Document:

Unassociated Document

     

    EXHIBIT
      10.19

    

    [Letterhead
      of Legacy Reserves Operating, LP]

    

    August
      29, 2008

     

    
      	
              Chancellor
                Group, Inc,

            	
              Western
                National Bank

            
	
              Gryphon
                Production Company, LLC

            	
              Attention:
                Marshall Vicknair

            
	
              Gryphon
                Field Services, LLC

            	
              508
                W. Wall, Suite 1100

            
	
              Attention:
                Tom Grantham

            	
              Midland,
                Texas 79701

            
	
              216
                South Price Road

            	 
	
              Pampa,
                Texas 79065

            	 

    

     

     

    
      	
              RE:
                

            	
              Purchase
                and Sale Agreement dated July 14, 2008 by and between Chancellor
                Group,
                Inc. et al, (“Seller”), Legacy Reserves Operating, LP, (“Buyer”) and
                Western National Bank et al (“Lender”), (the
                “Agreement”).

            

    

    

    Gentlemen:

    

    Reference
      is made to that certain Escrow Agreement dated July 14, 2008, attached to and
      made a part of the Agreement (the “Escrow Agreement”). Section 2.2 of the
      Agreement required that Buyer transmit to Western National Bank (“WNB”), as
      Escrow Agent, the Deposit (as that term is defined in the Agreement), in an
      amount equal to Six Hundred Seventy-Five Thousand and No/100 Dollars
      ($675,000.00). Buyer has previously tendered that Deposit, and the Escrow Agent
      currently holds the Deposit pursuant to the terms of the Escrow Agreement.
      In
      recognition of the actions filed by New Concept’s Energy, Inc. (“NCE”) related
      to the Bankruptcy Cases, and the indemnification provisions of Section 16.1(D)
      the parties have agreed to modify the amount to be held in the Escrow Account
      as
      well as the terms for release of funds from the Escrow Account by the Escrow
      Agent. In that regard, the parties agree to the following:

    

    
      	1.  	
              At
                Closing, in addition to the $675,000 that has previously been deposited
                in
                the Escrow Account, Seller agrees that an additional $825,000 of
                Seller’s
                Closing Proceeds be placed in the Escrow Account, for a total amount
                of
                $1,500,000. For purposes of clarity, the Escrow Agent will not make
                the
                Closing Distribution as provided under Section 1.03 (c) of the Escrow
                Agreement, and $1,500,000 will be the amount of the Escrowed Funds
                after
                Closing. The Escrowed Funds will be held pursuant to the Escrow Agreement,
                as modified by this letter agreement.

            

    

    

    
      	2.  	
              Under
                Section 1.03(d)(iv), all remaining Escrowed Funds after taking into
                account amounts distributed under Sections 1.03(d)(i), (ii) and (iii),
                shall be held until the later of (A) 180 days from the date of Closing,
                or
                (B) the date when the Order of Dismissal becomes a final and
                non-appealable order of the Bankruptcy Court not subject to review
                by any
                court of competent jurisdiction. However, the Escrowed Funds may
                be
                distributed early, subject to the provisions of Sections 1.03(d)(i),
                (ii)
                and (iii), if Seller provides Buyer with release executed by NCE
                that
                fully releases Buyer from any liability related to any and all claims
                of
                NCE against Buyer in connection with the Assets, the form of which
                must be
                acceptable to Buyer’s legal counsel, in their sole and complete
                discretion.

            

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    
      	3.  	
              In
                the event that Buyer is required to expend funds after Closing because
                of
                actions taken by NCE which affect the Assets, Seller agrees to consent
                to
                distributions of amounts to Buyer from the Escrowed Funds under Section
                1.03(d)(iv), and on a monthly basis, allow Escrow Agent to reimburse
                Buyer
                for any and all reasonable attorneys’ fees, costs and/or expenses that
                Buyer incurs in connection with the claims made by NCE after Closing.
                Invoices presented to the Escrow Agent for such expenses as a Notice
                of
                Liquidated Claim shall provide sufficient evidence for the Escrow
                Agent to
                reimburse Buyer for such expenses. 

            

    

    

    Please
      sign in the space provided below indicating your acceptance of all the terms
      and
      conditions described above and return to me at your earliest possible
      convenience. 

    

    Sincerely
      yours,

    

    /s/
      Kyle
      A. McGraw

    

    Kyle
      A.
      McGraw

    Executive
      Vice President - Business Development and Land

    

    Agreed
      to
      and Accepted this 29th day of August, 2008.

     

    
      	CHANCELLOR GROUP, INC.  	 	 	 
	 	 	 	 
	/s/
              Thomas H.
              Grantham	 	 	
            
	
              

              Thomas H. Grantham	 	 	
            
	
              President

            	 	 	
            

    

     

    
      
        	GRYPHON PRODUCTION CO., LLC. 	 	 	 
	 	 	 	 
	/s/
                Thomas H.
                Grantham	 	 	
              
	
                
Thomas
                H. Grantham	 	 	
              
	
                Manager

              	 	 	
              

      

       

    

    
      
        	GRYPHON FIELD SERVICES, LLC 	 	 	 
	 	 	 	 
	/s/
                Thomas H.
                Grantham	 	 	
              
	
                
Thomas
                H. Grantham	 	 	
              
	Manager	 	 	
              

      

    

     

    
      	ESCROW AGENT: 	 	 	 
	 	 	 	 
	WESTERN NATIONAL BANK 	 	 	 
	 	 	 	 
	
              /s/
                Marshall Vicknair

            	 	 	
            
	
              
Marshall
              Vicknair, Senior Vice PresidentUnassociated Document

    EXHIBIT
      10.20

    

    COMPROMISE
      SETTLEMENT AGREEMENT AND RELEASE OF ALL CLAIMS

    

    

    This
      COMPROMISE AND SETTLEMENT AGREEMENT AND RELEASE OF ALL CLAIMS (the “Agreement”)
      is entered into by and between Chancellor Group, Inc., Gryphon Production
      Company, LLC, and Gryphon Field Services, LLC (the “Chancellor Parties”) and New
      Concept Energy, Inc. (“NCE”), each of whom stipulates and agrees to the
      following:

    

    I.
      Recitals

    

    A.  The
      Chancellor Parties filed bankruptcy in October 2007, in the Amarillo Division
      of
      the Bankruptcy Court for the Northern District of Texas under the following
      case
      numbers:

    

    
      	1.  	
              Case
                No. 07-20512-RLJ-11, In
                re Chancellor Group, Inc.;

            

    

    
      	2.  	
              Case
                No. 07-20511-RLJ-11, In
                re Gryphon Field Services, LLC;
                and

            

    

    
      	3.  	
              Case
                No. 07-20510-RLJ-11, In
                re Gryphon Production Company,
                LLC.

            

    

    

    B.  When
      the
      term “Parties” is used in this Agreement, it refers to:

    

    
      	1.  	
              Chancellor
                Group, Inc.;

            

    

    
      	2.  	
              Gryphon
                Production Company, LLC;

            

    

    
      	3.  	
              Gryphon
                Field Services, LLC; and

            

    

    
      	4.  	
              New
                Concept Energy, Inc.

            

    

    

    C.  Effective
      on June 1, 2008, the Chancellor Parties entered into a Purchase and Sale
      Agreement (the “PSA”) with Legacy Reserves Operating, L.P., a Delaware limited
      partnership (“Legacy”), CapWest Resources, Inc., a Texas corporation
      (“CapWest”), and Western National Bank, a national banking association (the
“Bank”), pursuant to which the Chancellor Parties sought to sell certain oil and
      gas properties to Legacy and settle all disputes which the Chancellor Parties
      had with CapWest and the Bank. The PSA also had provisions affecting interests
      held by Axis Network, Pty Ltd. (“Axis”). Legacy, CapWest, the Bank, and Axis are
      herein collectively referred to as the “PSA Parties.”

    

    D.  On
      June
      21, 2008, the Chancellor Parties filed Debtors’ Motion to Voluntarily Dismiss
      Chapter 11 Cases (the “Motion to Dismiss”), seeking to dismiss the bankruptcy
      proceedings so that the PSA Parties could close the transaction contemplated
      by
      the PSA.

    

    E.  Prior
      to
      June 2008, NCE had entered into discussions with the Chancellor Parties and
      had
      acquired one million shares of Chancellor Group, Inc. common stock (the “NCE
      Stock”). 

    

    F.  On
      July
      3, 2008, NCE filed its Objection to the Chancellor Parties’ Motion to
      Dismiss.

    

    G.  On
      August
      1, 2008, a group of shareholders, collectively referred to as the “Supporting
      Shareholders Group,” filed its Response in Support of Debtors’ Motion to
      Voluntarily Dismiss Chapter 11 Cases. The Supporting Shareholders Group consists
      of: Ernest P. Andrews, Daniel M. Byrnes, Forum Energy Inc., Robert Gordon,
      Peter
      Harris, Koala Pictures Pty. Ltd., John C. Y. Lee, Frank McEnulty, Dudley Muth,
      Jill Orizondo, A. Saskia Orizondo, Julie Reid, Keith Tesori, and Gregory Hilton
      Young.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    H.  On
      August
      11, 2008, a hearing was held on the Chancellor Parties’ Motion to
      Dismiss.

    

    I.  On
      August
      14, 2008, the Court announced its decision in the case. 

    

    J.  On
      August
      15, 2008, the “Order of Dismissal” dismissing the Chancellor Parties’ bankruptcy
      cases was entered.

    

    K.  On
      August
      22, 2008, NCE filed its Motion for Reconsideration of the Orders Entered on
      August 15, 2008 Dismissing Chapter 11 Cases (the “Motion for
      Reconsideration”).

    

    L.  All
      provisions of this Agreement are contractual in nature, and not mere recitals
      only.

    

    M.  This
      Agreement, and the execution thereof, does not, and is not intended to be,
      an
      admission of fault or wrongdoing by any party, and all Parties expressly
      disclaim any liability to any other party.

    

    N.  The
      current status of the Order of Dismissal, with the pending Motion for
      Reconsideration, creates uncertainty with respect to the Chancellor Parties’
bankruptcy proceedings and the PSA, and the Parties have determined that they
      wish to reach finality with respect to the Chancellor Parties’ bankruptcy
      proceedings and the PSA. Issues between the Parties relating to the bankruptcy
      proceedings of the Chancellor Parties, the Order of Dismissal, and the PSA
      are
      herein collectively referred to as the “Controversy.”

    

    O.  The
      Chancellor Parties, the PSA Parties, and the Supporting Shareholders Group
      are
      collectively referred to herein as the “Released Parties.”

    

    P.  The
      Parties desire to reach a full and final settlement and resolution, have agreed
      to compromise and settle the Controversy, including any and all claims relating
      to any damage of any kind or character whatsoever by NCE against the Released
      Parties, or claims by the Chancellor Parties against NCE, whether now known
      or
      unknown, whether asserted in the Controversy or not. This includes claims which
      NCE, or any other party in privity with NCE has or may have against the Released
      Parties and their respective subsidiaries, affiliates, officers, directors,
      insurers, agents, servants, employees, representatives, and attorneys, whether
      herein named or not, for any damages, of any kind or character whatsoever,
      arising out of or related to the acts and omissions alluded to documents or
      pleadings related to the Controversy.

    

    II.
      Settlement
      and Release

    

    NOW,
      THEREFORE, in consideration of the mutual agreements, covenants,
      representations, stipulations, releases and terms contained in this Agreement,
      the sufficiency of consideration is hereby mutually acknowledged, the Parties
      to
      this Agreement agree as follows:

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    1.  Release
      by NCE.
      In
      return for the consideration outlined below, NCE and any other party in privity
      with it, including parent, subsidiaries, or any controlling persons or entities,
      do hereby release, acquit, and forever discharge the Released Parties and their
      respective subsidiaries, parent corporations, sister corporations, related
      entities, affiliates, officers, directors, insurers, agents, servants,
      employees, representatives, and attorneys, whether herein named or not, of
      and
      from any and all liability, actions, claims, obligations, demands, or lawsuits
      whatsoever, which NCE now has or hereinafter may have on account of or in any
      manner arising out of or relating to the damages, matters, and allegations
      set
      forth, alleged, or alluded to or which might have been set forth, alleged,
      or
      alluded to by NCE in documents or pleadings related to the Controversy and
      to
      which reference is made, including the consequences of such damages, including
      any attorneys’ fees, costs, or interest, directly or indirectly, by reason of
      any damages sustained by the Released Parties, it being the express intent
      of
      NCE to release the Released Parties and their respective subsidiaries,
      affiliates, officers, directors, insurers, agents, servants, employees,
      representatives, and attorneys, whether herein named or not, and all Parties
      in
      privity therewith, from all further liability to any person, firm, or
      corporation on account of any alleged damages sustained by NCE.

    

    2.  Release
      by Chancellor Parties.
      In
      return for the consideration outlined below, the Chancellor Parties and any
      other party in privity with them, including parent, subsidiaries, or any
      controlling persons or entities, do hereby release, acquit, and forever
      discharge NCE and its respective subsidiaries, parent corporations, sister
      corporations, related entities, affiliates, officers, directors, insurers,
      agents, servants, employees, representatives, and attorneys, whether herein
      named or not, of and from any and all liability, actions, claims, obligations,
      demands, or lawsuits whatsoever, which the Chancellor Parties now have or
      hereinafter may have on account of or in any manner arising out of or relating
      to the damages, matters, and allegations set forth, alleged, or alluded to
      or
      which might have been set forth, alleged, or alluded to by the Chancellor
      Parties in documents or pleadings related to the Controversy and to which
      reference is made, including the consequences of such damages, including any
      attorneys’ fees, costs, or interest, directly or indirectly, by reason of any
      damages sustained by the Chancellor Parties, it being the express intent of
      the
      Chancellor Parties to release NCE and its respective subsidiaries, affiliates,
      officers, directors, insurers, agents, servants, employees, representatives,
      and
      attorneys, whether herein named or not, and all Parties in privity therewith,
      from all further liability to any person, firm, or corporation on account of
      any
      alleged damages sustained by the released parties.

    

    3.  No
      Admission of Liability.
      This
      Agreement is a compromise and settlement. It is specifically understood and
      agreed by the Parties that the execution of this Agreement is not an admission
      of liability on the part of any person or entity, liability being expressly
      denied. By entering into this Agreement, the Parties do not admit any legal
      or
      factual position or allegation that is or may be asserted in any pending or
      future action or matter, or any liability, fault or wrongdoing of any nature
      or
      kind whatsoever.

    

    4.  Final
      Dismissal.
      As
      consideration, it is agreed and understood that NCE will withdraw its Motion
      for
      Reconsideration within two (2) days of the execution of this Agreement and
      the
      receipt of the Settlement Payment of $110,000.00, and allow the Order of
      Dismissal to become a final, non-appealable order.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    5.  Settlement
      Payment.
      In
      consideration for the payment of ONE HUNDRED TEN THOUSAND DOLLARS ($110,000.00)
      paid to the order of New Concepts Energy, Inc., the receipt of which is hereby
      acknowledged by NCE, NCE agrees to release, acquit and forever discharge the
      Released Parties, as outlined in Paragraph 1 above, and NCE agrees to convey
      the
      NCE Stock to the Chancellor Parties.

    

    6.  Attorneys’
      Fees, Expenses, and Costs of Court.
      The
      Parties agree that they shall each bear their own attorneys’ fees, expenses, and
      costs of court, and that this Agreement includes and releases any right to
      claim
      or recover such attorneys’ fees, expenses, and costs of court.

    

    III.
      Indemnity

    

    7.  Indemnity
      Against All Related Claims.
      As part
      of the consideration for payment of the foregoing sum of money, the Chancellor
      Parties agree to indemnify and hold harmless NCE, its affiliates, subsidiaries,
      parent corporations, sister corporations, stockholders, officers, directors,
      agents, servants, employees, representatives, and attorneys, whether they be
      named herein or not, from any and all claims, demands, obligations, actions,
      and
      causes of action related in any way to the claims, allegations, or damages
      referenced, alleged, or alluded to in documents or pleadings related to the
      Controversy, of whatsoever nature or character, whether they be in law or in
      equity, past, present, or future, which have been or which may hereinafter
      be
      asserted by any Released Party not executing this Agreement, including
      specifically any member which is part of the Supporting Shareholders
      Group.

    

    IV.
      Additional
      Terms

    

    8.  Payment
      of Money.
      Upon
      full execution of this Agreement, the Chancellor Parties will pay to NCE,
      according to NCE’s instructions, funds in the amount of One Hundred Ten Thousand
      Dollars ($110,000.00) as payment pursuant to, and proceeds of, this Agreement.
      

    

    9.  Conveyance
      of Stock.
      Upon
      execution of this Agreement, and upon receiving the payment set forth in the
      previous paragraph, NCE will deliver, according to the Chancellor Parties’
instructions, the NCE Stock in the form of 1,000,000 shares represented by
      Stock
      Certificate No. 3508. Because, and to the extent, this Agreement is a sale
      of
      shares (the NCE Stock) from NCE to Chancellor Group, Inc. (the “Company”), NCE
      makes the following representation:

    

    NCE
      has
      such knowledge and experience in financial and business matters that NCE is
      capable of evaluating the merits and risks of the sale of the NCE Stock to
      the
      Company. NCE has carefully reviewed the following documents constituting the
      periodic reports filed by the Company with the Securities and Exchange
      Commission (“SEC”) pursuant to the Securities Exchange Act of 1934, as amended:
      the Company’s Annual Report on Form 10-K for its fiscal year ended December 31,
      2007, filed with the SEC on April 7, 2008; the Company’s Quarterly Report on
      Form 10-Q for its fiscal quarter ended March 31, 2008, filed with the SEC on
      May
      14, 2008; the Company’s Quarterly Report on Form 10-Q for its fiscal quarter
      ended June 30, 2008, filed with the SEC on August 14, 2008; and the Company’s
      Current Reports on Form 8-K, filed with the SEC on June 20 and August 19,
      2008.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    10.  Authorship
      of Agreement.
      This
      Agreement was drafted jointly by the Parties and their respective legal counsel,
      and is not to be construed or interpreted against any of the Parties on the
      grounds of sole or primary authorship.

    

    11.  Certification
      of Parties’ Attorneys.
      The
      Parties’ attorneys, by affixing their signatures hereon, certify that they have
      fully read and explained this entire Agreement to their respective
      clients.

    

    12.  Certification
      by Parties.
      The
      Parties, by affixing their signatures hereon, certify that they have fully
      read
      this Agreement and fully understand its contents and effects
      thereof.

    

    13.  Authority
      and Non-Assignment.
      As part
      of the consideration of this Agreement, the Parties expressly represent and
      warrant to each other that they are legally competent and authorized to execute
      this Agreement. Each of the Parties represents and warrants to the other that
      it
      has not sold, assigned, granted, or transferred to any other person or entity
      any claim, counterclaim, demand, action, or cause of action encompassed by
      this
      Agreement and that it is the real party in interest.

    

    14.  Modification
      or Alteration of Agreement.
      This
      Agreement may not be modified, altered, revised, supplemented, or changed in
      any
      way, unless said change be evidenced by a single writing that is executed by
      all
      Parties to this Agreement or their heirs, successors, or assigns.

    

    15.  Headings.
      The
      headings used in this Agreement are inserted solely for convenience and shall
      not be used to interpret the meaning of this document.

    

    16.  Counterparts.
      This
      instrument may be executed in multiple original counterparts, each of which
      shall be deemed an original for all purposes. No single counterpart of this
      Agreement need be executed by all of the Parties, so long as each of the Parties
      shall have executed at least one counterpart. Facsimile signatures shall be
      valid.

    

    17.  Governing
      Law, Venue, and Jurisdiction.
      The
      rights and liabilities of the Parties under this Agreement shall be governed
      as
      to validity, interpretation, enforcement, effect, and damages by the laws of
      the
      State of Texas, without regard to any rules, statutes, or case law regarding
      conflicts of law. Gray County, Texas shall be the appropriate and exclusive
      venue for any suit arising out of this Agreement.

    

    18.  Entire
      Agreement.
      This
      Agreement contains the entire agreement and all understandings between the
      Parties relating to the resolution of the Controversy, and supersedes any and
      all prior agreements, arrangements, or understandings of whatever nature between
      the Parties.

    

    19.  References.
      References herein to the singular or plural shall be deemed to include the
      other
      unless the circumstances eliminate such inclusion. 

    

    20.  Effective
      Date of Agreement.
      This
      Agreement is effective the first day that the Agreement bears the signature
      of
      all Parties and their representatives.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    21.  Binding
      Agreement.
      All of
      the terms of this Agreement shall be binding upon the Parties’ heirs,
      successors, and assigns. This agreement is intended to be fully binding and
      is
      not revocable. Any Party who unsuccessfully seeks to void, invalidate, or set
      aside this Agreement shall be liable for attorneys’ fees and court costs
      incurred by opposing Parties in connection therewith.

    

    EXECUTED
      this 4th day of September, 2008.

     

    
      	 	 	 
	 	CHANCELLOR
              GROUP,
              INC.
	 
 	 
 	 
 
	
            	By:  	
              /s/
                Thomas H. Grantham

            
	 	 	
              
  
	 	
              Printed
                Name:  Thomas H. Grantham

            
	 	 	
              
  
	 	
              Title:  
                President 

            
	 	 	
              
  

    

    
      
        	 	 	 
	 	GRYPHON
                PRODUCTION
                COMPANY, LLC 
	 
 	 
 	 
 
	
              	By:  	
                /s/
                  Thomas H. Grantham

              
	 	 	
                
  
	 	
                Printed
                  Name:  Thomas H. Grantham

              
	 	 	
                
  
	 	
                Title:  
                  President 

              
	 	 	
                
  

      

      
         

        
          	 	 	 
	 	
                  GRYPHON
                    FIELD SERVICES, LLC 

                
	 
 	 
 	 
 
	
                	By:  	
                  /s/
                    Thomas H. Grantham

                
	 	 	
                  
  
	 	
                  Printed
                    Name:  Thomas H. Grantham

                
	 	 	
                  
  
	 	
                  Title:  
                    President 

                
	 	 	
                  
  

        

        
          
            	 	 	 
	 	
                    
                      NEW
                        CONCEPT ENERGY, INC.

                    

                  
	 
 	 
 	 
 
	
                  	By:  	
                    /s/
                      Gene S. Bertcher

                  
	 	 	
                    
  
	 	
                    Printed
                      Name:  Gene S. Bertcher

                  
	 	 	
                    
  
	 	
                    Title:  
                      President 

                  
	 	 	
                    
  

          

        

      

    

         

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    APPROVED
      AS TO FORM AND SUBSTANCE:

     

     

    Bill
      Kinkead, Attorney
      for the Chancellor Parties

    

    /s/
      Robert Simon

     

    Henry
      Simon, Attorney
      for New Concept Energy, Inc.

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