- ---------------------------------------------------------------------------
NOTICE OF ANNUAL MEETING OF
Royale Energy, Inc.
- ----------------------------------------------------------------------------
DATE: Thursday, August 19, 1999
TIME: 1:30 p.m.
PLACE: Doubletree Hotel, Mission Valley
7450 Hazard Center Drive
San Diego, CA 92108
Matters to be Voted on:
1. Election of seven directors to serve for the ensuing year;
2. Ratification of the selection of Brown Armstrong Randall & Reyes as the
Company's independent public accountants for 1999; and
3. Transacting such other business as may properly come before the meeting
and any adjournment thereof.
Who May Attend and Vote at the Meeting
Shareholders of record at the close of business on June 4, 1999, and valid
proxy holders 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,
/signed/ Donald H. Hosmer
----------------------------------
Donald H. Hosmer
President and Secretary
<PAGE>
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 August 10,
1999, and at any adjournment thereof. This proxy statement has information
about the annual meeting and was prepared by the Company's management for the
Board of Directors. Your vote at the annual meeting is important to us. Please
vote your shares of common stock by completing the enclosed proxy card and
returning it to us in the enclosed envelope.
A) GENERAL INFORMATION
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.
1) Changing or Revoking Your Proxy Vote
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. We will honor the proxy card with the latest date.
You may also revoke your proxy by attending the annual meeting and indicating
that you wish to vote in person.
2) Who may Vote
Each shareholder of record at the close of business on June 4, 1999, 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 Proposal 1: Election of Directors.) On April 30, 1999, the Company had
outstanding 3,816,856 shares of Common Stock, 9,375 shares of Series A
Convertible Preferred Stock, and 43,750 shares of Series AA Convertible
Preferred Stock entitled to vote at the meeting.
3) Voting in Person
Although we encourage you to complete and return your proxy to ensure that
your vote is counted, you can attend the annual meeting and vote your shares
in person.
1
<PAGE>
4) How your Votes are Counted
We will hold the annual meeting if holders of a majority of the shares of
common stock entitled to vote either sign and return their proxy cards or
attend the meeting. If you sign and return your proxy card, your shares will
be counted to determine whether we have a quorum even if you abstain or fail
to vote on any of the matters listed on the proxy card.
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 July 16, 1999, to shareholders entitled to vote at the meeting.
B) ITEMS OF BUSINESS
Proposal 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 are
elected and qualified. Seven of the seven currently serving directors have be
nominated for reelection to the board.
a) Voting
The seven nominees receiving the highest number of votes will be elected.
Signed proxies received will be voted for the election of the nominees listed
in this proxy statement, all of whom have agreed to serve if elected. Should
any of the nominees become unavailable at the time of the meeting to accept
nomination or election as a director, the proxy holders named in the enclosed
proxy will vote for substitute nominees at their discretion. Votes witheld for
a nominee will not be counted.
b) Cumulative Voting
Cumulative voting allows a shareholder to cast for any one or more candidates
a number of votes greater than their number of shares. For cumulative voting
to be in effect, at least one shareholder must give notice of their intent 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 (seven) 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. For example, if you have 100 shares, you will have
700 votes. You can give all your votes to one nominee or distribute your votes
among as many nominees as you would like.
c) Nominees for the Board of Directors
3
<PAGE>
- ----------------------------------------------------------------------------
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.
Each nominee has agreed to be named in this proxy statement and to serve as a
director if elected. The ages listed are as of June 1, 1999.
Nominees for Director
First Became Director
Name Age or Executive Officer Positions Held
Harry E. Hosmer 68 1987 Chairman of the Board
Donald H. Hosmer 45 1987 President, Secretary and
Director. Chairman of the
the Board and President of
affiliate Royale Petroleum
Corporation ("RPC")
Stephen M. Hosmer 32 1991 Chief Financial Officer and
Director. Secretary and
Director of RPC.
Oscar Hildebrandt 63 1995 Director
/2
Rodney Nahama 65 1994 Director
George M. Watters 79 1991 Director
/1, /2
Gilbert C. L. Kemp 65 1998 Director
/1 Member of the audit committee of the board of directors.
/2 Member of the compensation committee of the board of directors.
3
<PAGE>
d) Nominee Profiles
The following summarizes the business experience of each director and
executive officer for the past five years.
Harry E. Hosmer - Chairman of the Board
Mr. Hosmer 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. Prior
to his founding of the Royale companies, Mr. Hosmer was Vice President of
an Oklahoma oil and natural gas exploration and development company.
He was a member ofthe Independent Petroleum Association's Speaker's Bureau
and its Capital Formation Committee. Mr. Hosmer also served as President
of Brookhill Publishing Company, a publisher of leading trade publications,
which was subsequently acquired by Harcout, World, Jovanovich & Brace.
He was also an officer of Petra Company, a real estate development
company. Mr. Hosmer serves as a member ofthe Board of Directors of
the Overseas Council, an international organization providing scholarships
for the education of young leaders in third world countries, and of
New Europe Vision, which provides help to developing Eastern European
countries.
Donald H. Hosmer - President, Chief Executive Officer, Director, and co-founder
of Royale Energy, Inc.
In October, 1985 Mr. Hosmer, along with his father and brothers, founded
Royale Petroleum Corporation, the principal shareholder of the Corporation. In
October, 1986, Energy, Inc. (The Company) was incorporated in order to combine
the function of the prior two companies in preparation for the involvement of
outside shareholders for the first time. Mr. Hosmer was responsible for the
marketing aspects of the Company. In this capacity, his department has funded
over $35,000,000 in oil and natural gas acquisitions since 1984. Mr. Hosmer
publishes the Royale Energy Report, a quarterly energy publication giving its
readers an informative summary of company activities, as well as, the state of
the natural gas industry. He is a member of the Speakers Bureau of the
Independent Petroleum Association of America (IPAA) and registered as an oil
and gas industry expert on the Business Wire's ExpertSource service. He has
successfully directed the funding of 150 oil and natural gas wells throughout
the major geologic basins in the US. Under his leadership Royale became the
largest independent natural gas producer in California. After graduation from
college, he joined Cox Broadcasting where he became Systems Sales Manager with
a 70-member staff. Since Mr. Hosmer was appointed C.E.O. in the second
quarter of 1995, the Company has been profitable every quarter, with a 12%
return on equity for fiscal year 1998.
Stephen M. Hosmer - Chief Financial Officer, Director, Secretary
Mr. Hosmer joined the Company in May 1988. He was responsible for
establishing the Company information management system and forming the
Operating Division of Royale Energy, Inc. In this capacity, he brought the
Company into the Sacramento Basin through a joint venture with Pacific Gas &
Electric Resources resulting in the drilling of the Victor Ranch wells. Mr.
Hosmer has also been responsible for heading up the acquisition team. As
4
<PAGE>
such, he has concluded the acquisition of Arkoma Production Company from Jerry
Jones and the acquisition of Vernon E. Faulconer Inc. in 1997. In June of
1995, the Board of Directors appointed Mr. Hosmer as Chief Financial Officer.
Mr. Hosmer attended Oral Roberts University in Tulsa, Oklahoma.
Oscar Hildebrandt, D.V.M. - Director
Dr. Hildebrandt has been a director of Royale Energy, Inc. since 1995. He is
currently a financial advisor and educator. Dr. Hildebrandt practiced
veterinary medicine for 35 years, organizing and acting as senior partner of a
10 veterinarian group practice. During that time he managed the pension plan
and profit-sharing plan for the group practice. Dr. Hildebrandt was
instrumental in starting several businesses that subsequently were sold to
large national corporations and was the director, organizer and chairman of
the board of Fidelity National Bank of Medford, Wisconsin. He attended both
the University of Wisconsin and University of Minnesota, graduating from the
University of Minnesota with a Bachelor's degree and D.V.M. degree. He has
been involved in oil and gas investments for 33 years.
Rod Nahama - Director
Mr. Nahama, a leading geologist with over 31 years of hands-on experience in
finding oil and natural gas in California and Oregon basins, joined Royale's
Board of Directors in 1994. Since 1994, Mr. Nahama has pursued private
business interest, including the provision of geologic consulting services to
the company. Mr. Nahama has discovered some of the largest producing wells in
California. He worked for many years as an exploration geologist for energy
companies prior to co-founding Nahama & Weagant Energy Company in 1979. His
expertise in exploring, developing, producing and selling natural gas in
California and Oregon is well recognized throughout the United States.
George M. Watters - Director
Mr. Watters has been a Director of Royale Energy, Inc. since 1991. He has many
years of senior management experience, including 23 years with Amoco, in all
phases of downstream petroleum operations - marketing, refining, trading and
commercial development. He was instrumental in the conception and development
of two successful grass roots refining and marketing projects in Australia and
Singapore. His last assignment was Chief Executive of Amoco Shipping and
Trading Company, residing in London. Prior to his affiliation with Amoco, he
held various management positions with the former Standard-Vacuum Oil Company,
jointly owned by Exxon and Mobil. He is a graduate of MIT and also attended
their Management Program for Senior Executives.
Gilbert C.L. Kemp - Director
Mr. Kemp, the founder of Kemp Geophysical is one of the industry's foremost
experts in 2D and 3D seismic data acquisition. Since 1954 Mr. Kemp has
acquired data throughout the US and the world. Mr. Kemp directed the
acquisition of data in a number of challenging areas, and developed techniques
for improving data quality, resulting in greater reserve recovery. In his
efforts to improve data quality while reducing costs, Mr. Kemp led the
industry in acquiring simultaneous multi-line data. This early 3D provided
greater data accuracy at a cost significantly less than independently acquired
single lines. The industry has come to rely on seismic more heavily as an
exploration tool. Kemp Geophysical along with three other geophysical
companies merged to become 3D Geophysical. This was the first company to put
its primary focus on 3D seismic in 1996. Western Atlas bought 3D Geophysical
and Len is Western Atlas' Manager of California Operations.
e) Board of Directors' Committee Assignments
Five meetings of the board of directors were held in 1998. No director
attended less than 75% of the board meetings held in 1998.
- ------------------------------------------------------------------------------
Audit Commmittee
- ------------------------------------------------------------------------------
Purpose: To assist the Board of Directors in carrying out its
responsibility as to the independence and competence of the
Company's independent public accountants.
Number of Meetings Held in 1998: Three
Members: Harry E. Hosmer
George M. Watters
Oscar Hildebrandt
Attendance: No director attended less than 75% of the committee metings held
in 1998.
- -----------------------------------------------------------------------------
Compensation Committee
- -----------------------------------------------------------------------------
Purpose: To review and make 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.
Number of Meetings Held in 1998: Three
*Members: Rod Nahama
Oscar A. Hildebrandt
Don Hosmer
Steve Hosmer
*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 officer serves as a member.
6
<PAGE>
Attendance: No director attended less than 75% of the committee meetings held
in 1998.
f) 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 1998. The following table indicates the cash compensation paid to
directors, other than Named Officers, in 1998.
(a) (b)
Name Annual Retainer
Oscar Hildebrandt $6,800
Rodney Nahama $6,800
George M. Watters $6,800
Gilbert C.L. Kemp $1,309
g) 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, 1998, 1997, and 1996.
Summary Compensation Table
Long Term
Compensation
Annual Compensation Awards
------------------------------
(a) (b) (c) (d) (e) (f) (g)
Name Year Salary Bonus Other Securities All
Annual Underlying Other
Compensation Options Compensation
Donald H. Hosmer
President 1998 $121,169 $10,000 $368 $51,750 /2 $1,600 /2
1997 $103,974 $356
1996 $100,000 $703
Harry E. Hosmer
President 1998 $130,000 $669
1997 $110,000 $299
1996 $122,444 $882
7
<PAGE>
Long Term
Compensation
Annual Compensation Awards
------------------------------
(a) (b) (c) (d) (e) (f) (g)
Name Year Salary Bonus Other Securities All
Annual Underlying Other
Compensation Options Compensation
Stephen M. Hosmer
Chief Financial 1998 $97,808 $10,000 $340 $34,500 /2 $2,769 /3
1997 $75,995 $361
1996 $73,385 $412
/1 Under the terms of a plan adopted by the board of directors in 1989,
Harry E. and Donald H. Hosmer have elected to participate in wells
drilled by the Company. (See, Certain Relationships and Related
Transactions.) The costs incurred by Messrs. Harry and Donald Hosmer
for interests acquired in wells pursuant to this policy are less than
would have been the cost of purchasing an equivalent percentage as
working interests in these wells which are sold to unaffiliated outside
investors. The difference between the Hosmers' 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. In
addition, prior to June 1995, the Company advanced funds to Harry and
Donald Hosmer to pay for their well participation interests. To the
extent that the advances amount to interest free loans, Harry and
Donald Hosmer could also be considered to have received additional
compensation. The Other Compensation in the foregoing table consists
of the amounts which the Company's management believe 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's policy regarding advancement of
funds was changed. The Current policy requires that all such purchases
of interests in wells must be paid in cash prior to the drilling of the
well.
/2 Amount received upon resale of stock options to the Company in
September 1998 by Donald Hosmer and Stephen Hosmer.
/3 Company's matching contribution for Donald Hosmer and Stephen Hosmer to
the Company's retirement savings plan initiated in April 1998.
In 1998, the Company did not maintain a retirement plan or "Section 401(k)"
8
<PAGE>
compensation plan on behalf of its employees.
h) Stock Options Granted in 1998
No stock options were granted to officers, directors, or employees during
1998.
i) Aggregated 1998 Option Exercises and Year-End Values
Neither of the Named Officers exercised any stock options or stock
appreciation rights in 1998, 1997, or 1996. The following table summarizes
the number and value of all unexercised stock options held by the Named
Officers at the end of 1998.
Option Exercises and Year-End Value Table
(a) (b) (c) (d) (e)
Number of
Securities Value of
Underlying Unexercised In-
Number of Unexercised the-Money
Securities Options/ SARs Options/SARs
Underlying at FY-End (#) FY-End ($) /1
Options/SARs Value Exercisable/ Exercisable/
Name Exercised Realized Unexercisable Unexercisable
- -----------------------------------------------------------------------------
Harry E. Hosmer - - 45,000/0 $35,700/0
Donald H. Hosmer 30,000 /2 $51,750 15,000/0 $ 900/0
Stephen M. Hosmer 20,000 /2 $34,500 10,000/0 $ 600/0
/1 Based on a fair market value of $3.06 per share, which was the closing
bid price of the Company's Common Stockin the Nasdaq National Market
System on December 31, 1998.
/2 On September 29, 1998, the noted officers exercised their rights to
resell previously granted stock options to the Company under a plan
adopted by the board of directors in July 1998, offering to
repurchase officers' stock options prior to September 30, 1998. Donald
Hosmer and Stephen Hosmer sold their stock options to the Company for
$1.72 per share, which was the difference between the exercise price of
the stock options ($1.90 per share) and the stock's closing market price
on September 30, 1998 ($3.62 per share).
7
<PAGE>
j) Security Ownership of Certain Beneficial Owners and Management
The following tables contain information regarding the ownership of the
Company's voting securities as of December 31, 1998, 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.
Except pursuant to applicable community property laws and except as otherwise
indicated, each shareholder identified in the tables possesses sole voting and
investment power with respect to its or his shares.
1.0 Common Stock
On December 31, 1998, 3,808,613 shares of the Company's Common Stock were
outstanding.
Common Stock Shareholders
Shares Owned /1
Shareholder /2 Number Percent
- -----------------------------------------------------------------------------
Royale Petroleum Corporation 1,274,076 /3, /4 31.54%
Donald H. Hosmer 1,290,076 /3, /4 31.96%
Harry E. Hosmer 45,000 /4 1.17%
Oscar A. Hildebrandt 59,033 /5 1.54%
Stephen M. Hosmer 1,285,236 /3),/4 31.84%
Gilbert C.L. Kemp 5,000 Less than 1%
Owen LeTissier
St. Peter Port
Guernsey, Channel Islands 400,000 /6 10.35%
Rodney Nahama 14,000 Less than 1%
George M. Watters 77,500 /7 2.02%
10
<PAGE>
Shares Owned /1
Shareholder /2 Number Percent
- -----------------------------------------------------------------------------
All directors and officers
as a group (7 persons) 1,501,859 /3 35.99%
/1 Includes shares which the listed shareholder has the right to acquire
before March 1,1999, from options or warrants, as follows: Royale
Petroleum Corporation 230,555, Donald H. Hosmer 15,000, Harry E. Hosmer
45,000, Stephen M. Hosmer 10,000, Oscar Hildebrandt 20,000, Rodney
Nahama 14,000, George M. Watters 30,000, and all officers and directors
as a group 134,000.
/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 1,274,076 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 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 as the Trustee of two foreign charitable trusts.
/7 Includes Common Stock held by a trust of which Mr. Watters is the
Trustee.
2.0 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 December 31, 1998, there were 43,750 shares of Series A and
50,000 shares of Series AA Convertible Preferred Stock outstanding. The shares
of each series of Convertible Preferred Stock is convertible into the
11
<PAGE>
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.
Preferred Stock Shareholders
Series A Series AA
Shareholder /1 Number % Number %
Richard G. and Margaret E. Algire 3,125 33.3%
Marjorie Carson 6,250 14.28%
June L. Ginnings 3,125 7.14%
Overland Bank 6,250 14.28%
Audrey Sanabria & B.G. Dienelt, Jr. 3,125 6.25%
George Singleton 6,250 14.28%
Charles Swaner 6,250 14.28%
James S. Trowbridge 6,250 66.7%
William W. Well 6,250 14.28%
Jerome Winston 6,250 14.28%
Nim E. Wire 6,250 14.28%
All officers and directors
as a group(7 persons) 0 0.0% 0 0.0%
/1 The mailing address of each listed shareholder is 7676 Hazard Center
Drive, Suite 1500, San Diego, California 92108.
k) Certain Relationships and Related Transactions
In 1989, the board of directors adopted a policy (the "1989 policy") that
permits each director and officer of the Company to purchase from the Company,
at its cost, up to one percent (1%) fractional interest in any well to be
drilled by the Company. When an officer or director elects to make such a
purchase, the amount charged per each percentage working interest is equal to
the actual pro rata cost to the Company of drilling and completion costs,
rather than the higher amount that the Company charges to working interest
holders for the purchase of a percentage working interest in a well. Of the
current officers and directors, Donald Hosmer, Stephen Hosmer, Harry E.
Hosmer, and Oscar Hildebrandt have at various times elected to purchase
interests in certain wells drilled by the Company under the 1989 policy.
12
<PAGE>
Under the 1989 policy, officers and directors may elect to participate in
wells at any time up until drilling of the prospect commences. Participants
do not pay a set, turnkey price (as do outside investors who purchase
undivided working interests from the Company), but 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. Thus,
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.
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 being offered their
interests on terms 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.
Donald and Stephen Hosmer have each individually participated in 32 wells
under the 1989 policy. Donald and Stephen Hosmer have also participated in 27
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 31 wells.
During 1998, Donald and Stephen Hosmer invested in one well under the 1989
policy in the name of RPC and was charged a total of $710 for its 0.25%
interest. Also in 1998, RPC was charged $3,592 for wells in which it
purchased interests in 1997, but which were not drilled until 1998.
Donald Hosmer's 1998 investments in wells under the 1989 policy totaled $5,833
for 0.25% interests in seven wells. In 1998, Stephen Hosmer invested
purchased 0.25% interests in four wells and 0.125% interests in three wells
under the 1989 policy, for a total investment of $4,453.
The Hosmer Trust purchased 1.0% interests in seven wells during 1998 for a
total investment of $23,330.
Prior to June 1995, the Company had advanced to the participants under the
1989 policy, the funds with which to purchase their interests, with funds 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. In
June 1995, the Company's policy regarding the advancement of funds was
13
<PAGE>
changed. Current policy requires that all such purchases of interests in
wells must be paid in cash. At December 31, 1998, the following executive
officers and their affiliates owed the following amounts on advances for well
participations: Donald Hosmer $5,720; Stephen Hosmer $4,578; RPC $526; the
Hosmer Trust $14,513.
Proposal 2: RATIFICATION OF THE SELECTION OF 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.
- -----------------------------------------------------------------------------
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 1998. Brown Armstrong Randall & Reyes was engaged
on May 12, 1994 and has examined the Company's financial statements for each
fiscal year from 1994 to the present.
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 do not ratify the appointment, the audit committee will
investigate the reasons for shareholder rejection and the board will
reconsider the appointment.
A representative of Brown Armstrong Randall & Reyes will be present at the
annual meeting to respond to questions.
A majority of the votes cast is required to ratify the appointment of the
independent public accountants.
Proposal 3: OTHER MATTERS
At the date of mailing of this proxy statement, we are not aware of any
business to be presented at the annual meeting other than those items
previously discussed. The proxy being solicited by the board of directors
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.
14
<PAGE>
C) OTHER INFORMATION
1) Annual Report
The Company's annual report for 1997, including financial statements, is being
mailed to shareholders prior to or simultaneously with this proxy statement.
2) 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 $625.00.
3) Section 16(a) Beneficial Ownership Reporting Requirement
Out directors and executive officers must file reports with the securities and
exchange commission indicating the number of shares of the Company's common
stock they beneficially own and any changes in their beneficial ownership.
Copies of these reports must be provided to us.
Directors Oscar A. Hildebrandt and Gilbert C.L. Kemp have each filed one late
report of purchases or sales of securities during 1998. Except for those two
reports, and based solely upon on our review of these reports and written
representations from the persons required to file them, we believe each of our
directors and executive officers filed all the required reports during 1998 on
a timely basis.
4) Additional Information
You may obtain, free of charge, a copy of the Company's Annual Report or Form
10-KSB for the year ended December 31, 1998 (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.
5) Proposals by Shareholders - 1999
Any proposal by a shareholder to be submitted for inclusion in proxy
15
<PAGE>
soliciting material for the 2000 annual shareholders meeting must be
receivedby the corporate secretary of the Company no later than December 31,
1999.
6) Other Matters
No proposals have been received from shareholders for inclusion in the proxy
statement or action at the 1999 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 proxy holders named in the enclosed proxy will vote the shares
for which they hold proxies in their discretion.
Your vote at the annual meeting is important to us. Please vote your shares of
common stock by completing the enclosed proxy card and returning it to us in
the enclosed envelope.
By Order of the Board of Directors,
/signed/ Donald H. Hosmer
-----------------------------------
Donald H. Hosmer
President and Secretary
16
<PAGE>
ROYALE ENERGY FUNDS, INC.
Shareholders' Proxy For Annual Meeting, August 19, 1999
Solicited by the Board of Directors
The undersigned hereby appoints Donald H. Hosmer and Stephen M. Hosmer, and
either of them, or such other persons as the board of directors of Royale
Energy Funds, Inc. (the "Company"), may designate, proxies for the
undersigned, with full power of substitution, to represent the undersigned and
to vote all of the shares of Common Stock, Series A Convertible Preferred
Stock, and Series AA Convertible Preferred Stock of the Company, which the
undersigned is entitled to vote at the annual meeting of shareholders of the
Company to be held on August 19, 1999, and at any and all adjournments
thereof.
1. ELECTION OF DIRECTORS or any adjournment thereof.
FOR all nominees listed below (except as marked to the contrary below.()
NOMINEES: Harry E. Hosmer, Donald H. Hosmer, Stephen M. Hosmer, Oscar A.
Hildebrandt, Rodney Nahama, George M. Watters, Gilbert C.L. Kemp.
(Instructions: To to vote for any additional nominee, write that
nominee's name in the space provided below.)
Write in additional nominees in the space provided below.
2. Ratification of Selection of Accountants - The board of directors
recommends a vote FOR the following.
To ratify and approve the selection of Brown Armstrong Randall & Reyes
as the Company's independent public accountants.
( ) For ( ) Against ( ) Abstain
3. Other Matters - The board of directors recommends a vote FOR the
following.
In their discretion, to vote on such other matters as may properly come
before the meeting, but which are not now anticipated, to vote for the
election of any person as a director should any person named in the proxy
statement to be elected be unable to serve or for good cause cannot
serve, and to vote upon matters incident to the conduct of the meeting.
( ) For ( ) Against ( ) Abstain
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS AND WILL BE VOTED
AS DIRECTED HEREIN. IF NO DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED FOR
THE PERSONS NAMED IN PROPOSAL 1, FOR PROPOSAL 2, AND IN ACCORDANCE WITH THE
DISCRETION OF THE PROXY HOLDERS RESPECTING PROPOSAL 3.
Dated:
(Signature of Stockholder)
Dated:
(Signature of Stockholder)
Please sign exactly as your name appears on the envelope in which this
material was mailed. Agents, executors, administrators, guardians, and
trustees must give full title as such. Corporations should sign by their
president or authorized officer. Partnerships should sign in the Partnership
name by an authorized person.
