EXHIBIT
10.21

    


    DIRECTOR’S
SETTLEMENT AGREEMENT

    


    DIRECTOR’S
SETTLEMENT AGREEMENT, dated as of the 9th day of December, 2008 (“Agreement”),
by and between Chancellor Group, Inc., a Nevada corporation, with offices at 216
South Price Road, Pampa, TX 79065 (“Chancellor ”), and   John C.
Y. Lee, of 2/60 Hartwood Street, Kew East, Victoria 3102 Australia ("John Lee”),
Chancellor  and John Lee are sometimes referred to herein as the
“Parties”, or individually as a “Party”.

    WHEREAS,
John Lee has agreed to resign a director of Chancellor; and

    WHEREAS,
John Lee is due  260,000 shares of Chancellor’s  Common
Stock, par value $.001 per share (“Common Stock”) for services previously
rendered as a director of Chancellor; and

    WHEREAS,
the Parties wish to provide for settlement of the obligations of each respective
Party to the other Party pursuant to the terms of this Agreement;
and

    WHEREAS,
each of the Parties could attempt to assert claims against the other party;
and

    WHEREAS,
the Parties desire to resolve all potential disputes with this Settlement
Agreement.

    NOW,
THEREFORE, in consideration of the agreements and covenants contained herein,
and other good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, it is agreed by and between the parties as
follows:

    


    
      	
               
      

            	
              1.

            	
              Settlement of
      Obligation between the Parties.  The Parties shall make
      full settlement of obligations due John Lee for his services as a
      Director:

            


    

    
      	
               
      

            	
              A.

            	
              Effective
      Date. The official date and time of termination of John Lee’s term as a
      director of Chancellor shall be 5:15 p.m. (Australian Eastern Standard
      Time), December 5, 2008.

            


    

    
      	
               
      

            	
              B.

            	
              Payment.  Chancellor  shall
      pay John Lee the sum of $10,000 in full settlement of Chancellor ’s
      obligations to John Lee for unreimbursed expenses with regard to John
      Lee’s service as a director or
      otherwise.   Chancellor  shall not be required to
      pay John Lee any further fees or expense reimbursements, except as
      provided in C immediately below.

            


    

    
      	
               
      

            	
              C.

            	
              Issuance
      of Common Stock. Chancellor shall issue to John Lee 260,000 shares of
      Common Stock in full settlement of Chancellor’s obligation to John Lee to
      issue shares of Chancellor Common Stock to John Lee for director’s
      fees.

            


    

    
      
        	 	 	 
	
                 
      

              	
                2.

              	
                Release by John
      Lee.  In consideration for settlement of the termination
      of John Lee’s employment as provided hereinabove and the agreements of
      Chancellor  made as provided herein, John Lee, as releasor,
      remises, releases and forever discharges Chancellor, its respective
      subsidiaries, officers, directors, agents, representatives, successors and
      assigns, jointly and severally, from any and all debts, demands, actions,
      causes of action, suits, damages, claims and liabilities based on matters
      relating to John Lee’s service as a director of Chancellor or any other
      matter of whatever kind or nature, known or unknown, suspected or
      unsuspected, accrued or unaccrued, whether in law, equity or otherwise,
      and whether under contract, warranty, tort or otherwise, which John Lee
      ever had, now has or may have, claim or assert from the beginning of the
      world to the date of this Settlement Agreement, excepting for the
      obligations of Chancellor  under this Settlement
      Agreement.

              


      

    

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    
      
        	
                 
      

              	
                3.

              	
                Release by Chancellor
      .  In consideration of the agreements of John Lee made as
      provided herein, Chancellor , as releasor, remises, releases and forever
      discharges John Lee, his respective, agents, representatives, heirs,
      successors and assigns, jointly and severally, from any and all debts,
      demands, actions, causes of action, suits, damages, claims and liabilities
      based on matters relating to John Lee’s service as a director of
      Chancellor or any other matter of whatever kind or nature, known or
      unknown, suspected or unsuspected, accrued or unaccrued, whether in law,
      equity or otherwise, and whether under contract, warranty, tort or
      otherwise, which Chancellor  ever had, now has or may have,
      claim or assert from the beginning of the world to the date of this
      Settlement Agreement, excepting for the obligations of John Lee under this
      Settlement Agreement.

              
	 	 	 


      

    

    
      	
               
      

            	
              4.

            	
              Confidential
      Treatment.  Except as required by law or applicable
      regulation, all business, customer, technology and financial information
      concerning Chancellor  (“Confidential Business Information”)
      shall be maintained in confidence by John Lee and shall not be disclosed
      to any third party, except for Confidential Business Information that is
      publicly available through Chancellor ’s filings under the Securities
      Exchange Act of 1934, as amended, or otherwise made public by
      Chancellor  or its licensor.  This Settlement
      Agreement, and the terms hereof, shall be maintained in confidence by the
      parties and shall not be disclosed to any third party.  Neither
      Chancellor  nor John Lee shall discuss this Settlement Agreement
      nor any of the transactions leading up to this Settlement Agreement with
      any other person, other than their respective
  counsel.

            


    

    


    
      
        	
                 
      

              	
                5.

              	
                Agreement Represents
      Compromise.  This Settlement Agreement represents a
      compromise of disputed claims and is not to be deemed or construed to be
      an admission of liability or of the truth of any fact on the part of any
      party.  By this Settlement Agreement, the parties intend merely
      to avoid the potential for protracted dispute.

              
	 	 	 
	 	      
                6.

              	      
                Governing Law and
      Venue. This
      Settlement Agreement shall be construed under the laws of the State of
      Texas pertaining to contracts made and to be performed in Texas, without
      giving effect to its choice of law provisions. The Parties hereto hereby
      consent to venue in any state or federal court within the State of Texas
      having jurisdiction over Gray County for all purposes in connection with
      this Agreement.

              
	 	 	 


      

    

    
      
      

    

    
      
        	
                 
      

              	
                7.

              	
                Entire
      Agreement.  This Settlement Agreement embodies the entire
      agreement of the parties on the subject matter hereof and supersedes and
      replaces all prior agreements between the parties regarding these matters.
      It may not be changed or modified orally, but only by a writing signed by
      each of the parties to be bound by such changes or
      modification.

              


         

        
          
             

          

          
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          	 	8. 	      
                  Counterparts.  This
      Settlement Agreement may be executed in one or more counterparts, each of
      which shall be deemed to be an original, but all of which taken together
      shall constitute one and the same instrument.

                
	 	 	 


        

      

    

    
      
      

    

    
      	
               
      

            	
              9.

            	
              Attorney’s
      Fees.  In any litigation arising out of this Agreement,
      the prevailing party shall be entitled to reimbursement of reasonable
      attorney’s and costs associated with such litigation through all levels of
      appeals.

            


    

    


    IN
WITNESS WHEREOF, the parties have set their hands and seals to this Director’s
Settlement Agreement which is effective as of the day and year first above
written.

     

     

     

    
      
        
          
            	 	CHANCELLOR  GROUP,
      INC.	 
	 	 	 	 
	
                     

                  	
                    By:
      

                  	/s/ Thomas
      H. Grantham 12/11/08	 
	 	 	Title:
      President	 
	 	 	 	 
	 	 	/s/
      John C. Y. Lee	 
	 	 	John
      C. Y. Lee	 


          

        

      

    

      

    
      
         

      

      
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