S-4/A 1 royaleholdings-s4a092517.htm S-4/A
File No.  333-216055
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549
 

FORM S-4/A

 
AMENDMENT NO.  5 TO THE
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933

ROYALE ENERGY HOLDINGS, INC.*
(Exact name of registrant as specified in its charter)

Delaware
1311
81-4596368
(State or other jurisdiction
of incorporation or organization)
(Primary Standard Industrial Classification Code Number)
 (I.R.S.  Employer Identification Number)

1870 Cordell Court, Suite 210
El Cajon, California 92020
(619) 383-6600
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

Copies to:

Jonathan Gregory
Chief Executive Officer
Royale Energy, Inc.
1870 Cordell Court, Suite 210
El Cajon, California 92020
(619) 383-6600
Lee Polson, Esq.
Strasburger & Price, LLP
720 Brazos Street, Suite 700
Austin, Texas 78701
(512) 499-3600
Johnny Jordan
Vice President
Matrix Oil Management Corporation
104 W Anapamu Street
Santa Barbara, California 93101
(805) 880-2600

*Royale Energy Holdings, Inc., a Delaware corporation, will change its name to Royale Energy, Inc. immediately before the issuance of the securities registered pursuant to this registration statement on Form S-4. In accordance with Rule 12g-3 promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the shares of common stock of the Registrant, Royale Energy Holdings, Inc., will be deemed to be registered under Section 12(b) of the Exchange Act as the successor to Royale Energy, Inc., a California corporation. A Form 8-A will be filed to report the name change upon its effectiveness.

Approximate dates of commencement of proposed sale of the securities to the public:  As soon as practicable after the effectiveness of this Registration Statement and the satisfaction or waiver of all other conditions to the closing of the merger and other transactions described herein.

If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box.  ☐

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated finer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer ☐
Accelerated filer ☐
Non-accelerated filer ☐
Smaller reporting company ☒
 
Emerging growth company
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2) of the Securities Act. 
 
If applicable, place an X in the box to designate the appropriate rule provision relied upon in conducting this transaction:
Exchange Act Rule 13e-4(i) (Cross-Border Issuer Tender Offer) 
Exchange Act Rule 14d-1(d) (Cross-Border Third-Party Tender Offer) 
 
The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.
________________________________________________________________________


Information contained herein is subject to completion or amendment. A Registration Statement relating to the Royale Energy Holdings, Inc. common stock to be issued in the mergers has been filed with the Securities and Exchange Commission. These securities may not be sold, nor may offers to buy be accepted, prior to the time the Registration Statement becomes effective. This joint proxy statement/prospectus shall not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of these securities in any jurisdiction in which such offer, solicitation, or sale is not permitted or would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction.

PRELIMINARY JOINT PROXY STATEMENT/PROSPECTUS
SUBJECT TO COMPLETION, DATED SEPTEMBER 25 , 2017
 
 
Dear Shareholders:

This joint proxy statement/prospectus is being furnished to the holders of common stock of Royale Energy, Inc., a California corporation (“Royale”), in connection with the solicitation of proxies by the Board of Directors of Royale (the “Royale Board”) for use at its annual  meeting of shareholders, or “Royale Annual Meeting,” to be held on November 3, 2017, or any adjournment or postponement thereof, and to the holders of common stock of Matrix Oil Management Corporation, a California corporation (“Matrix”), in connection with the solicitation of proxies by the Board of Directors of Matrix (the “Matrix Board”) for use at its special meeting of shareholders to be held on November 3, 2017, or any adjournment or postponement thereof (the “Matrix Special Meeting,” and together with the Royale Annual Meeting, the “Shareholder Meetings”).

Royale and Matrix have entered into an Amended and Restated Agreement and Plan of Merger dated effective as of December 31, 2016, as it may be amended from time to time, which we refer to as the “Merger Agreement,” and which is attached as Annex A to this joint proxy statement/prospectus and incorporated herein by reference. Under the Merger Agreement, the following will occur:

The Royale Merger.  Upon the terms and subject to the conditions set forth in the Merger Agreement, Royale formed Royale Energy Holdings, Inc., a newly-formed Delaware corporation (“Holdings”), Royale Merger Sub, Inc., a California corporation and a wholly-owned subsidiary of Holdings (“Royale Merger Sub”) and in accordance with the California Corporations Code, or “CCC”, Royale will be merged with and into Royale Merger Sub. Upon the merger, the separate existence of Royale Merger Sub shall cease, and Royale will continue as the surviving corporation in the merger as a wholly-owned subsidiary of Holdings (the “Royale Merger”). Following the Royale Merger, Royale, as the surviving corporation, (i) shall possess all of Royale’s and Royale Merger Sub’s assets, rights, powers and property as constituted immediately prior to the Royale Merger; (ii) shall continue to be subject to all of Royale and Royale Merger Sub’s debts, liabilities and obligations as constituted immediately prior to the Royale Merger; (iii) shall be subject to all actions previously taken by the board of directors of Royale and Royale Merger Sub prior to the Royale Merger; (iv) each issued and outstanding share of Royale common stock shall be deemed converted into and become one (1) share of fully paid and nonassessable common stock, $0.001 par value per share, of Holdings (the “Holdings common stock”), and as a result, the shareholders of Royale will hold common stock of Holdings, a Delaware corporation.  For purposes of the Merger Agreement, the aggregate number of issued and outstanding shares of Royale common stock subject to conversion in the Royale Merger, together with the aggregate number of shares of Royale common stock issuable pursuant to any benefit plan, compensation agreement, or any other obligation to issue Royale common stock including convertible indebtedness, but excluding all shares issuable upon exercise of certain warrants to acquire up to 2,355,198 shares of Royale common stock and certain options to acquire up to 100,000 shares of Royale common stock (the “Royale Excluded Number Options”), is referred to as the “Aggregate Royale Number,” as more fully described in the Merger Agreement.  As a result of the Royale Merger, each option and warrant to purchase shares of Royale common stock outstanding immediately prior to the effective time of the Royale Merger, including all Royale Excluded Number Options, shall be converted into the right thereafter to receive, upon exercise of such option or warrant, the number of shares of Holdings common stock to which the holder of each such option or warrant would have been entitled if, immediately prior to the Royale Merger, the holder had held the number of shares of Royale common stock obtainable upon the exercise of each such option or warrant.

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The Matrix Merger.  Concurrently, upon the terms and subject to the conditions set forth in the Merger Agreement and in accordance with the CCC, Matrix will be merged with and into Matrix Merger Sub, Inc., a newly-formed California corporation and a wholly-owned subsidiary of Holdings (“Matrix Merger Sub”).  Upon the merger, the separate existence of Matrix Merger Sub shall cease, and Matrix will continue as the surviving corporation in the merger as a wholly-owned subsidiary of Holdings (the “Matrix Merger” and together with the Royale Merger, the “mergers”).  Following the Matrix Merger, Matrix, as the surviving corporation, (i) shall possess all of Matrix’s and Matrix Merger Sub’s assets, rights, powers and property as constituted immediately prior to the Matrix Merger; (ii) shall continue to be subject to all of Matrix and Matrix Merger Sub’s debts, liabilities and obligations as constituted immediately prior to the Matrix Merger; (iii) shall be subject to all actions previously taken by the board of directors of Matrix and Matrix Merger Sub prior to the Matrix Merger; (iv) each issued and outstanding share of Matrix common stock shall be deemed converted into and become the number of shares of  fully paid and nonassessable Holdings common stock equal to the quotient of (a) the product of the Aggregate Royale Number multiplied by an allocation factor equal to 0.6198452, divided by (b) the Aggregate Matrix Number (the “Matrix Merger Consideration”).  For purposes of the Merger Agreement, the aggregate amount of issued and outstanding shares of Matrix common stock subject to conversion in the Matrix Merger, together with all shares issuable pursuant to any benefit plan, compensation agreement, or any other obligation to issue Matrix common stock including convertible indebtedness, options or warrants, is referred to as the “Aggregate Matrix Number,” as more fully described in the Merger Agreement.

Upon consummation of the Royale Merger, Royale’s name will be changed to Royale Energy Funds, Inc., and upon consummation of the Royale Merger or the Matrix Merger, which later occurs, Holdings’ name will be changed to Royale Energy, Inc.

Additionally, in connection with and as a condition to the mergers at the closing of the mergers, the following exchange transactions (together the “Exchanges”) will occur:

(i)
all the limited partnership interests of (A) Matrix Investments, L.P., a California limited partnership (other than its preferred limited partnership interests), (B) Matrix Las Cienegas Limited Partnership, a California limited partnership, and (C) Matrix Permian Investments, LP, a Texas limited partnership (collectively, the “Matrix LPs”), will be assigned to Holdings in exchange for Holdings common stock (the “LP Exchanges”) pursuant to the terms and conditions of certain exchange agreements in the form attached as exhibits to the Merger Agreement (collectively, the “Matrix LP Exchange Agreements”).  In the LP Exchanges, the holders of such limited partnership interests of the Matrix LPs (each a “Matrix LP Holder” and collectively, the “Matrix LP Holders”) will receive, respectively, a number of shares of Holdings common stock equal to the product of the Aggregate Royale Number multiplied by such Matrix LP Holder’s proportionate share of such limited partnership interests (based on such holder’s ownership percentage of all outstanding limited partnership interests of such Matrix LP other than preferred limited partnership interests) multiplied by applicable allocation factor for the applicable Matrix LP which is set forth below:

Holders of Matrix LP
 
Allocation Factor
 
Matrix Investments, L.P.
   
0.0899252
 
Matrix Las Cienegas Limited Partnership
   
0.1900080
 
Matrix Permian Investments, LP
   
0.1002063
 

(Collectively, the shares of Holdings common stock to be issued to the Matrix LP Holders are the “Matrix LP Exchange Consideration”);

(ii)
all the outstanding capital stock of Matrix Oil Corporation, a California corporation (the “Matrix Operator”), will be, pursuant to the terms of an exchange agreement (the “Matrix Operator Exchange Agreement”) in the form attached as an exhibit to the Merger Agreement, assigned to Holdings in exchange for Holdings common stock (the “Matrix Operator Exchange”).  In the Matrix Operator Exchange, the holders of the capital stock of Matrix Operator (each, a “Matrix Operator Holder” and collectively, the “Matrix Operator Holders”) will receive, in the aggregate, a number of shares of Holdings common stock equal to the product of the Aggregate Royale Number multiplied by 0.0000153 (the “Matrix Operator Exchange Consideration”);

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(iii)
$20,660,617 of preferred limited partnership interests (based on adjusted capital accounts of the holders) (the “Matrix Preferred Interests”) issued by Matrix Investments, L.P., will be exchanged (the “Preferred Exchange”) for shares of Holdings’ newly created Series B 3.5% Convertible Preferred Stock (“Series B Preferred Stock”).  Pursuant to the terms and conditions set forth in the exchange agreement between the holders of Matrix Preferred Interests (the “Matrix Preferred Holders”) and Holdings in the form attached as an exhibit to the Merger Agreement (the “Preferred Exchange Agreement”), each $10.00 of adjusted capital account of Matrix Preferred Interests outstanding immediately prior to consummation of the Mergers shall be exchanged for one (1) validly issued, fully paid and nonassessable share of Series B Preferred Stock. The Series B Preferred Stock is subject to the terms and conditions of the certificate of designation to be filed with the Delaware Secretary of State and will carry an initial liquidation preference of $10.00 per share, resulting in an aggregate liquidation preference of $20,660,617 for all outstanding shares of Series B Preferred Stock immediately following closing. Each share of Series B Preferred Stock will initially be convertible into ten (10) shares of Holdings common stock at the election of the holder.

Immediately after the mergers and the Exchanges it is expected that (i) former holders of Matrix common stock, Matrix operator capital stock and the Matrix LP Holders will collectively own 50% of all Holdings common stock then outstanding, (ii) former holders of Royale common stock will collectively own 50% of all Holdings common stock then outstanding, in each case giving effect to the number of shares of Holding common stock issuable under all options and warrants outstanding immediately after the mergers other than shares issuable under the Royale Excluded Number Options, and (iii) former holders of Matrix Preferred Interests will collectively own 100% of all Series B Preferred Stock of Holdings then outstanding.

The obligations of Royale and Matrix to effect the mergers are subject to the satisfaction or waiver of several conditions set forth in the Merger Agreement, including approval of each of the Matrix LP Exchanges by the respective Matrix LP Holders, approval of the Matrix Operator Exchange by the Matrix Operator Holders and approval of the Preferred Exchange by the Matrix Preferred Holders, as well as the approval of Royale’s shareholders with respect to the issuance of Holdings common stock and Series B Preferred Stock in connection with the Exchanges.  If the mergers are completed pursuant to the Merger Agreement, Matrix common shareholders will receive approximately 678 shares of Holdings common stock for each share of Matrix common stock held immediately prior to the effective time of the merger (or an aggregate of approximately 16 million shares of Holdings common stock which may change based upon the Aggregate Royale Number on the date of the merger), which we collectively refer to as the “merger consideration” and the “exchange ratio.” The merger consideration and the exchange ratio will be adjusted based on the Aggregate Royale Number on the date of the merger; however, the merger consideration and the exchange ratio will not be adjusted to reflect changes in the market price of Holdings common stock.  The dollar value of the Holdings common stock to be received as the merger consideration will change depending on fluctuations in the market price and will not be known at the time Matrix shareholders vote on the merger.  The mergers and the Exchanges are intended to qualify for federal income tax purposes as a tax-free reorganization under the provisions of Section 351 of the Internal Revenue Code of 1986, as amended.

The respective boards of directors of Royale and Matrix have determined that the Merger Agreement and all other related transactions, including the Exchanges, are fair to, advisable and in the best interests of their respective shareholders, and have unanimously approved the mergers, the Merger Agreement, the Exchange and each of the Matrix LP Exchange Agreements, the Matrix Operator Exchange Agreement and the Preferred Exchange Agreement and all other related transactions.  In connection with the proposed transactions Royale and Matrix will each hold a meeting of its respective shareholders.

At Royale’s Annual Meeting, the shareholders will, among other things, be asked to vote on (i) a proposal to approve and adopt the Merger Agreement; (ii)election of members of Royale’s Board of Directors; (iii) a proposal to approve the conversion of certain convertible notes into Royale common stock; and (iv) a proposal to adjourn the Royale Annual Meeting, if necessary or appropriate, to solicit additional proxies in favor of the proposals listed above.

At a Matrix special meeting, the shareholders will, among other things, be asked to vote on (i) a proposal to approve and adopt the Merger Agreement and the Matrix Merger; and (ii) Proposal to adjourn meeting if necessary to solicit more votes.  In addition, prior to the Matrix special meeting, the Matrix LP Holders and the shareholders of Matrix Operator will be asked to vote concurrently to approve the Matrix LP Exchange Agreements and the Matrix Operator Exchange Agreement and the holders of the Matrix Preferred Interests will be asked to approve the Preferred Exchange subject to the approval of the Merger Agreement and the Mergers.

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This joint proxy statement/prospectus also serves as a prospectus of Holdings with respect to: (a) 51.7 million shares of Holdings common stock that will be issued to (i) holders of outstanding shares of Royale common stock, upon the consummation of the Royale Merger, (ii) holders of the Matrix common stock, upon consummation of the Matrix Merger;(iii) the Matrix LP Holders and the Matrix Operator Holders in connection with the Matrix LP Exchanges and the Matrix Operator Exchange; (b) the Series B Preferred Stock that will be issued to holders of Matrix Preferred Interests in connection with the Preferred Exchange; and (c) 20 million shares of common stock issuable upon conversion of the Series B Preferred Stock that will be issued to holders of Matrix Preferred Interests in an exchange offer in connection with the mergers. See The Merger Agreement – Conversion of Stock, page [●].
 
Royale and Matrix cannot complete the proposed mergers unless, among other things, (1) Royale’s shareholders approve the Mergers and the Exchanges, (2) the Matrix shareholders approve the Mergers, (3) each of the Matrix LP Holders approve each of the respective LP Exchanges, (4)  each of the Matrix Operator Holders approve the Matrix Operator Exchange, and (5) each of the holders of the Matrix Preferred Interests approve the Preferred Exchange.

YOUR VOTE IS VERY IMPORTANT, REGARDLESS OF THE NUMBER OF SHARES OF ROYALE COMMON STOCK OR MATRIX COMMON STOCK YOU OWN.

To ensure your representation at your company’s Shareholder Meeting, please complete and return the enclosed proxy card or submit your proxy by telephone or through the internet. Please vote promptly whether or not you expect to attend your company’s Shareholder Meeting. Submitting a proxy now will not prevent you from being able to vote in person at your company’s Shareholder Meeting. The Royale Board of Directors determined that the mergers are in the best interest of the Royale shareholders, and has approved and declared advisable the Merger Agreement and the transactions contemplated thereby, and recommends that the Royale shareholders vote “FOR” the adoption of mergers and the transactions contemplated thereby. The Matrix Board of Directors determined that the mergers are in the best interest of the Matrix shareholders, and has approved and declared advisable the Merger Agreement and the transactions contemplated thereby, and recommends that the Matrix shareholders vote “FOR” the adoption of the mergers and the transactions contemplated thereby.  Matrix, as general partner of the Matrix LPs, has determined that the mergers and the transactions contemplated thereby, including the LP Exchanges, the Preferred Exchange and the Matrix Operator Exchange are each in the best interest of the limited partners of the respective Matrix LPs and recommends that the limited partners of each Matrix LP enter into the applicable Matrix LP Exchange Agreement and that the Matrix Preferred Holders enter into he Preferred Exchange Agreement. The board of directors of Matrix Operator has determined that the mergers and the transactions contemplated thereby, including the LP Exchanges, the Preferred Exchange and the Matrix Operator Exchange are each in the best interest of the shareholders of the Matrix Operator and, accordingly, recommends to the shareholders of Matrix Operator that they enter into the Matrix Operator Exchange Agreement. 

This joint proxy statement/prospectus provides you with detailed information about the proposed transactions. It also contains or references information about Royale, Matrix, and Holdings, and certain related matters. You are encouraged to read this joint proxy statement/prospectus carefully.

In particular, you should read the Risk Factors section beginning on page 34 for a discussion of the risks you should consider in evaluating the proposed merger and how it will affect you.

If you have any questions regarding the accompanying joint proxy statement/prospectus, you may contact [●].

Sincerely,

Jonathan Gregory
Royale Energy, Inc.
Chief Executive Officer and Director
Johnny Jordan,
Matrix Oil Management Corporation
Vice President and Director

Neither the Securities and Exchange Commission nor any state securities administrator has approved or disapproved of the mergers, the issuance of Holdings common stock in connection with the mergers, or the other transactions described in this joint proxy statement/prospectus, or passed upon the adequacy or accuracy of the disclosure in this joint proxy statement/prospectus. Any representation to the contrary is a criminal offense.

This joint proxy statement/prospectus is dated September 8, 2017, and is first being mailed to shareholders of Royale and Matrix on or about September 20, 2017.
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NOTICE OF THE ANNUAL MEETING OF SHAREHOLDERS OF ROYALE ENERGY, INC.
TO BE HELD ON November 3, 2017

NOTICE IS HEREBY GIVEN to the shareholders of Royale Energy, Inc. (“Royale”)  that the 2017 annual meeting of shareholders, or “Royale Annual Meeting,” will be held on November 3, 2017, at 10:00 A.M., local time, at 1870 Cordell Court, Suite 210, El Cajon, California 92020, for the following purposes:

1.
To adopt the Amended and Restated Agreement and Plan of Merger (the “Merger Agreement”) dated effective as of December 31, 2016 by and among Royale, Royale Energy Holdings, Inc., a Delaware corporation (“Holdings”), Royale Merger Sub, Inc., a California corporation and a direct, wholly-owned subsidiary of Holdings (“Royale Merger Sub”), Matrix Merger Sub, Inc., a California corporation and a direct, wholly-owned subsidiary of Holdings (“Matrix Merger Sub”) and Matrix Oil Management Corporation (“Matrix”), which provides for (a) the merger of Royale Merger Sub with and into Royale, which will result in Royale, as the surviving corporation, becoming a wholly-owned subsidiary of Holdings (the “Royale Reorganization Proposal”) and (b) the merger of Matrix Merger Sub with and into Matrix, which will result in Matrix becoming a wholly-owned subsidiary of Holdings (the “Matrix Combination Proposal”).  In addition, as a condition to closing of the merger with Matrix under the Matrix Combination Proposal, Royale Shareholders and Holdings must approve:

i.
the issuance of Holdings common stock to the limited partners of Matrix Investments, L.P., Matrix Las Cienegas Limited Partnership, and Matrix Permian Investments, L.P. in exchange for all limited partnership interests of such partnerships (other than the preferred limited partnership interests of Matrix Investments, L.P.) pursuant to terms of the respective limited partnership interest exchange agreements attached as an exhibit to the Merger Agreement;

ii.
the issuance of Series B Preferred Stock by Holdings to the holders of certain preferred limited partnership interests of Matrix Investments, L.P., in accordance with the terms of the exchange agreement of Holdings with the holders of such preferred limited partnership interests attached as an exhibit to the Merger Agreement, and
 
iii.
the issuance of common stock by Holdings to stockholders of Matrix Oil Corporation (“Matrix Operator”) in exchange for common stock of Matrix Operator, pursuant to terms of the exchange agreement of Holdings with shareholders of Matrix Operator attached as an exhibit to the Merger Agreement.
 
2.
To elect the nominees described in the joint proxy statement/prospectus accompanying this notice as members of Royale’s board of directors, each for a term of one year, expiring at the later of the 2018 annual meeting of shareholders or upon a successor being elected and qualified (the “Director Election”);
 
3.
To approve the conversion of certain convertible notes into Royale common stock (the “Note Conversion Proposal”); and
 
4.
To approve one or more adjournments of the Royale Annual Meeting, if necessary or appropriate to permit further solicitation of proxies in favor of the Royale Reorganization Proposal (“Adjournment Proposal”).
 
The affirmative vote of the holders of at least two-thirds, or 66⅔%, of the issued and outstanding shares of Royale common stock is required to approve the Royale Reorganization Proposal and the Matrix Combination Proposal. Assuming a quorum is present, the affirmative vote of a majority of the Royale capital stock present in person or represented by proxy at the Royale Annual Meeting is required to approve the Adjournment Proposal and the Note Conversion Proposal. The seven directors receiving the highest plurality of votes will be elected as directors in the Director Election. Royale will transact no other business at the Royale Annual Meeting, except for business properly brought before the Royale Annual Meeting or any adjournment or postponement thereof.
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Royale shareholders must approve the Reorganization Proposal and the Merger Proposal in order for the mergers to occur. If Royale shareholders fail to approve any of the Reorganization Proposal or the Merger Proposal, the mergers will not occur. The joint proxy statement/prospectus accompanying this notice explains the Merger Agreement and the transactions contemplated thereby, as well as the proposals to be considered at the Royale Annual Meeting. Please review the joint proxy statement/prospectus carefully.

The Royale board of directors has set [●] as the record date for the Royale Annual Meeting of its shareholders. Only holders of record of Royale common stock at the close of business on [●] will be entitled to notice of and to vote at the Royale Annual Meeting and any adjournments or postponements thereof. Any shareholder entitled to attend and vote at the Royale Annual Meeting is entitled to appoint a proxy to attend and vote on such shareholder’s behalf. Such proxy need not be a holder of Royale common stock.

YOUR VOTE IS VERY IMPORTANT, REGARDLESS OF THE NUMBER OF SHARES OF ROYALE COMMON STOCK OR PREFERRED STOCK YOU OWN.

Whether or not you plan to attend the Royale Annual Meeting, please complete, sign, date, and mail the enclosed proxy card in the postage-paid envelope provided at your earliest convenience. You may also submit a proxy by telephone or via the internet by following the instructions printed on your proxy card. If you hold your shares through a broker, bank, or other nominee, you should direct the vote of your shares in accordance with the voting instruction form received from your broker, bank, or other nominee.

The Royale board of directors has unanimously: (i) determined that the Merger Agreement and the other transactions contemplated thereby, including the merger, are fair to, and in the best interests of Royale and its shareholders; (ii) has approved the Merger Agreement and the transactions contemplated thereby; and (iii) recommends that you vote “FOR” the Royale Reorganization Proposal, “FOR” the Matrix Combination Proposal, “FOR” the nominees for director in the Director Election, “FOR” the Note Conversion Proposal, and “FOR” the Adjournment Proposal (if necessary or appropriate).
 
If the Merger Agreement is approved by the required vote of Royale and Matrix shareholders and is not abandoned or terminated, holders of Royale common stock who did not approve the Merger Agreement may, by complying with Sections 1300 through 1313 of the California Corporations Code (“CCC”), be entitled to dissenters’ rights as described therein and receive cash for the fair market value of their Royale common stock, but only if they submit a written demand for such an appraisal prior to the vote on the Merger agreement and comply with the other CCC procedures and requirements described in the accompanying proxy statement/prospectus.  This discussion is not a complete statement of dissenters’ rights under the CCC and is qualified in its entirety by reference to Sections 1300 through 1313 of the CCC, the full text of which are attached to the accompanying proxy statement/prospectus as Annex H.

If you have any questions or need assistance with voting, please contact Advantage Proxy, the proxy solicitation agent for Royale, toll-free at [877-870-8565].

If you plan to attend the Royale Annual Meeting, you will be required to bring certain documents with you to be admitted to the meeting. Please read carefully the sections in the joint proxy statement/prospectus regarding attending and voting at the Royale Annual Meeting to ensure that you comply with these requirements.

BY ORDER OF THE BOARD OF DIRECTORS
 

/s/ Harry E. Hosmer
Harry E. Hosmer
Chairman of the Board
 
September 7, 2017
 
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Matrix Oil Management Corporation
104 W Anapamu Street
Santa Barbara, California 93101
(805) 880-2600

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON November 3, 2017


To the Stockholders of Matrix Oil Management Corporation:

We are pleased to invite you to attend a special meeting of the stockholders of Matrix Oil Management Corporation, a California corporation, which we refer to as Matrix, which will be held at the principle executive office of Matrix, 104 W. Anapamu Street, Santa Barbara, California 93101, on November 3, 2017 at 11:00 a.m., local time, for the following purposes:

1.         To consider and vote upon a proposal to approve and adopt (i) the Amended and Restated Agreement and Plan of Merger dated effective as of December 31, 2016, as it may be amended from time to time, which we refer to as the “Merger Agreement,” by and among Royale Energy, Inc. (“Royale”), Royale Energy Holdings, Inc., a Delaware corporation (“Holdings”), Royale Merger Sub, Inc., a California corporation and a direct, wholly-owned subsidiary of Holdings (“Royale Merger Sub”), Matrix Merger Sub, Inc., a California corporation and a direct, wholly-owned subsidiary of Holdings (“Matrix Merger Sub”), and Matrix and (ii) the merger of Matrix Merger Sub with and into Matrix, which will result in Matrix becoming a wholly-owned subsidiary of Holdings (the “Matrix Merger”).
 
2.         To consider and vote on any proposal to authorize Matrix’s board of directors, in its discretion, to adjourn the special meeting to a later date or dates, if necessary or appropriate, to solicit additional proxies in favor of the proposal to approve and adopt the Merger Agreement.

We do not expect to transact any other business at the special meeting. Matrix’s board of directors has fixed the close of business on [●], 2017 as the record date for determining those Matrix stockholders entitled to vote at the special meeting and any adjournment or postponement thereof. Accordingly, only Matrix stockholders of record at the close of business on that date are entitled to notice of, and to vote at, the special meeting. A complete list of the Matrix stockholders will be available for examination at the offices of Matrix in Santa Barbara, California during ordinary business hours for a period of 10 days prior to the special meeting.

The board of directors of Matrix recommends that Matrix stockholders vote “FOR” each of the proposals to be considered at the special meeting.

If the Merger Agreement is approved by the required vote of Royale and Matrix shareholders and is not abandoned or terminated, holders of Matrix common stock who did not approve the Merger Agreement and the Matrix Merger may be entitled to dissenters’ rights, and receive cash for the fair market value of their Matrix common stock, by complying with Sections 1300 through 1313 of the California Corporations Code, but only if they submit a written demand for such an appraisal prior to the vote on the Merger Agreement and the Matrix Merger and comply with the other procedures and requirements of the California Corporations Code. There is a brief description of such procedures and requirements for exercising such dissenters’ rights in the accompanying proxy statement/prospectus and a copy of Sections 1300 through 1313 of the California Corporations Code is attached as Annex H to the proxy statement/prospectus.

We cordially invite you to attend the special meeting in person.  However, to ensure your representation at the special meeting, please complete and promptly mail your proxy card in the return envelope enclosed. This will not prevent you from voting in person, but will help to secure a quorum and avoid added solicitation costs. Your proxy may be revoked at any time before it is voted. Please review the proxy statement/prospectus accompanying this notice for more complete information regarding the matters to be voted on at the meeting.

By Order of the Board of Directors,
/s/ Johnny Jordan                                
Johnny Jordan
Vice President
Santa Barbara, California
September 7, 2017

IMPORTANT:  WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, WE ASK YOU TO COMPLETE AND PROMPTLY RETURN THE ENCLOSED PROXY CARD IN THE ENVELOPE PROVIDED.

ADDITIONAL INFORMATION

This joint proxy statement/prospectus incorporates important business and financial information about Royale and Matrix that is not included in or delivered with this joint proxy statement/prospectus. This information is available to you without charge upon your written or oral request to:

Royale Energy, Inc.
1870 Cordell Court, Suite 210
El Cajon, California 92020
(619) 383-6600
Attention: Secretary
 
Matrix Oil Management Corporation
104 W Anapamu Street
Santa Barbara, California 93101
(805) 880-2600
Attention:  Vice President
You also may obtain certain documents relating to Royale at the Securities and Exchange Commission’s website, www.sec.gov, and you may obtain some of these documents at Royale’s website, www.royl.com. Information contained on the Royale website is expressly not incorporated by reference into this joint proxy statement/prospectus. To receive timely delivery of the documents in advance of the Shareholder Meetings, your request should be received no later than [●].

Royale’s board of directors is using this joint proxy statement/prospectus to solicit proxies from Royale’s shareholders in connection with the Merger Agreement and the mergers described therein, and the election of nominees to the board of directors. Matrix’s board of directors is using this joint proxy statement/prospectus to solicit proxies from Matrix’s shareholders in connection with the Merger Agreement and the Matrix Merger. In addition, Royale and Matrix are using this joint proxy statement/prospectus as a prospectus for shareholders of both companies because Holdings is offering shares of its common stock and convertible preferred stock to be issued as consideration for the mergers.
 


 
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QUESTIONS AND ANSWERS
The following are answers to certain questions that you may have regarding the mergers and, in the case of Royale shareholders, the Royale Annual Meeting. We urge you to read carefully the remainder of this joint proxy statement/prospectus because the information in this section may not provide all the information that might be important to you. Additional important information is also contained in the appendices to, and the documents incorporated by reference in, this joint proxy statement/prospectus.

Q:          WHAT IS THE PURPOSE OF THE MERGERS AND THE EXCHANGES?

A:
Royale and Matrix have entered into an Amended and Restated Agreement and Plan of Merger dated effective as of December 31, 2016, as it may be amended from time to time, which we refer to as the “Merger Agreement.” The purpose of the Merger Agreement is to combine Royale and Matrix through mergers resulting in Royale and Matrix each becoming wholly-owned subsidiaries of a newly-formed Delaware corporation which will initially be named “Royale Energy Holdings, Inc.” (“Holdings”).  Holdings will be owned by the current stockholders of Royale and Matrix immediately following the mergers, and Holdings will issue additional shares of capital stock in exchange for all outstanding limited partnership interests of (or in the case of Matrix Oil Corporation, all outstanding capital stock) with holders of the following Matrix affiliates (collectively, the “Exchanges”):

(i)          Matrix Investments, L.P., a California limited partnership,
(ii)         Matrix Las Cienegas Limited Partnership, a California limited partnership,
(iii)
        Matrix Permian Investments, LP, a Texas limited partnership, and
(iv)
        Matrix Oil Corporation, a California corporation,
 
(Matrix and its affiliates named in clauses (i) through (iv) above are, collectively, the “Matrix Group”).  As a result of these mergers and exchanges, Holdings will issue shares of its capital stock such that former holders of Royale will hold 50% including certain persons who are shareholders of both Matrix and Royale at the time of the merger, and the former holders of the Matrix Group will hold 50%, of all outstanding shares of common stock of Holdings on a fully diluted basis, excluding shares issuable under certain warrants and options to certain former holders of Royale.  In addition, holders of preferred limited partnership interests of Matrix Investments, L.P. will receive all outstanding shares of Holdings’ newly created Series B 3.5% Convertible Preferred Stock immediately following the merger.

The common stock and Series B 3.5% Convertible Preferred Stock of Holdings issued in connection with the mergers and the exchanges will be registered with the SEC under the Securities Act and, consequently, Holdings will be responsible for periodic reporting under the Exchange Act and related regulations, including the preparation and filing of Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and proxy statements in advance of stockholders meetings. Holdings will list the shares of its common stock to be issued in the mergers on the Over-The-Counter QB (OTCQB) Market System. It is anticipated that the mergers will put Holdings in compliance with NASDAQ listing requirements and that Holdings will apply for listing on the NASDAQ Stock Market.

Q:          WHY ARE THERE TWO PROPOSED MERGERS?

A:
The combination of Royale and Matrix could be accomplished through a single merger but the respective boards of directors of each company determined that it is in the interest of their company and its shareholders to change its state of incorporation from California to Delaware.  Each of the boards also concluded, however, that it was desirable to continue business operations in California through one or more California corporations as operating companies.  Accordingly, the proposed transactions include the creation of a new Delaware holding corporation, Royale Energy Holdings, Inc., to be owned by the current shareholders of Royale, Matrix and Matrix Operator, and by the limited partners of the Matrix LPs, with Royale and Matrix to continue their existence after the merger as wholly-owned subsidiaries of Holdings engaged in oil and gas exploration and production activities in California and other states.

For the reasons set forth below in detail under the Q&A, What Are Material Differences Between Delaware Corporate Law And California Corporate Law? (“Delaware Holding Corporation”), page 21, Royale’s board of directors believes that it is in the best interests of Royale and its shareholders to reorganize to provide for ownership through a Delaware holding corporation concurrently with the proposed business combination with Matrix.  For many of the same reasons, Matrix’s board of directors believes that it is in the best interests of Matrix, Matrix Operator and the Matrix LPs and their respective shareholders and partners, to reorganize Matrix to provide for ownership through a Delaware holding corporation concurrently with the proposed business combination with Royale.  Shareholders are urged to read carefully the section of this proxy statement/prospectus “Delaware Holding Corporation”, including the related annexes attached hereto, before voting.  Throughout this proxy statement/prospectus, we refer to Royale, the existing California corporation, as “Royale” and the term “Holdings” refers to the newly-formed Delaware holding company that will hold all shares of Royale and Matrix immediately following the Mergers.

As discussed below, the principal reasons for the reincorporation are the greater flexibility of Delaware corporate law and the substantial body of case law interpreting that law.  Royale and Matrix each believes that its respective shareholders will benefit from the well-established principles of corporate governance that Delaware law affords.  The certificate of incorporation and the bylaws of Holdings are attached hereto as Annexes I and J, respectively.

Please read the section Delaware Holding Corporation —Significant Differences Between the Corporation Laws of California and Delaware, for a description of the material differences between Holdings’ certificate of incorporation and bylaws, the articles of incorporation and bylaws of Royale, and the articles of incorporation and bylaws of Matrix  as well as material differences between California and Delaware corporate law. Also, please read the section Comparison of Shareholders’ Rights beginning on page 159, for a description of the material differences between Royale’s articles of incorporation and Holdings’ amended and restated certificate of incorporation.

Q:          WHAT ARE TERMS OF THE MERGERS?

A:
The Royale Merger.  Pursuant to the Merger Agreement, Royale formed Holdings and Royale Merger Sub, Inc., a California corporation and a wholly-owned subsidiary of Holdings (“Royale Merger Sub”). Royale Merger Sub will be merged with and into Royale, in accordance with the California Corporations Code, or “CCC”, with Royale continuing as the surviving corporation as a wholly-owned subsidiary of Holdings (the “Royale Merger”). Following the Royale Merger, Royale, (i) shall possess all of Royale’s and Royale Merger Sub’s assets, rights, powers and property as constituted immediately prior to the Royale Merger; (ii) shall continue to be subject to all of Royale and Royale Merger Sub’s debts, liabilities and obligations as constituted immediately prior to the Royale Merger; (iii) shall be subject to all actions previously taken by the board of directors of Royale and Royale Merger Sub prior to the Royale Merger; (iv) each issued and outstanding share of Royale common stock shall be deemed converted into and become one (1) share of fully paid and nonassessable common stock, $0.001 par value per share, of Holdings (the “Holdings common stock”), and as a result, the shareholders of Royale will hold common stock of Holdings.

The aggregate number of issued and outstanding shares of Royale common stock subject to conversion in the Royale Merger, together with the aggregate number of shares of Royale common stock issuable pursuant to any benefit plan, compensation agreement, or any other obligation to issue Royale common stock including convertible indebtedness, but excluding all shares issuable upon exercise of certain warrants to acquire up to 2,355,198 shares of Royale common stock and certain options to acquire up to 100,000 shares of Royale common stock (the “Royale Excluded Number Options”), is referred to as the “Aggregate Royale Number.”  As a result of the Royale Merger, each option and warrant to purchase shares of Royale common stock outstanding immediately prior to the effective time of the Royale Merger, including all Royale Excluded Number Options, shall be converted into the right thereafter to receive, upon exercise of such option or warrant, the number of shares of Holdings common stock to which the holder of each such option or warrant would have been entitled if, immediately prior to the Royale Merger, the holder had held the number of shares of Royale common stock obtainable upon the exercise of each such option or warrant.

The Matrix Merger.  Concurrently, upon the terms and subject to the conditions set forth in the Merger Agreement and in accordance with the CCC, Matrix Merger Sub, Inc., a newly-formed California corporation and a wholly-owned subsidiary of Holdings (“Matrix Merger Sub”), will be merged with and into Matrix with Matrix as the surviving corporation (the “Matrix Merger”).  Upon conclusion of the Matrix Merger, the separate existence of Matrix Merger Sub shall cease, Matrix will continue as the surviving corporation and as a wholly-owned subsidiary of Holdings.  And Matrix (i) shall possess all of Matrix’s and Matrix Merger Sub’s assets, rights, powers and property as constituted immediately prior to the Matrix Merger; (ii) shall continue to be subject to all of Matrix and Matrix Merger Sub’s debts, liabilities and obligations as constituted immediately prior to the Matrix Merger; (iii) shall be subject to all actions previously taken by the board of directors of Matrix and Matrix Merger Sub prior to the Matrix Merger; and (iv) each issued and outstanding share of Matrix common stock shall be deemed converted into and become the number of shares of fully paid and nonassessable Holdings common stock equal to the quotient of (a) the product of the Aggregate Royale Number multiplied by an allocation factor equal to 0.6198452, divided by (b) the Aggregate Matrix Number (the “Matrix Merger Consideration”).

For purposes of the Merger Agreement, the aggregate amount of issued and outstanding shares of Matrix common stock subject to conversion in the Matrix Merger, together with all shares issuable pursuant to any benefit plan, compensation agreement, or any other obligation to issue Matrix common stock including convertible indebtedness, options or warrants, is referred to as the “Aggregate Matrix Number”.


Upon consummation of the Royale Merger, Royale’s name will be changed to Royale Energy Funds, Inc., and upon consummation of the Royale Merger or the Matrix Merger, which later occurs, Holdings’ name will be changed to Royale Energy, Inc.
 
Q:
WHAT ARE THE PROPOSED EXCHANGES?

A:
In connection with and as a condition to the mergers at the closing of the Mergers, the following exchange transactions will occur (together these transactions are the “Exchanges”):

(i)
all the limited partnership interests of (A) Matrix Investments, L.P., a California limited partnership (other than its preferred limited partnership interests), (B) Matrix Las Cienegas Limited Partnership, a California limited partnership, and (C) Matrix Permian Investments, LP, a Texas limited partnership (collectively, the “Matrix LPs”), will be assigned to Holdings in exchange for Holdings common stock (the “LP Exchanges”) pursuant to the terms and conditions of certain exchange agreements in the form attached as exhibits to the Merger Agreement (collectively, the “Matrix LP Exchange  Agreements”).  In the LP Exchanges, the holders of such limited partnership interests of the Matrix LPs (each a “Matrix LP Holder” and collectively, the “Matrix LP Holders”) will receive, respectively, a number of shares of Holdings common stock equal to the product of the Aggregate Royale Number multiplied by such Matrix LP Holder’s proportionate share of such limited partnership interests (based on such holder’s ownership percentage of all outstanding limited partnership interests of such Matrix LP other than preferred limited partnership interests) multiplied by applicable allocation factor for the applicable Matrix LP which is set forth below:

Holders of Matrix LP
 
Allocation Factor
 
Matrix Investments, L.P.
   
0.0899252
 
Matrix Las Cienegas Limited Partnership
   
0.1900080
 
Matrix Permian Investments, LP
   
0.1002063
 

(Collectively, the shares of Holdings common stock to be issued to the Matrix LP Holders are the “Matrix LP Exchange Consideration”);

(ii)
all the outstanding capital stock of Matrix Oil Corporation, a California corporation (the “Matrix Operator”), will be, pursuant to the terms of an exchange agreement (the “Matrix Operator Exchange Agreement”) in the form attached as an exhibit to the Merger Agreement, assigned to Holdings in exchange for Holdings common stock (the “Matrix Operator Exchange”).  In the Matrix Operator Exchange, the holders of the capital stock of Matrix Operator (each, a “Matrix Operator Holder” and collectively, the “Matrix Operator Holders”) will receive, in the aggregate, a number of shares of Holdings common stock equal to the product of the Aggregate Royale Number multiplied by 0.0000153 (the “Matrix Operator Exchange Consideration”);

(iii)
$20,660,617of preferred limited partnership interests (based on adjusted capital accounts of the holders) (the “Matrix Preferred Interests”) issued by Matrix Investments, L.P., will be exchanged (the “Preferred Exchange”) for shares of Holdings’ newly created Series B 3.5% Convertible Preferred Stock (“Series B Preferred Stock”).  Pursuant to the terms and conditions set forth in the exchange agreement between the holders of Matrix Preferred Interests (the “Matrix Preferred Holders”) and Holdings in the form attached as an exhibit to the Merger Agreement (the “Preferred Exchange Agreement”), each $10.00 of adjusted capital account of Matrix Preferred Interests outstanding immediately prior to consummation of the Mergers shall be exchanged for one (1) validly issued, fully paid and nonassessable share of Series B Preferred Stock. The Series B Preferred Stock is subject to the terms and conditions of the certificate of designation to be filed with the Delaware Secretary of State and will carry an initial liquidation preference of $10.00 per share, resulting in an aggregate liquidation preference of $20,660,617for all outstanding shares of Series B Preferred Stock immediately following closing. Each share of Series B Preferred Stock will initially be convertible into ten (10) shares of Holdings common stock at the election of the holder.

A copy of the Merger Agreement is attached to this joint proxy statement/prospectus as Annex A. We urge you to read carefully this joint proxy statement/prospectus and the Merger Agreement in their entirety.

Q:
WHY ARE ROYALE AND MATRIX PROPOSING THE MERGERS?

A:
Royale and Matrix believe that their combination will create value for both companies’ shareholders. The boards of directors of Royale and Matrix have each concluded that the mergers are in the best interests of their respective shareholders.

As set forth in greater detail elsewhere in this joint proxy statement/prospectus, Royale’s board of directors considered many factors in making its recommendations to Royale’s shareholders. Among the factors considered by Royale’s board of directors were:

·
the combination will greatly improve production and cash flows, and reduce general and administrative expenses on a per barrel basis;

·
the combination will greatly diversify and increase estimated proved reserves;

·
the combination will significantly improve Royale’s liquidity and financial strength and is anticipated to put Royale in compliance with NASDAQ listing requirements;

·
the combined entity’s market capitalization and its expected enhanced access to debt and equity capital markets, which the Royale board of directors believes will enhance the ability to finance development and production of the combined entity’s increased scale of operations;

·
the combination will provide Royale with a larger portfolio of exploitation and exploration opportunities in resource plays within areas already targeted by Royale; and

·
the presentation and opinion of Northland Capital Markets (“Northland”), Royale’s financial advisor, to the effect that, as of the date of the opinion and based upon the assumptions, limitations, qualifications, and conditions stated in the opinion letter, the mergers as between Royale and Matrix are fair to Royale and its shareholders, from a financial point of view, as more fully described below in the section, The Mergers – Opinions of  Northland Capital Markets to the Royale Board of Directors.

For more detailed information regarding the factors considered by Royale’s board of directors, see The Mergers—Recommendation of Royale’s Board of Directors and Reasons for the Mergers, beginning on page 60.

As set forth in greater detail elsewhere in this joint proxy statement/prospectus, Matrix’s board of directors considered many factors in making its recommendations to Matrix’s shareholders.  Among the factors considered by Matrix’s board of directors were:

·
the combination will provide a long-term strategic benefit to Matrix shareholders by creating an oil and natural gas company with more diversified reserves and increased scope and scale;

·
the potential synergies resulting from elimination of duplicative general and administrative costs, operational synergies resulting from combining operations in the same geographical area and other potential benefits to the cash flow of the combined company;

·
the fact that there is no public trading market for Matrix common stock and that shares of the combined company’s common stock will be registered with the SEC and listed for trading on the Over-The-Counter QB (OTCQB) Market System;

·
the public nature of the combined company’s common stock may facilitate future capital raising, and acquisitions of assets or companies for shares of common stock; the combined entity’s market capitalization should enhance access to debt and equity capital markets and enhance the ability to finance development and production of the combined company’s properties and increased scale of operations;
 
·
current industry, economic and market conditions, and the present and anticipated environment in the independent exploration and production sector of the energy industry suggest that potential acquisition and development opportunities will develop within the sector for companies that achieve superior operating efficiencies and are sufficiently capitalized;


·
through their receipt of Holdings common stock and convertible preferred stock as part of the merger consideration, Matrix shareholders have the opportunity to participate in the combined company’s growth and share appreciation in the future (including share appreciation resulting from further exploitation and development of Matrix’s and Royale’s assets); and

·
the form of the merger consideration would be desirable to Matrix shareholders in that the Holdings common stock and preferred stock issuable in the mergers (other than the shares issued with respect to accrued and unpaid dividends) would not result in a taxable transaction for Matrix shareholders.

For more detailed information regarding the factors considered by Matrix’s board of directors, see The Mergers —Recommendation of Matrix’s Board of Directors and Reasons for the Mergers, beginning on page 61.

Q:
WHY AM I RECEIVING THIS DOCUMENT?

A:
Royale’s and Matrix’s boards of directors are using this proxy statement/prospectus to solicit proxies of Royale and Matrix stockholders in connection with the Merger Agreement and the Mergers, as further described below.  This joint proxy statement/prospectus also constitutes the prospectus of Holdings with respect to the shares of Holdings common stock to be issued to (i) holders of outstanding shares of Royale common stock upon consummation of the Royale Merger as merger consideration; (ii) holders of outstanding shares of Matrix common stock upon consummation of the Matrix Merger as merger consideration; (iii) holders of all outstanding limited partnership interests of the Matrix LP (other than the Matrix Preferred Interests) as Matrix LP Exchange Consideration; (iv) holders of all the outstanding capital stock of Matrix Operator; and (v) holders of  all outstanding Matrix Preferred Interests upon consummation of the Preferred Exchange as Preferred Exchange Consideration.
 
This joint proxy statement/prospectus is being furnished to shareholders of Royale in connection with the solicitation by the board of directors of Royale of proxies for use at the Royale Annual Meeting to be held at Royale’s principal executive offices located at 1870 Cordell Court, Suite 210, El Cajon, California 92020, at 10:00 A.M., local time, on November 3, 2017. At this meeting, Royale shareholders will be asked to (i) consider and vote upon the approval of the mergers; (ii) elect directors; and (iii) other matters relating to the same.

This document constitutes both a proxy statement of Royale and a prospectus of Holdings. It is a proxy statement because the board of directors of Royale is soliciting proxies using this document from its shareholders. It is a prospectus because Holdings, in connection with the mergers, is offering shares of its common stock shares and shares of preferred stock to Matrix shareholders as merger consideration.

The mergers cannot be completed unless each of Royale’s and Matrix’s shareholders adopt the Merger Agreement.

Q:          WHAT WILL HOLDERS OF ROYALE COMMON STOCK RECEIVE IN THE MERGERS?

A:
Upon consummation of the Royale Merger, each outstanding share of Royale common stock will be converted into one share of Holdings common stock.  See The Merger Agreement – Conversion of Royale Common Stock. For a summary of the principal differences between the rights of holders of Holdings common stock and Royale common stock, see Comparison of Shareholders’ Rights—Comparison of Shareholders’ Rights with Respect to Holdings and Royale.

Q:
WHAT WILL HOLDERS OF MATRIX GROUP RECEIVE IN THE MERGERS AND THE EXCHANGES?

A:
(1)  Upon consummation of the Matrix Merger each outstanding share of Matrix common stock will be converted into the right to receive the number of shares of Holdings common stock equal to the quotient of (a) the product of the Aggregate Royale Number multiplied by the allocation factor equal to 0.6198452, divided by (b) the Aggregate Matrix Number. See Certain Provisions of The Merger Agreement –Merger Consideration and Exchange Consideration.
 
(2)
Upon consummation of the LP Exchanges the Matrix LP Holders will receive, respectively, a number of shares of Holdings common stock equal to the product of the Aggregate Royale Number multiplied by such Matrix LP Holder’s proportionate share of such limited partnership interests (based on such holder’s ownership percentage of all outstanding limited partnership interests of such Matrix LP) multiplied by applicable allocation factor for the applicable Matrix LP which is set forth below:

Holders of Matrix LP
 
Allocation Factor
 
Matrix Investments, L.P.
   
0.0899252
 
Matrix Las Cienegas Limited Partnership
   
0.1900080
 
Matrix Permian Investments, LP
   
0.1002063
 


(3)
Upon consummation of the Matrix Operator Exchange, each Matrix Operator Holder will receive a number of shares of Holdings common stock equal to the product of the Aggregate Royale Number multiplied by such Matrix LP Holder’s proportionate share of all outstanding Matrix Operator capital stock, multiplied by 0.0000153.

(4)
Upon consummation of the Preferred Exchange, each Matrix Preferred Holder will receive, for each $10.00 of adjusted capital account of Matrix Preferred Interests outstanding immediately prior to consummation of the Mergers, one (1) validly issued, fully paid and nonassessable share of Series B Preferred Stock of Holdings.

Q:
WHEN WILL THE MERGERS BE COMPLETED?

A:
Royale and Matrix currently expect that the mergers will be completed during the second half of 2017. However, neither Royale nor Matrix can assure you of when or if the mergers will be completed, and it is possible that factors outside of the control of both companies, could result in the mergers being completed at a different time or not at all. Royale and Matrix must first obtain the approval of their respective shareholders for the mergers. See The Merger Agreement—Conditions to the Mergers, beginning on page [●].

Q:
WHAT AM I BEING ASKED TO VOTE ON AND WHY IS THIS APPROVAL NECESSARY?

A:
Royale shareholders are being asked to vote via proxy or at the Royale Annual Meeting on the following proposals:

1.
To adopt the Amended and Restated Agreement and Plan of Merger (the “Merger Agreement”) dated effective as of December 31, 2016 by and among Royale, Royale Energy Holdings, Inc., a Delaware corporation (“Holdings”), Royale Merger Sub, Inc., a California corporation and a direct, wholly-owned subsidiary of Holdings (“Royale Merger Sub”), Matrix Merger Sub, Inc., a California corporation and a direct, wholly-owned subsidiary of Holdings (“Matrix Merger Sub”) and Matrix Oil Management Corporation (“Matrix”), which provides for (a) the merger of Royale Merger Sub with and into Royale, which will result in Royale, as the surviving corporation, becoming a wholly-owned subsidiary of Holdings (the “Royale Reorganization Proposal”) and (b) the merger of Matrix Merger Sub with and into Matrix, which will result in Matrix becoming a wholly-owned subsidiary of Holdings (the “Matrix Combination Proposal”).  In addition, as a condition to closing of the merger with Matrix under the Matrix Combination Proposal, Royale Shareholders and Holdings must approve:
 
i.
the issuance of Holdings common stock to the limited partners of Matrix Investments, L.P., Matrix Las Cienegas Limited Partnership, and Matrix Permian Investments, L.P. in exchange for all limited partnership interests of such partnerships (other than the preferred limited partnership interests of Matrix Investments, L.P.) pursuant to terms of the respective limited partnership interest exchange agreements attached as an exhibit to the Merger Agreement;

ii.
the issuance of Series B Preferred Stock by Holdings to the holders of certain preferred limited partnership interests of Matrix Investments, L.P., in accordance with the terms of the exchange agreement of Holdings with the holders of such preferred limited partnership interests attached as an exhibit to the Merger Agreement; and

iii.
the issuance of common stock by Holdings to stockholders of Matrix Oil Corporation (“Matrix Operator”) in exchange for common stock of Matrix Operator, pursuant to terms of the exchange agreement of Holdings with shareholders of Matrix Operator attached as an exhibit to the Merger Agreement.
 
2.
To elect the nominees described in the joint proxy statement/prospectus accompanying this notice as members of Royale’s board of directors, each for a term of one year, expiring at the later of the 2018 annual meeting of shareholders or upon a successor being elected and qualified (the “Director Election”);
 
3.
To approve the conversion of certain convertible notes into Royale common stock (the “Note Conversion Proposal”); and
 
4.
To approve one or more adjournments of the Royale Annual Meeting, if necessary or appropriate to permit further solicitation of proxies in favor of the Royale Reorganization Proposal (“Adjournment Proposal”).

Matrix shareholders are being asked to vote via proxy or at the special meeting of shareholders on the following proposals (collectively, the “Matrix Reorganization Proposal”):

1.
To adopt Amended and Restated Agreement and Plan of Merger dated effective as of December 31, 2016 by and between Royale and Matrix, which provides, among other things, for: (a) the formation of Royale Energy Holdings, Inc., a Delaware corporation (“Holdings”) and Matrix Merger Sub, Inc., a California corporation and a wholly-owned subsidiary of Holdings (“Matrix Merger Sub”);  (b) the merger of Matrix Merger Sub with and into Matrix, which will result in Matrix, as the surviving corporation, becoming a wholly-owned subsidiary of Holdings (the “Matrix Merger”); and (c) the merger of Royale Merger Sub, Inc., a California corporation and a wholly-owned subsidiary of Holdings, with and into Royale, which will result in Royale, as the surviving corporation, becoming a wholly-owned subsidiary of Holdings.

2.
To approve the Matrix Merger.

Q:
WHAT CONSTITUTES A QUORUM AT THE ROYALE ANNUAL MEETING?

A:
The presence, in person or represented by proxy, of at least a majority of the total number of outstanding shares of Royale common stock entitled to vote is necessary in order to constitute a quorum at the Royale Annual Meeting.

Q:
WHAT VOTE IS REQUIRED TO APPROVE EACH PROPOSAL AT THE ROYALE ANNUAL MEETING?

A:
The Royale Reorganization Proposal.  The affirmative vote of at least two-thirds, or 66⅔%, of the issued and outstanding Royale common stock is required to approve the Reorganization Proposal.

The Director Election.  The seven directors receiving the highest plurality of votes will be elected as directors in the Director Election.
 
The Note Conversion Proposal.  Assuming a quorum is present, the affirmative vote of a majority of the Royale common stock present in person or represented by proxy at the Royale Annual Meeting is required to approve the Note Conversion Proposal.

The Adjournment Proposal. Assuming a quorum is present, the affirmative vote of a majority of the Royale common stock present in person or represented by proxy at the Royale Annual Meeting is required to approve the Adjournment Proposal.

Q:
WHAT IS THE NOTE CONVERSION PROPOSAL?

A:
Royale issued two Convertible Notes dated August 2, 2016 in the aggregate principal amount of $1,580,000 (the “Notes”) to Johnny Jordan and Joe Paquette, shareholders of Matrix.  The Notes are convertible into an aggregate of 3,950,000 shares of Royale common stock. Pursuant to the Notes, the conversion is automatic upon (i) the approval of the merger by the shareholders of Royale, and (ii) the approval of the conversion by the shareholders of Royale. The conversion will result in an issuance of more than 20% of the outstanding Royale common stock to the holders of the Notes. See The Note Conversion Proposal, beginning on page [●].

Q:
WHAT CONSTITUTES A QUORUM AT THE MATRIX SPECIAL MEETING?

A:
The presence, in person or represented by proxy, of at least a majority of the total number of outstanding shares of Matrix common stock is necessary in order to constitute a quorum at the Matrix special meeting.

Q:
WHAT VOTE IS REQUIRED TO APPROVE EACH PROPOSAL AT THE MATRIX SPECIAL MEETING?

A:
The Matrix Reorganization Proposal.  The affirmative vote of at least two-thirds, or 66⅔%, of the issued and outstanding Matrix common stock is required to approve the Reorganization Proposal.

The Adjournment Proposal.  Even if a quorum is not present at the meeting, the affirmative vote of a majority of the Matrix common stock present in person or represented by proxy at the Matrix special meeting is sufficient to approve the Adjournment Proposal.

Q:
WHAT DO I NEED TO DO NOW?

A:
If you are a Royale shareholder, after carefully reading and considering the information contained in this joint proxy statement/prospectus, please vote your shares as soon as possible so that your shares will be represented at the Royale Annual Meeting. Please follow the instructions set forth on the proxy card or on the voting instruction form provided by your broker, bank, or other nominee if your shares are held in the name of your broker, bank, or other nominee.

If you are a Matrix shareholder, after carefully reading and considering the information contained in this joint proxy statement/prospectus, please vote your shares as soon as possible so that your shares will be represented at the Matrix  Special Meeting. Please follow the instructions set forth on the proxy card.

Q:
HOW DO I VOTE?

A:
If you are a shareholder of record of Royale as of [●] (the “Royale Record Date”) you may submit your proxy before the Royale Annual Meeting in any of the following ways:

·
use the toll-free number shown on your proxy card;

·
visit the website shown on your proxy card to vote via the Internet; or

·
complete, sign, date, and return the enclosed proxy card in the enclosed postage-paid envelope.

If you are a shareholder of record of Royale as of the Royale Record Date, you may also cast your vote in person at the Royale Annual Meeting.

If your shares are held in “street name” through a broker, bank, or other nominee, your broker, bank, or other nominee will send you separate instructions describing the procedure for voting your shares. “Street name” shareholders who wish to vote at the special meeting will need to obtain a proxy form from their broker, bank, or other nominee.

If you are a shareholder of record of Matrix as of [●] (the “Matrix Record Date”) you may submit your proxy before the Matrix Meeting in any of the following ways:

·
use the toll-free number shown on your proxy card;

·
visit the website shown on your proxy card to vote via the Internet; or

·
complete, sign, date, and return the enclosed proxy card in the enclosed postage-paid envelope.

If you are a shareholder of record of Matrix as of the Matrix Record Date, you may also cast your vote in person at the Matrix Special Meeting.

Q:
WHEN AND WHERE IS THE ROYALE ANNUAL MEETING?

A:
The Royale Annual Meeting will be held at the office of Royale, 1870 Cordell Court, Suite 210, El Cajon, California 92020 at 10:00 A.M., local time, on November 3, 2017. All Royale shareholders as of the Royale Record Date, or their duly appointed proxies, may attend the meeting. Since seating is limited, admission to the meeting will be on a first-come, first-served basis.

Q:
WHEN AND WHERE IS THE MATRIX SPECIAL MEETING?

A:
Matrix’s special meeting of its shareholders will be held at104 W Anamapu Street, Santa Barbara, California 93101 at 11:00 AM local time, on November 3, 2017.  All Matrix shareholders as of the Matrix Record Date, or their duly appointed proxies, may attend the meeting.

Q:
HOW DOES THE ROYALE BOARD OF DIRECTORS RECOMMEND I VOTE?

A:
The Royale board of directors recommends that you vote your shares of Royale common stock:

1.
“FOR” the Royale Reorganization Proposal;

2.
 “FOR” the Matrix Reorganization Proposal;

3.
“FOR” the Director Election;
 
4.
“FOR” the Note Conversion Proposal;
 
5.
“FOR” the Adjournment Proposal; and
 
6.
“FOR” each of the Proposed Exchanges.

Q:
HOW DOES THE MATRIX BOARD OF DIRECTORS RECOMMEND I VOTE?

A:
The Matrix board of directors recommends that you vote your shares of Matrix common stock:

1.
“FOR” the Matrix Reorganization Proposal; and
 
2.
“FOR” the Adjournment Proposal.
 
Q:
IF MY SHARES ARE HELD IN “STREET NAME” BY A BROKER, BANK OR OTHER NOMINEE, WILL MY BROKER, BANK OR OTHER NOMINEE VOTE MY SHARES FOR ME?

A:
If you are a Royale shareholder and your shares are held in “street name” in a stock brokerage account or by a broker, bank, or other nominee, you must provide the record holder of your shares with instructions on how to vote your shares. Please follow the voting instructions provided by your broker, bank, or other nominee. Please note that you may not vote shares held in street name by returning a proxy card directly to Royale or Matrix or by voting in person at your respective company’s special meeting unless you provide a “legal proxy,” which you must obtain from your broker, bank, or other nominee.

If you are a Royale shareholder holding your shares in “street name” and you do not instruct your broker, bank, or other nominee on how to vote your shares:

·
your broker, bank, or other nominee will not vote your shares on the Reorganization Proposal which broker non-votes will have the same effect as a vote “AGAINST” these proposals; and

·
your broker, bank, or other nominee will not vote your shares on the Adjournment Proposal, which broker non-votes will have no effect on the vote count for this proposal.

If you are a Matrix shareholder and your shares are held by a nominee, you must provide the office of Matrix at Santa Barbara, CA as record holder of your shares with instructions on how to vote your shares. Please follow the voting instructions provided by your nominee. Please note that you may not vote shares held by returning a proxy card directly to Matrix or by voting in person at your respective company’s special meeting unless you provide a “legal proxy,” which you must obtain from your nominee.

Q:
WHAT IF I ATTEND THE MEETING AND ABSTAIN OR DO NOT VOTE?

A:
For purposes of the Royale Annual Meeting, an abstention occurs when a shareholder attends the applicable special meeting in person and does not vote or returns a proxy with an “abstain” vote.

If you are a Royale shareholder, you attend the annual meeting in person, and you fail to vote on the applicable proposal, your failure to vote will have the same effect as a vote cast “AGAINST” the applicable proposal. If you respond with an “abstain” vote on the applicable proposal, your proxy will have the same effect as a vote cast “AGAINST” the applicable proposal.

If you are a Matrix shareholder and you attend the special meeting in person, and you fail to vote on the applicable proposal, your failure to vote will have the same effect as a vote cast “AGAINST” the applicable proposal. If you respond with an “abstain” vote on the applicable proposal, your proxy will have the same effect as a vote cast “AGAINST” the applicable proposal.

Q:
WHAT WILL HAPPEN IF I RETURN MY PROXY CARD WITHOUT INDICATING HOW TO VOTE?

A:
If you are a Royale shareholder and you sign and return your proxy card without indicating how to vote on any particular proposal, the Royale common stock represented by your proxy will be voted as recommended by the Royale board of directors with respect to that proposal.

If you are a Matrix shareholder and you sign and return your proxy card without indicating how to vote on any applicable proposal, the Royale common stock represented by your proxy will be voted as recommended by the Royale board of directors with respect to that proposal.

 Q:
MAY I CHANGE MY VOTE AFTER I HAVE DELIVERED MY PROXY OR VOTING INSTRUCTION CARD?

A:
Yes, if you are a Royale shareholder. You may change your vote at any time before your proxy is voted at the Royale Annual Meeting. You may do this in one of three ways:

·
filing a notice with the Secretary of Royale;

·
filing a new, subsequently dated proxy (whether by proxy card, online, or telephone); or

·
by attending the Royale Annual Meeting and electing to vote your shares in person.

If you are a shareholder of record of Royale and you choose to send a written notice or to mail a new proxy, you must submit your notice of revocation or your new proxy to Royale Energy, Inc., Attention: Secretary, 1870 Cordell Court, Suite 210, El Cajon, California 92020, and it must be received at any time before the vote is taken at the Royale Annual Meeting. Any proxy that you submitted may also be revoked by submitting a new proxy by mail, online, or telephone not later than 5:00 PM, Pacific Time on November 3, 2017, or by voting in person at the meeting. If you have instructed a broker, bank, or other nominee to vote your Royale common stock, you must follow the directions you receive from your broker, bank, or other nominee in order to change or revoke your vote.

Yes, if you are a Matrix shareholder. You may change your vote at any time before your proxy is voted at the special meeting by attendance at the meeting and voting in person by the person executing the proxy or by a writing stating that the proxy is revoked or by a proxy bearing a later date executed by the person executing the proxy and filed with the secretary of the corporation or the persons appointed as inspectors of election or such other persons as may be designated by the board of directors or the chief executive officer to receive proxies.
Q:  WHAT ARE MATERIAL DIFFERENCES BETWEEN DELAWARE CORPORATE LAW AND CALIFORNIA CORPORATE LAW?
 
A:
If Royale’s shareholders approve the reorganization proposal, they will become shareholders of Holdings, which is incorporated under Delaware law, instead of Royale, which is incorporated under California law.  There are material differences between California and Delaware corporate law, some of which are not favorable to minority shareholders. The following table compares certain provisions of the California Corporations Code (“CCC”) and Delaware General Corporation Law (“DGCL”). The comparison summarizes the important differences but is not intended to list all differences and is qualified in its entirety by reference to the respective laws of the States of California and Delaware.
 
Provision
 
California
 
Delaware
50/90 Rule Restriction on Cash Mergers
 
Under the CCC, a merger may not be consummated for cash if the purchaser owns more than 50% but less than 90% of the then outstanding shares of the California corporation being acquired unless either (i) all the shareholders consent, or (ii) the California Commissioner of Corporations approves the merger.
 
The 50/90 rule may make it more difficult for an acquirer to make an all cash acquisition that is opposed by a corporation’s board of directors. Specifically, the 50/90 rule encourages an acquirer making an unsolicited tender offer to either tender for less than 50% of the outstanding shares or more than 90% of the outstanding shares. A purchase by the acquirer of less than 50% of the outstanding shares does not allow the acquirer to gain ownership of the two-thirds needed to approve a second step merger (which would be used to enable the acquirer to acquire 100% of the corporation’s equity) and, therefore, creates risk for such an acquirer that such a favorable vote will not be obtained. Yet, a tender offer conditioned upon receipt of tenders from at least 90% of the outstanding shares also creates risk for the acquirer because it may be very difficult to receive tenders from holders of at least 90% of the outstanding shares. Consequently, it is possible that these risks would discourage some potential acquirers from pursuing an all cash acquisition that is opposed by the board of directors.
 
 
The DGCL does not have a provision similar to the 50/90 rule in California.
Restrictions on Transactions with Interested Stockholders
 
 
CCC provides that, except in certain circumstances, when a tender offer or a proposal for a reorganization or sale of assets is made by an interested party (generally, a person who controls the corporation), the interested party must provide the other shareholders with an affirmative written opinion as to the fairness of the consideration to be paid by the shareholders.  This fairness opinion requirement does not apply to corporations that have fewer than 100 shareholders of record or to a transaction that has been qualified under California state securities laws.  Furthermore, if a tender of shares or vote is sought pursuant to an interested party’s proposal and a later tender offer or proposal for a reorganization or sale of asset is made by another party, the shareholders must be informed of the later offer and be afforded a reasonable opportunity to withdraw their vote, consent or proxy, and to withdraw any tendered shares.
 
 
The DGCL prohibits, subject to certain exceptions, a Delaware corporation from engaging in a business combination with an interested shareholder (i.e. shareholder acquiring 15% or more of the outstanding voting stock) for three years following the date that such stockholder becomes an interested stockholder without approval from the board of directors unless its organizational documents provide otherwise.  Section 203 of the DGCL may make it more difficult for an acquirer to consummate certain types of unfriendly transactions, hostile corporate takeovers or other transactions that have not been approved by the board of directors.
 
Provision
 
California
 
Delaware
Shareholder Ability to Call Special Shareholders’ Meetings
 
 
Under the CCC, a special meeting of shareholders may be called by the board of directors, the chairman of the board of directors, the president, the holders of shares entitled to cast not less than 10% of the votes at such meeting and such persons as are authorized by the articles of incorporation or bylaws.
 
 
Under the DGCL, a special meeting of stockholders may be called by the board of directors or by any person authorized to do so in the certificate of incorporation or the bylaws.
Vote Required to Approve Merger or Sale of Company
 
Except in limited circumstances, CCC requires the affirmative vote of a majority of the outstanding shares entitled to vote in order to approve a merger of the corporation or a sale of substantially all the assets of the corporation, including, in the case of a merger, the affirmative vote of each class of outstanding stock.
 
 
DGCL requires the affirmative vote of a majority of the outstanding shares entitled to vote to approve a merger of the corporation or a sale of substantially all the assets of the corporation, except in limited circumstances, but the certificate of incorporation may provide for super-majority voting in connection with these transactions.
 
Change in Number of Directors
 
 
Under the CCC, although a change in the number of directors must generally be approved by shareholders, the board of directors may fix the exact number of directors within a stated range set forth in either the articles of incorporation or bylaws, if that stated range has been approved by the shareholders. Any change outside of the established range or a change in the established range must be approved by the shareholders.
 
 
Under the DGCL, the number of directors shall be fixed by or in the manner provided in the bylaws, unless the certificate of incorporation fixes the number of directors.
Removal of Directors by Shareholders
 
Under the CCC, any director, or the entire board of directors, may be removed, with or without cause, with the approval of a majority of the outstanding shares entitled to vote. In the case of a corporation with cumulative voting or whose board is classified, however, no individual director may be removed (unless the entire board is removed) if the number of votes cast against such removal would be sufficient to elect the director under cumulative voting rules. In addition, shareholders holding at least ten percent (10%) of the outstanding shares of any class may bring suit to remove any director in case of fraudulent or dishonest acts or gross abuse of authority or discretion.
 
Under the DGCL, any director, or the entire board of directors, of a corporation that does not have a classified board of directors or cumulative voting may be removed with or without cause with the approval of a majority of the outstanding shares entitled to vote at an election of directors. In the case of a corporation whose board is classified, unless the certificate of incorporation provides otherwise, shareholders may effect such removal only for cause. In addition, if a corporation has cumulative voting, and if less than the entire board is to be removed, a director may not be removed without cause by a majority of the outstanding shares if the votes cast against such removal would be sufficient to elect the director under cumulative voting rules.
 
A corporation may include in its certificate of incorporation a supermajority voting requirement in connection with the removal of directors.
 
Filling Vacancies on the Board
 
 
Under the CCC, any vacancy on the board of directors other than one created by removal of a director may be filled by the board of directors. If the number of directors is less than a quorum, a vacancy may be filled by the unanimous written consent of the directors then in office, by the affirmative vote of a majority of the directors at a meeting held pursuant to notice or waivers of notice, or by a sole remaining director. A vacancy created by removal of a director may be filled by the board of directors only if authorized by the articles of incorporation or bylaws.
 
 
Under the DGCL, vacancies and newly created directorships may be filled by a majority of the directors then in office (even though less than a quorum) or by a sole remaining director, unless otherwise provided in the certificate of incorporation or bylaws.
 
Provision
 
California
 
Delaware
Dissolution
 
Under the CCC, the holders of 50% or more of the total voting power may authorize the corporation’s dissolution.
 
Under the DGCL, unless the board of directors approves the proposal to dissolve, the dissolution must be unanimously approved in writing by all the shareholders entitled to vote on the matter. Only if the dissolution is initially approved by the board of directors may the dissolution be approved by a simple majority of the outstanding shares entitled to vote.

Under the DGCL, a corporation may include in its certificate of incorporation a supermajority voting requirement in connection with such a board- initiated dissolution.
 
Indemnification
 
CCC requires indemnification when the individual has defended the action successfully on the merits. Expenses incurred by an officer or director in defending an action may be paid in advance if the director or officer undertakes to repay such amounts if it is ultimately determined that he or she is not entitled to indemnification.

A corporation may provide rights to indemnification in excess of those provided by statute to the extent such additional indemnification is authorized in the articles of incorporation, or, if a determination of good faith is found by a (i) majority vote of the board of directors not party to the proceedings; (ii) independent legal counsel; (iii) approval of the shareholders; or (iv) court approval of the application for indemnification made by the corporation.
 
A corporation may purchase indemnity insurance for the benefit of its officers, directors, employees and agents, whether or not the corporation would have the power to indemnify against the liability covered by the policy.
 
 
DGCL generally permits indemnification of expenses, including attorneys’ fees, actually and reasonably incurred in the defense or settlement of a derivative or third-party action, provided there is a determination by (i) vote of a disinterested majority of the directors (even though less than a quorum); (ii) vote of a committee of such directors designated by majority vote of the directors (even though less than a quorum); (iii) if there are no such directors, or if the directors so direct, independent legal counsel; or (iv) by the shareholders, in each case that the person seeking indemnification acted in good faith and in a manner reasonably believed to be in best interests of the corporation.

DGCL requires indemnification of expenses when the individual being indemnified has successfully defended any action, claim, issue or matter therein, on the merits or otherwise. Without court approval, no indemnification may be made in respect of any derivative action in which such person is adjudged liable for negligence or misconduct in the performance of his or her duty to the corporation. Expenses incurred by an officer or director in defending an action may be paid in advance Under the DGCL, if the director or officer undertakes to repay such amounts if it is ultimately determined that he or she is not entitled to indemnification.

A corporation may purchase indemnity insurance for the benefit of its officers, directors, employees and agents whether or not the corporation would have the power to indemnify against the liability covered by the policy. A corporation may provide indemnification in excess of that provided by statute. DGCL does not require authorizing provisions in the certificate of incorporation.
 
Elimination of Director Personal Liability for Monetary Damages
 
CCC permits a corporation to eliminate the personal liability of directors for monetary damages, except where such liability is based on:

- intentional misconduct or knowing and culpable violation of law;
 
- acts or omissions that a director believes to be contrary to the best interests of the corporation or its shareholders or that involve the absence of good faith on the part of the director;
 
- receipt of an improper personal benefit;
 
DGCL allows a corporation to include a provision in its certificate of incorporation which limits or eliminates the personal liability of a director for monetary damages arising from breaches of his or her fiduciary duties to the corporation or its shareholders, subject to certain exceptions. Such a provision may not, however, eliminate or limit director monetary liability for:
 
- breaches of the director’s duty of loyalty to the corporation or its shareholders;
 
- acts or omissions not in good faith or involving intentional misconduct or knowing violations of law;
 
 
Provision
 
California
 
Delaware
   
- acts or omissions that show reckless disregard for the director’s duty to the corporation or its shareholders, where the director in the ordinary course of performing a director’s duties should be aware of a risk of serious injury to the corporation or its shareholders;
 
- acts or omissions that constitute an unexcused pattern of inattention that amounts to an abdication of the director’s duty to the corporation and its shareholders; or
 
- transactions between the corporation and a director who has a material financial interest in such transaction, and liability for improper distributions, loans or guarantees.
 
 
- the payment of unlawful dividends or unlawful stock repurchases or redemptions; or
 
- transactions in which the director received an improper personal benefit.
Dividends and Repurchases of Shares
 
Under the CCC, a corporation may not make any distributions to its shareholders unless the board of directors has determined in good faith that either (i) the amount of retained earnings of the corporation immediately prior to the distribution equals or exceeds the sum of the amount of the proposed distribution plus any unpaid amount of any preferential dividends which are due, or (ii) immediately after the distribution, the value of the corporation’s assets equals or exceeds the sum of its liabilities plus any unpaid amount of any preferential dividends which are due.
 
Under the CCC, a corporation may redeem any or all shares which are redeemable at its option, provided that it gives proper notice as defined by statute or its articles of incorporation and provides payment or deposit of the redemption price as provided in its articles of incorporation or by statute. When a corporation reacquires its own shares, those shares generally are restored to the status of authorized but unissued shares, unless the articles of incorporation prohibit the reissuance thereof.

In addition, a corporation may not make any distribution to its shareholders unless either:

- the corporation’s retained earnings immediately prior to the proposed distribution equal or exceed the amount of the proposed distribution; or

- immediately after giving effect to the distribution, the corporation’s assets (exclusive of goodwill, capitalized research and development expenses and deferred charges) would be at least equal to one and one fourth (11/4) times its liabilities (not including deferred taxes, deferred income and other deferred credits).
 
DGCL is more flexible than California law with respect to payment of dividends and implementing share repurchase programs. DGCL generally provides that a corporation may redeem or repurchase its shares out of its surplus, and any stock of any class or series may be made subject to redemption by the corporation at its option, or at the option of the holders of such stock. In addition, a corporation may declare and pay dividends out of surplus or, if there is no surplus, out of net profits for the fiscal year in which the dividend is declared and/or for the preceding fiscal year. Surplus is defined as the excess of a corporation’s net assets (i.e., its total assets minus its total liabilities) over the capital associated with issuances of its common stock. Moreover, DGCL permits a board of directors to reduce its capital and transfer such amount to its surplus.
Q:
WHAT ARE THE MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE MERGERS TO ROYALE SHAREHOLDERS AND THE MATRIX SHAREHOLDERS?

A:
A U.S. holder of Royale common stock or Matrix common stock that receives shares of Holdings common stock in the mergers

·
will not recognize any gain or loss upon the exchange of shares of Royale common stock or Matrix common stock for shares of Holdings common stock in the Royale Merger or the Matrix Merger, respectively;

·
will have a tax basis in the Holdings common stock received in the Royale Merger or the Matrix Merger equal to the tax basis of the Royale common stock or Matrix common stock, respectively, surrendered in exchange therefor; and

·
will have a holding period for federal income tax purposes for shares of Holdings common stock received in the Royale Merger or the Matrix Merger that includes its holding period for its shares of Royale common stock or Matrix common stock, respectively, surrendered in exchange therefor.

For a more detailed discussion of the material United States federal income tax consequences of the transaction, see Material United States Federal Income Tax Consequences of the Mergers, beginning on page [●].

The consequences of the mergers to any particular shareholder will depend on that shareholder’s particular facts and circumstances. YOU SHOULD CONSULT WITH YOUR TAX ADVISOR FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES OF THE MERGERS TO YOU.

Q:          WHAT HAPPENS IF THE MERGERS ARE NOT COMPLETED?

A:
If the mergers are not completed, Matrix shareholders will not receive any consideration for their shares of Matrix common stock. Matrix will remain a private company. Similarly, if the mergers are not completed, Royale shareholders will not receive any shares of Holdings common stock in connection with the mergers. Instead, Royale will remain an independent public company and its common stock will continue, for the present, to be listed and traded on the OTC-QB Market System.

If the mergers are not completed, the common stock of Matrix Operator and the limited partnership interest of the Matrix LPs will not be exchanged for Holdings common stock, and the Matrix LPs will remain as separate entities.  The Preferred Interests will not be exchanged for Holdings Series B Preferred Stock and will remain as outstanding preferred limited partnership interests of Matrix Investments, L.P.

Q:
SHOULD MATRIX SHAREHOLDERS SEND IN THEIR STOCK CERTIFICATES NOW?

A:
No. Matrix shareholders SHOULD NOT send in any stock certificates now. If the mergers are approved, transmittal materials, with instructions for their completion, will be provided under separate cover to Matrix shareholders who hold physical stock certificates and the stock certificates should be sent at that time in accordance with such instructions.

Q:          WHAT HAPPENS IF I AM A SHAREHOLDER OF BOTH ROYALE AND MATRIX?

A:
You will receive separate proxy cards for each company and must complete, sign and date each proxy card and return each proxy card in the appropriate preaddressed postage-paid envelope or, if available, by submitting a proxy by one of the other methods specified in your proxy card or voting instruction card for each company.

Q:
WHOM SHOULD I CONTACT IF I HAVE ANY QUESTIONS ABOUT THE PROXY MATERIALS OR VOTING?

A:
If you have any questions about the proxy materials or if you need assistance submitting your proxy or voting your shares or need additional copies of this joint proxy statement/prospectus or the enclosed proxy card, you should contact the proxy solicitation agent for the company in which you hold shares.
 
If you are a Royale shareholder, you should contact Advantage Proxy, the proxy solicitation agent for Royale, toll-free at [877-870-8565]. If you are a Matrix shareholder, you should contact Johnny Jordan at 805-880-2600.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This joint proxy statement/prospectus contains certain forward-looking statements with respect to the financial condition, results of operations, plans, objectives, intentions, future performance and business of each of Royale and Matrix that are not historical facts and are subject to risks and uncertainties. These statements are based on the beliefs and assumptions of the management of the companies and on the information currently available to such management. Forward-looking statements include information concerning possible or assumed future results of Royale, Matrix, and the combined company and may be preceded by, followed by, or otherwise include the words “probable,” “may,” “expect,” “estimate,” “project,” “plan,” “believe,” “intend,” “achievable,” “anticipate,” “will,” “continue,” “potential,” “should,” “could” or similar expressions. There are inherent risks and uncertainties in any forward-looking statements. Although we believe that our expectations are reasonable, we can give no assurance that these expectations will prove to have been correct, and actual results may vary materially. Except as required by law, we undertake no obligation to update, amend, or clarify any forward-looking statements to reflect events, new information or otherwise. Some of the important factors that could cause actual results to differ materially from our expectations are discussed below. All written and oral forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by these cautionary statements.
 
 
 
 
SUMMARY
 
The following is a summary of the information contained elsewhere in this joint proxy statement/prospectus.  This summary may not contain all of the information that is important to you.  For a more complete description of the Merger Agreement, the mergers and the other transactions contemplated thereby, you should carefully read this entire prospectus and the other documents to which it refers. We have defined certain oil and gas industry terms used in this joint proxy statement/prospectus in the Glossary of Certain Oil and Natural Gas Terms, beginning on page 164.

 
The Companies
 
Royale Energy, Inc.
Royale Energy, Inc. (“Royale”) is an independent oil and natural gas producer with principal executive offices at 1870 Cordell Court, Suite 210, El Cajon, California 92020 (telephone 619-383-6600).  Royale’s principal lines of business are the production and sale of natural gas, acquisition of oil and gas lease interests and proved reserves, drilling of both exploratory and development wells, and sales of fractional working interests in wells to be drilled by Royale.  Royale was incorporated in California in 1986 and began operations in 1988.  Royale’s common stock is traded on the Over-The-Counter QB (OTCQB) Market System (symbol “ROYL”). On December 31, 2016, Royale had eleven full time employees.
 
Royale owns wells and leases located mainly in the Sacramento Basin and San Joaquin Basin in California as well as in Utah, Texas, Oklahoma, and Louisiana.  Royale usually sells a portion of the working interest in each well it drills or participates in to third party investors and retains a portion of the prospect for its own account.  Selling part of the working interest to others allows Royale to reduce its drilling risk by owning a diversified inventory of properties with less of its own funds invested in each drilling prospect, as opposed to if Royale owned all the working interest and paid all drilling and development costs of each prospect itself.  Royale generally sells working interests in its prospects to accredited investors in exempt securities offerings. The prospects are bundled into multi-well investments, which permit the third party investors to diversify their investments by investing in several wells at once instead of investing in single well prospects.
 
Matrix Oil Management Corporation
Matrix Oil Management Corporation (“Matrix”) is a private independent oil and natural gas production company with principal executive offices at 104 W Anapamu Street, Santa Barbara, California 93101 (telephone 805-880-2600).  The company was formed in 1999 and acquired its first interest in the Los Angeles Basin in 1999 in the Las Cienegas Field from Phillips Petroleum. The company focused early efforts to acquire long-life, low-risk producing leases.  Currently, the company owns and operates oil-producing properties in the Los Angeles and San Joaquin Basins of California in the West Whittier, Sansinena and Bellevue Oil Fields.  The company also operates current non-producing leases with substantial drilling upside in Whittier and La Habra Heights, California named Whittier Main Lease (former Chevron Whittier Field leases) and the Sempra Lease (former East Whittier Field).  It owns non-operated natural-gas producing properties in the Sacramento Basin and oil-producing royalty and non-operated leases in the Permian Basin and Midland Basin of West Texas.  In these basins Matrix has lease and fee ownership in 13 producing fields in approximately 8,600 net acres that hold in excess of 350 Matrix-interest wells.  The company has total proved reserves in excess of 9MMBOE as of December 31, 2016.
 
 
 

 
 
Since inception, Matrix has purchased producing properties and added shareholder value by improving operations and by drilling or participating in drilling of low-risk development wells.  Since 2003, Matrix has drilled or participated in the drilling of 68 wells with an 89% success rate defined as completed commercial production.  From 2001 to 2005 Matrix acquired interests from Phillips, Texaco, Venoco, Merit Energy and others in the Colorado DJ Basin Wattenberg Field, California San Joaquin Basin Yowlumne Field and Bellevue Field, north and west Texas Permian and Marrieta Basin Jameson North Field and BMC Fields. From 2006 to today, the company has acquired leases for development and exploration in the Sacramento Basin, Permian Basin and Eastern Shelf in Texas, and leases in the Whittier Field trend in the Los Angeles Basin.  Matrix has partnered in its leases with Bonanza Creek Energy, Clayton Williams Energy, Foothill Energy, JVA and Sunny Frog LP.  Matrix has a strategic project with the City of Whittier on its 1280 acres for the potential development of a principal structure on the Whittier Field.  The company has monetized assets with a track record of investing $9.1 million in properties with a total divestment sale amount of $55.7 million received from June 2006 through November, 2014.  Matrix produces from the Miocene Puente Formation of the Los Angeles Basin, Stevens Formation of the San Joaquin Basin, Forbes Formation of the Grimes Gas Field, the Odom, Strawn and Ellenburger Formations in West Texas.  Matrix’s properties are characterized by stable, long-lived production and reserve life indexes averaging greater than 18 years.
 
Royale Energy Holdings, Inc.
Royale Energy Holdings, Inc. (“Holdings”) is a newly-formed Delaware corporation. As a result of the mergers, each of Royale and Matrix will become a wholly-owned subsidiary of Holdings. Accordingly, the business of Holdings will be the business currently conducted by Royale and Matrix. Holdings’ principal executive offices are located at 104 W Anapamu Suite C, Santa Barbara, CA 93101 (telephone 805-880-2600).
 
Royale Merger Sub, Inc.
Royale Merger Sub, Inc., a California corporation (“Royale Merger Sub”), is a direct wholly-owned subsidiary of Holdings and was formed solely for the purpose of consummating the mergers. Royale Merger Sub has not carried on any activities to date, except for activities incidental to its formation and activities undertaken in connection with the mergers. Royale Merger Sub’s principal executive offices are located at 1870 Cordell Court, Suite 210, El Cajon, California 92020, (telephone is 619-383-6600).
 
Matrix Merger Sub, Inc.
 
Matrix Merger Sub, Inc., a California corporation (“Matrix Merger Sub”), is a direct wholly-owned subsidiary of Holdings and was formed solely for the purpose of consummating the mergers. Matrix Merger Sub has not carried on any activities to date, except for activities incidental to formation and activities undertaken in connection with the mergers. Matrix Merger Sub’s principal executive offices are located at 1870 Cordell Court, Suite 210, El Cajon, California 92020 (telephone 619-383-6600).
 
 
The Mergers
 
Structure of the Mergers
 
Royale has formed Holdings and two newly-formed subsidiaries of Holdings, which we refer to as Royale Merger Sub and Matrix Merger Sub, which will merge with and into Royale and Matrix, respectively, with Royale and Matrix each continuing as the respective surviving corporation and wholly-owned subsidiary of Holdings. We refer to these proposed merger transaction as the Royale Merger and the Matrix Merger, respectively and collectively, as the “Mergers.” We have attached the Merger Agreement as Annex A to this joint proxy statement/prospectus.  We encourage you to read the Merger Agreement in its entirety.  We currently expect that the mergers will be completed in the second quarter of 2017. However, we cannot predict the actual timing of the completion of these transactions or if they will ultimately occur.
 
After consummation of the mergers, the respective boards of Royale (including the board of Royale to be elected at its annual meeting as described in this proxy statement/prospectus) and Matrix will continue in their roles as directors of Royale and Matrix, as subsidiaries of Holdings.  The Board of Directors of Holdings will be responsible for overall management of the combined company.
 

 
Merger Consideration and Exchange Ratio
Upon consummation of the Royale Merger and subject to the terms and conditions of the Merger Agreement, the issued and outstanding shares of Royale’s common stock, no par value (the (“Royale Common Stock”), will each be converted into one (1) share of common stock, $0.001 par value per share, of Holdings (“Holdings Common Stock”) (the “Royale Merger Consideration”), and as a result, the shareholders of Royale will hold common stock in a Delaware corporation and will no longer hold common stock in a California corporation.  For purposes of the Merger Agreement, the aggregate amount of issued and outstanding shares of Royale Common Stock subject to conversion in the Royale Merger, together with all Royale Common Stock issuable pursuant to any benefit plan, compensation agreement, or any other obligation to issue Royale Common Stock including convertible indebtedness, but excluding the amount of Royale Common Stock issuable upon exercise of certain outstanding warrants to acquire up to 2,355,198 shares of Royale Common Stock and certain outstanding options to acquire 100,000 shares of Royale Common Stock, is referred to as the “Aggregate Royale Number,” as more fully described in the Merger Agreement.
 
As a result of the Royale Merger, each option and warrant to purchase shares of Royale Common Stock outstanding immediately prior to the effective time of the Royale Merger shall be converted into the right thereafter to receive, upon exercise of such option or warrant, the amount of shares of Holdings Common Stock to which the holder of each such option or warrant would have been entitled if, immediately prior to the Royale Merger, the holder had held the number of shares of Royale Common Stock obtainable upon the exercise of each such option or warrant.
 
Upon consummation of the Matrix Merger and subject to the terms and conditions of the Merger Agreement, the issued and outstanding shares of Matrix’s common stock, no par value (the “Matrix Common Stock”), will each be converted into the number of shares of Holdings Common Stock equal to the quotient of (a) the product of the Aggregate Royale Number multiplied by 0.6198452, divided by (b) the Aggregate Matrix Number (the “Matrix Merger Consideration”).  For purposes of the Merger Agreement, the aggregate amount of issued and outstanding shares of Matrix Common Stock subject to conversion in the Matrix Merger, together with all shares issuable pursuant to any benefit plan, compensation agreement, or any other obligation to issue Matrix Common Stock including convertible indebtedness, options or warrants, is referred to as the “Aggregate Matrix Number,” as more fully described in the Merger Agreement.
 
The merger consideration and the exchange ratio will be adjusted based on the number of outstanding shares of Holdings common stock on the date of the merger; however, the merger consideration and the exchange ratio will not be adjusted to reflect changes in the market price of Holdings common stock.  The dollar value of the Holdings common stock to be received as the merger consideration will change depending on fluctuations in the market price and will not be known at the time Matrix stockholders vote on the merger.
 
 
The Exchanges
 
The Matrix Group
The “Matrix Group” is Matrix together with each of the Matrix LPs and Matrix Operator as defined below.  The shareholders and partners of each entity of the Matrix Group (other than holders of preferred limited partnership interests of Matrix Investments, L.P.) will receive, in the aggregate with respect to each such entity, in the merger or exchange of such entity with Holdings, a number of shares of Holdings common stock equal to the Aggregate Royale Number times such entity’s allocation factor. The sum of the allocation factors for all entities in the Matrix Group is 1.0.  Consequently, the number of shares of Holdings common stock to be received by all shareholders and partners of the Matrix Group (other than holders of preferred limited partners of Matrix Investments) will be equal to the Aggregate Royale Number.
 
The Matrix LP Exchanges
 
In connection with and as a condition to the mergers at the closing of the mergers, the following exchange transactions (together the “Exchanges”) will occur:
 
All the limited partnership interest of Matrix Investments, L.P., a California limited partnership, Matrix Las Cienegas Limited Partnership, a California limited partnership, and Matrix Permian Investments, LP, a Texas limited partnership (collectively, the “Matrix LPs”), will be, pursuant to the terms and conditions of certain exchange agreements in the form attached as exhibits to the Merger Agreement  (collectively, the “Matrix LP Exchange Agreements”), assigned to Holdings in exchange for Holdings common stock (the “LP Exchanges”).  In the LP Exchanges, each holder of limited partnership interests of the Matrix LP (other than holders of preferred limited partnership interests) (each, a “Matrix LP Holder” and collectively, the “Matrix LP Holders”) will receive, respectively, a number of shares of Holdings common stock equal to the product of the Aggregate Royale Number multiplied such Matrix LP Holder’s proportionate share of the limited partnership interests (other than preferred limited partnership interests) multiplied by the following allocation factor for the applicable Matrix LP as set forth below:
 
Holders of Matrix LP
 
Allocation Factor
 
Matrix Investments, L.P.
   
0.0899252
 
Matrix Las Cienegas Limited Partnership
   
0.1900080
 
Matrix Permian Investments, LP
   
0.1002063
 
   
Matrix Operator Exchange
All the outstanding capital stock of Matrix Oil Corporation, a California corporation (the “Matrix Operator”), will be, pursuant to the terms of an exchange agreement (the “Matrix Operator Exchange Agreement”) that is attached as an exhibit to the Merger Agreement, assigned to Holdings in exchange for Holdings common stock (the “Matrix Operator Exchange”).  In the Matrix Operator Exchange, the holders of the capital stock of Matrix Operator (each, a “Matrix Operator Holder” and collectively, the “Matrix Operator Holders”) will receive, in the aggregate, a number of shares of Holdings common stock equal to the product of the Aggregate Royale Number multiplied by an allocation factor of 0.0000153 (the “Matrix Operator Exchange Consideration”).
 
The Preferred Exchange
$20,660,617 of preferred limited partnership interests (based on adjusted capital accounts of the holders) (the “Matrix Preferred Interests”) issued by Matrix Investments, L.P. (the “Preferred Exchange”) will be exchanged for shares of Holdings’ newly created Series B 3.5% Convertible Preferred Stock (“Series B Preferred Stock”), pursuant to an exchange agreement between the holders of Matrix Preferred Interests (the “Matrix Preferred Holders”) and Holdings (the “Preferred Exchange Agreement” and, together with the Matrix LP Exchange Agreements and the Matrix Operator Exchange Agreement, the “Exchange Agreements”) in the form attached as an exhibit to the Merger Agreement.  Pursuant to the Exchange Agreement, each $10.00 of adjusted capital account of Matrix Preferred Interests outstanding immediately prior to consummation of the Mergers shall be exchanged for one (1) validly issued, fully paid and nonassessable share of Series B Preferred Stock. The Series B Preferred Stock, will be subject to the terms and conditions of the certificate of designation to be filed with the Delaware Secretary of State, will carry a liquidation preference of approximately $20,660,617, and each share of Series B Preferred Stock will be convertible into approximately ten (10) shares of Holdings common stock.
 
Ownership of Holdings
after the Mergers and
the Exchanges
Immediately following the mergers and the exchanges, former holders of Royale will hold 50%, and the former holders of the Matrix Group will hold 50%, of all outstanding shares of common stock of Holdings on a fully diluted basis, excluding shares issuable under certain warrants and options to certain former holders of Royale.  In addition, holders of preferred limited partnership interests of Matrix Investments, L.P. will receive all outstanding shares of Holdings’ newly created Series B 3.5% Convertible Preferred Stock immediately following the merger.
 
 
 
 
 
The Royale Annual Meeting and Voting
 
Royale’s 2017 annual meeting of its Shareholders
The Royale Annual Meeting will be held on November 3, 2017, at 10:00 AM local time, at 1870 Cordell Court, Suite 210, El Cajon, California 92020.The purpose of the meeting is for shareholders of Royale to consider and vote upon the approval of the Merger Agreement, the transactions contemplated thereby, and elect directors.
 
Recommendation of the Royale Board of Directors
The Royale board of directors recommends that Royale shareholders vote “FOR” each of the proposals to be voted on at the annual meeting.
 
Royale Record Dates; Voting Power
You are entitled to vote at the Royale Annual Meeting if you owned shares of Royale common stock as of the close of business on the record date of [●]. On the record date, there were [●] shares of Royale common stock entitled to vote at the annual meeting. Royale shareholders will have one vote for each share of Royale common stock owned on the record date.
 
Royale Required Vote
At least two-thirds, or 66⅔%, of the shares of Royale common stock outstanding on the record date must vote to adopt the mergers, including the Merger Agreement. As of June 30, 2017, the executive officers and directors of Royale, in the aggregate, owned 23.64% of the outstanding common stock of Royale, which amounts to 35.46% of the votes required to adopt the Merger Agreement.   While there are no agreements between any of the executive officers and directors of Royale concerning voting on the Matrix Merger and the Merger Agreement, all of the Royale executive officers and directors have indicated that they intend to vote in favor of the Matrix Merger and the Merger Agreement.  None of the Matrix Group entities (and none of their directors or executive officers) own any of the outstanding common stock of Royale.

The seven directors receiving the highest number of votes will be elected as directors in the Director Election.
 
At least a majority of the shares of Royale common stock present in person or represented by proxy at the Royale Annual Meeting must vote to adopt the Note Conversion Proposal, the Adjournment Proposal; and each of the Proposed Exchanges.
 
Your failure to vote will have the effect of a vote against the mergers and the other proposals. Brokers who hold shares of Royale common stock as nominees will not have discretionary authority to vote such shares on any of these proposals unless you provide voting instructions.
 
Revocation of Royale Proxies
Any proxy given pursuant to this solicitation may be revoked by the person giving it at any time before the proxy is voted at the Royale Annual Meeting of shareholders by submitting your notice of revocation or your new proxy to Royale Energy, Inc., Attention: Secretary, 1870 Cordell Court, Suite 210, El Cajon, California 92020, and it must be received at any time before the vote is taken at the Royale Annual Meeting. Any proxy that you submitted may also be revoked by submitting a new proxy by mail, online, or telephone not later than 5:00 PM Pacific Time on November 2, 2017, or by voting in person at the meeting. If you have instructed a broker, bank or other nominee to vote your Royale common stock, you must follow the directions you receive from your broker, bank, or other nominee in order to change or revoke your vote.
 
 

 
The Matrix Special Meeting and Voting
 
Matrix’s Special Meeting
Matrix’s special meeting of its shareholders will be held on November 3, 2017, at 11:00 AM local time, at its principal executive office in Santa Barbara CA. The purpose of the meeting is for shareholders of Matrix to consider and vote upon the approval of the Merger Agreement and the Matrix Merger and the other transactions contemplated thereby.
 
Recommendation of the Matrix Board of Directors
 
The Matrix board of directors recommends that Matrix shareholders vote “FOR” each of the proposals to be voted on at the special meeting.
 
Matrix Record Dates; Voting Power
You are entitled to vote at Matrix’s special meeting of its shareholders if you owned shares of Matrix common stock as of the close of business on the record date of [●]. On the record date, there were 7,085 shares of Matrix common stock entitled to vote at the special meeting. Matrix shareholders will have one vote for each share of Matrix common stock owned on the record date.
 
Matrix Required Vote
At least two-thirds, or 66⅔%, of the shares of Matrix common stock outstanding on the record date must vote to adopt the Matrix Merger and the Merger Agreement. Your failure to vote will have the effect of a vote against the Matrix Merger.  The executive officers and directors of Matrix own, in the aggregate, 89.3% of the Matrix common stock, which exceeds the number of shares of common stock necessary to adopt the Matrix Merger and the Merger Agreement.  There are no agreements between the executive officers and directors of Matrix concerning voting on the Matrix Merger and the Merger Agreement.  Royale and the executive officers and directors of Royale own no shares of Matrix common stock.

At least a majority of the shares of Matrix common stock present in person or represented by proxy at the Matrix Special Meeting must vote adopt the Adjournment Proposal.
 
Revocation of Matrix Proxies
Any proxy given pursuant to this solicitation may be revoked by the person giving it at any time before the proxy is voted at the Matrix special meeting of shareholders by submitting your notice of revocation or your new proxy to Matrix Oil Management Corporation, Attention: Secretary, 104 W. Anapamu Street, Santa Barbara, California 93101, and it must be received at any time before the vote is taken at the Matrix special meeting. Any proxy that you submitted may also be revoked by submitting a new proxy by mail, online, or telephone not later than 5:00 PM Pacific Time on November 3, 2017, or by voting in person at the meeting. If you have instructed a broker, bank or other nominee to vote your Matrix common stock, as applicable, you must follow the directions you receive from your broker, bank, or other nominee in order to change or revoke your vote.
 
 
 
 
Interests of Certain Persons in the Mergers
In considering the recommendation of the Royale board of directors with respect to adopting the mergers, including the Merger Agreement, Royale shareholders should be aware that members of board of directors and executive officers of Royale have interests in the mergers that may be different from, or in addition to, interests they may have as Royale shareholders. For example, following the consummation of the mergers, four of the seven directors of Royale will become the directors of the combined company and all of the executive officers of Royale will become the executive officers of the combined company.
 
In negotiating the Merger Agreement and related transactions in May 2016, Matrix and Royale representatives agreed to Royale’s proposal to keep Mr. Gregory as CEO based on the following factors:
•      Mr. Gregory was familiar with the operations of Matrix based on his prior experience with them as the banking officer responsible for Matrix lending arrangements;
•      Mr. Gregory had identified the two companies as potentially benefiting from a combination and was responsible for putting Matrix and Royale together; and
•      Mr. Gregory, along with Royale’s management, was experienced in the types of financing arrangements that would enable Matrix to exploit its oil and gas assets.
The term sheet that was ultimately signed on July 28, 2016, and the Merger Agreement that was signed on November 30, 2016 (as well as the Amended and Restated Agreement and Plan of Merger effective as of December 31, 2016), provided for an employment agreement to be entered with Mr. Gregory as Holdings’ chief executive officer.
 
Royale’s board of directors was aware of these potential conflicts of interest and considered them, among other matters, in reaching its decision to approve the Merger Agreement and the transactions contemplated thereby and to recommend that its shareholders approve and adopt the Reorganization Proposal contemplated by this joint proxy statement/prospectus.
 
In considering the recommendation of the Matrix board of directors with respect to adopting the mergers, including the Merger Agreement, the recommendation of Matrix, as general partner of the Matrix LPs, that the limited partners of each Matrix LP enter into the applicable Matrix LP Exchange Agreement and that the Matrix Preferred Holders enter into the Preferred Exchange Agreement, and the recommendation of the Matrix Operator board of directors that the shareholders of Matrix Operator enter into the Matrix Operator Exchange Agreement, Matrix shareholders, the limited partners of the Matrix LPs, the Matrix Preferred Holders and the shareholders of Matrix Operator should be aware that members of the board of directors and executive officers of Matrix and Matrix Operator have interests in the mergers and exchanges that may be different from, or in addition to, interests they may have as Matrix shareholders, Matrix LP limited partners, Matrix Preferred Holders or Matrix Operator shareholders, as applicable. For example, following the consummation of the mergers and exchanges, one of the three directors of both Matrix and Matrix Operator will become a director of the combined company and, as a director of the combined company, shall receive continued indemnification. 
 
In negotiating the Merger Agreement and related transactions in May 2016, Matrix and Royale Representatives agreed that Johnny Jordan would serve as president, chief operating officer and director of Holdings, based on his familiarity with the Matrix properties and his experience in the oil and gas exploration and production business.  The term sheet that was ultimately signed on July 28, 2016, and the Merger Agreement that was signed on November 30, 2016 (as well as the Amended and Restated Agreement and Plan of Merger effective as of December 31, 2016), provided for an employment agreement to be entered with Mr. Jordan as Holdings’ chief operating officer.
 
Two Matrix directors, Jeff Kerns and Mike McCaskey, will not become employees, officers or directors of Holdings.  Notwithstanding, each of them will provide their technical expertise via consulting arrangements for compensation not to exceed $120,000 annually.
 
Matrix will purchase a “tail” insurance policy of directors’ and officers’ liability insurance for the benefit of all of its directors and executive officers prior to the closing of the merger transaction.
 

 
Fairness Opinions of Financial Advisors
The presentation and opinion of Northland, Royale’s financial advisor, to the effect that, as of the date of the opinion and based upon the assumptions, limitations, qualifications, and conditions stated in the opinion letter, the mergers as between Royale and Matrix are fair to Royale and its shareholders, from a financial point of view, as more fully described below under the caption The Mergers – Opinion of Northland Capital Markets to the Royale Board of Directors, page [●].
 
Conditions to the Mergers
The obligation of each party to complete the mergers is conditioned upon, among other things:
 
·          the Merger Agreement and all other related transactions shall have been duly adopted by the shareholders of both Royale and Matrix;
·          each of the respective Exchange Agreements shall have been duly adopted and approved by the respective Matrix LP Holders, the Matrix Operator Holders and the Matrix Preferred Holders;
·          the absence of any order or injunction that prohibits the consummation of the mergers;
·          the effectiveness of the Form S-4 registration statement, of which this proxy statement/prospectus is a part, and the absence of a stop order suspending the effectiveness of the Form S-4 registration statement or proceedings for such purpose pending before or threatened by the SEC;
·          the board of directors of Royale shall have received an opinion from Northland to the effect that, as of the date of the Merger Agreement and based upon and subject to the qualifications and assumptions set forth therein, the terms of the mergers and the other related transactions are fair, from a financial point of view, to Royale and its shareholders, and such opinion shall not have been rescinded or revoked;
·          the boards of directors of Royale and Matrix shall have received an opinion from Strasburger & Price, LLP and Bob W. Dutton, Certified Public Accountant, respectively, dated as of the effective date of the mergers to the effect that the mergers should qualify as a reorganization within the meaning of Section 351 of the Code;
·          the consent of the lenders and the administrative agent under the Company’s $12.37 million credit facility (the “Matrix Senior Indebtedness”) with Arena Limited SPV, LLC (“Arena”), together with the consent of such parties to assumption of the Matrix Senior Indebtedness and any related loan and security documents by the Parent or, in the alternative, the refinancing of such indebtedness;
·          the consent of the lenders and the administrative agent under the Matrix Senior Indebtedness with respect to the exchange of $20.1 million of subordinated debt of the Matrix Group that Matrix subordinated debt holders have agreed to exchange for preferred limited partnership interests of Matrix Investments, L.P., effective as of December 31, 2016;
·          all consents, authorizations, orders and approvals from Governmental Authorities shall have been received.
·          the accuracy of the representations and warranties of Royale and Matrix in the Merger Agreement, subject to certain materiality thresholds;
·          the performance in all material respects by each of Royale and Matrix of its respective covenants required to be performed by it under the Merger Agreement at or prior to the closing date;
·          receipt of certificates by executive officers of each of Royale and Matrix to the effect that the conditions described in the preceding two bullet points have been satisfied;
·          there not having occurred a material adverse effect on Royale or Matrix since the date of the Merger Agreement, the effects of which are continuing; and dissenting shares, if any, shall constitute less than 5% of the issued and outstanding common stock of Matrix and less than 5% of the issued and outstanding common stock of Royale.
 
Unless prohibited by law, either Royale or Matrix could elect to waive a condition that has not been satisfied and complete the mergers.
 
Neither Royale nor Matrix can give any assurance as to when or if all of the conditions to the consummation of the mergers will be satisfied or waived or that the mergers will occur.


 
Termination
The Merger Agreement may be terminated under the following conditions:
by mutual written consent of Royale and Matrix;
by either Royale or Matrix,
-          if an order, decree, or ruling has been issued or other action taken by a court of competent jurisdiction which permanently restrains, enjoins, or otherwise prohibits the mergers;
-          if the Royale shareholders fail to approve and adopt the Merger Agreement by the requisite vote;
-          if the Matrix shareholders fail to approve and adopt the Merger Agreement by the requisite vote;
-          if the other party commits material breaches of its representations, warranties, or covenants contained in the Merger Agreement and it remains uncured for 30 days; or
-          if any of the conditions of the other party have not been fulfilled by December 31, 2017, unless the failure to satisfy such conditions is due to the failure of the party seeking termination to perform or comply with its own covenants, agreements, or conditions.
 
Operations Following the Mergers
Following the mergers, each of Royale and Matrix will be wholly-owned subsidiaries of Holdings. As part of the mergers, Holdings’ name will be changed to Royale Energy, Inc. and Royale’s name will be changed to Royale Energy Funds, Inc.
 
The board of directors of the combined company will be comprised of eight members. There will be three inside directors comprised of Harry Hosmer, Johnny Jordan, and Jonathan Gregory and five independent directors, two appointed by Royale and three appointed by Matrix.
 
The reconstituted board will meet all of the independent director requirements of NASDAQ. Harry Hosmer will serve as Chairman of Holdings until the first regularly scheduled meeting of shareholders, at which time he will retire as Chairman of the Board of Directors and assume the title of Chairman Emeritus and will not stand for election for the Board of Directors at the subsequent annual shareholders meeting, leaving seven directors of which five will be independent.
 
Matrix will continue to operate from its current Santa Barbara, California office. Jonathan Gregory, CEO of Royale, will continue to serve in such position and Johnny Jordan will become President and Chief Operating Officer. Don Hosmer will continue to head business development for Royale’s Direct Working Interest line of business and Stephen Hosmer will continue to serve as Royale’s Chief Financial Officer.
 
The balance of the management team would be decided by the board of directors with key team members, including Don Hosmer and Stephen Hosmer, subject to multi-year employment arrangements.
 


 
Regulatory Approval
Neither Royale nor Matrix is aware of any material governmental or regulatory approval required for the completion of the mergers, other than filings and compliance with the applicable corporate law of the States of California and Delaware.
 
Accounting Treatment
The Merger Transactions will be accounted for using the purchase method of accounting.  Matrix will be treated as the acquired control group of entities and Royale will be treated as the acquirer for accounting purposes.  See Accounting Treatment, page 60.
Certain Federal Income Tax Consequences
Royale and Matrix have structured the mergers so that Royale, Matrix and their respective shareholders will not recognize gain or loss for federal income tax purposes as a result of the mergers.  Similarly, shareholders of Matrix Operator should not recognize gain or loss for federal income tax purposes in connection with the Matrix Operator Exchange.  However, holders of the Matrix LPs, while not expected to experience gain or loss directly with respect to the Exchange, may experience deemed income as partners of the Matrix LPs as a result of any assumption of partnership debt in connection with the LP Exchanges. In each case, however, holders of Royale and the Matrix Group should consult their own tax advisor for an analysis of their individual tax position and a complete understanding of the tax consequences of the mergers to them. See Material United States Federal Income Tax Consequences of the Mergers, beginning on page 77.
 
Listing of Holdings Stock
Holdings will list the shares of its common stock to be issued in the mergers on the Over-The-Counter QB (OTCQB) Market System. It is anticipated that the mergers will put Holdings in compliance with NASDAQ listing requirements and that Holdings will apply for listing on the NASDAQ Stock Market. However, there can be no assurance that NASDAQ listing will be approved.  See Risk Factors—Risks Relating to Holdings Common Stock Following the Mergers, page 57.
 
Forward-Look Statements May Prove Inaccurate
Both companies have made forward-looking statements in this document (and in documents that are incorporated by reference) that are subject to risks and uncertainties. Forward-looking statements include information concerning possible or assumed future results of Royale, Matrix, and the combined company and may be preceded by, followed by, or otherwise include the words “probable,” “may,” “expect,” “estimate,” “project,” “plan,” “believe,” “intend,” “achievable,” “anticipate,” “will,” “continue,” “potential,” “should,” “could” or similar expressions. There are inherent risks and uncertainties in any forward-looking statements. Shareholders should note that actual events and results may differ materially from those expressed in forward looking statements due to a number of factors. See “Risk Factors” below.
   

THE COMPANIES
 
Royale Energy, Inc.
Royale is an independent oil and natural gas producer.  Royale’s principal lines of business are the production and sale of natural gas, acquisition of oil and gas lease interests and proved reserves, drilling of both exploratory and development wells, and sales of fractional working interests in wells to be drilled by Royale.  Royale was incorporated in California in 1986 and began operations in 1988.  Royale’s common stock is traded on the Over-The-Counter QB (OTCQB) Market System (symbol “ROYL”). On December 31, 2016, Royale had eleven full time employees.

Royale owns wells and leases located mainly in the Sacramento Basin and San Joaquin Basin in California as well as in Utah, Texas, Oklahoma, and Louisiana.  Royale usually sells a portion of the working interest in each well in which it drills or participates to third party investors and retains a portion of the prospect for its own account.  Selling part of the working interest to others allows Royale to reduce its drilling risk by owning a diversified inventory of properties with less of its own funds invested in each drilling prospect, as opposed to if Royale owned all the working interest and paid all drilling and development costs of each prospect itself.  Royale generally sells working interests in its prospects to accredited investors in exempt securities offerings. The prospects are bundled into multi-well investments, which permit the third party investors to diversify their investments by investing in several wells at once instead of investing in single well prospects.

Royale Energy Holdings, Inc.
Royale Energy Holdings, Inc. (“Holdings”) is a newly-formed Delaware corporation that has been formed by Royale in connection with the Merger Agreement for the purpose of effecting the mergers. To date, Holdings has not conducted any activities other than the formation of its two wholly-owned subsidiaries, Royale Merger-Sub, Inc. and Matrix Merger-Sub, Inc. (described below), and other matters incidental to its formation or in preparation for the transactions contemplated by the Merger Agreement.

The mergers will occur pursuant to terms and conditions of the Merger Agreement, subject to certain approvals of the shareholders of Royale and Matrix and the satisfaction or waiver of certain other conditions set forth in the Merger Agreement.  As a result of the mergers, each of Royale and Matrix will become a wholly-owned subsidiary of Holdings and Holdings common stock will be listed under the symbol “ROYL.” The business of Holdings will be the business currently conducted by Royale and Matrix. Holdings’ principal executive offices are located at 1870 Cordell Court, Suite 210, El Cajon, California 92020 (telephone 619-383-6600).

Royale Merger Sub, Inc.
Royale Merger Sub, Inc., a California corporation (“Royale Merger Sub”), is a direct wholly-owned subsidiary of Holdings and was formed solely for the purpose of consummating the mergers. Royale Merger Sub has not carried on any activities to date, except for activities incidental to formation and activities undertaken in connection with the mergers. Subject to shareholder approval and the satisfaction or waiver of certain other conditions set forth in the Merger Agreement, Royale Merger Sub, Inc. will merge with and into Royale with Royale as the surviving corporation and a wholly-owned subsidiary of Holdings, and all outstanding shares of Royale will be converted into capital stock of Holdings.  Royale Merger Sub’s principal executive offices are located at 1870 Cordell Court, Suite 210, El Cajon, California 92020 (telephone 619-383-6600).

Matrix Merger Sub, Inc.
Matrix Merger Sub, Inc., a California corporation (“Matrix Merger Sub”), is a direct wholly-owned subsidiary of Holdings and was formed solely for the purpose of consummating the mergers. Matrix Merger Sub has not carried on any activities to date, except for activities incidental to formation and activities undertaken in connection with the mergers. Subject to shareholder approval and the satisfaction or waiver of certain other conditions set forth in the Merger Agreement, Matrix Merger Sub, Inc. will merge with and into Matrix with Matrix as the surviving corporation and a wholly-owned subsidiary of Holdings, and all outstanding shares of Matrix will be converted into capital stock of Holdings.    Matrix Merger Sub’s principal executive offices are located at 104 W Anapamu Ste. C Santa Barbara, Ca 93101.

Matrix Oil Management Corporation
Matrix is a private independent oil and natural gas production company based in Santa Barbara, CA.  Matrix operates on behalf of its affiliated companies that include Matrix Oil Management Corporation, Matrix Investments LP, Matrix Las Cienegas LP, Matrix Permian Investments, L.P. and Matrix Pipeline LP (collectively, the “Matrix Affiliates”).  The Matrix Affiliates are all wholly owned, directly or indirectly, by the Matrix principal officers (including on former principal officer) or members of their respective families.  The company was formed in 1999 and acquired its first interest in the Los Angeles Basin in 1999 in the Las Cienegas Field from Phillips Petroleum. The company focused early efforts to acquire long-life, low-risk producing leases.  Currently, the company owns and operates oil-producing properties in the Los Angeles and San Joaquin Basins of California in the West Whittier, Sansinena and Bellevue Oil Fields.  The company also operates currently non-producing leases in Whittier and La Habra Heights, California which Matrix believes represent substantial drilling opportunities through the Whittier Main Lease (formerly known as the Chevron Whittier Field leases) and the Sempra Lease (formerly known as the East Whittier Field).  Matrix also owns non-operated natural-gas producing properties in the Sacramento Basin and oil-producing royalty and non-operated leases in the Permian Basin and Midland Basin of West Texas.  In these basins Matrix has lease and fee ownership in 13 producing fields in approximately 8,600 net acres.  The company has total proved reserves in excess of 9 MMBOE as of December 31, 2016.

Since inception, Matrix has purchased producing properties and added shareholder value by improving operations and by drilling or participating in drilling of low-risk development wells.  Since 2001, Matrix has drilled or participated in the drilling of 68 wells with an 89% success rate defined as completed commercial production.  From 2001 to 2005 Matrix acquired interests from Phillips, Texaco, Venoco, Merit Energy and others in the Colorado DJ Basin Wattenberg Field, California San Joaquin Basin Yowlumne Field and Bellevue Field, north and west Texas Permian and Marrieta Basin Jameson North Field and BMC Fields. From 2006 to today, the company has acquired leases for development and exploration in the Sacramento Basin, Central Texas Platform, and leases in the Whittier Field trend in the Los Angeles Basin.  Matrix has partnered in its leases with Bonanza Creek Energy, Clayton Williams Energy, Foothill Energy, JVA and Sunny Frog LP.  Matrix has a strategic project with the City of Whittier on its 1,290 acres for the potential development of a principal structure on the Whittier Field.  The company has monetized assets with a track record of investing $9.1 million in properties with a total divestment sale amount of $55.7 million received from January 2004 through November, 2014.  Matrix produces from the Miocene Puente Formation of the Los Angeles Basin, Stevens Formation of the San Joaquin Basin, Forbes Formation of the Grimes Gas Field, the Odom, Strawn and Ellenburger Formations in West Texas.  Matrix’s properties are characterized by stable, long-lived production and reserve life indexes averaging greater than 18 years.

The name, business address, principal occupation or employment, five-year employment history and citizenship of each director and executive officer of Matrix and certain other information are set forth in Directors and Executive Officers of Matrix, page 155.  During the last five years, neither  Matrix nor, to Matrix’s best knowledge, any of its directors and officers listed in this prospectus (1) had been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors) or (2) was a party to any judicial or administrative proceeding that resulted in a judgment, decree or final order enjoining the person from future violations of, or prohibiting activities subject to, federal or state securities laws, or a finding of any violation of federal or state securities laws.





SELECTED HISTORICAL FINANCIAL DATA OF ROYALE
 
Set forth below are selected data as of and for the periods indicated.  The selected historical financial data for each of the fiscal years ended December 31, 2016 and 2015, have been derived from Royale’s audited financial statements, both of which are included in this proxy statement/prospectus.  The selected historical financial data for the fiscal years ended December 31, 2014, 2013 and 2012, are derived from Royale’s audited financial statements for those years, which are not included or incorporated by reference in this proxy statement/prospectus. The consolidated statement of operations data for the six-month periods ended June 30, 2017 and June 30, 2016 and the consolidated balance sheet data as of June 30, 2017 are derived from Royale’s unaudited financial statements.
 
This information should be read with Royale’s financial statements and related notes and management’s discussion and analysis of financial condition and results of operations contained in this proxy statement/prospectus under the captions, Historical Financial Statements of Royale and Royale Management’s Discussion and Analysis of Financial Condition and Results of Operations.
 
 
 
Six Months Ended June 30,
   
Year Ended December 31,
 
 
 
2017
   
2016
   
2016
   
2015
   
2014
   
2013
   
2012
 
 
                               
Restated
       
 
 
(In thousands, except per share data)
 
Revenues:
                                         
Sale of oil and gas
 
$
351
   
$
250
   
$
539
   
$
1,019
   
$
2,598
   
$
1,913
   
$
1,674
 
Turnkey drilling
   
-
     
-
     
-
     
-
     
-
     
-
     
-
 
Supervisory fees and other
   
169
     
369
     
675
     
694
     
623
     
660
     
692
 
    Total Revenues
   
520
     
619
     
1,214
     
1,713
     
3,221
     
2,573
     
2,366
 
 
                                                       
Costs and Expenses:
                                                       
General and administrative
   
1,015
     
1,128
     
2,615
     
3,182
     
3,162
     
3,280
     
3,640
 
Turnkey drilling & development
   
-
     
-
     
-
     
-
     
-
     
-
     
-
 
Lease operating
   
230
     
339
     
594
     
1,001
     
1,428
     
937
     
1,091
 
Delay rentals
   
-
     
-
     
-
     
448
     
617
     
458
     
48
 
Lease impairment
   
137
     
60
     
2,072
     
424
     
268
     
70
     
145
 
Geological and geophysical
   
-
     
-
     
-
     
-
     
-
     
50
     
423
 
Well equipment & inventory write down
   
6
     
19
     
19
     
61
     
-
     
39
     
63
 
Bad debt expense
   
-
     
-
     
-
     
537
     
653
     
147
     
264
 
Legal and accounting
   
669
     
232
     
628
     
558
     
401
     
326
     
519
 
Marketing
   
162
     
104
     
295
     
326
     
431
     
332
     
594
 
Depreciation, depletion and amortization
   
90
     
149
     
284
     
401
     
316
     
310
     
664
 
Total Costs and Expenses
   
2,309
     
2,031
     
6,507
     
6,938
     
7,276
     
5,949
     
7,451
 
Gain (loss) on turnkey drilling programs
   
878
     
(80
)
   
460
     
2,331
     
1,641
     
2,009
     
763
 
Gain on sale of assets
   
-
     
-
     
-
     
-
     
343
     
2,820
     
8
 
Income (Loss) from Operations
   
(911
)
   
(1,492
)
   
(4,833
)
   
(2,894
)
   
(2,071
)
   
1,453
     
(4,314
)
 
                                                       
Other Income (Loss):
                                                       
Interest expense
   
(79
)
   
(48
)
   
(114
)
   
(86
)
   
(83
)
   
(304
)
   
(195
)
Gain on sale of assets
   
-
     
199
     
483
     
969
     
-
     
-
     
-
 
Gain on settlement of accounts payable
   
73
     
241
     
342
     
-
     
-
     
-
     
-
 
Loss on disposal of assets
   
-
     
-
     
(24
)
   
-
     
-
     
-
     
-
 
Gain on sale of marketable securities
   
-
     
-
     
-
     
-
     
-
     
-
     
7
 
Income tax provision (benefit)
   
-
     
-
     
-
     
-
     
-
     
-
     
(9,188
)
Net Loss
 
$
(917
)
   
(1,100
)
 
$
(4,146
)
 
$
(2,011
)
 
$
(2,154
)
 
$
1,149
   
$
(13,690
)
Other comprehensive income (loss), net of tax
   
-
     
-
     
-
     
7
     
(16
)
   
10
     
(3
)
Comprehensive Loss
   
(917
)
   
(1,100
)
   
(4,146
)
   
(2,004
)
   
(2,170
)
   
1,159
     
(13,693
)
 
                                                       
Earnings (Loss) per Common Share:
                                                       
  Basic
   
(0.04
)
   
(0.06
)
 
$
(0.22
)
 
$
(0.13
)
 
$
(0.14
)
 
$
0.08
   
$
(1.23
)
  Diluted
   
(0.04
)
   
(0.06
)
 
$
(0.22
)
 
$
(0.13
)
 
$
(0.14
)
 
$
0.08
   
$
(1.23
)
 
                                                       
Statement of Cash Flow Data provided (used) by
                                                       
Operating Activities
   
(1,149
)
   
(1,463
)
   
(3,272
)
   
(3,973
)
   
(3,152
)
   
(2,911
)
   
(1,353
)
Investing Activities
   
372
     
1,843
     
3,208
     
4,015
     
1,360
     
5,233
     
(2,907
)
Financing Activities
   
-
     
(1,243
)
   
1,294
     
660
     
(24
)
   
1,066
     
2,804
 
 
 
As of June 30,
 
As of December 31,
 
 
2017
 
2016
 
2015
 
2014
 
2013
 
2012
 
 
(In thousands)
 
Balance Sheet Data
                       
Total Assets
 
$
8,013
   
$
8,382
   
$
11,670
   
$
13,579
   
$
14,816
   
$
13,070
 
Current Liabilities
   
12,458
     
11,943
     
11,383
     
12,469
     
11,483
     
15,887
 
Noncurrent Liabilities
   
990
     
952
     
2,513
     
2,251
     
2,339
     
954
 
Stockholders’ Equity (Deficit)
 
$
(5,435
)
 
$
(4,513
)
 
$
(2,226
)
 
$
(1,141
)
 
$
994
   
$
(3,771
)

 
SELECTED HISTORICAL FINANCIAL DATA OF MATRIX
 
Set forth below are selected data as of and for the periods indicated. The selected historical financial data for each of the fiscal years ended December 31, 2016 and 2015, have been derived from Matrix’s audited financial statements, both of which are included in this proxy statement/prospectus.  The selected historical financial data for the fiscal years ended December 31, 2014, 2013 and 2012, are derived from Matrix’s audited financial statements for those years, which are not included or incorporated by reference in this proxy statement/prospectus. The consolidated statement of operations data for the six-month periods ended June 30, 2017 and June 30, 2016 and the consolidated balance sheet data as of June 30, 2017 are derived from Matrix’s unaudited financial statements.

This information should be read with Matrix’s financial statements and related notes and management’s discussion and analysis of financial condition and results of operations contained in this proxy statement/prospectus under the captions, Historical Financial Statements of Matrix and Matrix Management’s Discussion and Analysis of Financial Condition and Results of Operations.
 
 
 
Six Months Ended June 30,
   
Year Ended December 31,
 
 
 
2017
   
2016
   
2016
   
2015
   
2014
   
2013
   
2012
 
 
                                         
 
                                         
OPERATING REVENUES
                                         
Sale of oil and gas, net
 
$
2,727
     
1,771
   
$
3,552
   
$
2,474
   
$
4,648
   
$
5,302
   
$
5,088
 
Total Revenues
   
2,727
     
1,771
     
3,552
     
2,474
     
4,648
     
5,302
     
5,088
 
 
                                                       
OPERATING EXPENSES
                                                       
Oil and gas production costs
   
1,524
     
1,078
     
2,344
     
1,015
     
1,591
     
1,715
     
1,251
 
Depreciation, depletion and amortization
   
540
     
906
     
911
     
1,297
     
1,686
     
1,654
     
1,567
 
Impairment of oil and gas properties
   
-
     
-
     
-
     
4,090
     
2,311
     
-
     
585
 
Abandonment of oil and gas properties
   
-
     
-
     
-
     
-
     
-
     
-
     
376
 
Exploratory expense
   
-
     
-
     
89
     
-
     
19
     
20
     
-
 
Accretion of asset retirement obligation
   
42
     
16
     
71
     
23
     
21
     
22
     
19
 
General and administrative expenses
   
1,342
     
684
     
2,009
     
1,380
     
1,838
     
2,104
     
1,751
 
Total operating expenses
   
3,448
     
2,684
     
5,424
     
7,805
     
7,466
     
5,515
     
5,549
 
Income (Loss) from Operations
   
(721
)
   
(913
)
   
(1,872
)
   
(5,331
)
   
(2,818
)
   
(213
)
   
(461
)
 
                                                       
OTHER INCOME (EXPENSE)
                                                       
Interest income
   
2
     
-
     
1
     
8
     
25
     
1
     
13
 
Interest expense
   
(1,006
)
   
(809
)
   
(2,652
)
   
(1,418
)
   
(1,080
)
   
(667
)
   
(408
)
Gain (loss) on sale of oil and gas properties
   
-
     
(80
)
   
(89
)
   
(9
)
   
66
     
295
     
-
 
Unrealized gain (loss) on derivative instruments
   
633
     
(103
)
   
(499
)
   
(453
)
   
740
     
(185
)
   
-
 
Other income
   
-
     
-
     
54
     
1
     
129
     
3
     
5
 
Total other income (expense)
   
(371
)
   
(992
)
   
(3,185
)
   
(1,871
)
   
(120
)
   
(553
)
   
(390
)
NET INCOME (LOSS) BEFORE TAXES
   
(1,092
)
   
(1,905
)
   
(5,057
)
   
(7,202
)
   
(2,938
)
   
(766
)
   
(851
)
STATE INCOME TAX EXPENSE
   
-
     
-
     
4
     
4
     
6
     
13
     
19
 
NET INCOME (LOSS)
   
(1,092
)
   
(1,905
)
   
(5,061
)
   
(7,206
)
   
(2,944
)
   
(779
)
   
(870
)
 
                                                       
LESS NET INCOME (LOSS) ATTRIBUTABLE TO NON-CONTROLLING INTEREST
   
104
     
(1,887
)
   
(4,921
)
   
(7,146
)
   
(2,866
)
   
(794
)
   
(845
)
 
                                                       
LESS NET INCOME (LOSS) ATTRIBUTABLE TO MATRIX OIL
   
(1,196
)
   
(18
)
   
(140
)
   
(60
)
   
(78
)
   
15
     
(25
)
 
                                                       
MANAGEMENT CORPORATION
                                                       
 
                                                       
Statement of Cash Flow Data provided
(used) by
                                                       
Operating Activities
   
(502
)
   
(699
)
   
(254
)
   
633
     
(838
)
   
3,049
     
1,142
 
Investing Activities
   
(164
)
   
(9,167
)
   
(10,747
)
   
(1,533
)
   
(484
)
   
(4,432
)
   
(8,418
)
Financing Activities
   
44
     
12,846
     
12,941
     
(36
)
   
1,825
     
1,099
     
6,872
 
 
 
As of June 30,
 
As of December 31,
 
 
2017
 
2016
 
2015
 
2014
 
2013
 
2012
 
 
                       
Balance Sheet Data
                       
Total Assets
 
$
27,739
   
$
27,129
   
$
14,329
   
$
20,834
   
$
23,399
   
$
20,512
 
Current Liabilities
   
5,515
     
4,304
     
17,757
     
2,167
     
4,339
     
1,891
 
Long-term Liabilities
   
15,004
     
14,218
     
3,028
     
17,917
     
15,367
     
14,149
 
Stockholders’ Equity
 
$
7,220
   
$
8,607
   
$
(6,456
)
 
$
750
   
$
3,693
   
$
4,472
 
SELECTED UNAUDITED PRO FORMA CONDENSED CONSOLIDATED COMBINED FINANCIAL INFORMATION
 
The merger will be accounted for under the Financial Accounting Standards Board’s Accounting Standards Codification Topic 805.  Holdings will be considered the acquirer for legal purposes, and for accounting purposes Royale will be considered the acquirer and Matrix will be considered the acquiree.

The following table sets forth information about Royale’s financial condition and results of operations, including per share data, on a pro forma basis after giving effect to the merger of Royale and Matrix and to the acquisition of Matrix Operator and the Matrix LPs.  We refer to this information in this proxy statement/prospectus as “pro forma financial information.”  The unaudited pro forma condensed combined balance sheet as of June 30, 2017 assumes that the merger took place on June 30, 2017. The unaudited pro forma condensed combined statement of operations for the year ended December 31, 2016 and the six  months ended June 30, 2017 assumes that the merger took place as of January 1, 2016.
 
The unaudited pro forma financial information, while helpful in illustrating the financial characteristics of the combined company using certain assumptions, does not reflect the impact of possible revenue enhancements, expenses efficiencies and asset dispositions, among other factors that may as a consequence of the merger and accordingly, does not attempt to predict or suggest future results.  It also does not necessarily reflect what the historical results of the combination would have been had they occurred as of the beginning of each period.

This table should be read together with, and is qualified in its entirety by, the historical financial statements, including the notes thereto, of Royale and Matrix appearing elsewhere in this proxy statement/prospectus and the more detailed unaudited pro forma condensed combined financial information, including the notes thereto, appearing under Unaudited Pro Forma Condensed Consolidated Combined Financial Information, page 83.
 
 
 
As of and for the 6 Months
Ended June 30, 2017
   
As of and for the Year Ended December 31, 2016
 
 
 
(In thousands, except per share data)
 
 
           
Pro Forma Statement of Operations Data
           
Revenues:
           
  Sale of oil and gas, net
 
$
2,675
   
$
4,091
 
  Supervisory fees and other
   
571
     
675
 
Total Revenue
   
3,246
     
4,766
 
 
               
Costs and Expenses
               
  General and administrative
   
2,357
     
4,623
 
  Exploratory expense
   
-
     
89
 
  Lease operating
   
1,755
     
2,932
 
  Accretion of asset retirement obligation
   
42
     
77
 
  Impairment of oil and gas properties
   
137
     
2,072
 
  Delay rentals
   
-
     
-
 
  Well equipment write down
   
6
     
19
 
  Bad debt expense
   
-
     
-
 
  Legal and accounting
   
668
     
628
 
  Marketing
   
162
     
295
 
  Depreciation, depletion and amortization
   
737
     
1,374
 
Total Costs and Expenses
   
5,864
     
12,109
 
Gain on turnkey drilling programs
   
879
     
460
 
Gain on sale of assets
   
-
     
-
 
Loss from Operations
   
(1,739
)
   
(6,883
)
 
 
 
As of and for the 6 Months
Ended June 30, 2017
   
As of and for the Year Ended December 31, 2016
 
 
 
(In thousands, except per share data)
 
Pro Forma Statement of Operations Data (Continued)
           
Other Income (Expense):
           
  Interest income
   
2
   
$
1
 
  Interest expense
   
(1,085
)
   
(2,766
)
  Gain (loss) on sale of oil and gas properties
   
-
     
(89
)
  Gain on settlement of accounts payable
   
73
     
342
 
  Gain on sale of assets
   
-
     
483
 
  Loss on disposal of assets
   
-
     
(24
)
  Unrealized gain (loss) on derivative instruments
   
632
     
(499
)
  Other income
   
-
     
54
 
Income before Income Tax Expense
   
(2,117
)
   
(9,370
)
  Income tax provision (benefit)
           
6
 
Net Income (Loss)
 
$
(2,117
)
 
$
(9,376
)
 
               
Other Comprehensive Income
               
  Reclassification adjustment for losses included in net income
   
-
     
-
 
Other Comprehensive Income (Loss)Before Tax
   
-
     
-
 
Other Comprehensive Income (Loss), Net of Tax
   
-
     
-
 
 
               
Comprehensive Income (Loss)
 
$
(2,117
)
 
$
(9,376
)
 
               
Net Income (loss) attributable to common shares (1)
               
  Basic
 
$
(0.04
)
 
$
(0.19
)
  Diluted
 
$
(0.04
)
 
$
(0.19
)
 
               
Pro Forma Balance Sheet Data
               
Cash and cash equivalents
 
$
5,711
   
$
-
 
Total current assets
   
10,262
     
-
 
Total assets
   
59,766
     
-
 
Total current liabilities
   
16,894
     
-
 
Total liabilities
   
32,888
     
-
 
Total stockholders’ equity (2)
   
26,878
     
-
 

(1)
Includes 47.6 million common shares, basic and diluted
(2)
Gives effect to $20.1 million of subordinated debt of the Matrix Group that Matrix subordinated debt holders have agreed to  convert into preferred limited partnership interests of Matrix Investments, L.P. effective as of December 31, 2016, subject to consent of Arena Limited SPV Limited, LLC, the Company’s senior lender.
 
Selected Unaudited Pro Forma Combined Oil and Natural Gas Reserve Information
 
The following table summarizes information with respect to pro forma combined estimated oil and natural gas reserves as of December 31, 2016, of Royale and Matrix, giving effect to the merger as if it occurred on December 31, 2016.  The tables below should be read together with, and are qualified in its entirety by, the information appearing under Unaudited Pro Forma Combined Oil and Natural Gas Reserves, Standardized Measure of Discounted Future Cash Flow and Production Data, page 102.
 
Estimated Total Proved Reserves (MBOE)
   
9,426
 
Estimated Total Proved Developed Reserves (MBOE)
   
2,810
Estimated Proved Undeveloped Reserves (MBOE)
   
6,616
 
 
The following table summarizes the standardized measure of discounted future net cash flows relating to proved oil and natural gas reserves of Royale and Matrix, as if the merger had occurred on December 31, 2016.
 
Future net cash flows
 
$
115,026,200
 
10% annual discount for estimated timing of cash flows
   
74,146,191
 
Standardized measure of discounted future net cash flows
 
$
40,880,009
 
 
COMPARATIVE MARKET PRICE AND DIVIDEND INFORMATION
 
Royale’s common stock is traded under the symbol “ROYL”.  Since January 21, 2016, Royale’s common stock has been traded on the OTC QB Market.  Prior to that, Royale’s common stock was traded on the NASDAQ Stock Market.  Royale has not declared cash or stock dividends on its common stock in any of its past five fiscal years.

The following table reflects the high and low quarterly closing sales prices on the NASDAQ Stock Market from January 1, 2014 through January 21, 2016, and on the OTC QB Market from January 22, 2016 through June 30, 2017.
 
 
 
1st Qtr
   
2nd Qtr
   
3rd Qtr
   
4th Qtr
 
 
 
High
   
Low
   
High
   
Low
   
High
   
Low
   
High
   
Low
 
2014
   
3.13
     
2.53
     
3.57
     
2.70
     
4.78
     
2.69
     
2.79
     
2.02
 
2015
   
2.16
     
1.55
     
1.82
     
1.15
     
1.27
     
0.63
     
0.81
     
0.30
 
2016
   
0.57
     
0.07
     
0.47
     
0.36
     
0.80
     
0.43
     
0.94
     
0.59
 
2017
    0.65       0.50       0.50       0.32                                  
 

The closing price of Royale’s common stock on September 5, 2017, was $0.39 per share.  The closing price of Royale’s common stock on November 29, 2016, the day before public announcement of the Merger Transactions, was $0.62 per share. Matrix has been privately held since inception, and no market exists for sale of its common stock.  Matrix has never declared any dividends on its common stock.
 
The following table sets forth, as of November 29, 2016 (the day immediately before the public announcement of the Merger Transactions), and as of September 5, 2017, the closing price per share of Royale common stock as well as the implied value of Matrix’s common stock, Matrix Operator’s common stock and the limited partnership interests of the Matrix LPs.  The implied value per share of Matrix’s common stock is also listed.  The implied value of each entity’s interest was calculated by assuming that
 
 
 
·
all shares of common stock of Matrix and Matrix Operator and all limited partnership interests in the Matrix LPs are exchanged for an aggregate of 25,830,903shares of Holdings common stock at the closing of the Merger Transactions:
·
all issued and outstanding shares of Royale common stock (including shares reserved for issuance) are exchanged for an aggregate of 25,830,903 shares of Holdings common stock at the closing of the Merger Transactions;
·
Matrix has an aggregate of 7,085 shares of its common stock outstanding on the effective date of the Merger Transactions; and
·
Matrix, Matrix Operator and the Matrix LPs receive the percentages of the Matrix Group Consideration set forth in the following table upon closing of the Merger Transactions.
 
 
 
Percentage of Royale Aggregate Consideration to be Received
   
Aggregate Implied Consideration to be Received as of
   
Per Share Consideration to be Received as of
 
 
       
11/29/16
   
9/5/17
   
11/29/16
   
9/5/17
 
Royale
   
100.0000
%
 
$
16,030,213
   
$
10,074,052
   
$
0.62
   
$
0.39
 
 
 
       
Aggregate Implied Consideration to be Received as of
   
Per Share Consideration to be Received as of
 
 
 
Percentage of Matrix Aggregate Consideration to be Received
   
11/29/16
   
9/5/17
   
11/29/16
   
9/5/17
 
Matrix
   
61.98452
%
 
$
9,936,250
   
$
6,244,354
   
$
1,401.94
   
$
1,017.90
 
Matrix Operator
   
0.001523
%
   
246
     
153
                 
Matrix Investments I, LP
   
8.99252
%
   
1,441,520
     
905,911
                 
Matrix Las Cienegas, LP
   
19.00080
%
   
3,045,868
     
1,914,151
                 
Matrix Permian Investments, LP
   
10.02063
%
   
1,606,329
     
1,009,483
                 
     Total
   
100.000
%
 
$
16,030,213
   
$
10,074,052
                 
 

RISK FACTORS
 
In addition to the other information contained in this joint proxy statement/prospectus, including the matters addressed in Cautionary Statement Concerning Forward-Looking Statements, you should carefully consider the following risk factors before deciding how to vote. You should also read and consider the risk factors associated with each of the businesses of Royale and Matrix because these risk factors may affect the operations and financial results of the combined company.

Risks Relating to the Mergers
Because all of the merger consideration to be received by Matrix shareholders is a fixed percentage of Holdings common stock and the market price of shares of Holdings common stock will fluctuate, Matrix shareholders cannot be sure of the market value of the merger consideration they will receive.

Upon completion of the mergers, Holdings will issue and holders of Matrix common stock will receive the number of shares of fully paid and nonassessable Holdings Common Stock equal to the quotient of (a) the product of the Aggregate Royale Number multiplied by 0.6198452, divided by (b) the Aggregate Matrix Number (the “Matrix Merger Consideration”).  For purposes of the Merger Agreement, the aggregate amount of issued and outstanding shares of Matrix common stock subject to conversion in the Matrix Merger, together with all shares issuable pursuant to any benefit plan, compensation agreement, or any other obligation to issue Matrix common stock including convertible indebtedness, options or warrants, is referred to as the “Aggregate Matrix Number,” as more fully described in the Merger Agreement. Because the aggregate number of shares of Holdings Common Stock will not be adjusted as a result of changes in the market price of Holdings Common Stock, the dollar value of the merger consideration Matrix shareholders will receive will fluctuate with the market price of Holdings Common Stock. The Merger Agreement does not include a price-based termination right or provisions that would limit the impact of increases or decreases in the market price of Holdings Common Stock or adjust the merger consideration or the exchange ratio as a result of any change in the market price of shares of Holdings Common Stock between the date of this joint proxy statement/prospectus and the date that Matrix shareholders receive shares of Holdings Common Stock. The market price of Holdings Common Stock will likely be different, and may be lower, on the date Matrix shareholders receive their shares of Holdings Common Stock than the market price of shares of Holdings Common Stock as of the date of this joint proxy statement/prospectus.

During the 12-month period ended on December 31, 2016, shares of Royale common stock traded in a range from a low of $0.07 to a high of $0.94 and ended that period at $0.6198 per share. See Summary – Comparative Per Share Market Price and Dividend Information, beginning on page 32, for more detailed share price information. Stock price changes may result from a variety of factors, including general market and economic conditions, changes in oil and natural gas prices, changes in Royale’s business, operations and prospects, and regulatory considerations. Many of these factors are beyond Royale’s control. If the market price of Royale common stock declines after Matrix shareholders vote, they may receive less dollar value than they expected when they voted. Neither Royale nor Matrix is permitted to terminate the Merger Agreement, adjust the merger consideration or resolicit the vote of Matrix shareholder because of changes in the market price of Royale common stock.

The Merger Agreement limits Royale’s ability to pursue alternatives to the mergers.

The Merger Agreement contains provisions that could adversely impact competing proposals to enter into a business combination with Royale. These provisions include the prohibition on Royale generally from soliciting any offer for a competing transaction.

The opinions obtained by the Royale board of directors from its financial advisor will not reflect changes in circumstances between signing the Merger Agreement and the completion of the mergers.

The Royale board of directors has not requested an updated opinion as of the date of this joint proxy statement/prospectus from Northland, nor has it obtained such an update since the board is not aware of any material changes to Royale, Matrix, or their respective businesses, results of operations, or financial positions. The opinions were necessarily based on financial, economic, monetary, market, and other conditions and circumstances as in effect on, and the information made available to the financial advisor as of October 21, 2016,40 days prior to the date of the November 30, 2016 opinion. Developments subsequent to the date of such opinion, including changes in the operations and prospects of Royale or Matrix, general market and economic conditions and other factors that may be beyond the control of Royale and Matrix, may affect such opinions. The opinion is included as Annex O to this joint proxy statement/prospectus. For a description of the opinions that the Royale board of directors received from its financial advisor and a summary of the material financial analyses Northland provided to the Royale board of directors in connection with rendering such opinions, please refer to the section entitled The Mergers—Opinions of Northland Capital Markets to the Royale Board of Directors, beginning on page 59.

Royale shareholders will have a significantly reduced ownership and voting interest in Holdings after the mergers and will exercise less influence over management of Holdings.

Immediately after the completion of the mergers, it is expected that former holders of Royale common stock, who now collectively own 100% of Royale common stock, will own approximately 50% of Holdings common stock on a fully diluted basis, including certain persons who are shareholders of both Royale and Matrix at the time of the Mergers. If the Series B Preferred stock were converted to Holdings common stock immediately after the mergers and exchanges, the former Royale common stockholders would collectively own approximately 36% of the Holdings common stock ten outstanding.

The mergers and related transactions are subject to approval by the shareholders of both Royale and Matrix.

In order for the mergers to be completed, both Royale shareholders and Matrix shareholders must approve and adopt the Merger Agreement, which requires the affirmative vote of at least 66⅔% of the issued and outstanding shares of Royale common stock and at least 66⅔% of the issued and outstanding shares of Matrix common stock.

Any delay in completing the mergers may substantially reduce the benefits expected to be obtained from the mergers.

The closing of the mergers is conditioned on obtaining various approvals by Royale’s and Matrix’s respective shareholders and a number of other conditions beyond the control of Royale and Matrix. These conditions may prevent or delay the mergers from being completed. Royale and Matrix cannot predict whether or when the conditions required to complete the mergers will be satisfied. Any delay in completing the mergers may materially adversely affect the ability of the combined company to attain the benefits that Royale and Matrix expect to achieve from the mergers. If the mergers are not completed on or before June 30, 2017 or as agreed by the parties, either Royale and Matrix may terminate the Merger Agreement, unless the failure to complete the mergers by that date is due to the failure of the party seeking to terminate the Merger Agreement to fulfill any material obligations under the Merger Agreement or a material breach of the Merger Agreement by such party. See Certain Provisions of the Merger Agreement —Conditions to the Mergers, beginning on page 84.
 
Mergers-related charges will be incurred.

Royale and Matrix estimate that, as a result of the mergers, the combined company expects to incur mergers-related cash expenses of approximately [●], consisting of investment banking, legal and accounting fees and financial printing and other related charges. The foregoing amount is a preliminary estimate and the actual amount may be higher or lower. Moreover, the combined company is likely to incur additional expenses in future periods in connection with the integration of Royale’s and Matrix’s businesses.

Failure to complete the mergers could negatively impact the stock price and the future business and financial results of Royale.

If the mergers are not completed, the ongoing business of Royale may be adversely affected and Royale would be subject to a number of risks, including the following:

·
Royale will not realize the benefits expected from the mergers, including a potentially enhanced competitive and financial position;

·
Royale may experience negative reactions from the financial markets and Royale’s customers and employees;

·
Royale will continue to owe $1,580,000 plus interest on short-term debt which matured August 2, 2017.

Risks Relating to Royale’s Business
 
Our financial statements are qualified depending on our ability to operate as a going concern.
 
Our financial statements as of December 31, 2016, and the year then ended, contain a “going concern” qualification.  The qualification states that, because we have suffered continuing losses from operations, our total liabilities exceed total assets and we have an accumulated stockholders’ deficit.  This raises substantial doubt about our ability to continue as a going concern.   The financial statements do not include any adjustments that might result from the outcome of this uncertainty. The proposed merger is one of the steps we are taking to remedy the conditions that have caused this.  However, there is no guarantee that if the merger is approved, that it will resolve all of the issues involved.
 
Possible Need for Alternative Financing

As a condition to the Mergers, Matrix’s senior lenders must consent to the Mergers, the Exchanges, and the Debt Exchange, which has not yet been received.  Arena, the lead senior lender, has orally indicated that they will consent to the transactions, if (a) the transactions are completed by December 31, 2017, (b) at least $4 million of additional funds are raised for future development and deposited into the capital expenditure account for Arena and Matrix, and (c) subject to Arena’s approval of the transaction documents completing the transactions.  Because of the importance of the Sansinena field assets securing the senior debt, it is essential that Matrix either obtain consent from Arena or find an alternative financing source to repay and replace the senior lenders.  If they do not consent, Matrix may be required to find alternative financing before the proposed transactions could proceed, potentially resulting in a delay of the transactions and financial losses to Matrix.

Alternatively, it may be necessary for Royale to raise equity to satisfy Arena’s requirement.  There can be no certainty that any equity can be raised, or the required terms of any equity investor(s).  Any such equity could require an amendment to the terms of the Mergers, the Exchanges and/or the Debt Exchange.
 
Oil and natural gas prices are volatile. A substantial or extended decline in commodity prices will likely adversely affect Royale’s business, financial condition and results of operations and its ability to meet its debt commitments, or capital expenditure obligations and other financial commitments.

Prices for oil, natural gas, and natural gas liquids can fluctuate widely. Royale’s revenues, profitability and its future growth and the carrying value of its properties depend substantially on prevailing oil and natural gas prices. Prices also affect the amount of cash flow available for capital expenditures and Royale’s ability to borrow and raise additional capital. The amount Royale will be able to borrow is based in part on current oil and natural gas prices and on changing expectations of future prices. Lower prices may also reduce the amount of oil and natural gas that Royale can economically produce and have an adverse effect on the value of its properties.

Historically, the markets for oil and natural gas have been volatile, and they are likely to continue to be volatile in the future. Among the factors that can cause volatility are:

·
the domestic and foreign supply of, and demand for, oil and natural gas;

·
volatility and trading patterns in the commodity-futures markets;

·
the ability of members of OPEC and other producing countries to agree upon and determine oil prices and production levels;

·
social unrest and political instability, particularly in major oil and natural gas producing regions outside the United States, such as Africa and the Middle East, and armed conflict or terrorist attacks, whether or not in oil or natural gas producing regions;

·
the level of consumer product demand;

·
the growth of consumer product demand in emerging markets, such as China;

·
labor unrest in oil and natural gas producing regions;

·
weather conditions, including hurricanes and other natural occurrences that affect the supply and/or demand of oil and natural gas;

·
the price and availability of alternative fuels;

·
the price of foreign imports;

·
worldwide economic conditions; and

·
the availability of liquid natural gas imports.

These external factors and the volatile nature of the energy markets make it difficult to estimate future prices of oil and natural gas.  The long-term effect of these and other factors on the prices of oil and natural gas is uncertain. Prolonged or further declines in these commodity prices may have the following effects on Royale’s business:

·
adversely affecting Royale’s financial condition, liquidity, ability to finance planned capital expenditures, and results of operations;

·
reducing the amount of oil and, natural gas that Royale can produce economically;

·
causing Royale to delay or postpone a significant portion of its capital projects;

·
materially reducing Royale’s revenues, operating income, or cash flows;

·
reducing the amounts of Royale’s estimated proved oil and natural gas reserves;

·
reducing the carrying value of Royale’s oil and natural gas properties due to recognizing additional impairments of proved properties, unproved properties and exploration assets;

·
reducing the standardized measure of discounted future net cash flows relating to oil and natural gas reserves; and

·
limiting Royale’s access to, or increasing the cost of, sources of capital such as equity and long-term debt.

Royale may not be able to drill wells on a substantial portion of its acreage.

Royale may not be able to drill on a substantial portion of its acreage for various reasons. Royale may not generate or be able to raise sufficient capital to do so. Further deterioration in commodities prices may also make drilling certain acreage uneconomic. Royale’s actual drilling activities and future drilling budget will depend on drilling results, oil and natural gas prices, the availability and cost of capital, drilling and production costs, availability of drilling services and equipment, lease expirations, gathering system and pipeline transportation constraints, regulatory approvals and other factors. In addition, any drilling activities Royale is able to conduct may not be successful or add additional proved reserves to Royale’s overall proved reserves, which could have a material adverse effect on its future business, financial condition and results of operations.

Royale’s ability to sell its production and/or receive market prices for its production may be adversely affected by transportation capacity constraints and interruptions.

If the amount of natural gas, condensate or oil being produced by Royale and others exceeds the capacity of the various transportation pipelines and gathering systems available in Royale’s operating areas, it will be necessary for new transportation pipelines and gathering systems to be built. Or, in the case of oil and condensate, it will be necessary for Royale to rely more heavily on trucks to transport its production, which is more expensive, may require permitting approval, and is less efficient than transportation via pipeline. The construction of new pipelines and gathering systems is capital intensive and construction may be postponed, interrupted or cancelled in response to changing economic conditions and the availability and cost of capital. In addition, capital constraints could limit Royale’s ability to build gathering systems to transport its production to transportation pipelines. In such event, costs to transport its production may increase materially or Royale might have to shut in its wells awaiting a pipeline connection or capacity and/or sell its production at much lower prices than market or than Royale currently projects, which would adversely affect Royale’s results of operations.

A portion of Royale’s production may also be interrupted, or shut in, from time to time for numerous other reasons, including as a result of operational issues, mechanical breakdowns, weather conditions, accidents, loss of pipeline or gathering system access, field labor issues or strikes, or Royale might voluntarily curtail production in response to market conditions. If a substantial amount of Royale’s production is interrupted at the same time, it could adversely affect its cash flow.

Unless Royale replaces its reserves, its reserves and production will decline, which would adversely affect its financial condition, results of operations and cash flows.

Producing oil and natural gas reservoirs generally are characterized by declining production rates that vary depending upon reservoir characteristics and other factors.  Decline rates are typically greatest early in the productive life of a well. Estimates of the decline rate of an oil or natural gas well are inherently imprecise, and are less precise with respect to new or emerging oil and natural gas formations with limited production histories than for more developed formations with established production histories.

Royale’s production levels and the reserves that it currently expects to recover from its wells will change if production from its existing wells declines in a different manner than it has estimated and can change under other circumstances. Thus, Royale’s future oil and natural gas reserves and production and, therefore, its cash flow and results of operations are highly dependent upon its success in efficiently developing and exploiting its current properties and economically finding or acquiring additional recoverable reserves. Royale may not be able to develop, find or acquire additional reserves to replace its current and future production at acceptable costs. If Royale is unable to replace its current and future production, its cash flow and the value of its reserves may decrease, adversely affecting its business, financial condition, results of operations, and potentially the borrowing capacity under its credit facility.

Royale depends substantially on its key personnel for critical management decisions and industry contacts.

Royale’s success depends upon the continued contributions of its executive officers and key employees, particularly with respect to providing the critical management decisions and contacts necessary to manage and maintain its company within a highly competitive industry. Competition for qualified personnel can be intense, particularly in the oil and natural gas industry, and there are a limited number of people with the requisite knowledge and experience. Under these conditions, Royale could be unable to attract and retain these personnel. The loss of the services of any of its executive officers or other key employees for any reason could have a material adverse effect on its business, operating results, financial condition and cash flows.

Royale’s oil and natural gas activities are subject to various risks which are beyond its control.

Royale’s operations are subject to many risks and hazards incident to exploring and drilling for, producing, transporting, marketing and selling oil and natural gas.  Although Royale may take precautionary measures, many of these risks and hazards are beyond its control and unavoidable under the circumstances. Many of these risks or hazards could materially and adversely affect Royale’s revenues and expenses, the ability of certain of its wells to produce oil and natural gas in commercial and economic quantities, the rate of production and the economics of the development of, and its investment in the prospects in which it has or will acquire an interest. Any of these risks and hazards could materially and adversely affect Royale’s financial condition, results of operations and cash flows. Such risks and hazards include:

·
human error, accidents, labor force and other factors beyond its control that may cause personal injuries or death to persons and destruction or damage to equipment and facilities;
·
blowouts, cratering, explosions, fires, earthquakes, pollution and equipment failures that may result in damage to or destruction of wells, producing formations, production facilities and equipment and increased drilling and production costs;