UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
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Filed by the Registrant |
[ X ] |
Check the appropriate box:
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[ |
] Preliminary Proxy Statement |
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[ |
] Confidential, for use of the Commission Only (as permitted by Rule 14a-6(e)(2)) |
[ X ] Definitive Proxy Statement
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[ |
] Definitive Additional Materials |
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[ |
] Soliciting Material Pursuant to 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.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
Royale Energy, Inc.
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DATE: |
June 19, 2008 |
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TIME: |
11:00 a.m. |
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PLACE: |
Doubletree Hotel – Grand Junction |
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743 Horizon Dr. |
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Grand Junction, CO 81506 |
Matters to be Voted on:
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1. |
Election of directors to serve for the ensuing year; |
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2. |
Transaction of 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 April 21, 2008, 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,
Donald H. Hosmer
President and CEO
Date: May 19, 2008
PROXY STATEMENT
Royale Energy’s board of directors solicits your proxy, using the enclosed proxy card, for use at the annual meeting of shareholders to be held June 19, 2008, and at any adjournment thereof. This proxy statement has information about the annual meeting and was prepared by Royale Energy’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.
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 Royale Energy’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 April 21, 2008, 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 2: Election of Directors.) On March 31, 2008, Royale Energy had outstanding 7,918,659 shares of common stock and 57,416 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.
4) Voting by Street Name Holders
If your shares are held in a brokerage account or by another nominee, you are considered the “beneficial owner” of shares held in “street name,” and these proxy materials are being forwarded to you by your broker or nominee (the “record holder”) along with a voting instruction card. As the beneficial owner, you have the right to direct your record holder how to vote your shares, and the record holder is required to vote your shares in accordance with your instructions. If you do not give instructions to your record holder by 11:59 pm on June 18, 2008, the record holder will be entitled to vote your shares in its discretion on Proposal 2 (Election of Directors), but will not be able to vote your shares on either of the second proposal, and your shares will be considered a “broker non-vote” on those proposals.
As the beneficial owner of shares, you are invited to attend the annual meeting. Please note, however, that if you are a beneficial owner, you may not vote your shares in person at the meeting unless you obtain a “legal proxy” from the record holder that holds your shares.
5) How your Votes are Counted
We will hold the annual meeting on June 19, 2008, 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.
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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 19, 2008, to shareholders entitled to vote at the meeting.
ITEMS OF BUSINESS
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Proposal 1: |
ELECTION OF DIRECTORS |
Eight directors will be elected to serve on our board of directors until the next annual meeting of shareholders or until their successors are elected and qualified
a) The Director Nomination Process
All of the nominees for our board of directors were approved unanimously by the two independent directors who serve on the nominations committee. All eight nominees are current board members who are standing for re-election.
b) Voting
The eight 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 withheld for a nominee will not be counted.
c) 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 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 and there are seven seats to be filled on the board, you will have 700 votes. If any shareholder gives notice of intent to cumulate votes, you could give all your votes to one nominee or distribute your votes among as many nominees as you would like.
d) Nominees for the Board of Directors
The board of directors recommends a vote FOR the election of each of the following eight 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 Royale Energy. Membership on board committees, attendance at board and committee meetings, and ownership of stock in Royale Energy 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 May 1, 2008.
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Nominees for Director
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Name |
Age |
First Became Director or Executive Officer |
Positions Held |
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|
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Harry E. Hosmer |
77 |
1986 |
Chairman of the Board |
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Donald H. Hosmer |
54 |
1987 |
President and Director |
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Stephen M. Hosmer |
41 |
1996 |
Executive Vice President, Chief Financial Officer and Director |
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Oscar Hildebrandt (1) (2) |
72 |
1995 |
Secretary and Director |
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George M. Watters (1) (2) |
88 |
1991 |
Director |
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Gilbert C. L. Kemp(1) |
74 |
1998 |
Director |
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Gary Grinsfelder |
58 |
2007 |
Director |
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Tony Hall (2) |
66 |
2007 |
Director |
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(1) |
Member of the audit committee. |
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(2) |
Member of the compensation committee. |
The board has determined that directors Gary Grinsfelder, Tony Hall, Oscar Hildebrandt, George M. Watters and Gilbert C. L. Kemp qualify as independent directors under NASDAQ rules.
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e) 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
Harry E. Hosmer has served as chairman since Royale Energy began in 1986, and from inception in 1986 until June 1995, he also served as president and chief executive officer.
DONALD H. HOSMER - President, Chief Executive Officer, Secretary and Director
Donald H. Hosmer has served as an executive officer and director of Royale Energy since its inception in 1986, 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 Royale Energy. 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 – Executive Vice President, Chief Financial Officer, Director
Stephen M. Hosmer joined Royale Energy as the management information systems manager in May 1988, responsible for developing and maintaining Royale Energy’s computer software. Mr. Hosmer developed programs and software systems used by Royale Energy. From 1991 to 1995, he served as president of Royale Operating Company, Royale Energy’s operating subsidiary. In 1995, he became chief financial officer of Royale Energy. In 1996, he was elected to the board of directors of Royale Energy. In 2003, he was elected executive vice president. Mr. Hosmer served seven years on the board of directors of Youth for Christ, a charitable organization in San Diego, California. Stephen M. Hosmer is the son of Harry E. Hosmer and brother of Donald H. Hosmer. Mr. Hosmer holds a Bachelor of Science degree in Business Administration from Oral Roberts University in Tulsa, Oklahoma, as well as earning his MBA degree via the prestigious President/Key Executive program at Pepperdine University in Malibu, California.
OSCAR HILDEBRANDT, D.V.M. - Director
Dr. Hildebrandt served as an advisory member of Royale Energy’s board of directors from 1994 to 1995 and became a director in 1995. He serves as chairman of Royale Energy’s audit committee. 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
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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.
GILBERT C.L. KEMP – Director
Mr. Kemp has since 2002 served as an independent consultant for seismic operations in the oil and gas industry. He managed the California operations of Western Atlas, Inc., a New York Stock Exchange company from 1998 until 2002. Mr. Kemp was a founding member of 3-D Geophysical, Inc., where he served as Vice President from 1996 until March 1998. In March 1998 3-D Geophysical, whose stock had been listed on the Nasdaq National Market System since February 1996, merged with Western Atlas, Inc. During the years 1987 to 1995, Mr. Kemp served as president and CEO of Kemp Geophysical Corporation, which owned and operated seismic crews in the United States and Canada.
GARY GRINSFELDER – Director
Mr. Grinsfelder is a qualified manager and geologist with 33 years experience in oil and gas exploration, exploitation and property evaluation. He is Executive Vice President – Exploration and Business Development, and Secretary of Output Exploration, LLC, Houston, Texas, where he has been employed since 1994. He has also served in geologic and management roles for Araxas Exploration, Inc., Triad Energy Corporation, Spartan Petroleum Corporation, American Petrofina Company of Texas, Union Oil Company of California and Degolyer and MacNaughton. He received a Bachelor of Science degree in 1972 from Southern Methodist University and has performed graduate studies at the University of Puerto Rico Department of Marine Science and University of Houston Department of Geology.
TONY HALL - Director
Ambassador Hall served as a member of the United States House of Representatives, representing the people of the Third District of Ohio, for almost twenty-four years, from 1979 to 2002. In 2002 he was appointed U.S. Ambassador to the United Nations Agencies for Food and Agriculture. He served as chief of the U.S. Mission to the U.N. Agencies in Rome – the Work Food Program, Food and Agriculture Organization and International Fund for Agricultural Development. He has been nominated for the Nobel Peace Prize on three occasions for his humanitarian and hunger-related work. He received his A. B. degree from Denison University, Granville, Ohio, in 1964.
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. As CEO, 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 senior 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. During World War II, Mr. Watters served four years as an officer in the U.S. Navy Civil Engineering Corps.
f) Board of Directors; Committee Assignments
Six meetings of the board of directors were held in 2007. No member of the board attended less than 75% of the 2007 meetings held while the member was serving as a director.
Audit Committee
Purpose: To assist the board of directors in carrying out its responsibility as to the independence and competence of
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the Company’s independent public accountants. The audit committee operates pursuant to an audit committee charter which has been adopted by the board of directors to define the committee’s responsibilities. A copy of the audit committee charter is posted on our website, www.royl.com. The board has determined that Oscar Hildebrand qualifies as an “audit committee financial expert” as defined in Item 401(e) of Regulation S-K, promulgated by the Securities and Exchange Commission.
Number of Meetings Held in 2007: Four
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Members: |
Gilbert C. L. Kemp |
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George M. Watters |
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Oscar Hildebrandt |
Attendance: All committee members attended all committee meetings in 2007.
Compensation Committee
Purpose: To review and make recommendations to the board of directors on setting the salaries of the company’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 2007: Two
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Members: |
Tony P. Hall |
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Oscar A. Hildebrandt |
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George M. Watters |
Attendance: All committee members attended all committee meetings held in 2007.
No Compensation Committee Interlocks
None of our executive officers has served on the board of directors or on the compensation committee for any other entity in which any member of our board is an officer in the last fiscal year.
Executive Committee
Number of Meetings Held in 2007: Five
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Members: |
Oscar A. Hildebrandt |
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Harry E. Hosmer |
Attendance: All committee members attended the committee meetings held in 2007.
Purpose: To work with management and report back to the board of directors.
Nominations Committee
Purpose: To review and make recommendations to the board of directors concerning the nominees proposed for election of directors at the annual meeting of directors.
Number of Meetings Held in 2007: One
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Members: |
Oscar A. Hildebrandt |
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Gary Grinsfelder |
Attendance: All committee members attended the committee meeting held in 2007.
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g) Executive Compensation
The following table summarizes the compensation of the chief executive officer, chief financial officer and the two other most highly non-executive employees (the “named executives and employees”) of Royale Energy and its subsidiaries during the past year.
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Name and Principal Position |
Year |
Salary |
Bonus |
All Other Compensation (1) |
Total |
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|
|
($) |
($) |
($) |
($) |
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Donald Hosmer |
2007 |
$225,077 |
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$ 6,752 |
$231,829 |
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President |
2006 |
$212,234 |
|
$20,515 |
$232,749 |
|
|
2005 |
$204,615 |
|
$ 6,138 |
$210,753 |
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|
|
|
|
|
|
|
Stephen Hosmer |
2007 |
$213,823 |
|
$18,775 |
$232,598 |
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Exec. V.P. & CFO |
2006 |
$203,397 |
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$20,517 |
$223,914 |
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|
2005 |
$194,385 |
|
$ 5,832 |
$200,217 |
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|
|
|
|
|
|
|
William Donaldson (2) |
2007 |
$173,769 |
$20,000 |
$ 5,213 |
$198,982 |
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Chief Engineer |
2006 |
$ 41,253 |
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|
$ 41,253 |
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|
|
|
|
|
|
|
Mohamed Abdel-Rahmen |
2007 |
$150,386 |
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$4,250 |
$154,636 |
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VP Exploration |
|
|
|
|
|
|
(1) All other compensation consists of matching contributions to the Company’s simple IRA plan, except for Stephen M. Hosmer, who also received a $20,000 car allowance. |
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|
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(2) Mr. Donaldson and Mr. Abdel-Rahmen are highly compensated employees under SEC rules who did not serve as executive officers during 2007. |
Compensation Discussion and Analysis
The elements of executive compensation at Royale Energy consist mainly of cash salary and, if appropriate, a cash bonus at year end. The compensation committee makes recommendations to the board of directors annually on the compensation of the two top executives: the President and the Executive Vice President / Chief Financial Officer. See Compensation Committee Report. We do not have employment contracts with either of our executive officers.
Royale Energy also does not provide extensive personal benefits to its executives beyond those benefits, such as health insurance, that are provided to all employees. Each executive does receive an annual car allowance.
Stock Options and Equity Compensation
We did not grant any stock options, stock appreciation rights or non-equity incentive plan awards to our named executives and employees during 2007. No stock options were exercised by named executive officers in 2007, and none remained outstanding as of December 31, 2007. No nonqualified deferred compensation plans are in existence for named executives and employees. The named executives and employees are not beneficiaries or members of any defined compensation or other pension plans.
In March 2008, directors and executive officers of Royale Energy were each granted 45,000 options to purchase common stock at an exercise or base price of $3.50 per share, in consideration of their past service on the board. These options are to be vested in three parts, the first 15,000 vested March 31, 2008, and 15,000 will vest in each of the next two years March 31, 2009 and March 31, 2010. They were granted for a period of four years.
Compensation Committee Report
Our executive compensation policy is designed to motivate, reward and retain the key executive talent necessary to achieve our business objectives and contribute to our long-term success. Our compensation policy for our executive
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officers focuses primarily on determining appropriate salary levels and performance-based cash bonuses.
Policy
The compensation committee’s primary responsibility is making recommendations to the board of directors relating to compensation of our officers. The committee also makes recommendations to the board of directors regarding employee benefits, our defined benefit plans, defined contribution plans, and stock based plans.
Determination
To determine executive compensation, the committee, in December each year, meets with our officers to review our compensation programs, discuss the performance of the company, the duties and responsibilities of each of the officers pay levels and business results compared to others similarly situated within the industry. The committee then makes recommendations to the board of directors for any adjustment to the officers compensation levels.
Compensation Elements
Base. Base salaries for our executive officers are established based on the scope of their responsibilities, taking into account competitive market compensation paid by our peers. Base salaries are reviewed annually. The salaries we paid to our most highly paid executive officers for the last three years are set forth in the Summary Compensation Table included under Executive Compensation.
Bonus. The compensation committee meets annually to determine the quantity, if any, of the cash bonuses of executive officers. The amount granted is based, subjectively, upon the company’s stock price performance, earnings, revenue, reserves and production. The committee does not use quantifiable metrics for these criteria; but rather uses each in balance to assess the strength of the company’s performance. The committee believes that formulaic approaches to cash incentives can foster an unhealthy balance between short-term and long-term goals. In 2006, the compensation committee did not award bonuses to any of the company’s executive officers.
Members of the Compensation Committee:
Oscar A. Hildebrandt, Chair
Tony P. Hall
George M. Watters
Compensation of Directors
The following table describes the compensation paid to our directors who are not also named executives for their services in 2007.
|
Name |
Fees Earned or Paid in Cash |
All Other Compensation |
Total |
|
|
($) |
($) |
($) |
|
(a) |
(b) |
(c) |
(d) |
|
Harry E. Hosmer |
$167,717 |
$13,444 |
$181,161 |
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Oscar A. Hildebrandt |
19,168 |
- |
19,168 |
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George M. Watters |
16,830 |
- |
16,830 |
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Gilbert C. L. Kemp |
14,410 |
- |
14,410 |
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Gary Grinsfelder |
10,808 |
- |
10,808 |
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Tony P. Hall |
11,110 |
- |
11,110 |
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Rodney Nahama |
3,905 |
- |
3,905 |
Each director who is not an employee of Royale Energy receives a quarterly fee for his services, which in 2007 was set at $3,602.50. Committee members receive fees of $605 for attendance at each audit committee meeting and $302.50 for attendance at each compensation committee meeting. The Secretary receives an additional fee of
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$357.50 for attendance at each meeting. In addition, Royale Energy reimburses directors for the expenses they incur for their service.
No directors received any stock options or other equity based compensation in 2007. In March 2008, the directors and executive officers were awarded stock options for their past service. See Stock Options and Equity Compensation, page 6.
In addition, Royale Energy's Chairman of the Board and former President, Harry E. Hosmer, renders management consulting services to Royale Energy on an ongoing basis. See Certain Relationships and Related Transactions, page 10.
l) Security Ownership of Certain Beneficial Owners and Management
Common Stock
On March 31, 2008, 7,918,659 shares of Royale Energy’s common stock were outstanding.
The following table contains information regarding the ownership of Royale Energy’s common stock as of March 31, 2008, by:
i) each person who is known by Royale Energy to own beneficially more than 5% of the outstanding shares of each class of equity securities;
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ii) |
each director of Royale Energy, and |
iii) all directors and officers of Royale Energy 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. The holdings reported are based on reports filed with the Securities and Exchange Commission and the Company by the officers, directors and 5% shareholders pursuant to Section 16 of the Securities Exchange Act of 1934.
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Stockholder (1), (2) |
|
Number |
|
Percent |
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|
|
|
|
|
|
Donald H. Hosmer (3) |
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907,159 |
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11.43% |
|
|
|
|
|
|
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Harry E. Hosmer (3) |
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765,297 |
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9.65% |
|
|
|
|
|
|
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Oscar A. Hildebrandt |
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255,488 |
|
3.22% |
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|
|
|
|
|
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Stephen M. Hosmer (3) |
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1,148,427 |
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14.48% |
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|
|
|
|
|
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Gilbert C. L. Kemp |
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35,962 |
|
* |
|
|
|
|
|
|
|
Gary Grinsfelder |
|
16,000 |
|
* |
|
|
|
|
|
|
|
Tony P. Hall |
|
16,250 |
|
* |
|
|
|
|
|
|
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George M. Watters |
|
37,500 |
|
* |
|
|
|
|
|
|
|
All officers and directors as a group |
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3,182,083 |
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39.57% |
|
|
|
|
|
|
|
* Less than 1% |
|
|
|
|
(1) The mailing address of each listed stockholder is 7676 Hazard Center Drive, Suite 1500, San Diego, California 92108.
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(2) For each director and executive officer, includes options to purchase 15,000 shares of common stock, which vested on March 31, 2008.
(3) Donald H. Hosmer and Stephen M. Hosmer are sons of Harry E. Hosmer, Chairman of the Board.
Preferred Stock
Holders Series AA Convertible Preferred Stock have voting rights equal to the number of shares into which they are convertible. On March 31, 2008, 57,416 shares of Series AA Convertible Preferred Stock were outstanding. The shares of each series of Preferred shares are convertible into shares of Royale Energy'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. The Preferred Stock is not registered under the Securities Exchange Act of 1934, and no market exists for the Preferred Stock. The total number of shares of Common Stock issuable on conversion of all outstanding shares of Preferred Stock equals less than 1% of the outstanding Common Stock of Royale Energy. To Royale Energy's knowledge, none of the Preferred shareholders would own more than 1% of Royale Energy's Common Stock, if their Preferred shares were converted to Common shares.
m) Certain Relationships and Related Transactions
Investments in Wells by Directors
In 1989, the board of directors adopted a policy (the “1989 policy”) that permits each director and officer of Royale Energy to purchase from Royale Energy, at its cost, up to one percent (1%) fractional interest in any well to be drilled by Royale Energy. When an officer or director elects to make such a purchase, the amount charged per each percentage working interest is equal to Royale Energy's actual pro rata cost of drilling and completion, rather than the higher amount that Royale Energy 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, George Watters and Oscar Hildebrandt at various times have elected under the 1989 policy to purchase interests in certain wells Royale Energy has drilled.
Under the 1989 policy, officers and directors may elect to participate in wells at any time up until drilling of the prospect begins. Participants are required to pay all direct costs and expenses through completion of a well, whether or not the well drilling and completion expenses exceed Royale Energy's cost estimates, instead of paying a set, turnkey price (as do outside investors who purchase undivided working interests from Royale Energy). Thus, they participate on terms similar to other oil and gas industry participants or joint venturers. Participants are invoiced in advance for their share of estimated direct costs of drilling and completion and later actual costs are reconciled, as Royale Energy incurs expenses and participants make further payments as necessary.
Officer and director participants under this program do not pay some expenses paid by outside, retail investors in working interests, such as sales commissions, 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, Royale Energy's management believes that its officers and directors who participate in wells under the Board of Directors' policy do so 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 Royale Energy.
Donald and Stephen Hosmer each have participated individually in 136 and 135 wells respectively under the 1989 policy. The Hosmer Trust, a trust for the benefit of family members of Harry E. Hosmer, has participated in 134 wells.
Investments in wells under the 1989 policy for the three years ended December 31, 2007, 2006 and 2005 are as follows:
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|
|
Year |
# of fractional interests |
Amount |
|
Don Hosmer |
2007 |
8 |
$ 30,014 |
|
|
2006 |
16 |
$ 86,785 |
|
|
2005 |
14 |
$104,441 |
|
Stephen Hosmer |
2007 |
6 |
$ 17,278 |
|
|
2006 |
15 |
$ 49,162 |
|
|
2005 |
15 |
$112,020 |
|
Hosmer Trust |
2007 |
6 |
$ 17,278 |
|
|
2006 |
16 |
$ 47,106 |
|
|
2005 |
15 |
$109,413 |
Current officers and directors were billed $21,759, $49,898 and $130,473 for their interests for the three years ended December 31, 2007, 2006 and 2005, respectively.
Royale Energy's Chairman of the Board and former President, Harry E. Hosmer, renders management consulting services to Royale Energy on an ongoing basis. Royale Energy compensated Mr. Hosmer $167,717, $152,370 and $151,437 for his consulting services in 2007, 2006 and 2005, respectively, and pays his medical insurance costs. Mr. Hosmer's consulting services are in conjunction with his service on the board of directors, for which he receives reimbursement of expenses to attend meetings.
For the year ended December 31, 2005, Royale Energy repurchased 19,615 stock options held by Stephen Hosmer amounting to $188,912.
Code of Business Conduct and Ethics
We have adopted a code of business conduct and ethics for our directors and executive officers. The code is posted on our website, www.royl.com.
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Proposal 2: |
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.
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OTHER INFORMATION
a) Independent Auditors – Auditors’ Fees
Sprouse & Anderson, LLP has served as our independent accountants since 2004. The aggregate fees billed by them for the years ended December 31, 2006 and 2005 are as follows:
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2007 |
2006 |
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Audit fees (1) |
$ 94,081 |
$100,513 |
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Audit-related fees (2) |
- |
- |
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Tax fees (3) |
35,436 |
- |
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All other fees (4) |
- |
- |
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Total |
$129,517 |
$100,513 |
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During 2004, UHY Mann, Frankfort, Stein & Lipp Advisors became our independent tax consultants. For the years ended December 31, 2007 and 2006, $7,297 and $56,352 were billed, respectively.
(1) Audit fees are fees for professional services rendered for the audit of Royale Energy’s annual financial statements, reviews of financial statements included in the company’s Forms 10-Q, and reviews of documents filed with the U.S. Securities and Exchange Commission.
(2) Audit related fees consist of fees for services reasonably related to performance of the audit or review of Royale Energy’s financial statements. For 2007 and 2006, these services include quarterly reviews of financial information.
(3) Tax fees consist of tax planning, consulting and tax return reviews.
(4) Other fees consist of work on registration statements under the Securities Act of 1933.
The audit committee of Royale Energy has adopted policies for the pre-approval of all audit and non-audit services provided by the company’s independent auditor. The policy requires pre-approval by the audit committee of specifically defined audit and non-audit services. Unless the specific service has been previously pre-approved with respect to that year, the audit committee must approve the permitted service before the independent auditor is engaged to perform it.
No representatives of Sprouse & Anderson are expected to be present at the annual meeting. Although the audit committee has the sole responsibility to appoint the auditors as required under the Securities Exchange Act of 1934, the committee welcomes any comments from shareholders on auditor selection or performance. Comments may be
sent to the audit committee chair, Dr. Oscar A. Hildebrandt, care of Royale Energy’s executive office, 7676 Hazard Center Drive, Suite 1500, San Diego, California 92108.
b) Annual Report
An annual report to shareholders on Form 10-K accompanies this proxy statement.
c) Method and Cost of Soliciting Proxies
The accompanying proxy is being solicited on behalf of the board of directors of Royale Energy. the expense of preparing, printing and mailing the form of proxy and the material used in the solicitation thereof will be borne by Royale Energy. Proxies may be solicited by officers, directors, and employees of Royale Energy in person, or by mail, courier, telephone or facsimile. In addition, Royale Energy 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 Royale Energy will pay a fee of approximately $750.
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d) Section 16(a) Beneficial Ownership Reporting Requirement
Section 16(a) of the Securities Exchange Act of 1934 and Securities and Exchange Commission regulations require that Royale Energy's directors, certain officers, and greater than 10 percent shareholders file reports of ownership and changes in ownership with the SEC and the NASD and furnish Royale Energy with copies of all such reports they file. Based solely upon a review of the copies of the forms furnished to Royale Energy, or representations from certain reporting persons that no reports were required, Royale Energy believes that no other persons failed to file required reports on a timely basis for 2007.
e) Additional Information
Other reports that we file with the SEC may also be obtained from the SEC’s website, www.sec.gov.
f) Proposals by Shareholders – 2009
Any proposal by a shareholder to be submitted for inclusion in proxy soliciting material for the 2008 annual shareholders meeting must be received by the corporate secretary of Royale Energy no later than January 31, 2009.
g) Other Matters
No proposals have been received from shareholders for inclusion in the proxy statement or action at the 2007 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,
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Date: May 19, 2008 |
Donald H. Hosmer |
President and CEO
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ROYALE ENERGY, INC.
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS
SOLICITED BY THE BOARD OF DIRECTORS
The undersigned hereby appoints Stephen M. Hosmer and Donald H. Hosmer as Proxies with the power to appoint their substitutes, and hereby authorizes them to represent and to vote, as designated below, all the shares of common stock of Royale Energy, Inc. held on record by the undersigned on April 21, 2008, at the Annual Meeting of Shareholders to be held in at Doubletree Hotel – Grand Junction, 743 Horizon Dr., Grand Junction, CO 81506, on June 19, 2008, at 11:00 a.m., Mountain Daylight Time.
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1. |
ELECTION OF DIRECTORS or any adjournment thereof. FOR ALL NOMINEES LISTED BELOW (EXCEPT AS MARKED TO THE CONTRARY BELOW). | ||||||||||||||||||
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(To withhold authority to vote for any individual nominee, strike a line through the nominee’s name in the list below.) | ||||||||||||||||||
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Harry E. Hosmer Donald H. Hosmer |
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Stephen M. Hosmer Oscar Hildebrandt |
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George M. Watters Gary Grinsfelder |
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Gilbert C.L. Kemp Tony Hall | ||||||||||||
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2. |
To transact such other business as may properly come before the Annual Meeting and any adjournments thereof. | ||||||||||||||||||
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For |
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Against |
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Abstain |
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THE SHARES REPRESENTED HEREBY SHALL BE VOTED AS SPECIFIED. IF NO SPECIFICATION IS MADE, SUCH SHARES SHALL BE VOTED FOR PROPOSALS 1 and 2.
Please sign and date this Proxy. When signing as attorney, executor, administrator, trustee, guardian, corporate officer, etc., please indicate your full title. Proxies received in this office later than 11:59 P.M. on June 18, 2008, will not be voted upon unless the shareholders are present to vote their shares.
Dated:
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(Please mark, sign, date and return the Proxy Card promptly.)
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Signature |
Signature if held jointly |