<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Sec. 240.14a-11(c) or Sec. 240.14a-12
ROYALE ENERGY, INC.
(Name of Registrant as Specified in its Charter)
Filed on Behalf of the Board of Directors
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a6(i)(1) and 0-11.
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
<PAGE> 2
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
May 30, 1997
To the Shareholders of Royale Energy Funds, Inc.:
The annual meeting of shareholders of Royale Energy Funds, Inc. (the "Company"),
will be held at the Double Tree Hotel, 7450 Hazard Center Drive, San Diego,
California 92108, beginning at 2:00 p.m.on Thursday, June 26, 1997, for the
purposes of:
1. electing seven directors to serve for the ensuing year;
2. ratifying the Board of Directors' selection of Brown Armstrong Randall &
Reyes as the Company's independent public accountants for 1997; and
3. transacting such other business as may properly come before the meeting
and any adjournment thereof.
Shareholders of record at the close of business on May 15, 1997, and valid
proxyholders may attend and vote at the meeting. If your shares are registered
in the name of a brokerage firm or trustee and you plan to attend the meeting,
please obtain from the firm or trustee a letter or other evidence of your
beneficial ownership of those shares to facilitate your admittance to the
meeting.
By Order of the Board of Directors,
/s/ DONALD H. HOSMER
Donald H. Hosmer
President and Secretary
<PAGE> 3
PROXY STATEMENT
Your proxy, using the enclosed form, is solicited by the Company's board of
directors for use at the annual meeting of shareholders to be held June 26,
1997, and at any adjournment thereof.
The only items of business which management intends to present at the meeting
are listed in the preceding Notice of Annual Meeting of Shareholders and are
explained in more detail on the following pages. By returning your signed
proxy, you authorize management to vote your shares as you indicate on these
items of business and to vote your shares in accordance with management's best
judgment in response to proposals initiated by others at the meeting.
You may revoke your signed proxy at any time before it is exercised at the
annual meeting. You may do this by advising the Company's Secretary in writing
of your desire to revoke your proxy, or by submitting a duly executed proxy
bearing a later date. You may also revoke your proxy by attending the annual
meeting and indicating that you wish to vote in person.
Each shareholder of record at the close of business on May 15, 1997, is
entitled, for each share then held, to one vote on each proposal or item that
comes before the annual meeting, except that under certain circumstances
shareholders may be entitled to cumulate their votes in voting for directors.
See, Election of Directors. On May 15, 1997, the Company had outstanding
3,866,237 shares of Common Stock, 21,875 shares of Series A Convertible
Preferred Stock, and 53,125 shares of Series AA Convertible Preferred Stock
entitled to vote at the meeting.
If you mark "Abstain" with respect to any proposal on your proxy, your shares
will be counted in the number of votes cast, but will not be counted as votes
for or against the proposal. If a broker or other nominee holding shares for a
beneficial owner does not vote on a proposal, the shares will not be counted in
the number of votes cast.
This proxy statement and the accompanying proxy form were first mailed on or
about May 30, 1997, to shareholders entitled to vote at the meeting.
ITEMS OF BUSINESS
1. ELECTION OF DIRECTORS
Seven directors will be elected to serve on the Company's board of directors
until the next annual meeting of shareholders or until their successors shall be
elected and qualified. All seven currently serving directors have be nominated
for reelection to the board.
In the election of directors, no shareholder shall be entitled to cumulate votes
(i.e., cast for any one or more candidates a number of votes greater than the
number of shares) unless a
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shareholder has given notice of the intention to
cumulate votes prior to the commencement of voting. If any shareholder has
given notice of the intent to cumulate votes, then each shareholder has the
right to give one candidate a number of votes equal to the number of directors
to be elected multiplied by the number of shares held by the shareholder, or
distributing such number of votes among as many candidates as the shareholder
sees fit.
Directors are elected from those nominated based on a plurality of votes cast.
Unless authority to vote is withheld or another contrary instruction is
indicated, signed proxies received will be voted for the election of the listed
nominees, all of whom have agreed to serve is elected. Should any of the
nominees become unavailable at the time of the meeting to accept nomination or
election as a director, the proxyholders named in the enclosed proxy will vote
for substitute nominees at their discretion.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF EACH OF THE
FOLLOWING SEVEN NOMINEES FOR DIRECTOR. Proxies solicited by the board of
directors will be voted in favor of each nominee unless shareholders specify
otherwise in their proxies. The following pages describe the nominees for
director, including their principal occupations for the past five years,
certain other directorships, age, and length of service as director of the
Company. Membership on board committees, attendance at board and committee
meetings, and ownership of stock in the Company are indicated in separate
sections following the individual resumes of the nominees.
<TABLE>
<CAPTION>
Nominees for Director
First Became
Director or
Executive
Name Age Officer Positions Held
<S> <C> <C> <C>
Harry E. Hosmer (1) 66 1987 Chairman of the Board.
Donald H. Hosmer 41 1987 President, Secretary
and Director. Chairman
of the Board and
President of affiliate
Royale Petroleum
Corporation ("RPC").
Stephen M. Hosmer 30 1991 Chief Financial Officer
and Director.
Secretary and Director
of RPC.
Oscar Hildebrandt (2) 63 1995 Director.
Rodney Nahama 65 1994 Director.
Henry C. Thorne (1), (2) 67 1991 Director and Assistant
Secretary.
George M. Watters (1), (2) 78 1991 Director.
</TABLE>
(1) Member of the audit committee of the board of directors.
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<PAGE> 5
(2) Member of the compensation committee of the board of directors.
The following summarizes the business experience of each director and executive
officer for the past five years.
HARRY E. HOSMER is the Chairman of the Board of the Company. He has served as
Chairman since the Company began operations in 1987, and from inception in 1987
until June 1995, he also served as President and Chief Executive Officer. In
October 1985, Mr. Hosmer and three of his sons founded Royale Petroleum
Corporation, an affiliate of the Company.
DONALD H. HOSMER is President, Chief Executive Officer, Secretary, and Director
of the Company. He has served as an executive officer and Director of the
Company since its inception in 1987, and in June 1995 he became President and
Chief Executive Officer. Prior to becoming President, he was Executive Vice
President, responsible for marketing working interests in oil and gas projects
developed by the Company. He was also responsible for investor relations and
communications. Donald H. Hosmer is the son of Harry E. Hosmer and brother
of Stephen M. Hosmer.
STEPHEN M. HOSMER is Chief Financial Officer and Director of the Company. Mr.
Hosmer joined the Company as the Management Information Systems Manager in May
1988, responsible for developing and maintaining the Company's computer
software. Mr. Hosmer developed programs and software systems used by the
Company. Mr. Hosmer graduated from Oral Roberts University in Tulsa, Oklahoma,
in May 1988 with a Bachelor of Science in Business Administration. He is a
member of the Natural Gas Producers Committee of the California Independent
Petroleum Association. Stephen M. Hosmer is the son of Harry E. Hosmer and
brother of Donald H. Hosmer.
OSCAR HILDEBRANDT, D.V.M., is a Director and is Chairman of the Company's
Compensation Committee. From 1994 to 1995 he served as an advisory member of
the Company's Board of Directors. Dr. Hildebrandt practiced veterinary medicine
as President of Medford Veterinary Clinic, Medford, Wisconsin, from 1960 to
1990. Since 1990, Dr. Hildebrandt has engaged independently in veterinary
practice consulting services. He has served on the board of directors of
Fidelity National Bank - Medford, Wisconsin, and its predecessor bank from 1965
to the present and is past chairman of the board of the Bank. From 1990 to the
present he has acted as a financial advisor engaged in private business
interests. Dr. Hildebrandt received a Bachelor of Science degree from the
University of Wisconsin in 1954 and a Doctor of Veterinary Medicine degree from
the University of Minnesota in 1958.
RODNEY NAHAMA, a Director of the Company, was employed as president and chief
executive officer of Nahama & Weagant Energy Co. from 1971 until March 1994.
Since March 1994, Mr. Nahama has pursued private business interests, including
the provision of geologic consulting services to the Company. Mr. Nahama holds
a B.A. degree in geology from the University of California, Los Angeles, and an
M.A. degree in geology from the University of
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Southern California. He was an independent exploration geologist from 1965
to 1971 and prior to that served as a geologist with Franco Western Oil
Company from 1963 to 1965. Between 1957 and 1963, Mr. Nahama worked as an
exploration geologist with Honolulu Oil Company, Getty Oil Company, and
Sunray Oil Company. Mr. Nahama is a member of the American Association of
Petroleum Geologists, the San Joaquin Geological Society, the California
Independent Petroleum Association and the Independent Petroleum Association
of America.
HENRY C. THORNE is a Director of the Company. Mr. Thorne is a former manager of
Business and Regional Development for AMOCO Corporation. Mr. Thorne retired
from AMOCO Corporation in December 1986, and in early 1987 he founded Petrochem
International, a venture development company which assists clients in
development of international export-import markets. Mr. Thorne has served as
President of Petrochem International from its inception through the present.
Mr. Thorne received his Bachelor's Degree in chemical engineering with
distinction from Cornell University and his Masters degree in Business
Administration with distinction from Northwestern University. He is a member of
the Commercial Development Association, the Licensing executives Society and
the American Institute of Chemical Engineers.
GEORGE M. WATTERS has been retired from full time employment during the last
five years. Mr. Watters retired from AMOCO Corporation in 1983 after serving
for 24 years in senior management positions with AMOCO Corporation and its
affiliates. From 1987 to the present Mr. Watters has managed his personal
investments. Mr. Watters has also served from 1983 to the present as
managing director of Kuo International Oil (UK) Ltd. responsible for acquiring
crude oil in Europe, Africa and the Middle East, and has served as managing
director of USA Petroleum International from 1987 to the present. Mr.
Watters received his Bachelor of Science degree from Massachusetts Institute
of Technology in 1942.
INFORMATION REGARDING THE BOARD OF DIRECTORS
ATTENDANCE AT BOARD MEETINGS
Three meetings of the board of directors were held in 1996, and all of the
directors attended all 1996 board meetings.
AUDIT COMMITTEE
The board of directors is responsible for the overall affairs of the Company.
For 1996, the board also appointed an audit committee, consisting of directors
Harry E. Hosmer, Henry C. Thorne and George M. Watters, to assist it in
carrying out its responsibility as to the independence and competence of the
Company's independent public accountants. The audit committee held one
meeting in 1996, which was attended by Committee Members Thorne and Watters.
Mr. Hosmer is Chairman of the Board of the Company and holds positions with
other Company affiliates; the other two committee members are neither officers
or
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<PAGE> 7
employees of, or consultants to, the Company or any of its subsidiaries; nor
officers or employees of any other corporation on whose board of directors any
Company officer serves as a member.
COMPENSATION COMMITTEE
The compensation committee is made up of three members of the board of
directors, Henry Thorne, George Watters, and Oscar Hildebrandt. None of the
committee members are officers or employees of the Company, nor officers or
employees of any other corporation on whose board of directors any Company
officers serves as a member. The compensation committee reviews and makes
recommendations to the board of directors on setting the salaries of the
board's officers and the compensation to be paid to members of the board of
directors who are not employees of the Company. The compensation committee
held two meetings during 1996, and all members of the committee attended each
meeting.
COMPENSATION OF DIRECTORS
The Company compensates non-employee directors for their service on the board
of directors. No directors received any stock options or stock appreciation
rights in 1996. The following table sets forth information regarding the
cash compensation paid to directors, other than Named Officers, in 1996.
<TABLE>
<CAPTION>
(a) (b) (c)
Annual Consulting
Retainer Fees/
Name Fees Other Fees (1)
<S> <C> <C>
Oscar Hildebrandt $6,800 $9,225
Rodney Nahama $6,800 $2,600
Henry C. Thorne $7,300 (2) $ 850
George M. Watters $7,300 (2) $3,550
</TABLE>
(1) Consists of payments for directors fees due for services in prior years.
(2) Includes $500 paid for service as a committee member in 1996.
EXECUTIVE COMPENSATION
The following table summarizes the compensation of the chairman of the board and
the president of the Company and its subsidiaries, Harry E. Hosmer and Donald H.
Hosmer (the "Named Officers"), for the fiscal years ended December 31, 1996,
1995, and 1994.
5
<PAGE> 8
<TABLE>
<CAPTION>
Long Term
Compensation
Annual Compensation Awards
----------------------- ----------
(a) (b) (c) (d) (e)
Securities
Period Other Underlying
Name Covered Salary Compensation Options
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Donald H. Hosmer, FYE 12/31/96 $100,000 $ 703 0
CEO FYE 12/31/95 $100,000 $ 785 30,000
FYE 12/31/94 $89,583 $5,500 0
Harry E. Hosmer, FYE 12/31/96 $122,444 $ 882 0
Chairman FYE 12/31/95 $110,000 $1,295 30,000
FYE 12/31/94 $120,000 $1,190 0
</TABLE>
* Prior to June 1995, the Company made interest free advances to Harry and
Donald Hosmer in connection with their participation as investors in
certain wells drilled by the Company. See, Certain Relationships and
Related Transactions. To the extent that the advances amount to interest
free loans, Harry and Donald Hosmer could be considered to have received
additional compensation. The Other Compensation in the foregoing table
consists of the amounts which the Company's management believes may be
considered income to be imputed from such foregone interest. The imputed
interest was estimated using approximate amounts due at the end of each
period, as if that amount had been due for the entire period. The
imputed interest rate used by the Company is currently 7.5% simple
interest per annum. In June 1995, the Company ceased to advance funds to
its officers and directors for their participation in new wells. The
Current policy requires that all such purchases of interests in wells
must be paid in cash prior to the drilling of the well.
The costs incurred by Messrs. Hosmer for interests acquired in wells
pursuant to this policy have in some (but not all) cases been less than
would have been the cost of purchasing the equivalent percentage as
working interests in theses wells which are sold to outside investors.
The difference between their actual cost and the cost incurred by outside
investors could be considered as additional compensation to them.
However, the Company's Management does not believe that the amount of
such difference is significant or should be considered compensation,
given the risk of cost overruns undertaken by them. See, Certain
Relationships and Related Transactions.
6
<PAGE> 9
The Company does not maintain a retirement plan or "Section 401(k)"
compensation plan on behalf of its employees.
STOCK OPTIONS GRANTED IN 1996
No stock options were granted to officers, directors, or employees during 1996.
AGGREGATED 1996 OPTION EXERCISES AND YEAR-END VALUES
Neither of the Named Officers exercised any stock options or stock appreciation
rights in 1996, 1995, or 1994. The following table summarizes the number and
value of all unexercised stock options held by the Named Officers at the end of
1996.
<TABLE>
<CAPTION>
(a) (b) (c)
Number of Securities Value of Unexercised
Underlying Unexercised Money Options/SARS at FY-
Options/SARs at FY-End (#) End ($)
Name Exercisable/Unexercisable (2) Exerciseable/Unexerciseable
- --------------------------------------------------------------------
<S> <C> <C>
Harry E. Hosmer 15,000/30,000 $15,000/$63,000
Donald H. Hosmer 15,000/30,000 $15,000/$63,000
</TABLE>
1 Based on a fair market value of $4.00 per share, which was the minimum
bid price of the Company's Common Stock in the Nasdaq Small Cap Market
on December 31, 1996.
2 All unexercisable options held by Named Officers on December 31, 1996,
became exercisable on March 10, 1997.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following tables set forth certain information regarding the ownership of
the Company's voting securities as of March 1, 1997, by: (i) each person who is
known by the Company to own beneficially more than 5% of the outstanding shares
of each class of equity securities, (ii) each director of the Company, and (iii)
all directors and officers of the Company as a group. Except pursuant to
applicable community property laws and except as otherwise indicated, each
shareholder identified in the table possesses sole voting and investment power
with respect to its or his shares.
7
<PAGE> 10
COMMON STOCK
On March 1, 1997, 3,856,862 shares of the Company's Common Stock were
outstanding.
<TABLE>
<CAPTION>
Shares Owned (1)
---------------------------------
Shareholder (2) Number Percent
<S> <C> <C>
Royale Petroleum Corporation 1,279,243 (3), (4) 31.30%
Donald H. Hosmer 1,325,243 (3), (4) 32.10%
Harry E. Hosmer 45,000 (4) 1.15%
Oscar A. Hildebrandt 62,422 (5) 1.61%
Stephen M. Hosmer 1,310,493 (3), (4) 32.10%
Owen LeTissier 500,000 (6) 12.96%
St. Peter Port
Guernsey, Channel Islands
Henry C. Thorne 33,472 0.86%
George M. Watters 67,500 (7) 1.74%
All directors and officers
as a group (7 persons) 1,578,887 (3) 36.71%
</TABLE>
(1) Includes shares which the listed shareholder has the right to acquire
before May 30,1997, from options or warrants.
(2) Unless otherwise indicated, the mailing address of each listed
shareholder is 7676 Hazard Center Drive, Suite 1500, San Diego,
California 92108.
(3) Because Messrs. Donald and Stephen Hosmer are directors of Royale
Petroleum Corporation ("RPC") and have power to vote the shares of
Common Stock owned by RPC, pursuant to Rule 13d-3 promulgated under the
Securities Exchange Act of 1934, as amended, each of them may be deemed
to be the beneficial owner of all the Common Stock owned by RPC.
Accordingly, the 1,279,243 shares of the Company owned by RPC are
included in the number of shares held by both Donald and Stephen Hosmer
and in the number of shares owned by all officers and directors as a
group.
(4) Donald H. and Stephen M. Hosmer are sons of Harry E. Hosmer, Chairman of
the Board.
(5) Includes shares held by a family partnership of which Dr. Hildebrandt
is a 50% partner
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<PAGE> 11
and shares held by a trust of which Dr. Hildebrandt is trustee.
(6) The Company's transfer records reflect that Owen LeTissier holds 400,000
shares (10.37% of the outstanding shares at March 1, 1997) as the
Trustee of two foreign charitable trusts which were formed in 1994 by
Harry E. Hosmer, the chairman of the board. Mr. LeTissier holds sole
voting power over the shares, although Harry E. Hosmer acts as an
adviser to the Trusts. The beneficiaries of the Trusts are certain
charitable organizations, although the wife and certain sons of
Harry E. Hosmer have the right to become beneficiaries of the Trusts
after his death. Donald and Stephen Hosmer have indicated that, in the
event they are named as beneficiaries, they have no intention to elect
to become beneficiaries and will decline to exercise any rights under
the trusts to vote or otherwise control the shares of the Company which
the Trusts hold. Accordingly, the ownership interest of Donald and
Stephen Hosmer do not reflect the shares owned by the Trusts. The
Company's transfer records also indicate that 100,000 shares are held
by Stratford Investments, Limited, which the Company believes to be an
affiliate of Mr. LeTissier.
(7) Includes Common Stock held by a trust of which Mr. Watters is the Trustee.
PREFERRED STOCK
Holders of each series of preferred shares have voting rights equal to the
number of shares into which they are convertible. None of the Preferred
shareholders have the right to vote as much as 5% of the shares entitled to vote
when taking into account the total number of both Common and Preferred Shares.
On March 1, 1997, there were 21,875 shares of Series A and 71,875 shares of
Series AA Convertible Preferred Stock outstanding. The shares of each series of
Convertible Preferred Stock is convertible into the Company's Common Stock at
the option of the security holder, at the rate of two shares of Convertible
Preferred Stock for each share of Common Stock.
<TABLE>
<CAPTION>
Series A Series AA
---------------- ----------------
Shareholder (1) Number % Number %
<S> <C> <C> <C> <C>
Richard G. and Margaret E. Algire 3,125 14.3%
Flora M. Bardet 12,500 17.4%
Larry Burns 6,250 8.7%
Marjorie Carson 6,250 8.7%
Virginia L. Hoffman 12,500 57.1%
Overland Bank 6,250 8.7%
</TABLE>
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<PAGE> 12
<TABLE>
<CAPTION>
Series A Series AA
---------------- ----------------
Shareholder (1) Number % Number %
<S> <C> <C> <C> <C>
George Singleton 6,250 8.7%
Charles Swaner 6,250 8.7%
James S. Trowbridge 6,250 28.6%
William W. Well 6,250 8.7%
Jerome Winston 6,250 8.7%
All officers and directors 0 0.0% 0 0.0%
as a group (7 persons)
</TABLE>
(1) The mailing address of each listed shareholder is 7676 Hazard Center
Drive, Suite 1500, San Diego, California 92108.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
INVESTMENTS IN COMPANY WELLS BY CERTAIN OFFICERS AND DIRECTORS. The Company's
board of directors has adopted a policy that permits each director and officer
to purchase from the Company, at its cost, up to one percent (1%) fractional
interest in any well to be drilled by the Company. Officers and directors may
elect to participate in wells at any time up until drilling of the prospect
commences. They do not pay the set, turnkey price paid by outside investors
who purchase undivided working interests from the Company. Instead, they
participate on terms much the same as would be afforded to other oil and gas
industry participants or joint venturers. Participants are invoiced for their
share of direct costs of drilling and completion as expenses are incurred by
the Company, and thus they are liable for all direct costs and expenses
through completion of a well, whether or not the well drilling and completion
expenses exceed the Company's cost estimates.
Officer and director participants under this program do not pay some expenses
paid by outside, retail investors in working interests, such as sales
commission, if any, or marketing expenses. The outside, turnkey drilling
agreement investors, on the other hand, are not obligated to pay additional
costs if a drilling project experiences cost overruns or unanticipated expenses
in the drilling and completion stage. Accordingly, the Company's Management
believes that the terms on which officers and directors participate in wells
under the Board of Directors' policy are the same as could be obtained by
unaffiliated oil and gas industry participants in arms-length transactions,
albeit those terms are different than the turnkey agreement under which outside
investors purchase fractional undivided working interests from the Company.
Of the current officers and directors, Donald Hosmer, Stephen Hosmer, Harry E.
Hosmer,
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<PAGE> 13
Henry Thorne, and Oscar Hildebrandt have at various times elected to
purchase interests in certain wells drilled by the Company. Donald and Stephen
Hosmer have each individually participated in 23 wells. Donald and Stephen
Hosmer have also participated in 9 wells in the name of RPC, a corporation
jointly owned by them, beginning in 1996. The Hosmer Trust, a trust for the
benefit of family members of Harry E. Hosmer, has participated in 24 wells.
In 1995, the Hosmer Trust, Donald Hosmer, and Stephen Hosmer were each charged
$1,522 for costs related to one well in which they had each agreed, in 1994, to
acquire a 0.5% interest. Also in 1995, Donald and Stephen Hosmer were each
charged a total of $2,113 for purchasing a 0.5% interest in one well and a 0.25%
interest in a second well. In 1996, RPC paid additional costs relating to one
of these wells, in the amount of $1,578. The cost of purchasing direct working
interests of similar size in those two wells would have been $7,533.
During 1996, Donald and Stephen Hosmer invested in nine wells in the name of
RPC. RPC was charged a total of $4,619 for a 0.25% interest in each of the nine
wells drilled by the Company in 1996, with the exception of Bowerbank #4A and
#4B, in which its interests were 0.0625% and 0.1875%, respectively. The amount
charged was based on those costs actually billed through December 31, 1996.
Certain of the wells in which RPC invested were not completed in 1996, and
additional costs relating to those wells will be incurred and billed to RPC
during 1997. The cost of purchasing a 0.25% direct working interest in the nine
wells would have been $15,395.
During 1995, Oscar A. Hildebrandt invested $7,841 in working interests in three
wells. The cost of purchasing the same percentage interest in direct working
interests would have been $12,954. During 1996, Dr. Hildebrandt invested $
12,954 in working interests in five wells. The cost of purchasing the same
percentage interest in direct working interests would have been $24,588.
Prior to June 1995, the Company had advanced funds to the officer and director
participants with which to purchase their interests. The advances were non-
interest bearing and were to be repaid from future production from the working
interests, with advances to be repaid from well production. Each month,
participants are credited with well income and charged with well expenses from
producing wells, at the same time as other investors including working interest
purchasers. Each officer and director who participates in one or more wells
with the Company has a single account to which all charges and income from all
wells is credited. The Company advanced a total of $50,814 to the Hosmer Trust,
of which $18,758 and $4,767 remained outstanding at December 31, 1995 and 1996,
respectively. See, Executive Compensation. The Company advanced Donald and
Stephen Hosmer each a total of $28,906, of which a total of $13,247 and $5,481
remained unpaid by each of them at December 31, 1995 and 1996, respectively. In
June 1995, the Company ceased to advance funds for investments in new wells.
Current policy requires that all such purchases of interests in wells must be
paid in cash prior to the drilling of the well.
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<PAGE> 14
Assignment of Working Interest as Compensation for Services. During 1995, one
independent director, Henry Thorne, was partially compensated for directors'
fees and reimbursed for expenses incurred during 1993 and 1994 by receiving an
assignment of a 0.5% interest in one well drilled by the Company. The value of
the well interest he received was $1,826, calculated on approximately the same
basis as that under which directors could have participated in the well under
the investment policy described above. In 1996, Mr. Thorne received an
assignment of a 0.5% interest in one well as further reimbursement for deferred
1993 and 1994 directors' fees and expenses. The value of the well interest
that he received was $1,864, also calculated on approximately the same basis
as that under which directors and officers could have participated in the
wells.
2. RATIFICATION OF SELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS
With the approval of the members of the audit committee, the board of directors
has selected Brown Armstrong Randall & Reyes as the independent public
accountants to examine the financial statements of the Company and its
subsidiaries for the year 1997. Brown Armstrong Randall & Reyes was engaged
on May 12, 1994 and has examined the Company's financial statements for the
years ended December 31, 1994, 1995, and 1996.
A representative of Brown Armstrong Randall & Reyes will be present at the
annual meeting to respond to questions.
Although this appointment is not required to be submitted to a vote of the
shareholders, the board of directors believes it is appropriate as a matter of
policy to request that the shareholders ratify the appointment. If the
shareholders should not ratify the appointment, the audit committee will
investigate the reasons for shareholder rejection and the board will
reconsider the appointment.
A majority of the votes cast is required to ratify the appointment of the
independent public accountants.
The board of directors recommends a vote FOR the proposal to ratify the
selection of Brown Armstrong Randall & Reyes. Proxies solicited by the board
of directors will be so voted unless shareholders specify otherwise in their
proxies.
3. OTHER MATTERS
The proxy being solicited by the board of directors also provides authority
for the proxy holders, Donald H. Hosmer and Stephen M. Hosmer, to use their
discretion to vote on such other matters as may lawfully come before the
meeting, including matters incidental to the conduct of the meeting, and any
adjournment thereof.
12
<PAGE> 15
OTHER INFORMATION
ANNUAL REPORT
The Company's annual report for 1996, including financial statements, is being
mailed to shareholders prior to or simultaneously with this proxy statement.
METHOD AND COST OF SOLICITING PROXIES
The accompanying proxy is being solicited on behalf of the Board of Directors
of the Company. the expense of preparing, printing and mailing the form of
proxy and the material used in the solicitation thereof will be borne by the
Company. Proxies may be solicited by officers, directors, and employees of
the Company in person, or by mail, courier, telephone or facsimile. In
addition, the Company has retained ADP Proxy Services to solicit proxies by
mail, courier, telephone and facsimile and to request brokerage houses and
other nominees to forward soliciting material to beneficial owners. For
these services the Company will pay a fee of approximately $1,500 plus
expenses.
SECTION 16(a) COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 and Securities and
Exchange Commission regulations require that the Company's directors,
certain officers, and greater than 10 percent shareholders are required to
file reports of ownership and changes in ownership with the SEC and the NASD
and to furnish the Company with copies of all such reports they file. The
Company has never received a copy of any report pursuant to Section 16(a)
of the Securities Exchange Act from Mr. Owen LeTissier, a resident of the
British Channel Islands who is believed by the Company to hold more than
10 percent of its Common Stock. See, Security Ownership of Certain Beneficial
Owners and Management - Common Stock. Except for possible reporting
obligations, if any, by Mr. LeTissier, and based solely upon a review of
the copies of the forms furnished to the Company, or written representations
from certain reporting persons that no reports were required, the Company
believes that no person failed to file required reports on a timely basis
during or in respect of 1996.
ADDITIONAL INFORMATION
Shareholders may obtain, free of charge, a copy of the Form 10-KSB for the
year ended December 31,1996 (including the financial statements and schedules
thereto) filed with the Securities and Exchange Commission by writing to the
Company's Secretary at 7676 Hazard Center Drive, Suite 1500, San Diego,
California 92108.
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<PAGE> 16
PROPOSALS BY SHAREHOLDERS - 1997
Any proposal by a shareholder to be submitted for inclusion in proxy
soliciting material for the 1998 annual shareholders meeting must be received
by the corporate secretary of the Company no later than December 31, 1997.
OTHER MATTERS
No proposals have been received from shareholders for inclusion in the proxy
statement or action at the 1997 annual meeting. Management does not know of any
matter to be acted upon at the meeting other than the matters above described.
However, if any other matter should properly come before the meeting, the
proxyholders named in the enclosed proxy will vote the shares for which they
hold proxies in their discretion.
By Order of the Board of Directors,
/s/ DONALD H. HOSMER
Donald H. Hosmer
President and Secretary
14
<PAGE> 17
Royale Energy Funds, Inc. Annual Meeting to be Held on 6/26/97
For holders as of 5/20/97
8 1-0001
CUSIP 780746200
Directors Control No. __________
Directors recommend: a vote for election of the following 10100
directors
01 - Harry E. Hosmer, 02 - Donald H. Hosmer, 03 - Stephen M.
Hosmer, 04 - Oscar A. Hildebrandt, 05 - Rodney Nahama, 06 - Henry C.
Thorne, 07 - George H. Watters
Directors
[mark "x" for only one box]
1 [ ] for all nominees
[ ] withhold all nominees
[ ] withhold authority to vote for
any individual nominee. write
number(s) of nominee(s) below.
use number only __________________________________
Proposal(s)
2 - Ratification of selection of accountants - to ratify and Directors
approve ----- [arrow] Recommend
the selection of Brown Armstrong Randall & Reves as the for
Company's independent public accountants. 0010200
For Against Abstain Please indicate your proposal
2 [ ] [ ] [ ] selection by firmly placing an
"X" in the appropriate [X]
numbered box with blue or black
ink only.
See Voting instruction 1 on reverse.
3 - Other Matters - In their discretion, to vote on such
other ----- [Arrow] for
matters as may properly come before the meeting, but which 039982
are not now anticipated, to serve or for good cause cannot
serve, and to vote upon matters incident to the conduct of
the meeting.
For Against Abstain
3 [ ] [ ] [ ]
<PAGE> 18
Royale Energy Funds, Inc.
06/26/97
Cusip: 780746200
Control no.: __________
Client No.: ___________
Please mark if you plan to attend
and vote your shares at the meeting. [ ]
51 Mercedes Way
Edgewood, NV 11717
Royale Energy Funds, Inc.
ATTN: Stephen Hosmer
7676 Hazard Center Dr., Suite 1500
San Diego, California 92108
_____________________________________________ ______________
Signature(s) Date
