affecting the Properties (including, without limitation,
any actions challenging or pertaining to Seller's title to any of the Properties
and/or the effect of any environmental laws on any of the Properties). There are
no suits, actions, or other proceedings pending or, to Seller's knowledge,
threatened, which relate to or affect the execution and delivery of this
Agreement by Seller or the consummation by Seller of the transactions
contemplated hereby.
(f) Except as set forth on Schedule 2 hereto, there are no outstanding
Authorizations for Expenditure ("AFE's") that will result in charges for
operations to be performed on the Properties on or after the Effective Time
costing $20,000 or more net to the interest transferred under this Agreement.
Seller currently intends to plug the East Pampa Unit 16W well and the Worley
Combs 406 well, and Seller shall be responsible for plugging the wells.
(g) All ad valorem, property, production, severance, excise and similar
taxes and assessments based on or measured by the ownership of the Properties or
the production of hydrocarbons or the receipt of proceeds therefrom that have
become due and payable have been properly paid.
(h) Except as set forth in Schedule 3 hereto, to Seller's knowledge, Seller
has complied, or has remedied any noncompliance, with the material provisions
and requirements of all orders, regulations and rules issued or promulgated by
all federal, tribal, state or local governmental authorities having jurisdiction
in respect of the Properties (excluding, however, compliance with applicable
Environmental Laws (as hereinafter defined) which is exclusively dealt with in
Section 11 hereof).
(i) None of the Properties is subject to penalties on allowables after the
Effective Date because of overproduction or any violation of applicable laws,
rules or regulations of any governmental authority which would prevent such
Property from being entitled to its full and regular allowable from and after
the Effective Date, and Seller has not produced a share of gas greater than its
ownership percentage and Seller is under no obligation to reduce its share of
production under any gas balancing agreement or similar contract to allow
under-produced parties to come back into balance.
9. REPRESENTATIONS OF BUYER.
(a) Buyer is a limited liability company duly organized, validly existing
and in good standing under the laws of the State of Oklahoma, and is duly
qualified to carry on its business and is in good standing in each state where
the nature of its business requires qualification. The consummation of the
transactions contemplated by this Agreement will not violate or be in conflict
with (i) any provision of Buyer's organizational documents, and (ii) any
provision of any agreement to which Buyer is a party or by which Buyer is bound
or any judgment, decree, order, statute, rule or regulation applicable to Buyer.
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(b) Buyer has the limited liability company power to enter into and perform
this Agreement and the transactions contemplated hereby. The execution, delivery
and performance of this Agreement and the transactions contemplated hereby have
been duly and validly authorized by all requisite limited liability company
action on the part of Buyer. This Agreement has been duly executed and delivered
on behalf of Buyer and, at Closing, all documents and instruments required
hereunder to be executed and delivered by Buyer shall have been fully executed
and delivered.
(c) This Agreement constitutes a legal, valid and binding obligation of
Buyer enforceable in accordance with its terms, subject, however, to the effects
of bankruptcy, insolvency, reorganization, moratorium and similar laws, as well
as to principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law.
(d) Buyer is experienced and knowledgeable in the oil and gas business and
is aware of its risks. Buyer acknowledges that Seller has made no
representations or warranties whatsoever, express or implied, as to the reserves
attributable to the Properties or the value thereof, except as otherwise
specifically set forth herein, as to the condition or state of repair of any of
the Properties or as to the legal, tax or other consequences of the transaction
contemplated by this Agreement. In entering into this Agreement, Buyer has
relied solely upon its independent investigation of, and judgment with respect
to, such matters. Buyer understands and accepts the risks and absence of
liquidity inherent in ownership of the Properties. Buyer acknowledges that,
except as otherwise specifically set forth herein, no representations have been
made by Seller regarding any environmental conditions or physical conditions of
the Properties, past or present.
(e) Buyer has all authority necessary to enter into this Agreement and to
perform all of its obligations hereunder.
10. LIABILITIES AND INDEMNITIES. AS USED IN THIS SECTION 10, THE WORD "CLAIMS"
MEANS CLAIMS, DEMANDS, CAUSES OF ACTION, LIABILITIES, DAMAGES, PENALTIES AND
JUDGMENTS OF ANY KIND OR CHARACTER AND ALL COSTS AND EXPENSES, INCLUDING
REASONABLE ATTORNEY'S FEES AND COURT COSTS INCURRED IN DEFENDING AGAINST SAME OR
TO ENFORCE A PARTY'S OBLIGATION TO INDEMNIFY AGAINST SAME, IN CONNECTION
THEREWITH.
(A) EXCEPT AS PROVIDED IN SECTION 10(C), FROM AND AFTER THE CLOSING DATE,
BUYER SHALL ASSUME, BE RESPONSIBLE FOR AND COMPLY WITH ALL DUTIES AND
OBLIGATIONS OF SELLER, EXPRESS OR IMPLIED, WITH RESPECT TO THE PROPERTIES
INCLUDING, WITHOUT LIMITATION, THOSE ARISING UNDER OR BY VIRTUE OF ANY LEASE,
ASSIGNMENT OF LEASE, CONTRACT, AGREEMENT, DOCUMENT, PERMIT, APPLICABLE STATUTE
OR RULE, REGULATION OR ORDER OF ANY GOVERNMENTAL AUTHORITY, SPECIFICALLY
INCLUDING, WITHOUT LIMITATION, ANY GOVERNMENTAL REQUEST OR REQUIREMENT TO PLUG,
RE-PLUG AND/OR ABANDON ANY WELL OF WHATSOEVER TYPE, STATUS OR CLASSIFICATION, OR
TO TAKE ANY CLEAN-UP, POLLUTION, ENVIRONMENTAL, OR OTHER ACTION WITH RESPECT TO
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THE PROPERTIES, AND SHALL DEFEND, INDEMNIFY AND HOLD SELLER AND ITS MEMBERS,
MANAGERS, AFFILIATES, SUBSIDIARIES, MANAGERS, OFFICERS, AGENTS, EMPLOYEES AND
CONTRACTORS HARMLESS FROM ANY AND ALL CLAIMS IN FAVOR OF ANY PERSON OR ENTITY
(INCLUDING WITHOUT LIMITATION EMPLOYEES OF BUYER) IN CONNECTION THEREWITH
REGARDLESS OF WHEN THE DUTY OR OBLIGATION AROSE, EXCEPT AS IS PROVIDED IN
SECTION 10(C).
(B) EXCEPT AS PROVIDED IN SECTION 10(C), BUYER SHALL BE RESPONSIBLE FOR AND
SHALL DEFEND, INDEMNIFY AND HOLD SELLER AND ITS MEMBERS, AFFILIATES,
SUBSIDIARIES, MANAGERS, OFFICERS, AGENTS, EMPLOYEES AND CONTRACTORS HARMLESS
FROM ANY AND ALL CLAIMS ARISING, DIRECTLY OR INDIRECTLY IN FAVOR OF ANY PERSON
OR ENTITY (INCLUDING WITHOUT LIMITATION EMPLOYEES OF BUYER AND GOVERNMENTAL
ENTITIES) ARISING OUT OF OR IN CONNECTION WITH THE OPERATIONS ON OR PERTAINING
TO THE PROPERTIES ON AND AFTER THE CLOSING DATE FOR PERSONAL INJURY OR DEATH OR
DAMAGE TO PROPERTY, OR FOR ANY OTHER RELIEF (INCLUDING CLAIMS RELATED TO
POLLUTION OR ENVIRONMENTAL HAZARDS AND LIABILITIES ARISING PRIOR TO ON, OR AFTER
THE CLOSING DATE), ARISING DIRECTLY OR INDIRECTLY FROM, OR INCIDENT TO, THE USE,
OCCUPATION, OPERATION, MAINTENANCE OR ABANDONMENT OF ANY PART OR ALL OF THE
PROPERTIES, WHETHER LATENT OR PATENT, AND WHETHER ARISING FROM OR CONTRIBUTED TO
BY THE SOLE OR CONCURRENT NEGLIGENCE, FAULT BY STATUTE, RULE OR REGULATION,
STRICT LIABILITY, OR OTHER FAULT OF SELLER OR ITS MEMBERS, AFFILIATES,
SUBSIDIARIES, MANAGERS, OFFICERS, AGENTS, EMPLOYEES OR CONTRACTORS AND ASSERTED
AGAINST BUYER AND/OR SELLER.
(C) SUBJECT TO THE PROVISIONS OF SECTION 10(D) HEREOF, SELLER SHALL BE
RESPONSIBLE FOR AND SHALL DEFEND, INDEMNIFY AND HOLD BUYER AND ITS AFFILIATES,
SUBSIDIARIES, OFFICERS, PARTNERS, AGENTS, EMPLOYEES, AND CONTRACTORS HARMLESS
FROM ANY AND ALL CLAIMS ARISING DIRECTLY OR INDIRECTLY IN FAVOR OF ANY PERSON OR
ENTITY (INCLUDING, WITHOUT LIMITATION, EMPLOYEES OF SELLER AND GOVERNMENTAL
ENTITIES) OUT OF OR IN CONNECTION WITH (i) THE OPERATIONS ON OR PERTAINING TO
THE PROPERTIES FOR THE PERIOD FROM THE DATE SELLER ACQUIRED TITLE TO THE
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PROPERTIES TO THE CLOSING DATE FOR PERSONAL INJURY OR DEATH OR DAMAGE TO
PROPERTY (EXCLUDING CLAIMS RELATED TO PLUGGING OF WELLS, POLLUTION OR
ENVIRONMENTAL HAZARDS AND LIABILITIES WHICH ARE COVERED BY THE PROVISIONS OF
SECTIONS 10(A) AND (B) HEREOF), ARISING DIRECTLY OR INDIRECTLY FROM, OR INCIDENT
TO, THE USE, OCCUPATION, OPERATION, MAINTENANCE OR ABANDONMENT OF ANY PART OR
ALL OF THE PROPERTIES, WHETHER LATENT OR PATENT, AND WHETHER ARISING FROM OR
CONTRIBUTED TO BY THE SOLE OR CONCURRENT NEGLIGENCE, FAULT BY STATUTE, RULE OR
REGULATION, STRICT LIABILITY, OR OTHER FAULT OF SELLER OR ITS MEMBERS,
AFFILIATES, SUBSIDIARIES, MANAGERS, OFFICERS, AGENTS, EMPLOYEES OR CONTRACTORS
AND ASSERTED AGAINST BUYER AND/OR SELLER (OR BUYER'S AFFILIATES, SUBSIDIARIES,
PARTNERS, OFFICERS, AGENTS, EMPLOYEES OR CONTRACTORS), AND (ii) THE PRODUCTION
OR SALE OF HYDROCARBONS FROM THE PROPERTIES AND INVOLVING THE PROPER ACCOUNTING
OR PAYMENT (x) TO PARTIES FOR THEIR INTEREST THEREIN, INCLUDING, WITHOUT
LIMITATION, ROYALTY AND OTHER WORKING INTEREST OWNERS, (y) TAXES ATTRIBUTABLE TO
THE PROPERTIES AND PRODUCTION FROM OR ATTRIBUTABLE THERETO, AND (z) LEASE
OPERATING EXPENSES ATTRIBUTABLE TO SELLER'S INTEREST IN AND TO THE PROPERTIES,
INSOFAR AS SUCH CLAIMS RELATE TO PERIOD OF TIME FROM THE DATE THAT SELLER
ACQUIRED TITLE TO THE PROPERTIES TO THE CLOSING DATE. BUYER SHALL BE RESPONSIBLE
FOR ALL OF SAID TYPES OF CLAIMS UNDER CLAUSE (ii) INSOFAR AS THEY RELATE TO
PERIODS OF TIME PRIOR TO THE DATE THAT SELLER ACQUIRED TITLE TO THE PROPERTIES
AND FROM AND AFTER THE CLOSING DATE, AND BUYER SHALL DEFEND, INDEMNIFY AND HOLD
SELLER HARMLESS FROM ANY AND ALL OF SUCH CLAIMS.
(D) ALL AGREEMENTS AND INDEMNITIES SET FORTH IN THIS SECTION 10 SHALL
SURVIVE THE EXECUTION AND DELIVERY OF THE ASSIGNMENTS AND BILLS OF SALE
CONTEMPLATED HEREBY AND THE CLOSING AS OTHERWISE SET FORTH IN SECTION 26 HEREOF.
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11. REVIEW PERIOD AND DEFECTS.
(a) Upon the execution of this Agreement, Buyer, or Buyer's representative,
shall have the right to examine and photocopy, but not take, the Data in
Seller's offices during normal business hours. All such information is furnished
to Buyer solely as a courtesy, and, except as otherwise set forth herein, Seller
makes no representations or warranties concerning its accuracy or completeness,
and assumes no liability for any use by Buyer whatsoever. Buyer shall have until
November 1, 2011 as of 5:00 pm (C.D.T.) where the Properties are located (the
"Defect Date") to review and inspect the Properties and to notify Seller of any
Defect (as defined below). Such notice shall be in writing and shall
sufficiently describe the Defect and the Properties affected. During the review
period, upon not less than two business days prior notice to Seller, Buyer may
review all the Data, inspect all of the Equipment, and may go upon the Leases at
its own risk to do so. Buyer agrees to hold harmless and indemnify Seller for
any damages or injury of any kind incurred by any party as the result of such
inspection regardless of whether such damage or injury results, in whole or in
part, from the sole or concurrent negligence, fault by statute, rule or
regulation, strict liability or other fault of Seller. Buyer shall have access
to and copies of standard financial information relating to the Properties
including joint interest billing reports, lease operating expenses, production
volumes and other similar information normally available in connection with the
physical operation of the Properties (including, but not limited to, division
orders, checks and, in the event of an audit, other Property related documents,
as necessary).
(b) The term "Defect" as used herein shall mean the following:
(i) Seller's ownership of the Properties is such that, with respect to
a property listed on Exhibit "A-1" hereto, it clearly (A) entitles Seller to
receive a decimal share of the oil, gas and other hydrocarbons produced from, or
allocated to, such property which is less than the net revenue interest decimal
share set forth on Exhibit "A-1", (B) causes Seller to be obligated to bear a
working interest decimal share of the cost of operation of such property greater
than the decimal share set forth on Exhibit "A-1" (without a proportionate
increase in the share of production to which Seller is entitled to receive from
such property);
(ii) Seller's ownership of the Properties is subject to a lien other
than (A) liens which will be released at or before Closing, (B) a lien for taxes
not yet delinquent, or (C) a lien under an operating agreement or similar
agreement which relates to expenses incurred which but not yet due;
(iii) Seller's ownership of the Properties is subject to a
preferential right to purchase, unless an appropriate tender of the applicable
interest has been made by Seller to the party holding such right and the period
of time required for such party to exercise such right has expired without such
party exercising such right;
(iv) A Property is affected by any suit, action or other proceeding
before any court or government agency that would result in a material loss or
impairment of Seller's title to any portion of the Property, or a portion of the
value thereof; and
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(v) The Properties are, or one or more Property is, in violation of
Environmental Laws.
(vi) As used in this Agreement, the term "Environmental Laws" means
any and all applicable laws pertaining to human health or conservation or
protection of the environment, wildlife, or natural resources in effect in any
and all jurisdictions in which the Properties are located, including, without
limitation, the Clean Air Act, as amended, the Federal Water Pollution Control
Act, as amended, the Safe Drinking Water Act, as amended, the Comprehensive
Environmental Response, Compensation and Liability Act, as amended ("CERCLA"),
the Superfund Amendments and Reauthorization Act of 1986, as amended ("SARA"),
the Resource Conservation and Recovery Act, as amended ("RCRA"), the Hazardous
and Solid Waste Amendments Act of 1984, as amended, the Toxic Substances Control
Act, as amended, and the Occupational Safety and Health Act, as amended
("OSHA"), and any applicable state, tribal, or local counterparts. The terms
"hazardous substance", "release", and "threatened release" shall have the
meanings specified in CERCLA; the terms "solid waste," "hazardous waste," and
"disposal" shall have the meanings set out in RCRA; provided, however, that to
the extent the laws of the state in which the Properties are located are
applicable and have established a meaning for "hazardous substance", "release",
"threatened release", "solid waste", "hazardous waste", and "disposal" that is
broader than that specified in CERCLA or RCRA, such broader meaning shall apply
with respect to the matters covered by such laws.
(c) If Buyer fails to notify Seller in writing by the Defect Date of any
such Defect, the Defect will be deemed waived, Seller shall be released from any
liability therefor, the parties shall proceed with Closing, Seller shall be
under no obligation to correct the Defect, and Buyer shall assume the risks,
liability and obligations associated with such Defect. Seller may, but is not
obligated, to cure any Defect within ten (10) days after Seller receives timely
written notice of the Defect. If Seller fails to cure the Defect by the time
required, Buyer may terminate this Agreement by providing written notice to
Seller within five (5) days after the time by which Seller must cure the Defect.
If Buyer terminates this Agreement for Seller's failure to cure a Defect, the
Deposit shall be refunded to Buyer.
12. SELLER'S DISCLAIMERS. EXCEPT FOR SELLER'S SPECIAL WARRANTY OF TITLE TO THE
PROPERTIES AND AS OTHERWISE SPECIFICALLY SET FORTH IN THIS AGREEMENT, SELLER
SELLS AND TRANSFERS THE PROPERTIES TO BUYER WITHOUT ANY EXPRESS, STATUTORY OR
IMPLIED WARRANTY OR REPRESENTATION OF ANY KIND, INCLUDING WARRANTIES RELATING TO
(i) THE CONDITION OR MERCHANTABILITY OF THE PROPERTIES, OR (ii) THE FITNESS OF
THE PROPERTY FOR A PARTICULAR PURPOSE. BUYER HAS INSPECTED, OR BEFORE CLOSING
WILL HAVE INSPECTED OR BEEN GIVEN THE OPPORTUNITY TO INSPECT, THE PROPERTIES AND
IS SATISFIED AS TO THE PHYSICAL AND ENVIRONMENTAL CONDITION (BOTH SURFACE AND
SUBSURFACE) OF THE PROPERTY AND OFFSITE LOCATIONS AND ACCEPTS THE PROPERTY "AS
IS", "WHERE IS", AND "WITH ALL FAULTS." EXCEPT AS OTHERWISE SET FORTH IN THIS
AGREEMENT, SELLER MAKES NO WARRANTY OR REPRESENTATION, EXPRESS, STATUTORY OR
IMPLIED, AS TO (i) THE ACCURACY, COMPLETENESS, OR MATERIALITY OF ANY DATA,
INFORMATION OR RECORDS FURNISHED TO BUYER IN CONNECTION WITH THE PROPERTIES;
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(ii) THE QUALITY AND QUANTITY OF HYDROCARBON RESERVES (IF ANY) ATTRIBUTABLE TO
THE PROPERTIES; (iii) THE ABILITY OF THE PROPERTY TO PRODUCE HYDROCARBONS,
INCLUDING WITHOUT LIMITATION PRODUCTION RATES, DECLINE RATES AND RECOMPLETION
OPPORTUNITIES; (iv) THE PRESENT OR FUTURE VALUE OF THE ANTICIPATED INCOME, COSTS
OR PROFITS, IF ANY, TO BE DERIVED FROM THE PROPERTIES, OR (v) THE ENVIRONMENTAL
CONDITION OF THE PROPERTY. SELLER DISCLAIMS ANY LIABILITY ARISING IN CONNECTION
WITH ANY ENVIRONMENTALLY HAZARDOUS SUBSTANCES OR CONDITIONS OR NATURALLY
OCCURRING RADIOACTIVE MATERIALS ON OR RELATED TO THE PROPERTIES OR OFFSITE
LOCATIONS. ANY AND ALL DATA, INFORMATION OR OTHER RECORDS FURNISHED BY SELLER
ARE PROVIDED TO BUYER AS A CONVENIENCE AND BUYER'S RELIANCE ON OR USE OF THE
SAME IS AT BUYER'S SOLE RISK.
13. TAXES. Severance and other taxes on production attributable to the
Properties shall be the obligation of the party entitled to such production. All
ad valorem taxes assessed against the Properties shall be prorated between
Seller and Buyer as of the Closing Date. Any refund of tax attributable to
periods prior to the Closing Date received by Buyer shall be paid to Seller
within 30 days of receiving such refund. Buyer agrees that it will not take, for
income tax purposes or otherwise, any position inconsistent with Seller's
allocation of the Purchase Price between real and personal property.
14. POST CLOSING ADJUSTMENTS. If necessary, not later than 60 days after the
Closing, Seller shall prepare and deliver to Buyer, in accordance with this
Agreement and generally accepted accounting principles, a statement ("Final
Settlement Statement") setting forth each adjustment or payment that was not
finally determined as of the Closing and showing the calculation of such
adjustments. As soon as practicable after receipt of the Final Settlement
Statement but not later than 15 days after such receipt, Buyer shall deliver to
Seller a written report containing any changes that Buyer proposes be made to
the Final Settlement Statement. The parties shall undertake to agree with
respect to the amounts due pursuant to such Final Settlement Statement no later
than 90 days after the Closing Date. The date upon which such agreement is
reached or upon which the final Purchase Price is established, shall be herein
called the "Final Settlement Date." Payment by Buyer or Seller, as appropriate,
shall be made within 10 days after the Final Settlement Date.
15. INTERIM OPERATIONS. Seller covenants that from the date hereof until the
Closing, except as expressly provided herein or otherwise consented to in
writing by Buyer, Seller will:
(a) not (i) operate or in any manner deal with, incur obligations with
respect to, or undertake any transactions relating to, the Properties except (1)
in the normal, usual and customary manner for a reasonable and prudent operator,
(2) of a nature and in an amount consistent with prior practice, (3) in the
ordinary and regular course of business of owning and operating the Properties;
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(b) not (i) sell, dispose of, encumber, relinquish or otherwise alienate
any of the Properties; (ii) waive, compromise or settle any right or claim that
would have a material adverse effect on the ownership, operation or value of any
of the Properties after the Effective Time; or (iii) commit to any operation,
services or related activities, which would or could reasonably be expected to
require future expenditures (capital, maintenance, expense or otherwise) of the
Properties in excess of $25,000 as to Seller's interest in any particular
Property, or terminate, materially amend or extend any agreements affecting the
Properties, or allow any of the Leases to lapse, terminate, or otherwise expire,
without the consent of Buyer, which consent shall not be unreasonably withheld;
and
16. CONDITIONS OF CLOSING.
(a) Seller's obligation to consummate the transactions provided for herein
is subject to the satisfaction or waiver of the following conditions:
(i) The representations by Buyer contained in Section 9 hereof shall
be true and correct in all material respects on the date of Closing as though
made on and as of the Closing.
(ii) Buyer shall have performed in all material respects the
obligations, covenants and agreements hereunder to be performed by Buyer at or
prior to the Closing.
(iii) No suit, action or other proceeding by a third party or a
governmental authority shall be pending as of the Closing which seeks
substantial damages, fines, penalties or other relief from either party in
connection with the Interests, or which seeks to restrain, enjoin or otherwise
prohibit the consummation of the transaction contemplated by this Agreement. In
particular, neither state nor federal statute, rule, regulation or action nor
judicial or administrative decision shall have been entered (whether on a
preliminary or final basis), that would prohibit, restrict or delay the
consummation of the transaction contemplated by this Agreement or make illegal
any payments due hereunder.
(iv) Closing shall have occurred by December 15, 2011.
(v) Seller shall have obtained shareholder and board of directors
approval from each corporation of this Agreement and the transaction
contemplated by this Agreement.
(b) Buyer's obligation to consummate the transactions provided for herein
is subject to the satisfaction or waiver of the following conditions:
(i) The representations by Seller contained in Section 8 hereof shall
be true and correct in all material respects on the date of Closing as though
made on and as of the Closing.
(ii) Seller shall have performed in all material respects the
obligations, covenants and agreements hereunder to be performed by Seller at or
prior to the Closing.
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(iii) No suit, action or other proceeding by a third party or a
governmental authority shall be pending as of the Closing which seeks
substantial damages, fines, penalties or other relief from either party in
connection with the Interests, or which seeks to restrain, enjoin or otherwise
prohibit the consummation of the transaction contemplated by this Agreement. In
particular, neither state nor federal statute, rule, regulation or action nor
judicial or administrative decision shall have been entered (whether on a
preliminary or final basis), that would prohibit, restrict or delay the
consummation of the transaction contemplated by this Agreement or make illegal
any payments due hereunder.
17. OPERATIONS LIABILITY. Buyer agrees to comply with all laws and governmental
regulations with respect to the ownership of and all operations on the
Properties, including abandonment of wells, the compliance with Applicable
Environmental Law and regarding inactive or unplugged wells including bonding
requirements (for which Buyer shall provide Seller copies of appropriate
documentation prior to Closing), and surface work as specified in the Leases or
applicable law or regulation.
18. DEFAULT AND REMEDIES.
(A) SELLER'S REMEDIES.
Upon failure of Buyer to comply herewith by the Closing Date, Seller, at
its sole option, may receive the Deposit and all interest accrued thereon from
the Escrow Agent as a liquidated damage and not as a penalty, and terminate this
Agreement, as Seller's sole and exclusive remedies for such default, all other
remedies being expressly waived by Seller. If the transaction contemplated by
this Agreement fails to close or is terminated for any other reason, the Deposit
together with all interest accrued thereon shall be returned to Buyer.
(B) BUYER'S REMEDIES.
Upon failure of Seller to comply herewith by the Closing Date, Buyer, at
its sole option, may enforce specific performance or terminate this Agreement.
In the event Buyer elects to terminate this Agreement as set forth above, Buyer
shall be entitled to receive from the Escrow Agent the Deposit together with all
interest accrued thereon.
(C) EFFECT OF TERMINATION.
In the event of termination of this Agreement under this Section 19, the
transaction shall not close and neither Buyer nor Seller shall have any further
obligations, remedies, liabilities, rights or duties to the other hereunder,
except as expressly provided herein.
GENERAL PROVISIONS
19. TERMINATION PERIOD. If the Closing has not occurred on or before December
15, 2011 this Agreement shall automatically terminate unless Seller and Buyer
agree in writing to an extension.
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20. AMENDMENT. This Agreement may be amended only by written instrument executed
by both Seller and Buyer.
21. DISPUTES. The parties agree to negotiate in good faith in an effort to
resolve any dispute related to this Agreement that may arise. If the dispute
cannot be resolved by negotiation, the parties will submit the dispute to
mediation in Amarillo, Texas before resorting to litigation and will equally
share the cost of a mutually acceptable mediator. .
22. BROKERS. Each party hereto indemnifies the other against any liability or
expense for brokerage fees, finder's fees, agent's commissions or other similar
forms of compensation incurred by the indemnifying party in connection with this
Agreement or any transaction contemplated hereby.
23. NOTICES. Any notice, request, demand, statement or other communication
required or permitted hereunder shall be in writing and shall be deemed to have
been duly given when delivered in person, or by courier, or mailed by certified
mail, return receipt requested, when actually received, and may be given as
follows:
If to Seller:
Gryphon Production Company, LLC
216 South Price Road
Pampa, TX 79065
Attention: Mr. Max Grant
(806) 688-9697 - Telephone
(806) 688-9316 - Facsimile
pampatx08@yahoo.com - Email
If to Buyer:
LCB Resources
406 N. Main Street
Kingfisher, OK 73750-2322
Attention: Mr. Lenard Briscoe
(405) 375.3700 - Telephone
(___) ___.____ - Facsimile
____________________ - Email
Or to such other address as such party may designate by ten (10) days advance
written notice to the other party.
24. EXPENSES. Each party shall be solely responsible for expenses incurred in
connection with this Agreement and shall not be entitled to reimbursement by the
other party. Notwithstanding the foregoing, if arbitration is entered into
pursuant hereto, the prevailing party may be ordered to reimburse the
non-prevailing party its costs and expenses of arbitration.
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25. SURVIVAL. The representations and warranties made by Seller in Sections
8(e)-(i) of this Agreement shall terminate at Closing. All other
representations, warranties, covenants and obligations of Seller under this
Agreement shall survive Closing for a period of six (6) months after the
Closing. The representations, warranties, covenants and obligations of Buyer
under this Agreement shall indefinitely survive the Closing.
26. ENTIRE AGREEMENT. This Agreement, and the Exhibits and Schedules hereto,
which are listed below, constitute the entire agreement between the parties
hereto and supersede all prior agreements, negotiations and understandings.
Exhibit "A" - Leases
Exhibit "A-2" - Wells/Proration Schedule
Exhibit "B" - Equipment
Exhibit "C" - Land
Exhibit "D" - Assignment and Bill of Sale
Schedule 1 - Lawsuits, Actions or Other Proceedings
Schedule 2 - Outstanding AFE's
Schedule 3 - Compliance Matters
Schedule 4 - Contracts and Surface Agreements
27. GOVERNING LAW. This Agreement shall be interpreted in accordance with the
laws of the State of Texas.
IN WITNESS WHEREOF, the Agreement has been executed as of the date first
above written.
[SIGNATURE PAGES FOLLOW]
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SELLER:
GRYPHON PRODUCTION COMPANY, LLC
By: /s/ Max Grant
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Max Grant
President
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BUYER:
LCB RESOURCES
By: /s/ L. Charles Briscoe
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L. Charles Briscoe
Member
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EXHIBIT "A"
LEASES
1. MERTEN H.H.
Lease Date: June 26, 1924
Lessor: H. H. Merten, et al
Lessee: Farish, Watts, Collins and Crosby
Recording: Volume 26, Page 447, Deed Records of Gray County, Texas
Description: All of the South 240 acres of the N/2 of Section 87, Block
3, I&GN Ry. Co. Survey, Gray County, Texas
Note: Lease being subject to an amendment dated
January 26, 1940, by and between Clara H.
Hughes, et al, and Humble Oil & Refining
Company, being recorded in Volume 80, Page 370,
of the Deed Records, Gray County, Texas, and
further being amended September 23, 1957,
between Edna Merten, et al, and Humble Oil &
Refining Company, being recorded in Volume ___,
Page ___, Deed Records, Gray County, Texas, and
amended August 5, 1963, by Walter A. Snideman,
et al, and Humble Oil & Refining Company, being
recorded in Volume 264, Page 115, Deed Records,
Gray County, Texas.
2. FEE LAND #227
a. Lease Date: January 29, 1990
Lessor: Mobil Producing Texas & New Mexico, Inc.
Lessee: Caldwell Production Co., Inc.
Recording: Volume 603, Page 623, Deed Records, Gray County, Texas
Description: All of Section 10 in Block 3, I&GN Railroad Co. Survey,
Gray County, Texas
b. Lease Date: January 29, 1990
Lessor: Mobil Producing Texas & New Mexico, Inc.
Lessee: Caldwell Production Co., Inc.
Recording: Volume 603, Page 628, Deed Records, Gray County, Texas
Description: All of Section 11 in Block 3, I&GN Railroad Co. Survey,
Gray County, Texas
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c. Lease Date: January 29, 1990
Lessor: Mobil Producing Texas & New Mexico, Inc.
Lessee: Caldwell Production Co., Inc.
Recording: Volume 603, Page 633, Deed Records, Gray County, Texas
Description: All of Section 14 in Block 3, I&GN Railroad Co. Survey,
Gray County, Texas
d. Lease Date: January 29, 1990
Lessor: Mobil Producing Texas & New Mexico, Inc.
Lessee: Caldwell Production Co., Inc.
Recording: Volume 603, Page 638, Deed Records, Gray County, Texas
Description: All of Section 15 in Block 3, I&GN Railroad Co. Survey,
Gray County, Texas
3. EAST PAMPA UNIT
a. Lease Date: May 5, 1924
Lessor: Phebe A. Worley, a widow
Lessee: C. H. Clark
Recording: Volume 1, Page 455, Deed Records, Gray County, Texas
Description: Tract No. 5 - East Pampa Unit NE/4, Section 63, Block 3,
I&GN RR Co. Survey, Gray County, Texas
b. Lease Date: June 24, 1924
Lessor: W. W. Merten & wife, Abbie Merten, and P. P. Merten and
wife, Lena Merten
Lessee: F. N. Shriver
Recording: Volume 2, Page 218, Deed Records, Gray County, Texas
Description: Part of Tract No. 1 - East Pampa Unit NW/4, Section 82,
Block 3, I&GN RR Co. Survey, Gray County, Texas
INSOFAR AND ONLY INSOFAR as said lease covers the
above-described lands
c. Lease Date: January 2, 1926
Lessor: W. W. Merten & wife, Abbie Merten, and P. P. Merten and
wife, Lena Merten
Lessee: J. M. Baldridge
Recording: Volume 2, Page 232, Deed Records, Gray County, Texas
Description: Part of Tract No. 1 - East Pampa Unit SW/4, Section 81,
Block 3, I&GN RR Co. Survey, Gray County, Texas
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d. Lease Date: May 18, 1938
Lessor: Abbie E. Merten, Guardian
Lessee: Sinclair Prairie Oil Company
Recording: Volume 75, Page 106, Deed Records, Gray County, Texas
Description: Part of Tract 1 - East Pampa Unit SW/4, Section 81,
Block 3, I&GN RR Co. Survey, Gray County, Texas
e. Lease Date: December 28, 1923
Lessor: J. T. Benten and Margare A. Benton, husband and wife
Lessee: F. W. Dillard
Recording: Volume 2, Page 163, Deed Records, Gray County, Texas
Description: Tract No. 4 - East Pampa Unit E/2 NW/4, Section 63,
Block 3, I&GN RR Co. Survey, Gray County, Texas
f. Lease Date: June 24, 1924
Lessor: W. W. Merten & wife, Abbie Merten, and P. P. Merten and
wife, Lena Merten
Lessee: F. N. Shriver
Recording: Volume 2, Page 218, Deed Records, Gray County, Texas
Description: Part of Tract No. 1 - East Pampa Unit W/2 NE/4, Section
82, Block 3, I&GN RR Co. Survey, Gray County, Texas
INSOFAR AND ONLY INSOFAR as said lease covers the above-
described lands
g. Lease Date: June 24, 1924
Lessor: W. W. Merten & wife, Abbie Merten, and P. P. Merten and
wife, Lena Merten
Lessee: F. N. Shriver
Recording: Volume 2, Page 218, Deed Records, Gray County, Texas
Description: Tract Nos. 2 & 6 - East Pampa Unit E/2 NE/4 and S/2,
Section 82, Block 3, I&GN RR Co. Survey, Gray County, Texas
INSOFAR AND ONLY INSOFAR as said lease covers the
above-described lands and INSOFAR AND ONLY INSOFAR as said
lease covers the Brown Dolomite rights under said lands
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h. Lease Date: June 24, 1924
Lessor: J. T. Benton and wife, M. A. Benton
Lessee: T. H. Pyle
Recording: Volume 26, Page 459, Deed Records, Gray County, Texas
Description: Tract No. 3 - East Pampa Unit W/2 NW/4, Section 63,
Block 3, I&GN RR Co. Survey, Gray County, Texas
INSOFAR AND ONLY INSOFAR as said lease covers the Brown
Dolomite rights under said lease
i. Lease Date: June 23, 1917
Lessor: C. W. Turman
Lessee: Empire Gas and Fuel Company
Recording: Volume 1, Page 145, Deed Records, Gray County, Texas
Description: Tract No. 10 - East Pampa Unit SE/4, Section 63, Block 3,
I&GN RR Co. Survey, Gray County, Texas
INSOFAR AND ONLY INSOFAR as said lease covers the
above-described lands and INSOFAR AND ONLY INSOFAR as
said lease covers the Brown Dolomite rights under said
lands
j. Lease Date: June 21, 1923
Lessor: J. T. Benton and wife, M. A.
Benton Lessee: Carl L. Mayer
Recording: Volume 1, Page 417, Deed Records, Gray County, Texas
Description: Tract Nos. 7, 8 & 9 - East Pampa Unit SW/4, Section 63,
Block 3, I&GN RR Co. Survey, Gray County, Texas
INSOFAR AND ONLY INSOFAR as said lease covers the
Brown Dolomite rights under said lease
4. WORLEY COMBS
a. Lease Date: April 18, 1974
Lessor: Frank M. Carter
Lessee: Gulf Oil Corporation
Recording: Volume 362, Page 46, Deed Records, Gray County, Texas
Description: SW/4, Section 58, Block 3, I&GN RR Co. Survey,
Gray County, Texas
b. Lease Date: April 23, 1974
Lessor: Mabel Dee Reynolds
Lessee: Gulf Oil Corporation
Recording: Volume 362, Page 42, Deed Records, Gray County, Texas
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c. Lease Date: April 18, 1974
Lessor: Inez Carter
Lessee: Gulf Oil Corporation
Recording: Volume 362, Page 44, Deed Records, Gray County, Texas
Description: SW/4, Section 58, Block 3, I&GN RR Co. Survey, Gray County,
Texas
d. Lease Date: April 23, 1974
Lessor: Wiley Reynolds, Jr., et al
Lessee: Gulf Oil Corporation
Recording: Volume 366, Page 582, and Volume 406, Page 670, Deed
Records, Gray County, Texas
Description: SW/4, Section 58, Block 3, I&GN RR Co. Survey, Gray County,
Texas
e. Lease Date: April 23, 1974
Lessor: Hope Reynolds, H. M. Reynolds and Henry C. Reynolds
Lessee: Gulf Oil Corporation
Recording: Volume 366, Page 584; Volume 366, Page 589; and Volume 366,
Page 580; Deed Records, Gray County, Texas
Description: SW/4, Section 58, Block 3, I&GN RR Co. Survey, Gray County,
Texas
f. Lease Date: April 23, 1974
Lessor: Ruth Osborne
Lessee: Gulf Oil Corporation
Recording: Volume 366, Page 587, Deed Records, Gray County, Texas
Description: SW/4, Section 58, Block 3, I&GN RR Co. Survey, Gray County,
Texas
g. Lease Date: April 23, 1974
Lessor: Albert Reynolds
Lessee: Gulf Oil Corporation
Recording: Volume 366, Page 591, Deed Records, Gray County, Texas
Description: SW/4, Section 58, Block 3, I&GN RR Co. Survey, Gray County,
Texas
h. Lease Date: April 23, 1974
Lessor: Wiley Reynolds
Lessee: Gulf Oil Corporation
Recording: Volume 366, Page 593, Deed Records, Gray County, Texas
Description: SW/4, Section 58, Block 3, I&GN RR Co. Survey, Gray County,
Texas
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i. Lease Date: April 23, 1974
Lessor: David Earnest Reynolds
Lessee: Gulf Oil Corporation
Recording: Volume 367, Page 183, and Volume 406, Page 667, Deed
Records, Gray County, Texas
Description: SW/4, Section 58, Block 3, I&GN RR Co. Survey, Gray County,
Texas
j. Lease Date: April 23, 1974
Lessor: Jennifer Lynne Reed
Lessee: Gulf Oil Corporation
Recording: Volume 367, Page 380, and Volume 406, Page 679, Deed
Records, Gray County, Texas
Description: SW/4, Section 58, Block 3, I&GN RR Co. Survey, Gray County,
Texas
k. Lease Date: April 23, 1974
Lessor: Julia K. Reynolds (Humburg)
Lessee: Gulf Oil Corporation
Recording: Volume 367, Page 377, and Volume 406, Page 673, Deed
Records, Gray County, Texas
Description: SW/4, Section 58, Block 3, I&GN RR Co. Survey, Gray County,
Texas
l. Lease Date: April 23, 1974
Lessor: Burton Dan Reynolds
Lessee: Gulf Oil Corporation
Recording: Volume 367, Page 375, and Volume 406, Page 676, Deed
Records, Gray County, Texas
Description: SW/4, Section 58, Block 3, I&GN RR Co. Survey, Gray County,
Texas
m. Lease Date: April 23, 1974
Lessor: Noel Reynolds
Lessee: Gulf Oil Corporation
Recording: Volume 373, Page 140, Deed Records, Gray County, Texas
Description: SW/4, Section 58, Block 3, I&GN RR Co. Survey, Gray County,
Texas
5. T. D. LEWIS "A"
a. Lease Date: March 29, 1921
Lessor: T. D. Lewis
Lessee: J. B. Martin
Recording: Volume 21, Page 27
Description: INSOFAR as the lease covers the NW/4 of the NE/4 of
Section 6, Block 23, Cert. #1727, BS&F Railway Survey,
Hutchinson County, Texas
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b. Lease Date: March 29, 1921
Lessor: T. D. Lewis and Vida Lewis
Lessee: J. B. Martin Recording: Volume 21, Page 37
Description: INSOFAR as the lease covers the NW/4 of the NE/4 of
Section 6, Block 23, Cert. #1727, BS&F Railway Survey,
Hutchinson County, Texas
6. MOORE
Lease Date: April 12, 1935
Lessor: E. J. Moore
Lessee: L. W. Timms
Recording: Volume 68, Page 168
Description: NW/80, in form of a square, Section 21, Block M-21, T C Ry.
Co. Hutchinson County, Texas
7. TIMMS
a. Lease Date: March 29, 1921
Lessor: T. D. Lewis
Lessee: J. B. Martin
Recording: Volume 21, Page 27
Description: INSOFAR as the lease covers the W/2 of the NE/4 of
Section 5, Block 23, BS&F Railway Survey, Hutchinson
County, Texas
b. Lease Date: March 29, 1921
Lessor: T. D. Lewis and Vida Lewis
Lessee: J. B. Martin
Recording: Volume 21, Page 37
Description: INSOFAR as the lease covers the W/2 of the NE/4 of
Section 5, Block 23, BS&F Railway Survey, Hutchinson
County, Texas
c. Lease Date: March 29, 1921
Lessor: T. D. Lewis and Vida Lewis
Lessee: J. B. Martin
Recording: Volume 22, Page 393
Description: INSOFAR as the lease covers the W/2 of the NE/4 of
Section 5, Block 23, BS&F Railway Survey, Hutchinson
County, Texas (Correcting NW/4 to NE/4)
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APPENDIX B
BYLAWS OF CHANCELLOR GROUP, INC.
If the proposal to amend Chancellor's bylaws is approved, Article I Paragraph E
of the bylaws would be amended in its entirety to read as follows:
"E) A QUORUM necessary for the transaction of business at a stockholder's
meeting shall be at least twenty-five percent (25%) of the stock issued and
outstanding, either in person or by proxy. If a quorum is not present, the
stockholders present may adjourn to a future time, and notice of the future time
must be served as provided in Article I, C), if a quorum is present they may
adjourn from day to day without notice."
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PROXY
CHANCELLOR GROUP, INC.
SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON MONDAY, DECEMBER 12, 2011
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
A Special Meeting of Shareholders of Chancellor Group, Inc. (the "Company")
will be held at The Meeting Room at 100 Doheny, Beverly Hills, California 90048,
on Monday, December 12, 2011, beginning at 10:00 a.m. (Pacific Time). The
undersigned hereby acknowledges receipt of the related Notice of Special Meeting
of Shareholders and Proxy Statement dated November 28, 2011 accompanying this
proxy.
The undersigned shareholder hereby appoints Maxwell Grant and Dudley Muth,
and each of them, attorneys and agents, with full power of substitution, to vote
as proxy all shares of Common Stock of the Company owned of record by the
undersigned and otherwise to act on behalf of the undersigned at the Special
Meeting of Shareholders and any adjournment thereof in accordance with the
directions set forth herein and with discretionary authority with respect to
such other matters as may properly come before such meeting or any
adjournment(s) thereof, including any matter properly presented by a shareholder
at such meeting.
This proxy is solicited by the Board of Directors and will be voted in
accordance with the undersigned's directions set forth herein. If no direction
is made, this proxy will be voted (1) FOR the approval of the purchase and sale
agreement and (2) FOR the approval of the amendment to the bylaws.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY
AND WILL BE VOTED FOR THE FOLLOWING PROPOSALS UNLESS OTHERWISE INDICATED.
1. ASSET SALE. A proposal to approve the Purchase and Sale Agreement, dated
as of October 18, 2011, by and between Gryphon Production Company, LLC, a wholly
owned subsidiary of Chancellor and LCB Resources, an Oklahoma limited liability
company pursuant to which LCB Resources will purchase substantially all of the
assets of Gryphon, all on and subject to the terms and conditions contained in
the purchase and sale agreement.
/ / FOR / / AGAINST / / ABSTAIN
2. BYLAW AMENDMENT. A proposal to amend the bylaws of Chancellor Group,
Inc. changing the quorum requirement from a majority of the stock issued and
outstanding, either in person or by proxy to at least twenty-five percent (25%)
of the stock issued and outstanding, either in person or by proxy.
/ / FOR / / AGAINST / / ABSTAIN
Please indicate your vote above by placing an X by your designation. Please
sign your name exactly as it appears on your share certificate. If shares are
held jointly, all joint owners must sign. If shares are held by a corporation,
please sign the full corporate name by the president or any other authorized
corporate officer. If shares are held by a partnership, please sign the full
partnership name by an authorized person. If you are signing as attorney,
executor, administrator, trustee or guardian, please set forth your full title
as such.
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Print Name Print Name
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Signature of Shareholder Signature of Shareholder
Date: _____________________, 2011