Document:

Unassociated Document

    EXHIBIT
      10.13

    

    MODIFICATION
      OF MULTIPLE ADVANCE TERM NOTE

    

    
      	RE:	
              CHANCELLOR
                GROUP, INC.

              GRYPHON
                PRODUCTION COMPANY,
                LLC.

              GRYPHON
                FIELD SERVICES, 'LLC

            

    

     

    NOTE
      # 128909

    

    WHEREAS,
      heretofore and under date of April 13, 2007, CHANCELLOR GROUP, INC., GRYPHON
      PRODUCTION COMPANY, LLC. and
      GRYPHON
      FIELD SERVICES, LLC (hereafter called the "Borrower") made, executed and
      delivered to WESTERN NATIONAL BANK, one certain Multiple Advance Term Note
      in
      the original principal amount of $5,000,000.00, with a current balance of
      $2,300,000.00 payable at maturity, including any and all accrued interest,
      bearing interest at the rate therein provided, with a final maturity of April
      15, 2010; and

    WHEREAS,
      it is mutually desirable, beneficial, and agreeable to the parties hereto that
      the repayment terms of said Multiple Advance Term Note be modified as
      hereinafter set out;

    

    NOW,
      THEREFORE, in consideration of the mutual benefits inuring to each other, it
      is
      understood and agreed, by and between the parties hereto that the terms and
      conditions of the Borrower's Multiple Advance Term Note, as described above,
      are
      hereby modified as follows:

    

    Payment
      date is hereby modified from the 15th
      day
      of each
      month, beginning with the payment due on July 15, 2007, which will be
      due
      July
      25,
      2007. All subsequent payments shall be due on the 25th day of each month
      thereafter. The maturity date is hereby extended to April 25, 2010.

    

    It
      is
      further understood and agreed that all other terms, conditions, and covenants
      of
      the aforesaid Multiple Advance Term Note, not otherwise modified hereby, shall
      be and remain the same, and that this Agreement, when executed by the
      parties
hereto,
      shall be attached to and
      become
      a
      part of the original Multiple Advance Term
      Note,
      and
      shall
      have the same force and effect as if the terms and conditions hereof were
      originally incorporated in the Multiple Advance Term Note prior to its
      execution.

    

    THE
      WRITTEN LOAN AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN
      THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS,
      OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.

    

    THERE
      ARE
      NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    IN
      WITNESS WHEREOF, this Agreement is executed by the undersigned parties as of
      the
      27th
      day of
      July, 2007, but effective July 12, 2007.

     

    
      	BORROWER:	 	 	 
	 	 	 	 
	CHANCELLOR GROUP, INC.	 	 	 
	 	 	 	 
	/s/
              Bradley W.
              Fisher,	 	 	 
	
              
Bradley
              W. Fisher, President	 	 	
            
	 	 	 	 
	 	 	 	 

    

    
      	GRYPHON PRODUCTION
              COMPANY, LLC	 	 	 
	 	 	 	 
	/s/
              Bradley W.
              Fisher,	 	 	 
	
              
Bradley
              W. Fisher, President	 	 	
            

    

    
      	 	 	 	 
	 	 	 	 
	GRYPHON PRODUCTION FIELD SERVICES,
              LLC	 	 	 
	 	 	 	 
	/s/
              Bradley W.
              Fisher,	 	 	 
	
              
Bradley
              W. Fisher, President	 	 	
            
	 	 	 	 
	 	 	 	 

    

    
      	ACCEPTED BY:	 	 	 
	 	 	 	 
	WESTERN NATIONAL BANK	 	 	 
	 	 	 	 
	By:
              /s/ Marshall
              N. Vicknair	 	 	 
	
              
Marshall
              N. Vicknair, Senior Vice President	 	 	
            
	 	 	 	 
	 	 	 	 

    

    
       

      
        
          
          

        

        
          2Unassociated Document

    EXHIBIT
      10.14

    

    FIRST
      AMENDMENT

    TO

    LOAN
      AGREEMENT

    

    THIS
      FIRST AMENDMENT TO LOAN AGREEMENT (this “Amendment”) is entered into as of the
      9th
      day of
      August 2007, by and among CHANCELLOR GROUP, INC., a Nevada corporation, whose
      address for purposes of this Agreement is 216 S. Price Road, Pampa, Texas 79065
      (“Chancellor”), GRYPHON PRODUCTION COMPANY, LLC, a Texas limited liability
      company, whose address for purposes of this Agreement is P. O. Box 742, Pampa,
      Texas 79066 (“Production”), and GRYPHON FIELD SERVICES, LLC, a Texas limited
      liability company, whose address for purposes of this Agreement is P. O. Box
      742, Pampa, Texas 79066 (“Field Services”)(Chancellor, Production, and Field
      Services being collectively referred to herein as the “Borrowers”), and CAPWEST
      RESOURCES, INC., a Texas corporation, whose address for purposes of this
      Agreement is 508 West Wall Street, Suite 1100, Midland, Texas 79701 (the
      ALender@).

    

    NOTICE
      IS
      TAKEN OF THE FOLLOWING:

    

    
      	
              A.

            	
              Borrowers
                and Lender have previously entered into that certain Loan Agreement,
                dated
                as of April 13, 2007 (the “Loan Agreement”). Capitalized terms not
                otherwise defined, or re-defined herein, are defined in the Loan
                Agreement.

            

    

    

    
      	
              B.

            	
              The
                Loan Agreement provides for an advancing line of credit/term loan
                in the
                amount of Ten Million and No/100 Dollars ($10,000,000.00), with an
                existing Borrowing Base in the amount of Three Million Seven Hundred
                Thousand ($3,700,000.00) (the “Loan”). The Loan is evidenced by an
                Advancing Line of Credit/Term Note, dated as of April 13, 2007, executed
                by the Borrowers in favor of the Lender (the “Note”). The Note is
                collateralized by second lien Deeds of Trust covering oil and gas
                properties in Carson and Gray Counties, Texas (collectively, the
“Deeds of
                Trust”), as well as equipment
                and other personal property identified in and covered by the Security
                Agreement, and the Warrants. 

            

    

     

    
      	
              C.

            	
              The
                Borrowers have asked the Lender to modify the Loan to reflect an
                increase
                in the Borrowing Base from Three Million Seven Hundred Thousand Dollars
                ($3,700,000.00) to Three Million Nine Hundred Fifty Thousand Dollars
                ($3,950,000.00), and the Lender has agreed to that request. In
                consideration of the Lender’s consent to their requested increase in the
                Borrowing Base, the Borrowers have agreed to the modification of
                various
                covenants found in the Loan Agreement.

            

    

    

    
      	
              D.

            	
              The
                Borrowers and the Lender have agreed to execute this Amendment in
                order to
                recognize the increase in the Borrowing Base of the Loan and the
                modification of various covenants found in the Loan Agreement.
                

            

    

     

    NOW,
      THEREFORE, for and in consideration of the premises and other good and valuable
      consideration, the receipt and sufficiency of which are hereby acknowledged,
      the
      parties hereto agree to amend the terms of the Loan Agreement as
      follows:

    

    
      	
              1.

            	
              Definitions.

            

    

    

    Unless
      otherwise specifically defined herein, all defined terms used in this Amendment
      shall have their respective meanings set forth in the Loan Agreement.
      Capitalized terms not otherwise defined herein shall have the same definitions
      assigned to them under the terms of the Loan Agreement.

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    2. Amendments.

    

    
      	
              A.

            	
              The
                definition of “Contractual
                Rights”
                found
                in the Loan Agreement is hereby amended by deleting it in its entirety
                and
                substituting the following:

            

    

    

    “Contractual
      Rights”
      means
      that certain personal property interest in contractual rights, created pursuant
      to the terms of the Loan Agreement, which shall now be increased from fifteen
      percent (15%) to twenty percent (20%) of Borrowers’ Gross Oil and Gas Proceeds,
      as defined in the Loan Agreement, derived and produced from Borrowers’ Mineral
      Interests in those certain oil and gas leases and wells located in Carson and
      Gray Counties, Texas, as set forth in the Loan Agreement. The additional five
      percent (5%) of such proceeds shall be conveyed to Lender by Borrowers under
      that certain Bill of Sale and Assignment of Contractual Rights, dated of even
      date herewith, by and among Borrowers and Lender. 

    

    
      	
              B.

            	
              Subsection
                2.2 (a) of the Loan Agreement is hereby amended by deleting it in
                its
                entirety and substituting the
                following:

            

    

    

    2.2
      -
Borrowing
      Base.
      

    

    
      	 	 	 	
              (a)

            	
              The
                Borrowing Base is hereby established at
                $3,950,000.00.

            

    

    

    
      	
              C.

            	
              Article
                VI of the Loan Agreement is hereby amended by adding the following
                sections:

            

    

    

    6.16
      -
Interest
      Payments.
      On or
      before August 20, 2007, Chancellor agrees to tender to Lender all accrued and
      owing interest payments, specifically including, but not limited to those
      interest payment due as of July 30, 2007, and the Borrowers agree to be
      completely current on all interest payment due and accrued on or before August
      30, 2007. Lender agrees to accept payments of interest only (and not payments
      based upon Borrowers’ Gross Oil and Gas Proceeds) through December 30, 2007.
      Thereafter, as to all payments beginning with the one to be made on January
      30,
      2008, payments shall be tendered based upon the formula provided in the Loan
      Agreement under Section 2.4. 

    

    6.17
      -
Use
      of
      Loan Proceeds Attributable to the Increased Borrowing Base.
      Borrowers agree that out of the loan proceeds attributable to Lender’s consent
      to the increase in the Borrowing Base provided for in this Amendment, Borrowers
      will use a maximum of Eighty Thousand Dollars ($80,000.00) of such proceeds
      for
      the payment of operating expenses, and a minimum of One Hundred and Seventy
      Thousand Dollars ($170,000.00) for the purpose of restoring existing oil and
      gas
      wells to productive status. 

    

    6.18
      -  Equity
      Contributions.
      On or
      before October 31, 2007, Borrowers shall have obtained an additional equity
      contribution of Two Hundred Fifty Thousand Dollars ($250,000.00). 

    

    6.19
      - Reduction
      in General and Administrative Expenses.
      Borrowers agree to reduce their consolidated general and administrative expenses
      paid to members of its management team to a maximum of Twenty Thousand Dollars
      ($20,000.00), beginning with those payments to be tendered to such management
      team members for their services during the month of August. Borrowers agree
      to
      maintain such general and administrative expenses at this level until such
      time
      as Borrowers have fulfilled the covenant stated in Section 6.18 above and have
      demonstrated to the satisfaction of the Lender (acting in its sole and absolute
      discretion) that the Borrowers have met, and are continuing to meet, the
      forecasts for monthly production, revenues, and expenses, as stated in the
      pro
      forma business plan that Borrowers presented to the Lender in connection with
      their application for the Loan. 

    

    6.20
      -
 Budgeted
      Oil and Gas Sales Figures.
      Borrowers agree that they will reach the budgeted oil and gas sales figures
      of
      5,300 barrels of oil (“BO”)(with net production to Borrowers of 4,134 BO) and
      10,000 million cubic feet (“MCFG”) of natural gas production (producing net
      production to Borrowers of 8,750 MCFG), forecast in their pro forma business
      plan, and attain a producing well count of 245 wells on or before December
      31,
      2007. Should Borrowers fail to fulfill this covenant, they agree to reduce
      the
      general and administrative expenses provide for in Section 6.19 above from
      the
      amount of Twenty Thousand Dollars ($20,000.00) to the amount of Ten Thousand
      Dollars ($10,000.00), beginning with general and administrative expenses paid
      to
      management for the month of January 2008.

    

    
      
         

      

      
        2

        
          

        

      

      
         

      

       

    

    6.21
      -
 Bank
      Statements from Bank of America, N.A.
      Within
      fifteen (15) days of the execution of this Amendment, Borrowers shall provide
      Lender with copies of any and all statements that they have received from Bank
      of America, N.A. in Pampa, Texas. Following the initial delivery of copies
      of
      such statements, Borrowers shall continue to provide Lender with such copies,
      by
      transmitting such a copy to Lender, via certified mail, return receipt
      requested, or electronically, on or before fifteen (15) days after their receipt
      of such a statement. 

    

    
      	
              D.

            	
              Section
                7.1 of the Loan Agreement is hereby amended by adding the following
                sections:

            

    

    

    7.1
      -
 Consolidated
      Debt Service Coverage Ratio.
      Beginning with the financial reports due for July 2007, Borrowers shall attempt
      to comply with Section 7.1 of the Loan Agreement by not permitting their
      Consolidated Debt Service Coverage Ratio to be less than 1.1 to 1.0 at any
      time.
      As stated in the Loan Agreement, the Consolidated Debt Service Coverage Ratio
      shall be calculated monthly based upon year-to-date figures for the current
      calendar year, beginning on July 1, 2007, and shall be reported to Lender by
      Borrowers within forty-five (45) days after the end of each calendar month.
      Should Borrowers be unable to fulfill this negative covenant or the covenant
      covering the same matter in the Senior Loan Agreement, the Lender agrees to
      reduce its minimum Consolidated Debt Service Coverage Ratio to the same level
      as
      that required by the Senior Lender, until December 31, 2007, at which point
      the
      Lender’s original ratio shall be automatically reinstated into the terms of this
      Loan Agreement. 

    

    3. Effectiveness.

    

    
      	 	
              A.

            	
              Except
                to the extent specifically amended and supplemented hereby, all of
                the
                terms, conditions and provisions of the Loan Agreement shall remain
                unmodified, and the Loan Agreement, as amended and supplemented by
                this
                Amendment, is ratified and confirmed as being in full force and
                effect.

            

    

    

    
      	 	
              B.

            	
              All
                references to the Loan Agreement herein or in any other document
                or
                instrument between Borrower and Lender shall hereinafter be construed
                to
                be references to the Loan Agreement as modified by this
                Amendment.

            

    

    

    
      	
              4.

            	
              Counterparts:
                This Amendment may be executed in any number of counterparts, each
                of
                which when executed and delivered shall be deemed an original, but
                all of
                which constitute one instrument. In making proof of this Amendment,
                it
                shall not be necessary to produce or account for more than one counterpart
                thereof signed by each of the parties
                hereto.

            

    

    

    
      	
              5.

            	
              Notice
                of Final Agreement:

            

    

    

    THIS
      WRITTEN AGREEMENT AND ANY OTHER INSTRUMENTS EXECUTED BY THE PARTIES
      CONTEMPORANEOUSLY HEREWITH REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES
      AND
      MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT
      ORAL
      AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
      PARTIES.

    

    {The
      remainder of this page is intentionally left blank. Signature page
      follows.}

     

    
      
         

      

      
        3

        
          

        

      

      
         

      

    

     

    IN
      WITNESS WHEREOF, the parties hereto have executed this Amendment as of the
      date
      and year first above written.

     

    
      	 	 	 
	 	BORROWERS:
	 	 	 
	 	CHANCELLOR
              GROUP,
              INC.
	 
 	 
 	 
 
	 	By:  	/s/
              Bradley Fischer
	 	
              

              BRADLEY
                FISCHER

            
	 	
              President

            
	 	 

      	 	 	 
	 	 	GRYPHON
              PRODUCTION COMPANY, LLC
	 	 	 
	 	By:  	By:
              /s/
              Bradley Fischer
	 	
              

              BRADLEY
                FISCHER

              President

            
	 	 

      	 	 	 
	 	 	
              GRYPHON
                FIELD SERVICES, LLC

            
	 	 	 
	 	By:  	By:
              /s/
              Bradley Fischer
	 	
              

              BRADLEY
                FISCHER

              President

            
	 	 

    

    
      	 	 	 
	 	 	LENDER:
	 	 	 
	 	 	
              CAPWEST
                RESOURCES, INC.

            
	 	 	 
	 	By:  	By:
              /s/
              Mark McKinney
	 	
              

              
                MARK
                  D. MCKINNEY 

                President

              

            
	 	 

    

     

    
      
         

      

      
        4

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