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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF
SECURITIES OF SMALL BUSINESS ISSUERS
UNDER SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
CHANCELLOR GROUP, INC.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
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<S> <C>
NEVADA 87-0438647
(STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
1800 E. SAHARA, SUITE 107, LAS VEGAS, NEVADA 89104
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
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ISSUER'S TELEPHONE NUMBER: (702) 938-0261
SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT.
TITLE OF EACH CLASS TO BE REGISTERED: NONE
NAME OF EACH EXCHANGE ON WHICH EACH CLASS IS TO BE REGISTERED: NONE
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SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: COMMON STOCK, $.001 PAR VALUE
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FORM 10-SB
TABLE OF CONTENTS
ALTERNATIVE 3
PART I
ITEM 1. DESCRIPTION OF BUSINESS
FORWARD-LOOKING STATEMENTS
BUSINESS OF ISSUER
BUSINESS DEVELOPMENT
ADDITIONAL BUSINESS DEVELOPMENTS
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
THE COMPANY
COMPARISON OF OPERATING RESULTS
LIQUIDITY AND CAPITAL RESOURCES
CERTAIN RISKS
GLOSSARY
ITEM 3. DESCRIPTION OF PROPERTY
ITEM 4. SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN SECURITY HOLDERS
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
ITEM 6. EXECUTIVE COMPENSATION
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ITEM 8. DESCRIPTION OF SECURITIES
COMMON STOCK
PREFERRED STOCK
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON
EQUITY AND OTHER SHAREHOLDER MATTERS
ITEM 2. LEGAL PROCEEDINGS
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
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ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
PART F/S
ITEM 1. FINANCIAL STATEMENTS
PART III
ITEM 1. INDEX TO EXHIBITS
ITEM 2. DESCRIPTION OF EXHIBITS
SIGNATURES
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
FORWARD-LOOKING STATEMENTS
Certain statements made in this Registration Statement are "forward-looking
statements" (within the meaning of the Private Securities Litigation Reform Act
of 1995) regarding the plans and objectives of management for future operations.
Such statements involve known and unknown risks, uncertainties and other factors
that may cause actual results, performance or achievements of Chancellor Group,
Inc., a Nevada corporation (the "Company") to be materially different from any
future results, performance or achievements expressed or implied by such
forward-looking statements. The forward-looking statements made in this
Registration Statement are based on current expectations that involve numerous
risks and uncertainties. The Company's plans and objectives are based in part,
on assumptions involving the growth and expansion of its business. Assumptions
relating to the foregoing involve judgments with respect to, among other things,
future economic, competitive and market conditions and future business
decisions, all of which are difficult or impossible to predict accurately and
many of which are beyond the control of the Company. Although the Company
believes that its assumptions underlying the forward-looking statements are
reasonable, any of the assumptions could prove inaccurate and, therefore, there
can be no assurance that the forward-looking statements made in this
Registration Statement will prove to be accurate. In light of the significant
uncertainties inherent in the forward-looking statements made in this
Registration Statement, inclusion of such information should not be regarded as
a representation by the Company or any other person that the objectives and
plans of the Company will be achieved.
In addition, this Registration Statement includes forward-looking statements
within the meaning of Section 21E of the Securities Exchange Act of 1934 (the
"Exchange Act"). These statements are based on management's beliefs and
assumptions, and on information currently available to management.
Forward-looking statements include statements in which words such as "expect",
"anticipate", "intend", "plan", "believe", "estimate", "consider", or similar
expressions are used.
In summary, forward-looking statements are not guarantees of future performance.
They involve risks, uncertainties and assumptions. The Company's future results
and stockholder values may differ materially from those expressed in these
forward-looking statements. Many of the factors that will determine these
results and values are beyond the Company's ability to control or predict. In
addition, the Company does not have any intention or obligation to update
forward-looking statements after the effectiveness of this Registration
Statement, even if new information, future events or other circumstances have
made them incorrect or misleading. For these statements, the Company claims the
protection of the safe harbor for forward-looking statements contained in
Section 21E of the Exchange Act.
BUSINESS OF ISSUER
Chancellor Group, Inc. is in the business of acquisition, exploration, and
development of natural gas and oil properties. The Company is further examining
opportunities in the field of power generation; minerals development; and
environmental engineering and remediation. The Company is constantly reviewing
investment opportunities and intends to develop a geographically diversified
portfolio of projects, each of which exhibits a significantly positive net
present value.
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BUSINESS DEVELOPMENT
Chancellor Group, Inc. (formerly Nighthawk Capital, Inc. and referred to herein
as the "Company" or the "Registrant") was organized under the laws of the state
of Utah in 1986 and reincorporated under the laws of Nevada in 1993. The Company
is in the business of acquisition, exploration, and development natural gas and
oil properties. In July 1995, the Company acquired all of the issued capital of
two Kentucky based gas operations, Delstar Gas Systems, Inc. ("DGS") and
Northstar Gas Systems, Inc. ("NGS"), which owned gas reserves and gas
transmission systems, respectively. In December, 1995, the Company formed a
Kentucky corporation as a wholly-owned subsidiary, Delstar Resources, Inc.
("DRI"), which subsidiary acquired additional freehold lands and gas reserves
for $5,425,000. On August 1, 1996, the Company completed the spin-off of its
wholly-owned subsidiary, Chancellor Australia Pty. Ltd., which contained all of
the non-energy operations and assets of the group. In September, 1997, the
Company acquired 100% ownership of Radly Petroleum Inc., ("Radly") a Texas
corporation, in exchange for approximately 80% of the Company's then outstanding
common stock. In July 1998 the Company acquired 100% ownership of Lichfield
Petroleum America, Inc., ("Lichfield"), a Texas corporation from Lichfield
Petroleum Limited ("Lichfield Limited") for 2,500,000 shares of common stock
valued at $6 per share and 48,000 shares of Series B Convertible Preferred Stock
convertible into shares of common stock. Chancellor Group, Inc., Radly,
Lichfield, DGS, NGS, and DRI remain and operate as separate legal entities.
Commencing in 1997, a dispute arose between the persons from whom the Company
acquired DGS and NGS relating to payment terms and amounts under the parties
original agreement. The Company is not presently in control of either DGS or NGS
and since January 1997, management of the Company has been unable to obtain
books, records or information concerning the operations of DGS, NGS or DRI,
which is also managed by the persons from whom the Company acquired DGS and NGS.
The Company has taken an impairment writedown of $12,000,000 in connection with
DGS, NGS and DRI until such time as the disputes between the Company and the
original owners of DGS and NGS are resolved. Management expects that the
dispute, which related to the payment terms for DGS and NGS in the original
acquisition agreements, will be resolved in favor of the Company in 2000.
Management has written off the entire value of NGS, DGS and DRI. An additional
reason for this approach is that when the current management group acquired
effective control of the Company in September 1997, it found that the previous
management and control group had left the seller's of DGS and NGS in charge of
the day-to-day operations of those companies, without installing board
representation from the parent company. Since January 1997, the sellers (the
Paul family) have failed, neglected, and refused to provide the Company with the
books and records of either of DGS; NGS; or DRI, which they also manage.
ADDITIONAL BUSINESS DEVELOPMENTS
The Company's officers are currently commencing the implementation of an
extensive business plan, through which the Company will seek to raise new equity
capital to finance the initial development work at its existing Texas gas
assets; recover operating control and finance the redevelopment of the extensive
Kentucky gas assets held by DGS and NGS; and acquire interests in several new
drilling and development projects. The Company is also seeks to either acquire
or create a new publicly-held subsidiary which will hold most of its energy
assets, and raise substantial new equity capital with which to acquire a
portfolio of as yet undefined producing oil and gas properties. The Company's
business plan is to create and build a mid-sized integrated energy concern over
the next several years. Implementation of the Company's business plan is
dependent upon the ability of management to raise substantial capital. The
Company estimates that approximately $200,000 will be required to commence and
maintain legal proceedings to
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obtain control of NGS and DGS and that a presently undetermined additional sum
may be required thereafter. There can be no assurance that the Company will be
successful in its efforts to regain control of NGS or DGS. The Company estimates
that approximately $1,000,000 will be required to commence operations on its
other existing leasehold properties. There can be no assurance that the Company
will be successful in obtaining the capital necessary to carry out these
activities. In the event that the Company is not successful in raising capital,
it will be unable to carry out its business plan and may be forced to dispose of
existing assets in order to maintain its operations.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion should be read in conjunction with the Financial
Statements and notes thereto included herein.
THE COMPANY
Chancellor Group, Inc. is in the business of acquisition, exploration, and
development of natural gas and oil properties. The Company is further examining
opportunities in the fields of power generation, minerals development and
environmental engineering and remediation. The Company is constantly reviewing
investment opportunities and intends to develop a geographically diversified
portfolio of projects, each of which exhibits a significantly positive net
present value.
The Company, through two subsidiaries, has under lease 100% of the oil, gas and
mineral rights on 6,352 contiguous acres located in Pecos County, south Texas.
The property contains proven undeveloped reserves of approximately 250 billion
cubic feet (bcf) of economically recoverable natural gas, representing estimated
future cash inflows of more than $540 million, and future net cash flows before
taxes of approximately $480 million, with a net present value using PV-10% of
approximately $182.6 million, representing $9.73 per primary share of common
stock issued and outstanding as of June 30, 1999, and $6.82 per share of common
stock on a fully diluted basis.
COMPARISON OF OPERATING RESULTS
Effective September 23, 1997 the Company entered into a stock purchase agreement
with Polaris Oil & Gas, Inc., in which the Company issued 12,300,000 shares of
common stock representing approximately 80% of its issued and outstanding shares
in exchange for all the common stock of Radly Petroleum, Inc. The assets of
Radly Petroleum, Inc. consist of oil, gas and mineral leases and proved gas
reserves situated on 3,491 acres located in Pecos County, Texas. Also as of
September 23, 1997, the Company elected an entirely new board of directors, and
new officers and directors assumed management of the Company. Due to these
substantial changes in the Company's business and management structure as of
September 23, 1997, corporate activities occurring prior to that time are
unrelated to activities occurring after that time and to future corporate
activities. As a consequence, a comparison of corporate financial activity of
the Company prior to and subsequent to September 23, 1997 is not meaningful.
On July 25, 1998, the Company acquired 100% of the stock of Lichfield Petroleum
America, Inc. ("Lichfield"). The assets of Lichfield consist of oil, gas and
mineral leases, and proved reserves situated on 2,861 acres located in Pecos
County, Texas.
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The Company generated no revenue during the fiscal year ended July 31, 1998, the
five months ended December 31, 1998 and the fiscal year ended December 31, 1999.
The period subsequent to September 30, 1997 was primarily devoted to preparatory
activities related to development of the Company's natural resources assets,
negotiations related to the acquisition of additional natural resources assets,
capital raising activities and organizational activities. The Company
anticipates that during the course of the year 2000, revenue will begin to be
received from its natural gas development activities, and from other
acquisitions and investments.
The Company incurred general and administrative expenses of $12,458 in 1996, nil
in 1997, $164,445 in the fiscal year ended July 31, 1998, $74,491 in the
transition period ended December 31, 1998, and $44,685 in the six months ending
June 30, 1999. These amounts do not include accumulated executive compensation
for those periods. Of these amounts, $43,037 was expended prior to September 30,
1998 and $203,380 was expended subsequent to September 30, 1998. The expenses
incurred were directly related to the Company's present business purposes, and
consisted of consulting expenses related to operational and administrative needs
of the Company, legal expenses, and office expenses. These expenses were
incurred in the ordinary course of the Company's business and it is expected
that they will continue in the future. The Company's current estimated monthly
operating costs are $5,000. Also, as the Company commences development of its
natural resources assets, and the implementation of its business plan,
Management anticipates that general and administrative expenses will increase to
an average of $185,000 per month, in line with the forecast increase in
operational activity, staff hiring, and opening of a new corporate head office.
LIQUIDITY & CAPITAL RESOURCES
As of December 31, 1998 the Company had a working capital deficit of $246,008.
This deficit was funded by accounts payable and reimbursements and unpaid
salaries payable to certain officers and directors in the same amount, in
aggregate. The Company has been provided with working capital by loans from
certain officers and directors, from time to time, as needed. There is no
assurance that in the future such officers and directors will be able or willing
to provide additional debt funding to the Company.
The Company is actively seeking additional sources of capital to be used for
operations, and for the development of existing energy properties, as well as
for the acquisition of addition energy properties or interests therein.
Management has set a short term capital acquisition target of $11,300,000, which
would provide sufficient operational capital to; commence initial drilling and
development at the Company's Glass Mountain gas project located in Pecos County,
Texas; fund the acquisition of a producing oil property located in Wyoming and
which management expects will generate at least $500,000 in net monthly cash
flow; fund certain additional drilling investments; fund the cost of an option
to acquire a majority interest in several secondary oil and gas recovery
projects in the United States; fund the equity component of a small
environmental engineering company acquisition in Wyoming; and fund certain
general and administrative expenses. Management believes that it presently has
identified the investor sources for the required capital raising, which will be
by way of a private placement of securities to a limited number of accredited
investors.
The Company is pursuing the use of various potential instruments with which to
raise capital, including the sale of equity, the sale of preferred stock, and
the issuance of debt. The Company's ability to raise capital will depend upon,
among other things, investor perception of the Company's financial prospects,
the prevailing share price of the Company's stock on the public market, the
prevailing and expected price for
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oil and natural gas, the success of prior projects, the availability of and
return on competing investment opportunities, and various macroeconomic factors.
The Company continually reviews exploration, development, and acquisition
opportunities. The Company currently owns certain gas development assets and
reserves as outlined herein above. It is anticipated that $22 million will be
required to fully develop these properties, of which a substantial portion is
expected to be provided by cashflow generated from an initial set of wells.
Thus, Management believes that the Company's development activities will be
limited by the availability of capital with which to develop these resources.
There is no assurance as to the certainty, timing, or final amount that will be
available to the Company for oil and gas exploration activities.
Often in the oil and gas exploration business, a company that owns development
rights but lacks capital for drilling and completion will enter into a joint
venture with a company who provides the required development capital in exchange
for a share of the revenues arising from that project. These arrangements vary
in nature. Should the Company not be able to raise the required capital to
develop its properties by itself, it will likely seek such a joint venture
arrangement. If it does so, revenues available to the Company from production of
its oil and gas rights will be diluted.
CERTAIN RISKS
FORWARD LOOKING STATEMENTS
This Form 10-SB contains forward looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. Forward looking statements include statements regarding:
future oil and gas production and prices, future exploration and development
spending, future drilling and operating plans and expected results, reserve and
production potential of the Company's properties and prospects, and the
Company's strategy. Actual events or results could differ materially from those
discussed in the forward looking statements as a result of various factors
including, without limitation, the factors set forth below and elsewhere herein.
DEPENDENCE ON ADDITIONAL CAPITAL
Successful development of the Company's oil and natural gas reserves will
require a substantial amount of additional funding relative to the Company's
current capitalization. There is no assurance that such development capital will
be available to the Company as it is required. Further, due to the lack of
operating cash flow in amounts sufficient to fund Company operations, there is
no assurance that the Company will be able to continue its efforts to operate
and to develop its oil and gas reserves.
EXPLORATION AND DEVELOPMENT RISKS.
The business of exploring for and, to a lesser extent, of acquiring and
developing oil and gas properties is an inherently speculative activity that
involves a high degree of business and financial risk. Although available
geological and geophysical information can provide information with respect to a
potential oil or gas property, it is impossible to determine accurately the
ultimate production potential, if any, of a particular property or well.
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VOLATILITY OF OIL AND GAS PRICES
The Company's future revenues, profitability and rate of growth are
substantially dependent upon prevailing market prices for natural gas and oil,
which can be extremely volatile and in recent years have been depressed by
excess domestic and imported supplies.
UNCERTAINTY OF ESTIMATES OF PROVED RESERVES AND FUTURE NET REVENUES
There are numerous uncertainties inherent in estimating quantities of proved
reserves and in projecting future rates of production and timing of development
expenditures, including many factors beyond the control of the producer.
Estimating quantities of proved reserves is inherently imprecise. Such estimates
are based upon certain assumptions about future production levels, future
natural gas and crude oil prices and future operating costs made using currently
available geologic engineering and economic data, some or all of which may prove
incorrect over time.
OPERATING AND WEATHER HAZARDS
The costs and timing of drilling, completing and operating wells is often
uncertain. Drilling operations may be curtailed, delayed or canceled as a result
of a variety of factors, including regulatory and environmental constraints,
unexpected drilling conditions, equipment failures, accidents, adverse weather
conditions, encountering unexpected formations or pressures in drilling and
completion operations, encountering corrosive or hazardous substances,
mechanical failure of equipment, blowouts, cratering and fires. These conditions
could result in damage or injury to, or destruction of, formations, producing
facilities or other property or could result in personal injuries, loss of life
or pollution of the environment.
ADDITIONAL FACTORS
Additional factors that could cause actual events to vary from those discussed
above and elsewhere in this report include, among others: loss of key company
personnel; adverse change in governmental regulation; regulatory and/or
environmental constraints; inability to obtain critical supplies and equipment,
personnel and consultants; and inability to access capital to pursue the
Company's plans.
GLOSSARY
When the following terms are used in written material related to the Company,
they have the following meanings:
Bbl - One stock barrel or 42 U.S. gallons liquid volume, usually used in
reference to crude oil or other liquid hydrocarbons.
Bcf - One billion cubic feet; expressed, where gas sales contracts are in
effect, in terms of contractual temperature and pressure basis and, where
contracts are nonexistent, at 60 degrees Fahrenheit at 14.65 pounds per square
inch absolute.
Prospect - An area in which a party owns or intends to acquire one or more oil
and gas interests which is geographically defined on the basis of geological
data and which is reasonably anticipated to contain at least one reservoir of
oil, gas, or other hydrocarbons.
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Proved Developed Reserves - Proved Reserves which can be expected to be
recovered through existing wells with existing equipment and operating methods.
Proved Reserves - The estimated quantities of crude oil, natural gas, and other
hydrocarbons which, based upon geological and engineering data, are expected to
be produced from known oil and gas reserves under existing economic and
operating conditions, and the estimated present value thereof based upon the
prices and costs on the date that the estimate is made and any price changes
provided for by existing conditions.
Proved Undeveloped Reserves - Reserves that are expected to be recovered from
new wells on undrilled acreage or from existing wells where a relatively major
expenditure is required for recompletion.
PV10% - The discounted future net cash flows for proved oil and gas reserves
computed using prices and costs, at the dates indicated, before income taxes and
a discount rate of 10%.
Royalty Interest - An interest in an oil and gas property entitling the owner to
a share of oil and gas production free of the costs of production.
Undeveloped Acreage - Oil and gas acreage (including, in applicable instances,
rights in one or more horizons which may be penetrated by existing well bores,
but which have not been tested) to which Proved Reserves have not been aligned
by independent petroleum engineers.
Working Interest - The operating interest under a lease which gives the owner
the right to drill, produce and conduct operating activities on the property and
a share of production, subject to all royalty interests, and other burdens and
to all costs of exploration, development and operations and all risks in
connection therewith.
ITEM 3. DESCRIPTION OF PROPERTY
The Company maintains its offices in Las Vegas, Nevada, and in Melbourne,
Australia. The Company's oil and gas properties consist of a contingent interest
in certain freehold and leasehold lands (together with extensive plant and
equipment) located in Lawrence County, Kentucky, which contain substantial
proved and probable reserves of natural gas and, to a lesser extent, oil. The
Company also has approximately 6,000 acres of leasehold land in Pecos County,
Texas, as more fully described elsewhere herein, containing substantial proved
and probable reserves of natural gas.
ITEM 4. SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN SECURITY HOLDERS
The following table sets forth information as of December 31, 1999, with respect
to the beneficial ownership of the common stock by (i) each director and officer
of the Company, (ii) all directors and officers as a group and (iii) each person
known by the Company to own beneficially 5% or more of the common stock:
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<CAPTION>
NAME AND ADDRESS OF TITLE OF SHARES OWNED % OF CLASS
BENEFICIAL OWNER CLASS BENEFICIALLY(1) OWNED
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<S> <C> <C> <C>
Shane X.G. Rodgers(2) Common 13,875,000(3) 54.2
11th Floor, 230 Collins Street
Melbourne, Australia 3000
William H. Stinson Common 100,000 *
1021 Main Street, Suite 2800
Houston, Texas 77002
Horizon No. 4 Trust Common 13,825,000(3) 54.2
3/88 Barkly Street
St. Kilda, Victoria, 3182
Pilares Oil & Gas, Inc. Common 1,500,000 8.0
3241 South First Street
Abiline, Texas 79605
Lichfield Petroleum Ltd. Common 10,500,000(4) 39.6
c/o Mr. C.C. Coleman
4112 Village Drive
Rockwell, Texas 75087
Forum Energy Ltd. Common 1,500,000 8.0
202 Willis
Abilene, Texas 79605
Medallion Holdings Ltd. Common 1,500,000 8.0
South First & Willis
Abilene, Texas 79605
All Officers and Directors Common 13,975,000 54.4
as a Group (2 persons)
</TABLE>
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*Less than 1%
(1) The number of shares of common stock owned are those "beneficially
owned" as determined under the rules of the Securities and Exchange Commission,
including any shares of common stock as to which a person has sole or shared
voting or investment power and any shares of common stock which the person has
the right to acquire within 60 days through the exercise of any option, warrant
or right. As of December 31, 1999, there were 18,760,361 shares of common stock
outstanding.
(2) Mr. Rodgers is a beneficiary of Horizon No. 4 Trust which holds
7,000,000 shares. Horizon No. 4 Trust also holds options to purchase from
Lichfield Petroleum Ltd. 1,625,000 shares of common stock and 31,000 shares of
series B Preferred Stock convertible into 5,200,000 shares of common stock. See
Part I, Item 7, Certain Relationships and Related Transactions.
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(3) Includes an aggregate of 6,825,000 shares of which 1,625,000 are
issuable upon the exercise of options to purchase common stock and 5,200,000 of
which are issuable upon conversion of 31,000 shares of Convertible Series B
Preferred Stock.
(4) Includes 2,500,000 shares held plus 8,000,000 shares issuable upon
exercise of 31,000 shares of Series B Preferred Stock.
CHANGES IN CONTROL
The Company does not anticipate any changes in control of the Company.
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
DIRECTORS AND OFFICERS
The Directors and Officers of the Registrant are as follows:
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NAME AGE POSITION SERVED AS A DIRECTOR SINCE:
- ---- --- -------- ---------------------------
<S> <C> <C> <C>
Shane X.G. Rodgers 39 Chairman, Chief Executive Officer, September 1997
Acting President; Acting Treasurer
Acting Secretary, and a Director
Ashraf Khan 55 Vice-President; Executive Vice- March 1998
President, Asia/Mid-East; and a
Director
William H. Stinson 45 Director March 1998
</TABLE>
All Directors of the Company will hold office until the next annual meeting of
the shareholders, and until their successors have been elected and qualified.
Officers of the Company are elected by the Board of Directors and hold office at
the pleasure of the Board.
Mr. Rodgers has had an extensive career as an investment banker, working
primarily in Australia and the United States. He has assisted six companies in
going public in the United States in recent years. Mr. Rodgers has also worked
in the power-generating sector in the United States in the 1980's, as a
vice-president of Satco Power Corporation of Irvine, California, a small
publicly-held energy and environmental concern. In addition, he has been
involved in the financing of power generating facilities. During his career, he
has also been extensively involved in the natural resources sector. In 1994 and
1995, Mr. Rodgers was a director of Charter Mining, an Australian publicly-held
resources company. From 1994 until August 1998, he was a partner of Capital
General Partners, and then chairman and CFO of its successor, Capital General
Corporation. Mr. Rodgers is a citizen of Australia.
Mr. Khan provides advice as a Director, and serves the interests of the Company
in Asia and the Middle East, where it is examining several investment
opportunities, and from where it expects to derive
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substantial equity capital to finance its growth and development. Mr. Khan has
an extensive and successful background as a high-level international banker,
working throughout the Mid-East and in Europe. He is a citizen of Pakistan.
Mr. Stinson is a highly experienced petroleum geologist and, up until 1990, held
a number of senior technical positions with Atlantic Richfield International in
Los Angeles, Britain (London and North Sea), Indonesia, and Africa, including
positions as Chairman of several joint venture technical sub-committees. Since
1990, he has continued as an external advisor to Atlantic Richfield on projects
in Asia and the Middle East. He is also retained by Hunt Overseas Oil Company;
the Abu Dhabi National Oil Company; and CMS Energy. He also interfaces with
industry on new concessions, as well as with the World Bank and the United
Nations on program funding. Since 1999, he has been a Senior Staff Geophysicist
with CMS Oil & Gas Company, Houston, Texas, responsible for exploration and
production matters in Cameroun.
ITEM 6. EXECUTIVE COMPENSATION
Compensation paid to Officers and Directors is set forth in the Summary
Compensation Table below. The Company may reimburse its Officers and Directors
for any and all out-of-pocket expenses incurred relating to the business of the
Company.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
NAME AND
POSITION FISCAL YEAR SALARY
- -------- ------------ ---------
<S> <C> <C>
Shane Rodgers, President/CEO 1997 $ 30,000
1998 $ 120,000
1999 $ 40,000
Ashraf Khan, Vice-President 1998 $ 80,000
1999 $ 120,000
</TABLE>
As of December 31, 1999, the Company had not paid any cash compensation to
either Mr. Rodgers or Mr. Khan but had deferred all such compensation. In May
1999, the Company issued 400,000 shares of common stock to a trust controlled by
Mr. Rodgers in satisfaction of $150,000 of compensation owed to him. As of
December 31, 1999, the balance of $40,000 of compensation accrued by Mr. Rodgers
and $200,000 owed to Mr. Khan remained unpaid.
All authorized out-of-pocket expenses incurred by a Director on behalf of the
Company will be subject to reimbursement upon receipt by the Company of required
supporting documentation of such expenses. Although Directors may be eligible to
participate in the Company's future stock option and/or incentive plan(s), if
any, Directors do not receive any additional compensation or an annual
Director's fee at the present time.
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ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On July 25, 1998, the Company acquired all of the outstanding capital stock of
Lichfield Petroleum America, Inc. ("Lichfield"), a Texas corporation, from
Lichfield Petroleum Limited, a Belize corporation ("Lichfield Ltd."). The
Company issued to Lichfield 2,500,000 shares of common stock and 48,000 shares
of Convertible Series B Preferred Stock having a liquidation value of $1,000 per
share and convertible into a total of 8,000,000 shares of common stock of the
Company. The parties valued the transaction at $49,000,000 based upon, among
other things, the then market price of the Company's common stock of
approximately $6 per share and the cost to Lichfield Ltd. of the assets held by
Lichfield.
In October, 1998, Lichfield Ltd. granted options to Horizon Trust No. 4 to
purchase, until October 25, 2000, (a) 1,625,000 shares of common stock of the
Company and (b) 31,000 shares of Series B Convertible Preferred Stock
convertible into 5,200,000 shares of common stock of the Company. Horizon Trust
No. 4 is an affiliate of Shane X.G. Rodgers, an officer and director of the
Company.
See Item 6, Executive Compensation, for information regarding compensation paid
to officers and directors of the Company.
On October 10, 1997, the Company entered into an Investment Banking Agreement
(the "IB Agreement") with Capital General Corporation ("Capital General") in
which Capital General agreed to provide the services of Shane Rodgers to the
Company in consideration for $10,000 per month, payable to Mr. Rodgers. No
payments were ever made to Mr. Rodgers under the IB Agreement.
On May 11, 1999, the Company, Mr. Rodgers and Horizon Trustees No. 2 Trust
entered into a Compensation Agreement (the "Compensation Agreement") in which
the Company agreed to pay to Mr. Rodgers in satisfaction of its obligations
under the IB Agreement, the sum of $40,000 in cash and 400,000 shares of common
stock of the Company valued at a price of $.38 per share in satisfaction of the
balance of $150,000 due to the Company. Under the Compensation Agreement the
shares were to be issued to the Horizon Trustees Limited No.2 Trust. That Trust
was controlled by Mr. Rodgers and the shares issued to it were subsequently
transferred to the Horizon Trust No. 4, also controlled by Mr. Rodgers.
ITEM 8. DESCRIPTION OF SECURITIES
COMMON STOCK
The Company has authorized 25,000,000 shares of common stock, $.001 par value,
of which 18,760,361 shares were issued and outstanding as of December 31, 1999.
All presently outstanding shares of the Company's common stock are validly
issued, fully paid and non-assessable. The holders of commons stock do not and
will not have any preemptive or other subscription rights to subscribe for or
purchase any additional securities issued by the company, nor do they have any
redemption or conversion rights.
The holders of common stock are entitled to receive dividends when, as and if
declared by the Board of Directors out of funds legally available therefor. It
is highly unlikely that dividends will be paid by the Company in the foreseeable
future.
14
<PAGE>
The holders of common stock are entitled to receive on liquidation of the
Company a pro rata distribution of the assets of the Company subject to rights
of creditors and holders of any preferred stock then outstanding.
PREFERRED STOCK
The Company has authorized 250,000 shares of Preferred Stock. The Preferred
Stock may be divided into classes with differing rights, dividend rates and
preferences and privileges and prices as determined by the Board of Directors.
As of December 31, 1999 there were outstanding 48,000 shares of convertible
Preferred Series B stock, having a liquidation value $1,000 per share. Each
Series B share is convertible into 166.6667 shares of the Company's common stock
at any time prior to July 25, 2000. The Company retains the right to extend the
conversion date of the preferred stock. The Company may redeem the preferred
stock for any time at the stated face value of $1,000 per share. The preferred
stock carries a dividend rate of eight percent (8%) cumulative per annum payable
in the form of additional preferred stock of the same series at the election of
the Company. The preferred stock carries no voting rights but has senior
liquidation rights over the common stock.
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON
EQUITYHOLDER MATTERS
The Company's common stock traded, under the symbol CHAG, on the OTC Electronic
Bulletin Board until October 8th, 1999. Since that date the common stock has
been traded on the "Pink Sheets" published by the National Quotation Bureau,
Inc. High and low bid prices for the Company's common stock for the previous
eight quarters are shown below.
High and low bids for the Company's common stock for the previous eight quarters
are shown below.
<TABLE>
<CAPTION>
YEAR QUARTER HIGH LOW
- ---- ------- ---- ---
<S> <C> <C> <C>
1998 First .5625 .05
Second .5125 .0625
Third .25 .0625
Fourth .179 .0625
1999 First .1875 .05
Second .4375 .05
Third .25 .012
Fourth .25 .012
2000 First .625 .05
(Until March 29, 2000)
</TABLE>
On December 31, 1999 there were 18,760,361 shares of common stock issued and
outstanding, which were held by more than 700 shareholders of record excluding
individuals holding securities in street name.
15
<PAGE>
The Company has never paid cash dividends on its common stock and currently
intends to continue its policy of retaining all of its earnings for use in its
business.
ITEM 2. LEGAL PROCEEDINGS
The Company is not a party to any material pending legal proceedings. To the
best of the Company's knowledge, no governmental authority or other party has
threatened or has contemplated the filing of any material legal proceedings
against the Company. The Company intends to take legal action with respect to
its subsidiaries as set forth in Part 1, Item 1, of this Registration Statement.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
During the Company's two most recent fiscal years and any later interim period
neither the principal independent accountants or any significant subsidiary's
independent accountant on whom the principal accountant expressed reliance in
its report, resigned, declined to stand for reelection or was dismissed.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
During the past three years, the Company issued or sold securities which were
not registered under the Securities Act of 1933, as amended, as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES TOTAL
NAME OF PURCHASER DATE OF COMMON STOCK CONSIDERATION
- ----------------- ----- ---------------- --------------
<S> <C> <C> <C>
Horizon Trustees Limited/ Sept-Oct 1997 12,300,000 Acquisition of Radly
Pilares Oil & Gas, Inc. Petroleum Inc.
Heatherwood Pty, Ltd. Sept-Oct 1997 25,000 Satisfaction of debt of
$25,000
Michael Heisser Nov 26, 1997 50,000 $50.00
Glazco Consultants May 14, 1998 3,700 Consulting Fees
Asraf Khan May 14, 1998 120,000 Consulting Services
valued at $12,000
James J. Rose May 14, 1998 20,000 Consulting Services
valued at $5,000
Horizon No. 4 Trust May 14, 1998 100,000 Repayment of shares
transferred to satisfy
Company obligation
Glazco Consultants June 1, 1998 1,993 Consulting Fees
James J. Rose June 1, 1998 10,000 Consulting Services
16
<PAGE>
Lichfield Petroleum, Ltd. July 25, 1998 2,500,000 Petroleum Assets
48,000 Preferred Shares
Jeremy Gibson May 11, 1999 10,000 Consulting Services
Horizon No. 4 Trust May 11, 1999 100,000 Repayment of shares
transferred to satisfy
Company obligation
Shane X.G. Rodgers May 11, 1999 400,000 Cancellation of
$150,000 debt
Regency Group
Limited, Inc. May 11, 1999 200,000 Services
Various Investors May 24, 1999 200,000 $20,000
Dennis Murphy Jan 17, 2000 250,000 $25,000
Ashraf Kahn Jan 17, 2000 100,000 Director's Fee
William Stinson Jan 17, 2000 100,000 Director's Fee
N.C. Capital Markets Feb 1, 2000 200,000 Consulting Services
Frank Overbeek Feb 1, 2000 100,000 $20,000
Norman Lucas Feb 9, 2000 50,000 $10,000
Frank Overbeek March 9, 2000 150,000 $30,000
Jehangir Malik and
Anwar Kazi March 9, 2000 50,000 $10,000
</TABLE>
With respect to the sales made, the Company relied upon Section 4(2) of the
Securities Act of 1933, as Amended. No advertising or general solicitation was
involved in offering the shares. The securities were offered and the persons
name above who received disclosure information concerning the Company and who
had access to information concerning the Company, either by virtue of such
person's relationship with the Company or the opportunity to make investigation
and inquiry provided to each such person or, such person's personal
representative, where applicable, by the Company and its officers and directors.
The securities were offered for investment purposes only and not for resale or
distribution and the transfer thereof was appropriately restricted by the
registrant. No underwriters were involved in any of the sales and no
underwriting discounts or commissions were paid by the Company.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The corporation may indemnify any person who was or is a party or is threatened
to be made a party to any threatened, pending, or completed action, suit, or
proceeding, whether civil, criminal, administrative, or
17
<PAGE>
investigative, (other than an action by or in the right of the corporation) by
reason of the fact that he is or was a director, officer, employee, fiduciary or
agent of the corporation or is or was serving at the request of the corporation
as a director, officer, employee, fiduciary or agent of another corporation,
partnership, joint venture, trust, or other enterprise, against expenses
(including attorney fees), judgments, fines, and amounts paid in settlement
actually and reasonably believed to be in or not opposed to the best interests
of the corporation and, with respect to any criminal action or proceeding, had
no reasonable cause to believe his conduct was unlawful. The termination of any
action, suit, or proceeding by judgment, order, settlement, or conviction or
upon a plea of nolo contendere or its equivalent shall not of itself create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
corporation and, with respect to any criminal action or proceeding, had
reasonable cause to believe his conduct was unlawful.
The corporation may indemnify any person who was or is a party or is threatened
to be made a party to any threatened, pending, or completed action or suit by or
in the right of the corporation to procure a judgment in its favor by reason of
the fact that he is or was a director, officer, employee, or agent of the
corporation or is or was serving at the request of the corporation as a
direct5or, officer, employee, fiduciary or agent or another corporation,
partnership, joint venture, trust or other enterprise against expenses
(including attorney fees) actually and reasonably incurred by him in connection
with the defense or settlement of such action or suit if he acted in good faith
and in a manner he reasonably believed to be or not opposed to the best
interests of the corporation; but no indemnification shall be made in respect of
any claim, issue, or matter as to which such person has been adjudged to be
liable for negligence or misconduct in the performance of his duty to the
corporation unless and only to the extent that the court in which such action or
suit was brought determines upon application that, despite the adjudication of
liability, but in view of all circumstances of the case, such person is fairly
and reasonably entitled to indemnification for such expenses which such court
deems proper.
To the extent that a director, officer, fiduciary or agent of a corporation has
been successful on the merits in defense of any action, suit, or proceeding
referred to herein or in defense of any claim, issue, or matter therein, he
shall be indemnified against expenses (including attorney fees) actually and
reasonably incurred by him in connection therewith.
Any indemnification under this provision (unless ordered by a court) shall be
made by the corporation only as authorized in the specific case upon a
determination that indemnification of the director officer, employee, fiduciary
or agent is proper in the circumstances because he has met the applicable
standard of conduct set forth herein. Such determination shall be made by the
board of directors by a majority vote of a quorum consisting of directors who
were not parties to such action, suit, or proceeding, or, if such a quorum is
not obtainable, or, even if obtainable, a quorum of disinterested directors so
directs.
Expenses (including attorney's fees) incurred in defending a civil or criminal
action, suit or proceeding may be paid by the corporation in advance of the
final disposition of such action, suit or proceeding as authorized herein, upon
receipt of an undertaking by or on behalf of the director, officer, employee or
agent to repay such amount, unless it shall ultimately be determined that he is
entitled to be indemnified by the corporation as authorized herein.
The board of directors may exercise the corporation's power to purchase and
maintain insurance on behalf of any person who is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
18
<PAGE>
partnership, joint venture, trust or other enterprise, against any liability
asserted against him and incurred by him in any such capacity, or arising out of
his status as a such, whether or not the corporation would have the power to
indemnify him against such liability.
The indemnification provided herein shall not be deemed exclusive of any other
rights to which those seeking indemnification may be entitled under the Articles
of Incorporation, the Bylaws, agreements, vote of the shareholders or
disinterested directors, or otherwise, both as to action in his official
capacity and as to action in another capacity while holding such office, and
shall continue as to a person who has ceased to be a director, officer, employee
or agent and shall inure to the benefit of the heirs and personal
representatives of such a person.
PART F/S
ITEM 1. FINANCIAL STATEMENTS
ITEM 2. INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
------------ -----------------------
<S> <C>
2.1 Certificate of Incorporation - Nighthawk
Capital, Inc. (Utah)
2.2 Articles of Incorporation-Nighthawk
Capital, Inc., (Nevada)
2.3 Articles of Merger
2.4 By-Laws
10.1 Consent of Ronald R. Chadwick, P.C.
</TABLE>
ITEM 3. DESCRIPTION OF EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
----------- ----------------------
<S> <C>
2.1 Certificate of Incorporation - Nighthawk
Capital, Inc. (Utah)
19
<PAGE>
2.2 Articles of Incorporation-Nighthwk
Capital, Inc., (Nevada)
2.3 Articles of Merger
2.4 By-Laws
10.1 Consent of Ronald R. Chadwick, P.C.
</TABLE>
20
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities and Exchange Act of
1934, the Registrant caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized.
CHANCELLOR GROUP, INC.
DATED: March 30, 2000 By: /s/
-------------------------
SHANE X.G. RODGERS
Acting President and Acting Chief Financial
Officer
21
<PAGE>
CHANCELLOR GROUP, INC.
CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1998,
DECEMBER 31, 1998,
& DECEMBER 31, 1999
<PAGE>
CHANCELLOR GROUP, INC.
CONSOLIDATED FINANCIAL STATEMENTS
TABLE OF CONTENTS
Page
----
INDEPENDENT AUDITOR'S REPORT ON
THE FINANCIAL STATEMENTS F-1
FINANCIAL STATEMENTS
Consolidated balance sheet F-2
Consolidated statements of operations F-3
Consolidated statements of stockholders' equity F-4
Consolidated statements of cash flows F-5
Notes to consolidated financial statements F-6
<PAGE>
RONALD R. CHADWICK, P.C.
CERTIFIED PUBLIC ACCOUNTANT
2851 S. PARKER ROAD, SUITE 720
AURORA, COLORADO 80014
---------------
TELEPHONE:(303)306-1967
TELECOPIER:(303)306-1944
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Chancellor Group, Inc.
Melbourne, Australia
I have audited the accompanying consolidated balance sheet of Chancellor Group,
Inc. and subsidiaries as of December 31, 1999, and the related consolidated
statements of operations, stockholders' equity and cash flows for the year
ended July 31, 1998, the five months ended December 31, 1998 and the year ended
December 31, 1999. These financial statements are the responsibility of the
Company's management. My responsibility is to express an opinion on these
financial statements based on my audit.
I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. I believe that my audit provides a reasonable basis
for my opinion.
In my opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Chancellor Group,
Inc. and subsidiaries as of December 31, 1999 and the results of their
operations and their cash flows for the year ended July 31, 1998, the five
months ended December 31, 1998 and the year ended December 31, 1999 in
conformity with generally accepted accounting principles.
Aurora, Colorado /s/ Ronald R. Chadwick, P.C.
February 22, 2000 RONALD R. CHADWICK, P.C.
F-1
<PAGE>
CHANCELLOR GROUP, INC.
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1999
<TABLE>
<S> <C>
ASSETS
Oil and gas properties $ 35,905
-------------
TOTAL ASSETS $ 35,905
-------------
-------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 268,206
-------------
TOTAL CURRENT LIABILITIES 268,206
-------------
TOTAL LIABILITIES 268,206
-------------
STOCKHOLDERS' EQUITY
Common stock: $.001 par value;
250,000,000 shares authorized;
19,035,361 issued and outstanding 19,035
Preferred Series B stock: $1,000 par value;
250,000 shares authorized;
48,000 issued and outstanding 48,000,000
Paid in capital (47,289,953)
Accumulated deficit (961,383)
-------------
TOTAL STOCKHOLDERS' EQUITY (232,301)
-------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 35,905
=============
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
F-2
<PAGE>
CHANCELLOR GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FIVE MONTHS
YEAR ENDED ENDED YEAR ENDED
JULY 31, DEC. 31, DEC. 31,
1998 1998 1999
------------ ------------ ------------
<S> <C> <C> <C>
Sales $ - $ - $ -
Operating Expenses 218,897 76,491 243,992
------------ ------------ ------------
Income (loss) from operations (218,897) (76,491) (243,992)
Other income (expense) - - -
------------ ------------ ------------
Income (loss) before provision
for income taxes (218,897) (76,491) (243,992)
Provision for income tax - - -
------------ ------------ ------------
NET INCOME (LOSS) $ (218,897) $ (76,491) $ (243,992)
============ ============ ============
NET INCOME (LOSS) PER SHARE
(Basic and fully diluted) $ (0.02) $ - $ (0.01)
============ ============ ============
Weighted average number of
common shares outstanding 13,321,450 17,950,361 18,106,194
============ ============ ============
</TABLE>
*less than $.01 per share
The accompanying notes are an integral part of the
consolidated financial statements.
F-3
<PAGE>
CHANCELLOR GROUP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Preferred
Par value $.001 Series B Paid in Accum. Stockholders'
Shares Amount Amount Capital Deficit Equity
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balances at July 31, 1997 2,735,000 $ 2,735 $ - $ 412,196 $ (422,003) $ (7,072)
Compensatory stock issuances 395,361 395 54,057 54,452
Issuance of stock for Radly
Petroleum, Inc. 12,300,000 12,300 3,700 16,000
Issuance of stock for Lichfield
Petroleum America, Inc.
Common 2,500,000 2,500 2,500
Preferred Series B
(48,000 shares) 48,000,000 (47,982,595) 17,405
Net gain (loss) for the year (218,897) (218,897)
------------ ------------ ------------ ------------ ------------ ------------
Balances at July 31, 1998 17,930,361 $ 17,930 $ 48,000,000 $(47,512,642) $ (640,900) $ (135,612)
Compensatory stock issuances 20,000 20 1,980 2,000
Net gain (loss) for the period (76,491) (74,491)
------------ ------------ ------------ ------------ ------------ ------------
Balances at December 31, 1998 17,950,361 $ 17,950 $ 48,000,000 $(47,510,662) $ (717,391) $ (210,103)
Contributed capital 21,123 21,123
Compensatory stock issuances 1,085,000 1,085 199,586 200,671
Net gain (loss) for the year (243,992) (243,992)
------------ ------------ ------------ ------------ ------------ ------------
Balances at December 31, 1999 19,035,361 $ 19,035 $ 48,000,000 $(47,289,953) $ (961,383) $ (232,301)
============ ============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
F-4
<PAGE>
CHANCELLOR GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FIVE MONTHS
YEAR ENDED ENDED YEAR ENDED
JULY 31, DEC. 31, DEC. 31,
1998 1998 1999
---------- ------------ ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(218,897) $(76,491) $(243,992)
Adjustments to reconcile net income to
net cash provided by (used for)
operating activities:
Compensatory stock issuances 54,452 2,000 200,671
Accounts payable 164,445 74,491 22,198
---------- ------------ ----------
NET CASH PROVIDED BY (USED FOR)
OPERATING ACTIVITIES (21,123)
---------- ------------ ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Contributed capital 21,123
---------- ------------ ----------
NET CASH PROVIDED BY (USED FOR)
FINANCING ACTIVITIES 21,123
---------- ------------ ----------
NET INCREASE (DECREASE) IN CASH
CASH AT THE BEGINNING OF THE PERIOD
---------- ------------ ----------
CASH AT THE END OF THE PERIOD $ - $ - $ -
---------- ------------ ----------
---------- ------------ ----------
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
F-5
<PAGE>
CHANCELLOR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION, OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Chancellor Group, Inc. (the "Company"), was incorporated in the state of Utah
on May 2, 1986, then on December 31, 1993 dissolved as a Utah corporation and
reincorporated as a Nevada corporation. The Company's primary business
purpose is to engage in the exploration and production of oil and gas. In
1996 the Company's corporate name was changed from Nighthawk Capital, Inc. to
Chancellor Group, Inc.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
Chancellor Group, Inc., and its wholly owned subsidiaries Radly Petroleum,
Inc. ("Radly") and Lichfield Petroleum America, Inc. ("Lichfield"). These
entities are collectively hereinafter referred to as "the Company". All
intercompany accounts and transactions have been eliminated.
OIL AND GAS PROPERTIES
The Company follows the successful efforts method of accounting for its oil
and gas activities. Under this accounting method, costs associated with the
acquisition, drilling and equipping of successful exploratory and development
wells are capitalized. Geological and geophysical costs, delay rentals and
drilling costs of unsuccessful exploratory wells are charged to expense as
incurred. Depletion and depreciation of the capitalized costs for producing
oil and gas properties are provided by the unit-of-production method based on
proved oil and gas reserves. Undeveloped properties are periodically
assessed for possible impairment due to unrecoverability of costs invested.
Cash received for partial conveyances of property interests are treated as a
recovery of cost and no income or loss is recognized.
INCOME TAX
Deferred texas are provided on a liability method whereby deferred tax assets
are recognized for deductible temporary differences and operating loss
carryforwards and deferred tax liabilities are recognized for taxable
temporary differences. Temporary differences are the differences between the
reported amounts of assets and liabilities and their tax bases. Deferred tax
assets are reduced by a valuation allowance when, in the opinion of
management, it is more likely than not that some portion or all of the
deferred tax assets will not be realized. Deferred tax assets and liabilities
are adjusted for the effects of changes in tax laws and rates on the date of
enactment.
F-6
<PAGE>
CHANCELLOR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 1. ORGANIZATION, OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED):
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with an original maturity
of three months or less as cash equivalents.
ACCOUNTING YEAR AND METHOD
The Company through July 31, 1998 employed a fiscal accounting year ending
July 31, and thereafter switched to a calendar accounting year. The Company
recognizes income and expenses based on the accrual method of accounting.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period.
Actual results could differ from those estimates.
NET INCOME (LOSS) PER SHARE
The net income (loss) per share is computed by dividing the net income (loss)
by the weighted average number of shares of common outstanding. Warrants,
stock options, and common stock issuable upon conversion of the Company's
preferred stock are not included in the computation if the effect of such
inclusion would be anti-dilutive and would increase the earnings or decrease
loss per share.
NOTE 2. OIL AND GAS PROPERTIES
The Company holds working interests in approximately 6000 acres in Pecos
County, Texas, which are carried at leasehold cost of $35,905. The Company's
oil and gas properties have been appraised in two engineering reports by
Nova Petroleum Resource Co., Certified Petroleum Geologists and Registered
Professional Engineers, dated August 27, 1997 (updated July 15, 1999) and
April 3, 1998. According to the reports, the Company's Pecos County
properties are estimated to contain over 240 billion cubic feet of proven
undeveloped oil and gas reserves, with a 10% discounted net present value
before income tax of approximately $182,000,000. Proved undeveloped reserves
are reserves that are considered recoverable from additional wells yet to be
drilled.
F-7
<PAGE>
CHANCELLOR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 3. APPROPRIATED CAPITAL -- KENTUCKY SUBSIDIARIES
At July 31, 1995 the Company was in possession of two wholly owned oil and
gas subsidiaries in Kentucky named Delstar Gas Systems, Inc. and Northstar
Gas Systems, Inc. ("Kentucky subsidiaries"). The two subsidiaries had audited
net assets of approximately $12,000,000 at July 31, 1995. A subsequent
dispute developed between principals of the two subsidiaries and principals of
Chancellor Group, Inc. over payment terms and amounts stemming from the
parties' original merger agreement. Currently, the records of the Kentucky
subsidiaries are not available to the Company for audit. For its fiscal year
end 1996 financial statements, and for subsequent years until contested
matters with the Kentucky subsidiaries are resolved and records available,
the Company has established a reserve for appropriated capital of
approximately $12,000,000 to offset the two subsidiaries last known asset
valuation, and has recorded no further transactions from the subsidiaries.
NOTE 4. INCOME TAXES
Deferred income taxes arise from the temporary differences between financial
statement and income tax recognition of net operating losses. These loss
carryovers are limited under the Internal Revenue Code should a significant
change in ownership occur. The Company accounts for income taxes pursuant to
SFAS 109.
At December 31, 1999 the Company had approximately $960,000 in unused federal
net operating loss carryforwards, which begin to expire principally in the
year 2011. A deferred tax asset of approximately $192,000 resulting from the
loss carryforward has been offset by a 100% valuation allowance.
F-8
<PAGE>
CHANCELLOR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 5. ACQUISITION OF RADLY PETROLEUM, INC. AND LICHFIELD PETROLEUM AMERICA,
INC.
In September, 1997 Chancellor Group, Inc. acquired all the outstanding stock
of Radly Petroleum, Inc., making Radly a wholly owned subsidiary. The
transaction was accounted for as a purchase, and the cost was recorded at
$16,000 consisting of 12,300,000 shares on Chancellor Group, Inc.'s common
stock. The two companies' accounts have been consolidated from September 18,
1997 forward. No separate financial statements of Radly prior to September,
1997 or pro forma financial information is presented as such information
contains no material amounts.
In July, 1998 Chancellor Group, Inc. acquired all the outstanding stock of
Lichfield Petroleum America, Inc., making Lichfield a wholly owned
subsidiary. The transaction was accounted for as a purchase, and the cost was
recorded at $19,905 consisting of 2,500,000 shares of Chancellor Group,
Inc.'s common stock, and 48,000 shares of Preferred Series B stock. The two
companies' accounts have been consolidated from July 25, 1998 forward. No
separate financial statements of Lichfield prior to July, 1998 or pro forma
financial information is presented as such information contains no material
amounts.
NOTE 6. STOCKHOLDERS' EQUITY
COMMON STOCK
The Company has 250,000,000 authorized shares of common stock, par value
$.001, with 19,035,361 issued and outstanding as of December 31, 1999.
PREFERRED STOCK
Preferred Series B Stock -- The Company has provided for the issuance of
250,000 shares, par value $1,000 per share, of convertible Preferred Series B
stock ("Series B"), and 48,000 shares were outstanding as of December 31,
1999. Each Series B share is convertible into 1 share of the Company's common
stock at $6 per share.
F-9
<PAGE>
CHANCELLOR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 6. STOCKHOLDERS' EQUITY - CONTINUED
STOCK OPTIONS
The Company currently has stock options outstanding to various individuals in
the following amounts:
50,000 options exercisable for one share of common stock at $1.50 per share
50,000 options exercisable for one share of common stock at $2.50 per share
50,000 options exercisable for one share of common stock at $3.50 per share
50,000 options exercisable for one share of common stock at $4.50 per share
The options expire at various dates through July, 2000, save for 12,500
options out of each set above which have no expiration date. The Company has
incurred and accrued no material compensation expense in connection with
these options.
F-10
<PAGE>
CHANCELLOR GROUP, INC.
SUPPLEMENTAL INFORMATION (UNAUDITED)
YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
CAPITALIZED COSTS RELATING TO OIL AND GAS
PRODUCING ACTIVITIES AT DECEMBER 31, 1999
- -----------------------------------------
<S> <C>
Unproved oil and gas properties $ -
Proved oil and gas properties 35,905
Support equipment and facilities -
--------
35,905
Less accumulated depreciation, depletion,
amortization, and impairment ( -)
--------
Net capitalized costs $ 35,905
========
COSTS INCURRED IN OIL AND GAS PRODUCING
ACTIVITIES FOR THE YEAR ENDED DECEMBER 31, 1999
- -----------------------------------------------
Property acquisition costs
Proved $ -
Unproved -
Exploration costs -
Development costs -
RESULTS OF OPERATIONS FOR OIL AND GAS PRODUCING
ACTIVITIES FOR THE YEAR ENDED DECEMBER 31, 1999
- -----------------------------------------------
Oil and gas sales $ -
Gain on sale of oil and gas properties -
Gain on sale of oil and gas leases -
Production costs -
Exploration expenses -
Depreciation, depletion, and amortization -
--------
-
Income tax expense ( -)
--------
Results of operations for oil and gas producing
activities (excluding corporate overhead and
financing costs) $ -
========
</TABLE>
RESERVE INFORMATION
The following estimates of proved and proved developed reserve
quantities and related standardized measure of discounted net cash flow are
estimates only, and do not purport to reflect realizable values or fair
market values of the Company's reserves. The Company emphasizes that reserve
estimates are inherently imprecise and that estimates of new discoveries are
more imprecise than those of producing oil and gas properties. Accordingly,
these estimates are expected to change as future information becomes
available. All of the Company's reserves are located in the United States.
Proved reserves are estimated reserves of crude oil (including
condensate and natural gas liquids) and natural gas that geological and
engineering data demonstrate with reasonable certainty to be recoverable in
future years from known reservoirs under existing economic and operating
conditions. Proved developed reserves are those expected to be recovered
through existing wells, equipment, and operating methods.
The standardized measure of discounted future net cash flows is computed
by applying year end prices of oil and gas (with consideration of price
changes only to the extent provided by contractual arrangements) to the
estimated future production of proved oil and gas reserves, less estimated
future expenditures (based on year end costs) to be incurred in developing
and producing the proved reserves, less estimated future income tax expenses
(based on year end statutory tax rates, with consideration of future tax
rates already legislated) to be incurred on pretax net cash flows less tax
basis of the properties and available credits, and assuming continuation of
existing economic conditions. The estimated future net cash flows are then
discounted using a rate of 10 percent a year to reflect the estimated timing
of the future cash flows.
F-11
<PAGE>
CHANCELLOR GROUP, INC.
SUPPLEMENTAL INFORMATION (UNAUDITED) - CONTINUED
YEAR ENDED DECEMBER 31, 1999
RESERVE INFORMATION
<TABLE>
<CAPTION>
Oil Gas
(Bbls) (Bcf)
-------- -------
<S> <C> <C>
Proved developed and undeveloped reserves
Beginning of year - 249.50
Revisions of previous estimates - -
Improved recovery - -
Purchases of minerals in place - -
Extensions and discoveries - -
Production - -
Sales of minerals in place - -
-------- -------
End of year - 249.50
======== =======
Proved developed reserves
Beginning of year - -
End of year - -
Standardized Measure of Discounted Future
Net Cash Flows at December 31, 1999
Future cash inflows $ 580,013,502
Future production costs (77,681,437)
Future development costs (22,535,000)
Future income tax expenses (163,131,002)
--------------
$ 316,666,063
Future net cash flows (10% annual
discount for estimated timing of
cash flows) $ 120,536,224
--------------
Standardized measures of discounted future
net cash flows relating to proved oil
and gas reserves $ 120,536,224
==============
The following reconciles the change in
the standardized measure of discounted future
net cash flow during the year ended
December 31, 1999.
Beginning of year $ 120,536,224
Sales of oil and gas produced, net of
production costs ( -)
Net changes in prices and production costs ( -)
Extensions, discoveries, and improved
recovery, less related costs -
Development costs incurred during the year
which were previously estimated -
Net change in estimated future development
costs -
Revisions of previous quantity estimates ( -)
Net change from purchases and sales of
minerals in place ( -)
Accretion of discount -
Net change in income taxes ( -)
Other ( -)
--------------
End of year $ 120,536,224
==============
</TABLE>
F-12
<PAGE>
Exhibit 2.1
[LOGO]
CERTIFICATE OF INCORPORATION
OF
NIGHTHAWK CAPITAL, INC.
THE UTAH DIVISION OF CORPORATIONS AND COMMERCIAL CODE, HEREBY CERTIFIES
THAT DUPLICATE COPIES OF ARTICLES OF INCORPORATION FOR THE INCORPORATION OF
NIGHTHAWK CAPITAL, INC.
DULY SIGNED AND VERIFIED PURSUANT TO THE PROVISIONS OF THE UTAH BUSINESS
CORPORATION ACT, HAVE BEEN RECEIVED IN THIS OFFICE AND ARE FOUND TO CONFORM
TO LAW.
ACCORDINGLY, THE DIVISION OF CORPORATIONS AND COMMERCIAL CODE, HEREBY
ISSUES THIS CERTIFICATE OF INCORPORATION OF
NIGHTHAWK CAPITAL, INC.
AND ATTACHES HERETO A DUPLICATE COPY OF THE ARTICLES OF INCORPORATION, 120505.
[SEAL] DATED THIS 2ND DAY
-------------------
OF MAY , 1986
------------------------- ---
/s/ [ILLEGIBLE]
---------------------------------
<PAGE>
ARTICLES OF INCORPORATION
OF
NIGHTHAWK CAPITAL, INC.
2ND MAY 86
-------
BS
-------
50.00
- ----------------
WE, THE UNDERSIGNED natural persons of the age of twenty-one years or
more, acting as incorporators of a corporation under the Utah Business
Corporation Act, (hereinafter called the "Act."), adopt the following
Articles of Incorporation for such Corporation:
ARTICLE I
NAME
The name of the Corporation (hereinafter called the "Corporation") is:
NIGHTHAWK CAPITAL, INC.
ARTICLE II
PERIOD OF DURATION
The period of duration of the Corporation is perpetual.
ARTICLE III
PURPOSE AND POWERS
The general nature of the business to be transacted by this Corporation
shall be to invent, develop, market, and otherwise exploit high technology
electronic communication systems, both hardware and software components,
particluarly systems utilizing security coding and protective transmitting
and receiving.
To do each and everything necessary, suitable or proper for the
accomplishment of any of the foregoing purposes or the attainment of any one
or more of the subjects hereinabove enumerated, or which may at any time
appear conducive to or expedient for the protection or benefit of this
corporation, and to do such acts as fully and to the same extent as
<PAGE>
natural persons might, or could do, in any part of the world as principals,
agents, partners, trustees, or otherwise, either alone or in conjunction with
any other person, association or Corporation.
The foregoing clauses shall be construed as powers as well as objects
and purposes and the matters expressed in each clause shall, unless herein
otherwise expressly provided, be in no wise limited by reference to or
inference from the terms of any other clause but shall be regarded as
independent objects, purposes and powers and the enumeration of specific
objects, purposes and powers shall not be construed to limit or restrict in
any manner the meaning of the general terms or the general powers of the
Corporation nor shall the expression of one thing be deemed to exclude
another not expressed although it be of like nature.
ARTICLE IV
AUTHORIZED SHARES
1. The aggregate number of shares which the Corporation shall have
authority to issue is 100,000,000 shares, having a par value of $ 0.001 (one
mill) per share. The stock shall be designated as Class "A" voting common
stock and shall have the same rights and preferences. The stock of the
Corporation shall be nonassessable. Fully paid stock of this Corporation
shall not be liable to any further call or assessment. The total
capitalization shall be $ 100,000.00.
2. The shares of Class "A" common stock shall not be divided into
classes and may not be issued in series.
ARTICLE V
PRE-EMPTIVE RIGHTS
No stockholder of the Corporation shall because of his
<PAGE>
ownership of stock have a pre-emptive or other right to purchase, subscribe
for or take part of any or part of the notes, debentures, bonds or other
securities convertible into or carrying options for warrants to purchase
stock of the Corporation issued, optioned or sold by it after its
incorporation except as may be otherwise stated in these Articles of
Incorporation. Any part of the capital stock and any part of the notes,
debentures, bonds, or other securities convertible into or carrying options
or warranties to purchase stock of the Corporation authorized by these
Articles of Incorporation or by an amended certificate duly filed may at any
time be issued, optioned for sale and sold or disposed of by the Corporation
pursuant to resolution of its Board of Directors, to such persons and upon
such terms as may to such Board of Directors seem proper without first
offering such stock or securities or any part thereof to existing
stockholders except as required in Article IV of these Articles of
Incorporation.
ARTICLE VI
COMMENCEMENT OF BUSINESS
The Corporation shall not commence business until at least One Thousand
Dollars ($1,000) has been received by the Corporation as consideration for
the issuance of shares.
ARTICLE VII
VOTING OF SHARES
Each outstanding share of the Class "A" common stock of the Corporation
shall be entitled to one vote on each matter submitted to a vote at a meeting
of the stockholders. Each shareholder being entitled to vote his or its
shares in person or by proxy executed in writing by such shareholder or by
his duly authorized attorney in fact. At each election for directors every
shareholder entitled to vote at such
<PAGE>
election shall have the right to vote in person or by proxy the number of
shares owned by him or it for as many persons as there are directors to be
elected and for whose election he or it has a right to vote, but the
shareholder shall have no right whatsoever to accumulate his or its votes
with regard to such election.
ARTICLE VIII
PROVISIONS FOR REGULATION OF THE INTERNAL AFFAIRS OF THE CORPORATION
1. MEETINGS OF SHAREHOLDERS
All meetings of the shareholders of the Corporation shall be held at
such place either within or without the State of Utah as may be provided in
the By-laws of the Corporation. In the absence of any such provision, all
such meetings shall be held at the registered office of the Corporation.
2. QUORUM OF SHAREHOLDERS
Unless otherwise provided in the Act of other applicable law, a
majority of the shares outstanding, said stock being entitled to vote whether
represented in person or by proxy, shall constitute a quorum at a meeting of
the shareholders of the Corporation.
3. MEETING OF DIRECTORS
Meetings of the Board of Directors of the Corporation, whether
regular or special, may be held either within or without the State of Utah
and upon such notice as may be prescribed in the By-laws of the Corporation.
4. QUORUM OF DIRECTORS
The number of directors of the Corporation which shall constitute a
quorum for the transaction of business at any meeting of the Board of
Directors shall be fixed in the By-laws of the Corporation.
5. DESIGNATION OF COMMITTEES BY THE BOARD OF DIRECTORS
The Board of Directors may, by a resolution or resolutions
<PAGE>
passed by a majority of the whole board, designate a committee or committees
constituting of not less than two (2) directors, which committee or
committees to the extent provided in such resolution or resolutions shall
have and may exercise all the authority so provided but the designation of
such committees and the delegation thereto of such authority shall not
operate to relieve the Board of Directors or any member thereof of any
responsibility imposed upon it or him by law.
6. BY-LAWS OF THE CORPORATION
The initial By-laws of the Corporation shall be adopted by its Board
of Directors hereafter unless otherwise provided in the Act. By-laws of the
Corporation may be adopted, amended or repealed either by the shareholders or
by the Board of Directors; and,
(a) no By-law shall be adopted by the Directors which shall require
more than a majority of the voting for a quorum at a meeting of the
shareholders of the Corporation or more than a majority of the votes cast to
constitute action by the shareholders except where higher percentages are
required by law. The By-laws may contain any provisions for the regulation and
management of the affairs of the Corporation not inconsistent with the Act,
other applicable laws and these Articles of Incorporation.
7. VACANCY IN THE BOARD OF DIRECTORS
Any vacancy occurring in the Board of Directors may be filled by
affirmative vote of a majority of the remaining directors though less than a
quorum of the Board of Directors. A director elected to fill a vacancy shall
be elected for the unexpired term of his predecessor in office. Any
directorship to be filled by reason of an increase in the number of directors
shall also be filled by the Board of Directors, such appointment to be until
the next annual meeting or a special meeting of
<PAGE>
the shareholders called for the purpose of electing a director to the office
so created.
8. SHAREHOLDERS OF RECORD
The name and address of each shareholder of record of the capital
stock of the Corporation as they appear in the stock records of the
Corporation shall be conclusive evidence as to who are the shareholders who
are entitled to receive notice of any meetings of the shareholders, to
examine a complete list of the shareholders who may be entitled to vote at
any such meetings and to own, enjoy and exercise any other rights and
privileges which are based on the partnership of these shares of stock of the
Corporation.
9. BOOKS AND RECORDS
The Corporation shall keep complete and correct books and records of
account and shall keep minutes of the proceedings of its shareholders and
Board of Directors and shall keep its registered office or principle place of
business or at the office of its transfer agent or registrar, a record of its
shareholders giving the names and addresses of all shareholders and the
number of shares of the Corporation held by each. No shareholder shall have
the right to inspect such books and records except as conferred by the Act or
other applicable laws unless authorized to do so by a resolution or
resolutions of the shareholders or of the Board of Directors.
10. The Board of Directors of the Corporation shall have the power from
time to time to fix and determine and to vary the amount which is to be
reserved by the Corporation as working capital and before the payment of any
dividends or the making of any distribution of profits it may set aside out
of net profits or earned surplus of the Corporation such sum or sums as it
may from time to time in its absolute discretion determine to be proper
whether as a reserve fund to meet contingencies or for the equalizing of
dividends or the repairing or of any property of the
<PAGE>
Corporation or for an addition to stated capital, capital surplus or earned
surplus or for any corporate purpose which the Board of Directors shall deem
to be in the best interests of the Corporation subject only to such
limitations as the By-laws or the corporation may from time to time impose.
11. COMPENSATION OF DIRECTORS
The Board of Directors of the Corporation may, providing the By-laws
of the Corporation so provide, make provision for reasonable compensation to
its members for their services as directors and establish the basis and
conditions upon which such compensation shall be paid. Any director of the
Corporation may also serve the Corporation in any other capacity and receive
proper compensation therefor.
12. QUALIFICATION OF DIRECTORS
The directors of this Corporation need not be stockholders.
13. NUMBER OF DIRECTORS
The exact number of directors may from time to time be specified by
the By-laws at not less than three nor more than fifteen. When the By-laws do
not specify the exact number of directors the number of directors shall be
three.
14. RELIANCE UPON OTHERS
A director shall be fully protected in relying in good faith upon
the books of account of the Corporation or statements prepared by any of its
officials as to the value and amount of assets, liabilities or net profits of
the Corporation or any other facts pertinent to the existence and amount of
surplus or other funds from which dividends might properly be declared and
paid.
15. RELIANCE UPON OTHERS' PRUDENT CONDUCT
No person shall be liable to the Corporation for any loss or damage
suffered by it on account of any action taken or omitted to be taken by him as
a director or officer of the Corporation in good faith if
<PAGE>
such person:
(a) exercised or used the same degree of care and skill as a
prudent man would have exercised or used under the circumstances in the
conduct of his own affairs, or;
(b) took or omitted to take such action in reliance upon
advice of counsel for the Corporation or upon statements made or information
furnished by officers or employees of the Corporation which he had reasonable
grounds to believe or upon financial statement of the Corporation prepared by
an officer or employee of the Corporation in charge of its accounts or
certified by a public accountant or firm of public accountants.
16. CONTRACTS WITH INTERESTED DIRECTORS, DISCLOSURE AND VOTING
A director of the Corporation shall not in the absence of
fraud be disqualified by his office from dealing or contracting with the
Corporation either as a vendor, purchaser or otherwise, nor in the absence of
fraud shall, insofar as permitted by the Act or any other applicable statute,
any transaction or contract of the Corporation be void or voidable or
affected by reason of the fact that any director or any firm of which a
director is a member or any Corporation of which any director is an officer,
director or stockholder is in any way interested in such transaction or
contract provided that at the meeting of the Board of Directors or of a
committee hereof having authority in the premises to authorize or confirm
such contract or transaction, the interest of such director, firm or
Corporation is disclosed or made known and there shall be present a quorum of
the Board of Directors or of the directors constituting such committee and
such contract or transaction shall be approved by a majority of such quorum,
which majority shall consist of directors not so interested or connected.
Nor shall any director be liable to account to the Corporation for any profit
realized by him from or through any such transaction or contract of the
Corporation, ratified
<PAGE>
or approved as herein provided, by reason of the fact that he or any firm of
which he is a member, or any Corporation of which he is a stockholder,
director, or officer, was interested in such transaction or contract.
Directors so interested may be counted when present at meetings of the Board
of Directors or of such committee for the purpose of determining the
existence of a quorum. Each and every person who is or may become a director
of the Corporation is hereby relieved from any liability that might otherwise
exist from those contracting with the Corporation for the benefit of himself
or any firm, association or Corporation in which he may be in any interested.
Any contract, transaction or act of the Corporation or of the Board of
Directors or of any committee which shall be ratified by a majority in
interest of a quorum of the stockholders having voting power, shall be as
valid and as binding as though ratified by each and every stockholder of the
Corporation, but this shall not be constituted as requiring the submission of
any contract to the stockholders for approval.
17. RATIFICATION OF ACTS OF DIRECTORS
The directors may submit any contract or transaction for approval at
any annual meeting of the stockholders or at any special meeting of the
stockholders called for that purpose, and any contract or transaction so
approved by a majority vote of a quorum of the stockholders at such meeting
shall be binding upon the Corporation and all its stockholders, whether or
not the contract or transaction would otherwise be subject to attack because
of the interest of any of the directors of the Corporation or for any other
reason.
18. The Corporation may in its By-laws make any other provisions or
requirements for the management or conduct of the business of the
Corporation, provided the same is not inconsistent with the provisions of
these Articles of Incorporation or contrary to the laws of the State of Utah
or the United States.
<PAGE>
19. The Corporation may issue and sell its authorized shares
without par value from time to time in the absence of fraud in the
transaction for such considerations as may from time to time be fixed by the
Board of Directors, and sell and dispose of any stocks having a par value for
such consideration permitted by law, as the Board of Directors may from time
to time determine without other authority, consent, or vote of the
stockholders of the Corporation of any class or classes.
20. AMENDMENTS OF THESE ARTICLES OF INCORPORATION
The Corporation reserves the right to amend, alter or
repeal or to add provisions to these Articles of Incorporation in any manner
now or hereafter prescribed by the Act and any amendment thereto or by the
provisions of any other applicable law and all rights conferred upon the
shareholders of the Corporation by these Articles of Incorporation and any
amendments hereto are granted subject only to this reservation.
ARTICLE IX
INITIAL REGISTERED OFFICE AND INITIAL REGISTERED AGENT
1. REGISTERED OFFICE
The address of the initial registered office of the
Corporation is: 3760 South Highland Drive Suite 407, Salt Lake City, Utah
84106
2. REGISTERED AGENT
The name of the initial registered agent of the
Corporation is: Jerry Peterson.
/s/ Jerry Peterson
------------------------------
Jerry Peterson
ARTICLE X
DIRECTORS AND INCORPORATORS
1. THE INCORPORATORS AND INITIAL BOARD OF DIRECTORS
The Incorporators and the initial Board of Directors of
the Corporation shall consist of three members and their respective names and
addresses are:
<PAGE>
NAME ADDRESS
- ---- -------
Jerry Peterson 3760 S Highland Drive Salt Lake City, Utah 84106
Julie Harmon 3760 S Highland Drive Salt Lake City, Utah 84106
Jeri Pettersson 3760 S Highland Drive Salt Lake City, Utah 84106
which directors shall hold office until the first meeting of the shareholders
of the corporation and until their successors shall have been elected and
qualified.
2. SUBSEQUENT BOARD OF DIRECTORS
At the first meeting of the shareholders of the Corporation and at
each annual meeting thereafter, the shareholders shall elect directors to
hold office until the next succeeding annual meeting of the shareholders.
Each director so elected shall hold office for the term for which he is
elected until his successor shall have been elected and qualified. Directors
need not be residents of the State of Utah or shareholders of the Corporation.
/s/ Jerry Peterson
- -----------------------------
Jerry Peterson
/s/ Julie Harmon
- -----------------------------
Julie Harmon
/s/ Jeri Pettersson
- -----------------------------
Jeri Pettersson
<PAGE>
Executed this 1st day of May, 1986
STATE OF UTAH )
: ss.
COUNTY OF SALT LAKE )
I, David R. Yeaman a Notary Public, hereby certify that on the 1st day
of May, 1986 personally appeared before me Jerry Peterson, Julie Harmon, and
Jeri Pettersson, who being by me duly sworn for themselves, declared that
they are the persons who signed the foregoing document as incorporators, and
that the statements contained therein are true.
IN WITNESS WHEREOF, I have hereunto sent my hand and seal this 1st day
of May, 1986.
NOTARY PUBLIC : /s/ David R. Yeaman
--------------------------------------------------
RESIDING AT : Salt Lake County
--------------------------------------------------
MY COMMISSION EXPIRES : 4-28-89
--------------------------------------------------
<PAGE>
Exhibit 2.2
SECRETARY OF STATE
[SEAL]
STATE OF NEVADA
CORPORATE CHARTER
I, CHERYL A. LAU, Secretary of State of the State of Nevada, do hereby
certify that NIGHTHAWK CAPITAL, INC. did on the THIRTIETH day of DECEMBER,
1993 file in this office the original Articles of Incorporation; that said
Articles are now on file and of record in the office of the Secretary of State
of Nevada, and further, that said Articles contain all the provisions
required by the law of said State of Nevada.
IN WITNESS WHEREOF, I have hereunto set my hand
and affixed the Great Seal of State, at my office in
Carson City, Nevada, this THIRTIETH day of
DECEMBER, 1993.
/s/ Cheryl Lau,
--------------------
[SEAL] Secretary of State
by /s/ illegible
--------------------
Deputy
<PAGE>
ARTICLES OF INCORPORATION
OF
NIGHTHAWK CAPITAL, INC.
Know all men by these presents;
That I, the undersigned, acting as incorporator for the purpose of
forming a corporation under a pursuant to the provisions of Nevada Revised
Statutes 78.010 to Nevada Revised Statutes 78.090 inclusive, as amended, and
certify that;
ARTICLE I
The name of this corporation is NIGHTHAWK CAPITAL, INC.
The name and post office address of the incorporator signing the
Articles of Incorporation is Krista Castleton, 3760 So. Highland Drive, Suite
300, Salt Lake City, Utah, 84106. The name and address of the first member of
the First Board of Directors is Krista Castleton, 3760 So. Highland Drive,
Suite 300, Salt Lake City, Utah, 84106.
ARTICLE II
The Resident Agent of this corporation in Nevada shall be Nevada
Corporate Services located at 1800 E. Sahara, Suite 107, Las Vegas, Clark
County, Nevada, 89104. Offices for the transaction of any business of the
Corporation, and where meetings of the Board of Directors and of Stockholders
may be held, may be established and maintained in any other part of the State
of Nevada, or in any other state, territory or possession of the United
States of America, or in any foreign country as the Board of Directors, may,
from time to time determine.
ARTICLE III
The nature of the business and the objects and purpose proposed to be
transacted, promoted or carried on by the Corporation is to conduct any
lawful activity in accordance with the Laws of the State of Nevada and
<PAGE>
the United States of America, including but not limited to inventing,
developing, marketing, and otherwise exploiting high technology electronic
communication systems, both hardware and software components, particularly
systems utilizing security coding and protective transmitting and receiving.
To do each and everything necessary, suitable or proper for the
accomplishment of any of the foregoing purposes or the attainment of any one
or more of the subjects hereinabove enumerated, or which may at any time
appear conducive to or expedient for the protection or benefit of this
Corporation, and to do such acts as fully and to the same extent as natural
persons might, or could do, in any part of the world as principals, agents,
partners, trustees, or otherwise, either alone or in conjunction with any
other person, association or corporation. The period of duration of this
Corporation is perpetual.
The foregoing clauses shall be construed as powers as well as objects
and purposes and the matters expressed in each clause shall, unless herein
otherwise expressly provided, be in no wise limited by reference to or
inference from the terms of any other clause shall be regarded as independent
objects, purposes and powers and the enumeration of specific objects,
purposes and powers shall not be construed to limit or restrict in any manner
the meaning of the general terms or the general powers of the Corporation nor
shall the expression of one thing be deemed to exclude another not expressed
although it be of like nature.
ARTICLE IV
The aggregate number of shares which the Corporation shall have
authority to issue is 100,000,000 shares, having a par value of $0.001 (one
mill) per share. The stock shall be designated as Class "A" voting common
stock and shall have the same rights and preferences. The stock of the
Corporation shall be nonassessable. Fully paid stock of this Corporation
shall not be liable for any further call or assessment. The total
capitalization of the Corporation shall be $100,000. The shares of Class "A"
common stock shall not be divided into classes and may not be issued in
series.
ARTICLE V
No stockholder of the Corporation shall, because of his ownership of stock,
have a pre-emptive or other
<PAGE>
right to purchase, subscribe for or take part of any of the notes,
debentures, bonds or other securities convertible into or carrying options
for warrants to purchase stock of the Corporation issued, optioned or sold by
it after its corporation, except as may be otherwise stated in these Article
of Incorporation. Any part of the capital stock and any part of the notes,
debentures, bonds, or other securities convertible into or carrying options
or warranties to purchase stock of the Corporation authorized by these
Articles of Incorporation or by an amended certificate duly filed may at any
time be issued, optioned for sale and sold or disposed of by the Corporation
pursuant to the resolution of its Board of Directors to such persons and upon
such terms as may to such Board of Directors seem proper, without first
offering such stock or securities or any part thereof to existing
stockholders, except as required in Article IV of these Articles of
Incorporation.
ARTICLE VI
Each outstanding share of class "A" common stock of the Corporation
shall be entitled to one vote on each matter submitted to a vote at a meeting
of the stockholders. Each shareholder shall be entitled to vote his or its
shares in person or by proxy, executed in writing by such shareholder or by
its duly authorized attorney in fact. At each election for directors, every
shareholder entitled to vote at such election shall have the right to vote in
person or by proxy, the number of shares owned by him or it for as many
persons as there are directors to be elected and for whose election he or it
has the right to vote, but the shareholder shall have no right, whatsoever,
to accumulate his or its votes with regard to such election.
ARTICLE VII
The members of the governing board of this corporation shall be called
directors. The Board of Directors shall consist of at least one (1) person.
The number of directors of this corporation may, from time to time, be
increased or decreased by an amendment to the By-Laws in that regard and
without the necessity of amending the Articles of Incorporation. A majority
of the Directors in office, present at any meeting of the Board of Directors,
duly called, whether regular or special, shall always constitute a quorum for
the transaction of business, unless the By-Laws otherwise provide. Directors
need not be residents of the State of Nevada or
<PAGE>
stockholder of the Corporation.
ARTICLE VIII
This Corporation shall have a president, a secretary, a treasurer, and a
resident agent, to be chosen by the Board of Directors, any person may hold
two or more offices.
ARTICLE IX
The capital stock of the Corporation, after the fixed consideration
thereof has been paid or performed, shall not be subject to assessment, and
the individual stockholders of this Corporation shall not be individually
liable for the debts and liabilities of the Corporation, and the Articles of
Incorporation shall never be amended as to the aforesaid provisions.
ARTICLE X
The Board of Directors is expressly authorized: (subject to the By-Laws,
if any, adopted by the Stockholders)
1) To make, alter or amend the By-Laws of the Corporation.
2) To fix the amount in cash or otherwise, to be reserved as working
capital.
3) To authorize and cause to be executed mortgages and liens upon the
property and franchises of the Corporation.
4) To by resolution or resolutions passed by a majority of the whole
board, designate one or more committees, each committee to consist of one or
more of the Directors of the Corporation, which, to the extent provided in
the resolution or resolutions or in the By-Laws of the Corporation, shall
have and may exercise the powers of the Board of Directors in the management
of the business and affairs of the Corporation, and may have power to
authorized the seal of the Corporation to be affixed to all papers on which
the Corporation desires to place a seal. Such committee or committees shall
have such name or names as may be stated in the By-Laws of the Corporation or
as may be determined from time to time by resolution adopted by the Board of
<PAGE>
Directors.
5) To sell, lease or exchange all of its property and assets, including
its goodwill and its corporate franchises, upon such terms and conditions as
the board deems expedient and for the best interests of the Corporation, when
and as authorized by the affirmative vote of the stockholders holding stock
in the Corporation entitling them to exercise at least a majority of the
voting power given at a stockholders meeting called for that purpose.
ARTICLE XI
In the absence of fraud, no contract or other transaction of the
Corporation shall be affected by the fact that any of the Directors are in
any way interested in, or connected with, any other party to such contract or
transaction, or are themselves, parties to such contract or transaction,
provided that this interest in any such contract or transaction of any such
director shall at any time be fully disclosed or otherwise known to the Board
of Directors, and each and every person who may become a director of the
Corporation is hereby relieved of any liability that might otherwise exist
from contracting with the Corporation for the benefit of himself or any firm,
association or corporation in which he may be in any way interested.
ARTICLE XII
No director or officer of the Corporation shall be personally liable to
the Corporation or any of its stockholders for damages for breach of
fiduciary duty as a director or officer involving any act or omission of any
such director or officer provided, however, that the foregoing provision
shall not eliminate or limit the liability of a director or officer for acts
of omissions which involve intentional misconduct, fraud or a knowing
violation of law, or the payment of dividends in violation of Section 78.300
of the Nevada Revised Statutes. Any repeal or modification of this Article by
the stockholders of the Corporation shall be prospective only, and shall not
adversely affect any limitation on the personal liability of a director or
officer of the Corporation for acts or omissions prior to such repeal or
modification.
<PAGE>
I, the undersigned, being the incorporator hereinbefore named for the
purpose of forming a corporation pursuant to the general corporation law of
the State of Nevada, do make and file these Articles of Incorporation, hereby
declaring and certifying that the facts herein stated are true, and
accordingly have hereunto set my hand.
/s/ Krista Castleton
--------------------------
State of Utah )
)ss
County of Salt Lake)
On December 29, 1993 personally appeared before me, the undersigned, a
Notary Public, Krista Castleton, known to me the person whose name is
subscribed to the foregoing document and acknowledged to me that she executed
the same.
/s/ Illegible
-------------------------
Notary Public
SEAL
6
<PAGE>
CERTIFICATE OF AMENDMENT OF ARTICLES OF INCORPORATION
(AFTER ISSUANCE OF STOCK)
Chancellor Group Holdings Inc.
--------------------------------------------------------
NAME OF CORPORATION
We the undersigned SHANE X G RODGERS and
--------------------------------------------------
PRESIDENT OR VICE PRESIDENT
SHANE X G RODGERS of CHANCELLOR GROUP HOLDINGS INC.
- -------------------------------- -------------------------------------
SECRETARY OR ASSISTANT SECRETARY NAME OF CORPORATION
do hereby certify
That the Board of Directors of said corporation at a meeting duly
convened, held on the day of 21 JULY 1998 adopted a resolution to amend the
original articles as follows:
Article IV is hereby amended to read as follows:
The aggregate number of shares of common stock which the Corporation
shall have authority to issue is 250,000,000 shares, having a par value
of $0.001 (one mill) per share. The stock shall be designated class "A"
voting common stock and shall have the same rights and preferences. The
total common stock capitalization shall be $250,000.
The Corporation shall further have authority to issue up to $250,000
share of preferred stock. The preferred stock may be divided up into
classes with differing rights dividend rates and preferences and
privileges and prices as determined by the Board of Directors. The
common and preferred stock shall be non-assessable.
- -------------------------------------------------------------------------------
The number of shares of the corporation outstanding and entitled to vote
on an amendment to the Articles of Incorporation is 18,865mm that the
said changes (s) and amendment have been consented to and approved by a
majority vote of the stockholders holding at least a majority of each
class of stock outstanding and entitled to vote thereon.
/s/ illegible
-------------------------------------
PRESIDENT OR VICE PRESIDENT
/s/ illegible
-------------------------------------
SECRETARY OR ASSISTANT SECRETARY
State of Melbourne
------------------)
) ss.
County of )
------------------)
On 9/9/99 SHANE X G RODGERS personally appeared before me, a Notary Public,
_____________________________________________________________, who acknowledged
NAMES OF PERSONS APPEARING AND SIGNING DOCUMENTS
that they excuted the above instrument.
/s/ Mandy Gordon
-------------------------------------
MANDY GORDON
(NOTARY STAMP OR SEAL) DEPUTY REGISTRAR
MAGISTRATES COURT OF VICTORIA
<PAGE>
Exhibit 2.3
[Stamp]
ARTICLES OF MERGER
OF
NIGHTHAWK CAPITAL, INC.
[Stamp]
As provided for under Nevada Revised Statute Section 78.458, Nighthawk
Capital, Inc., a Nevada corporation, as the surviving corporation of the
planned merger herein submits to the Secretary of State the following
ARTICLES OF MERGER as acknowledged by the President and the Secretary of the
corporation.
1. Nighthawk Capital, Inc., a Utah corporation, is located at 3760 So.
Highland Drive, Suite 300, Salt Lake City, Utah 84106 and is being merged
into and survived by Nighthawk Capital, Inc., a Nevada corporation, as the
acquiring corporation with its registered place of business at 1800 E.
Sahara, Suite 107, Las Vegas, Nevada 89104.
2. The plan of merger has been adopted by the board of directors of each
corporation.
3. Approval by the stockholders of the Nevada corporation was not required
as set forth in Section 78.454 inasmuch as the shares and rights of the
stockholders of the Nevada corporation will not change.
4. Approval by the stockholders of the Utah corporation was required, and
after approval by the board of directors, the plan was submitted to the
stockholders at a special meeting on December 30, 1993, with the voting as
follows: At the time of the meeting there were 1,000,000 shares outstanding
and entitled to vote, 966,900 shares were present in person or by proxy and
that 966,900 shares voted in favor of the plan and no shares voted against
the plan.
5. There are no amendments to the Articles of Incorporation of the surviving
corporation.
6. A copy of the Plan of Merger is attached.
<PAGE>
We, the undersigned, being the President and the Secretary, do make and
file these Articles of Merger, hereby declaring and certifying that the facts
herein stated are true, and accordingly have hereunto set our hand.
/s/ Krista Castleton, President
-------------------------------------
Krista Castleton, President
/s/ David R. Yeaman, Secretary
- -----------------------------------
David R. Yeaman, Secretary
STATE OF UTAH )
: ss
County of Salt Lake)
On this 30th day of December, 1993, before me, a notary public,
personally appeared Krista Castleton and David R. Yeaman, known to me to be
the persons whose names are subscribed to the within document, and
acknowledge that they executed the same.
/s/ Illegible
- --------------------
Notary Public
NOTARY SEAL
<PAGE>
PLAN OF MERGER
OF
NIGHTHAWK CAPITAL, INC.
SUBJECT TO THE NEVADA REVISED STATUTES SECTION 78.451 THE NEVADA
CORPORATION HEREIN SUBMITS ITS PLAN OF MERGER AS APPROVED BY THE BOARD OF
DIRECTORS AND A MAJORITY OF THE STOCKHOLDERS.
1. NAME:
It is the intent of Nighthawk Capital, Inc., incorporated in the State
of Utah, to merge into and to be survived by the Nevada corporation, a
corporation organized under the laws of the State of Nevada, and to hence
forth be known and on record as Nighthawk Capital, Inc.
2. TERMS AND CONDITIONS:
The terms and conditions of the merger, as negotiated by the board of
directors and approved by the majority of the stockholders, is as follows:
(a) That Nighthawk Capital, Inc., a Utah corporation, merge into
and be survived by Nighthawk Capital, Inc., the Nevada corporation, and that
the stockholders of the Utah corporation will now hold the same number of
shares in the Nevada corporation with identical designations, preferences,
limitations, and relative rights after the merger.
(b) That the stockholders in Nighthawk Capital, Inc., a Utah
corporation, will receive one share of Nighthawk Capital, Inc., the Nevada
corporation, in exchange for one share of the Utah corporation.
(c) Merger of the Utah corporation into the Nevada corporation is
permissible under Utah law Section 16-10A-1107(1)(a).
<PAGE>
(d) Subject to NRS Section 78.454, approval by the stockholders of
the Nevada corporation, is not required for the merger, inasmuch as the
articles of incorporation of the Nevada corporation will not differ from its
articles before the merger.
(e) Each stockholder in the Nevada corporation, whose shares were
outstanding immediately before the effective date of the merger, will hold
the same number of shares with identical designations, preferences,
limitations, and relative rights immediately after the merger.
(f) The number of voting shares outstanding immediately after the
merger, plus the number of voting shares issuable as a result of the merger
do not exceed more than twenty percent (20%) of the total number of voting
shares outstanding immediately before the merger.
(g) The number of participating shares outstanding immediately
after the merger, plus the number of participating shares issuable as a
result of the merger do not exceed more than twenty percent (20%) of the
total number of participating shares outstanding immediately before the
merger.
NIGHTHAWK CAPITAL, INC. (Utah)
/s/ Krista Castleton
--------------------------------
President
NIGHTHAWK CAPITAL, INC. (Nevada)
/s/ Krista Castleton
--------------------------------
President
<PAGE>
Exhibit 2.4
BYLAWS OF
NIGHTHAWK CAPITAL, INC.
ARTICLE 1 - STOCKHOLDER'S MEETINGS
A) ANNUAL MEETINGS shall be held on the 30th day of December of each year
beginning in 1993, or at such other time as may be determined by the Board of
Directors of the President, for the purposes of electing directors, and
transacting such other business as may properly come before the meeting.
B) SPECIAL MEETINGS may be called at any time by the Board of Directors or
by the President, and shall be called by the President or the Secretary at
the written request of the holders of a majority of the shares then
outstanding and entitled to vote.
C) WRITTEN NOTICE stating the time and place of the meeting, signed by the
President or the Secretary, shall be served either personally or by mail, not
less than ten (10) nor more than sixty (60) days before the meeting upon each
Stockholder entitled to vote. Said notice shall state the purpose for which
the meeting is called, no other business may be transacted at said meeting,
unless by unanimous consent of all stockholders present, either in person or
by proxy.
D) PLACE of all meetings shall be at the principal office of the
Corporation, or at such other place as the Board of Directors or the
President may designate.
E) A QUORUM necessary for the transaction of business at a stockholder's
meeting shall be a majority 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 1, C), if a quorum is present they may adjourn from day
to day without notice.
F) VOTING: Each stockholder shall have one vote for each share of stock
registered in his name on the books of the Corporation, a majority vote shall
authorize any Corporate action, except the election
1
<PAGE>
of the Directors, who shall be elected by a plurality of the votes cast.
G) PROXY: At any meeting of the stockholders any stockholder may be
represented an vote by a proxy, appointed in writing and signed. No proxy
shall be valid after the expiration of six (6) months from the date of its
execution, unless the person executing it specifies the length of time it is
to continue in force, which in no case shall exceed seven (7) years from its
execution.
H) CONSENT: Any action, except election of Directors, which my be taken by a
vote of stockholders at a meeting, may be taken without a meeting if
authorized by a written consent of stockholders holding at least a majority
of the voting power.
ARTICLE II - BOARD OF DIRECTORS
A) OFFICE: At least one person chosen annually by the stockholders shall
constitute the Board of Directors. Additional Directors may be appointed by
the Board of Directors. The Director's term shall be for one year, and
Directors may be re-elected for successive annual terms.
B) DUTIES: The Board of Directors shall be responsible for the control and
management of the affairs, property and interests of the Corporation and may
exercise all powers of the Corporation, except as are in the Articles of
Incorporation or by statute expressly conferred upon or reserved to the
stockholders.
C) MEETINGS: Regular meetings of the Board of Directors shall be held
immediately following the annual meeting of the stockholders, at the place of
the annual meeting of the stockholders, or at such other time and place as
the Board of Directors shall be resolution establish. Notice of any regular
meeting shall not be required, unless the Board of Directors shall change the
time and place of the regular meeting at which change was made. Special
meetings maybe called by the President or by one of the Directors at such
time and place specified in the notice or waiver of notice thereof. The
notice of the special meeting shall be mailed to each Director at least five
(5) day before the meeting day, or if the
2
<PAGE>
notice is delivered the day before the meeting. Special meetings may be
called without notice, provided a written waiver of notice is executed by a
majority of the Board of Directors.
D) CHAIRMAN: At all meetings of the Board of Directors, the Chairman shall
preside. If there is no Chairman one shall be chosen by the Directors.
E) QUORUM: A majority of the Board of Directors shall constitute a quorum.
F) VACANCIES: Any vacancy in the Board of Directors, unless the vacancy was
caused by a stockholder removal of a Director, shall be filled for the
unexpired term by a majority vote of the remaining Directors, though less
than a quorum, at any regular or special meeting of the Board of Directors
called for that purpose.
G) A RESOLUTION in writing signed by a majority of the Board of Directors,
shall constitute action by the Board, with the same force and effect as
though such resolution had been passed at a duly convened meeting. The
Secretary shall record each resolution in the minute book.
H) COMMITTEES may be appointed by a majority of the Board of Directors from
its number, by resolution, with such powers and authority to manage the
business as granted by the resolution.
I) SALARIES of the Corporate Officers shall be determined by the Board of
Directors.
ARTICLE III - OFFICERS
A) TITLE: This Corporation shall have a president, secretary, treasurer, and
such other officers as may be necessary. Any two or more offices may be held
by the same person. The officers shall be appointed by the Board of Directors
at the regular meeting of the Board.
B) DUTIES: THE PRESIDENT SHALL:
1) Be the chief executive officer of the Corporation.
2) Preside at all meetings of the Directors and Stockholders.
3) Sign or countersign all certificates, contracts and other instruments
of the Corporation as
3
<PAGE>
authorized by the Board of Directors and shall perform all such other
incidental duties.
THE SECRETARY SHALL:
1) Have charge of the corporate books, and be responsible to make the
necessary reports to the stockholders and the Board of Directors.
2) Prepare and disseminate notices, waivers, consents, proxies and other
material necessary for all meetings.
3) File the sixty (60) day list of officers, directors, name of the
resident agent and the filing fee to the Secretary of State.
4) File the designation of resident agent in the office of the County
Clerk in which the principal office of the Corporation in Nevada is located.
5) File the annual list of officers, directors and designation of resident
agent along with the filing fee.
6) Be the custodian of the certified articles of incorporation, bylaws and
amendments thereto.
7) Supply in the Resident Agent or Principal Corporate Nevada Office the
name of the custodian of the stock ledger or duplicate stock ledger, along
with the complete Post Office address of the custodian, where such stock
ledger or duplicate stock ledger is kept.
THE TREASURER SHALL:
1) Have the custody of all monies and securities of the Corporation and
shall keep regular books of account.
2) Perform all duties incidental to his office as directed of him by the
Board of Directors and the President.
ARTICLE IV - STOCK
A) CERTIFICATES representing shares of the Corporation's stock shall be in
such form as shall be
4
<PAGE>
adopted by the Board of Directors, numbered and registered in the order
issued. The certificates shall bear the following; the holders name, the
number of shares of stock, the signature either of the Chairman of the Board
of Directors or the President, and either the Secretary or Treasurer.
B) NO CERTIFICATE shall be issued until the full amount of consideration has
been paid, except as otherwise provided by law.
C) EACH SHARE of stock shall entitle the holder to one vote.
ARTICLE V - DIVIDENDS
DIVIDENDS may be declared and paid out of any funds available therefor, as
often, in such amounts as the Board of Directors may determine, except as
limited by law.
ARTICLE VI - FISCAL YEAR
THE FISCAL YEAR of the Corporation shall be determined by the Board of
Directors.
ARTICLE VIII - INDEMNIFICATION
PURSUANT TO N.R.S. 78.751 any person who is a Director, Officer, Employee, or
Agent of this Corporation, who becomes a party to an action is entitled to
indemnification against expenses including attorney fees, judgements, fines
and amounts paid in settlement, if he acted in good faith and he reasoned his
conduct or action to be in the best interest of the Corporation.
ARTICLE VIII - AMENDMENTS
A) STOCKHOLDERS shall have the authority to amend or repeal all the bylaws
of the Corporation and exact new bylaws, by affirmative vote of the majority
of the outstanding shares of stock entitled to vote.
B) THE BOARD OF DIRECTORS shall have the authority to amend, repeal, or
adopt new bylaws of the Corporation, but shall not alter or repeal any bylaws
adopted by the stockholders of the Corporation.
5
<PAGE>
Exhibit 10.1
RONALD R. CHADWICK, P.C.
CERTIFIED PUBLIC ACCOUNTANT
2851 S. PARKER ROAD, SUITE 720
AURORA, COLORADO 80014
---------------
TELEPHONE: (303)306-1967
TELECOPIER: (303)306-1944
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT
I hereby consent to the use in this Form 10-SB filing by Chancellor Group,
Inc., of my report dated February 22, 2000 relating to the consolidated
financial statements of Chancellor Group, Inc. which appear in said filing. I
also consent to the reference to my firm under the heading "Experts" in said
filing.
Aurora, Colorado /s/ Ronald R. Chadwick, P.C.
March 6, 2000 ----------------------------
Ronald R. Chadwick, P.C.
