(Date of earliest event reported)

(Exact name of registrant as specified in its charter)

 

 

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Item 1.01.                      Entry into a Material Definitive Agreement.

On November 30, 2016, Royale Energy, Inc., a California corporation (“Royale”),  Royale Energy Holdings, Inc., a Delaware corporation (“Parent”), Royale Merger Sub, Inc., a California corporation and wholly-owned subsidiary of Parent (“Royale Merger Sub”), Matrix Merger Sub, Inc., a California corporation and wholly-owned subsidiary of Parent (“Matrix Merger Sub”), and Matrix Oil Management Corporation, a California corporation (“Matrix”), entered into an Agreement and Plan of Merger and Reorganization (the “Merger Agreement”) pursuant to which, among other things, (i) Royale Merger Sub will, subject to the satisfaction or waiver of the conditions set forth in the Merger Agreement, merge with and into Royale (the “Royale Merger”) with Royale as the surviving corporation and a wholly-owned subsidiary of Parent; and simultaneously, (ii) Matrix Merger Sub will, subject to the satisfaction or waiver of the conditions set forth in the Merger Agreement, merge with and into Matrix (the “Matrix Merger”) with Matrix as the surviving corporation and a wholly-owned subsidiary of Parent (collectively, the Royale Merger and Matrix Merger are referred to hereinafter as the “Mergers”). The Mergers 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.  As part of the Mergers, Parent’s name will be change to “Royale Energy, Inc.” and Royale’s name will be changed to “Royale Energy Funds, Inc.”

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 Parent (“Parent 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 Parent 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 Parent Common Stock equal to the quotient of (a) the product of the Aggregate Royale Number multiplied by 0.008671, 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.

Additionally, in connection with the Mergers and at the closing of the Mergers:

A.

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 (collectively, the “Matrix LP Exchange Agreements”) that are attached as exhibits to the Merger Agreement, assigned to Parent in exchange for Parent Common Stock (the “LP Exchanges”).  In the LP Exchanges, the holders of the limited partnership interests (each, a “Matrix LP Holder” and collectively, the “Matrix LP Holders”) in the Matrix LPs will receive, in the aggregate, a number of shares of Parent Common Stock equal to the product of the Aggregate Royale Number multiplied by 0.991314 (the “Matrix LP Exchange Consideration”).

B.

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 Parent in exchange for Parent 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 Parent Common Stock equal to the product of the Aggregate Royale Number multiplied by 0.000015 (the “Matrix Operator Exchange Consideration”).

C.

Approximately $20,124,000 in the aggregate principal amount of subordinated promissory notes (“Matrix Debt”) issued by Matrix, the Matrix LPs and Matrix Operator will be exchanged (the “Debt Exchange”) for shares of the Parent’s newly created Series B 3.5% Convertible Preferred Stock (“Series B Preferred Stock”).  Pursuant to the terms and conditions set forth in the debt exchange agreement between the holders of Matrix Debt (the “Matrix Debt Holders”) and Parent (the “Debt Exchange Agreement” and, together with the Matrix LP Exchange Agreements and the Matrix Operator Exchange Agreement, the “Exchange Agreements”) that is attached as an exhibit to the Merger Agreement, each $10.00 principal amount of Matrix Debt 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 “Debt Exchange Consideration”). The Series B Preferred Stock, 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 $20,124,000, and each share of Series B Preferred Stock will be convertible into approximately ten (10) shares of Parent Common Stock.

Ultimately, it is the intent of both Royale and Matrix, upon the closing of the Mergers, the LP Exchanges, the Matrix Operator Exchange, and the Debt Exchange that (i) fifty percent (50%) of Parent Common Stock will be delivered as Royale Merger Consideration; (ii) fifty percent (50%) of Parent Common Stock will delivered as Matrix Merger Consideration, Matrix LP Exchange Consideration, and Matrix Operator Consideration; and (iii) all of the Series B Preferred Stock will be delivered and owned entirely by the Matrix Debt Holders.

The respective boards of directors of Royale and Matrix have determined that the Merger Agreement and all other related transactions are fair to, advisable and in the best interests of their respective stockholders, and have unanimously approved the Mergers, the Merger Agreement, and the related transactions.  The Merger Agreement and related transactions are subject to (i) the approval of Royale’s and Matrix’s respective shareholders at shareholders’ meetings to be called and held by Royale and Matrix, respectively; (ii) the approval of the Matrix LP Holders, the Matrix Operator Holders and the Matrix Debt Holders; (iii) the consent of the lenders under Matrix’s senior secured indebtedness to the transactions contemplated by the Merger Agreement or, alternatively, the refinancing of such indebtedness; and (iv) other customary closing conditions, including the filing and effectiveness of a registration statement on Form S-4 with the Securities and Exchange Commission (the “SEC”).  The Merger Agreement also contains certain termination rights for both Royale and Matrix, including, among other things, if the Mergers are not consummated on or before March 31, 2017.

Royale and Matrix have made customary representations and warranties in the Merger Agreement and agreed to certain customary covenants, including covenants (i) regarding operation of their respective business prior to the consummation of the Mergers; and (ii) prohibiting Royale and Matrix from soliciting, or providing information or entering into discussions regarding proposals relating to alternative business combination transactions.

In addition, Royale has agreed to cause Parent to file an application for listing (or re-listing, as applicable) the Parent Common Stock to be issued in connection with the Mergers on NASDAQ or another national securities exchange within thirty days following the initial filing of a registration statement on Form S-4 with the SEC and to use reasonable best efforts to obtain approval of such listing, provided that such approval is not a condition to closing the Mergers or other transactions under the Merger Agreement.  The Royale Common Stock was previously listed on NASDAQ from 1994 until it was delisted in January 2016, and it currently trades on the OTC QB (Symbol:  ROYL).  There is no assurance that any listing application will be approved by NASDAQ or another national securities exchange.

Under the Merger Agreement and at the closing of the Mergers, the initial board of directors of Parent will be comprised of eight (8) members. The members of the board of directors will be Jonathan Gregory, Harry Hosmer, Johnny Jordan, Jon Clarkson, Rod Eson, Gabriel L. Ellisor, Ronald Buck, and Ronald Verdier.  Harry Hosmer will serve as chairman of the board of directors until the first annual meeting of shareholders following the closing of the Mergers.  The initial officers of Parent shall include Jonathan Gregory, as Chief Executive Officer, Johnny Jordan, as President and Chief Operating Officer, and Stephen M. Hosmer, as Chief Financial Officer.

The Merger Agreement contains certain termination rights for both the Company and Matrix, including, among other things, if the Merger is not consummated on or before March 31, 2017.

 

The Merger Agreement contains representations and warranties by Royale, Parent, Royale Merger Sub and Matrix Merger Sub, on the one hand, and by Matrix, on the other hand, made solely for the benefit of the other. The assertions embodied in those representations and warranties are qualified by information in confidential disclosure schedules that the parties have exchanged in connection with signing the Merger Agreement. The disclosure schedules contain information that modifies, qualifies and creates exceptions to the representations and warranties set forth in the Merger Agreement. Moreover, certain representations and warranties in the Merger Agreement were made as of a specified date, may be subject to a contractual standard of materiality different from what might be viewed as material to shareholders, or may have been used for the purpose of allocating risk between Royale, on the one hand, and Matrix, on the other hand. Accordingly, the representations and warranties and other disclosures in the Merger Agreement should not be relied on by any persons as characterizations of the actual state of facts about Royale or Matrix at the time they were made or otherwise.

The Merger Agreement, which includes copies of the Exchange Agreements as exhibits thereto, is included as Exhibit 2.1 hereto and is incorporated herein by reference.  The foregoing description of these agreements does not purport to be complete and is qualified in its entirely by reference to such agreement.

Forward-Looking Statements

This current report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 as amended and Section 21E of the Securities and Exchange Act of 1934 as amended. Statements that are not strictly historical statements constitute forward-looking statements and may often, but not always, be identified by the use of such words such as “expects,” “believes,” “intends,” “anticipates,” “plans,” “estimates,” “potential,” “possible,” or “probable” or statements that certain actions, events or results “may,” “will,” “should,” or “could” be taken, occur or be achieved. The forward-looking statements include statements about future operations, estimates of reserve and production volumes and the anticipated timing for closing the proposed merger. Forward-looking statements are based on current expectations and assumptions and analyses made by Royale and Matrix in light of experience and perception of historical trends, current conditions and expected future developments, as well as other factors appropriate under the circumstances. However, whether actual results and developments will conform with expectations is subject to a number of risks and uncertainties, including but not limited to:  the possibility that the companies may be unable to obtain stockholder or limited partner approval or satisfy the other conditions to closing; the possibility that the companies may be unable to obtain the consent of Matrix’s senior secured lender; that problems may arise in the integration of the businesses of the two companies; that the acquisition may involve unexpected costs; the risks of the oil and gas industry (for example, operational risks in exploring for, developing and producing crude oil and natural gas); risks and uncertainties involving geology of oil and gas deposits; the uncertainty of reserve estimates; revisions to reserve estimates as a result of changes in commodity prices; the uncertainty of estimates and projections relating to future production, costs and expenses; potential delays or changes in plans with respect to exploration or development projects or capital expenditures; health, safety and environmental risks and risks related to weather; further declines in oil and gas prices; inability of management to execute its plans to meet its goals, shortages of drilling equipment, oil field personnel and services, unavailability of gathering systems, pipelines and processing facilities and the possibility that government policies may change. Royale’s annual report on Form 10-K for the year ended December 31, 2015, recent current reports on Form 8-K, and other SEC filings discuss some of the important risk factors identified that may affect its business, results of operations, and financial condition. Royale and Matrix undertake no obligation to revise or update publicly any forward-looking statements, except as required by law.

Additional Information about the Transaction

 

In connection with the proposed transaction, Royale intends to file with the SEC a registration statement on Form S-4 that will include a proxy statement of Royale that also constitutes a prospectus of Royale relating to (i) the Parent Common Stock to be issued in connection with the Mergers, the LP Exchanges, the Matrix Operator Exchange, upon the conversion of any Series B Preferred Stock, or the exercise of any outstanding warrants and options that become exercisable upon the effectiveness of the Mergers, and (ii) the Series B Preferred Stock to be issued in connection with the Debt Exchange. The proxy statement/prospectus will include important information about Royale, Matrix, the Matrix LPs and Matrix Operator. Royale also plans to file other relevant documents with the SEC regarding the proposed transaction. INVESTORS AND SECURITY HOLDERS ARE URGED TO CAREFULLY READ THE REGISTRATION STATEMENT, THE PROXY STATEMENT/PROSPECTUS AND OTHER RELEVANT DOCUMENTS FILED WITH THE SEC IF AND WHEN THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT ROYALE, MATRIX AND THE PROPOSED TRANSACTION. Investors and security holders may obtain these documents when available free of charge at the SEC’s website at www.sec.gov .  In addition, the documents filed with the SEC by Royale can be obtained free of charge from Royale’s website at www.royl.com .

Participants in Solicitation

Royale and its executive officers and directors may be deemed to be participants in the solicitation of proxies from the shareholders of Royale in respect of the proposed transaction.  Information regarding Royale’s directors and executive officers is available in its annual report on Form 10-K for the year ended December 31, 2015, which was filed with the SEC on March 15, 2016, and its proxy statement for its 2015 annual meeting of shareholders, which was filed with the SEC on April 22, 2015. Other information regarding the participants in the proxy solicitation and a description of their direct and indirect interests, by security holdings or otherwise, will be contained in the proxy statement/prospectus and other relevant materials to be filed with the SEC when they become available.

 

Item 9.01.                      Financial Statements and Exhibits.

(d)            Exhibits.

The following exhibits are filed with this Current Report on Form 8-K:

 

 

 

SIGNATURE

 

 

 Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

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Exhibit 2.1

 

AGREEMENT AND PLAN OF MERGER

among

ROYALE ENERGY, INC.,

ROYALE ENERGY HOLDINGS, INC.

ROYALE MERGER SUB, INC.

MATRIX MERGER SUB, INC.

and

MATRIX OIL MANAGEMENT CORPORATION

dated as of

November 30, 2016

TABLE OF CONTENTS

 

ARTICLE I Definitions		3
ARTICLE II The Mergers		16
Section 2.01	The Mergers	16
Section 2.02	Closing	16
Section 2.03	Effective Time	16
Section 2.04	Governing Documents of the Continuing Corporations	17
Section 2.05	Dissenting Shares	18
Section 2.06	Directors and Officers	19
Section 2.07	Post-Merger Operations	20
Section 2.08	Tax Consequences	20
ARTICLE III Conversion of Securities; Exchange of Certificates		20
Section 3.01	Royale Merger Conversion of Shares	20
Section 3.02	Matrix Merger Conversion of Shares	21
Section 3.03	Parent Capital Stock to be Issued Concurrently with the Mergers	21
Section 3.04	Registration of Parent Common Stock	22
Section 3.05	Exchange of Certificates by Royale Stockholders	23
Section 3.06	Exchange of Certificates by Matrix Stockholders	25
Section 3.07	Adjustments to Outstanding Options and Warrants	27
ARTICLE IV Representations and Warranties of Matrix		27
Section 4.01	Organization and Qualification of Matrix	27
Section 4.02	Authority; Board Approval	28
Section 4.03	No Conflicts; Consents	29
Section 4.04	Capitalization	29
Section 4.05	Subsidiaries	30
Section 4.06	Financial Statements	30
Section 4.07	Undisclosed Liabilities	31
Section 4.08	Absence of Certain Changes, Events and Conditions	31
Section 4.09	Material Contracts	31
Section 4.10	Properties and Assets	32
Section 4.11	Intellectual Property	34

Section 4.12	Reserved	35
Section 4.13	Reserved	35
Section 4.14	Reserved	35
Section 4.15	Insurance	35
Section 4.16	Legal Proceedings; Governmental Orders	36
Section 4.17	Compliance With Laws; Permits	36
Section 4.18	Environmental Laws	36
Section 4.19	Employee Benefit Matters	36
Section 4.20	Employment Matters	39
Section 4.21	Taxes	40
Section 4.22	Books and Records	42
Section 4.23	Related Party Transactions	42
Section 4.24	Brokers	42
Section 4.25	Legal Proceedings	42
Section 4.26	Proxy Statement	42
Section 4.27	No Other Representations or Warranties	43
ARTICLE V Representations and Warranties of the Royale Parties		43
Section 5.01	Organization and Qualification of the Royale Parties	43
Section 5.02	Authority; Board Approval	43
Section 5.03	No Conflicts; Consents	44
Section 5.04	Capitalization	45
Section 5.05	No Prior Operations; No Subsidiaries	46
Section 5.06	SEC Reports; Financial Statements	46
Section 5.07	Undisclosed Liabilities	47
Section 5.08	Absence of Certain Changes, Events and Conditions	47
Section 5.09	Royale Material Contracts	47
Section 5.10	Properties and Assets	47
Section 5.11	Intellectual Property	50
Section 5.12	Insurance	51
Section 5.13	Legal Proceedings; Governmental Orders	51
Section 5.14	Compliance With Laws; Permits	52
Section 5.15	Environmental Laws	52

Section 5.16	Employee Benefit Matters	52
Section 5.17	Employment Matters	54
Section 5.18	Taxes	55
Section 5.19	Books and Records	57
Section 5.20	Related Party Transactions	58
Section 5.21	Brokers	58
Section 5.22	Legal Proceedings	58
Section 5.23	Registration Statement	58
Section 5.24	Opinion of Financial Advisor	58
Section 5.25	No Other Representations or Warranties	58
ARTICLE VI Covenants		59
Section 6.01	Conduct of Business Prior to the Closing	59
Section 6.02	Access to Information; Confidentiality; No-Shop	61
Section 6.03	Registration Statement; Approval by Royale’s Stockholders	61
Section 6.04	Approval of Stockholders of Matrix	62
Section 6.05	Certain Pre-Merger Actions of Royale Parties	63
Section 6.06	Notice of Certain Events	64
Section 6.07	Public Announcements	65
Section 6.08	Governmental Approvals and Consents	65
Section 6.09	Directors’ and Officers’ Indemnification and Insurance	66
Section 6.10	Exemption From Liability Under Section 16(b)	68
Section 6.11	Closing Conditions	68
Section 6.12	Subsequent Filings	68
Section 6.13	Stockholder Litigation	69
Section 6.14	Takeover Statutes	69
Section 6.15	Listing on National Securities Exchange	69
Section 6.16	Further Assurances	69
Section 6.17	Reserved	70
Section 6.18	Certain Tax Matters	70
Section 6.19	Matrix Senior Indebtedness	71
ARTICLE VII Tax Matters		71
Section 7.01	Tax Covenants	71

Section 7.02	Termination of Existing Tax Sharing Agreements	72
Section 7.03	Tax Returns	72
Section 7.04	Straddle Period	73
Section 7.05	Contests	73
Section 7.06	Cooperation and Exchange of Information	73
ARTICLE VIII Conditions to Closing		73
Section 8.01	Conditions to Obligations of All Parties	73
Section 8.02	Conditions to Obligations of Royale Parent, Royale Merger Sub and Matrix Merger Sub	74
Section 8.03	Conditions to Obligations of Matrix	76
Section 8.04	Closing Deliverables	78
ARTICLE IX Termination		79
Section 9.01	Termination	79
Section 9.02	Effect of Termination	81
ARTICLE X Miscellaneous		81
Section 10.01	Expenses	81
Section 10.02	Notices	81
Section 10.03	Interpretation	82
Section 10.04	Headings	82
Section 10.05	Severability	82
Section 10.06	Entire Agreement	83
Section 10.07	Successors and Assigns	83
Section 10.08	No Third-Party Beneficiaries	83
Section 10.09	Amendment and Modification; Waiver	83
Section 10.10	Governing Law; Submission to Jurisdiction; Waiver of Jury Trial	83
Section 10.11	Specific Performance	84
Section 10.12	Counterparts	84

 

Annex I

Matrix Group Capital

Exhibit A

Debt Exchange Agreement with the holders of approximately $20,124,000.00 in aggregate principal amount of subordinated promissory notes issued by Matrix Oil Management Corporation, a California corporation, Matrix Oil Corporation, a California corporation, Matrix Permian Investments, LP, a Texas limited partnership, Matrix Las Cienegas Limited Partnership, a California limited partnership, and Matrix Investments L.P., a California limited partnership

Exhibit B

Certificate of Designation of Series B Preferred Stock of Parent

Exhibit C

LP Exchange Agreement with the holders of all limited partnership interests of Matrix Investments L.P., a California limited partnership

Exhibit D

LP Exchange Agreement with the holders of all limited partnership interests of Matrix Las Cienegas Limited Partnership, a California limited partnership

Exhibit E

LP Exchange Agreement with the holders of all limited partnership interests of Matrix Permian Investments, LP, a Texas limited partnership

Exhibit F

Matrix Operator Stock Exchange Agreement with the holders of all outstanding common stock of Matrix Oil Corporation, a California corporation

Exhibit G

Form of Section 351 Plan of Merger and Exchange

Exhibit H

Directors of Parent

AGREEMENT AND PLAN OF MERGER

This Agreement and Plan of Merger (this “Agreement”), dated as of November 30, 2016 is entered into among Royale Energy, Inc., a California corporation (“Royale”), Royale Energy Holdings, Inc., a Delaware corporation (“Parent”), Royale Merger Sub, Inc., a California corporation and a direct, wholly-owned Subsidiary of Parent (“Royale Merger Sub”), Matrix Merger Sub, Inc., a California corporation and a direct, wholly-owned Subsidiary of Parent (“Matrix Merger Sub”), and Matrix Oil Management Corporation, a California corporation (“Matrix” and, together with Matrix Merger Sub, Royale and Royale Merger Sub, the “Constituent Corporations”).  Matrix, Royale and Parent are together the “Continuing Corporations”.  Defined terms used herein have the respective meanings set forth in ARTICLE I.

RECITALS

A. The parties intend that in accordance with the California Corporations Code (the “CCC”) and subject to the approval of the respective shareholders of Matrix, Royale and Parent, (1) Royale Merger Sub shall be merged with and into Royale (the “Royale Merger”) with Royale as the surviving corporation and a wholly-owned Subsidiary of Parent, and (2) Matrix Merger Sub shall be merged with and into Matrix (the “Matrix Merger”) with Matrix as the surviving corporation and a wholly-owned Subsidiary of Parent, with each such merger on the terms and subject to the conditions set forth herein (collectively, the Matrix Merger and the Royale Merger are the “Mergers”).

B. The board of directors of Royale (the “Royale Board”) has unanimously (a) determined that this Agreement and the transactions contemplated hereby, including the Merger, are in the best interests of Royale and its stockholders, (b) approved and declared advisable this Agreement and the transactions contemplated hereby, including the Royale Merger, and (c) resolved to submit this Agreement to the stockholders of Royale for their approval and to recommend Royale’s stockholders adoption of this Agreement in accordance with the CCC.

C. The board of directors of Matrix (the “Matrix Board”) has unanimously (a) determined that this Agreement and the transactions contemplated hereby, including the Merger, are in the best interests of Matrix and its stockholders, (b) approved and declared advisable this Agreement and the transactions contemplated hereby, including the Matrix Merger, and (c) resolved to submit this Agreement to the stockholders of Matrix for their approval and to recommend Matrix’s stockholders adoption of this Agreement in accordance with the CCC.

D. The board of directors of Parent (the “Parent Board”) has unanimously (a) determined that this Agreement and the transactions contemplated hereby, including the Merger, are in the best interests of Parent and its stockholders, (b) approved and declared advisable this Agreement and the transactions contemplated hereby, including the Royale Merger and the Matrix Merger, and (c) resolved to submit this Agreement to the stockholders of Parent for their approval and to recommend Parent’s stockholders adoption of this Agreement in accordance with the DGCL.

E. In connection with the Mergers, the holders of all limited partnership interests 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”) wish to exchange all of their limited partnership interests in the Matrix LPs for shares of common stock of Parent pursuant to the terms of exchange agreements which are attached hereto as Exhibits C, D and E.  Matrix is the general partner of each of the Matrix LPs.

F. In connection with the Mergers, the holders of all outstanding shares of capital stock of Matrix Oil Corporation, a California corporation (“Matrix Operator”), wish to exchange all of their shares of capital stock of Matrix Operator for shares of common stock of Parent pursuant to the terms of the exchange agreement which is attached hereto as Exhibit F.

G. Prior to the date hereof, Matrix, Matrix Operator and the Matrix LPs have incurred approximately $20,124,000.00 in aggregate principal amount of subordinated promissory notes, which the holders of such debt wish to exchange for shares of the Parent’s Series B Preferred Stock in connection with the Mergers on the terms and conditions set forth in the exchange agreement which is attached hereto as Exhibit A.

H. The Mergers, together with the exchange of all limited partnership interests of the Matrix LPs, all capital stock of Matrix Operator, and all subordinated notes of Matrix, Matrix Operator and the Matrix LPs (collectively, the “Exchanges”), are related transactions involving the assignment of property to Parent in exchange for common or preferred stock of Parent as part of an overall plan to capitalize Parent, and for federal income tax purposes, it is intended that the Mergers, the Exchanges and the other related exchange transactions with Parent shall qualify as exchanges under the provisions of Section 351 of the Internal Revenue Code of 1986, as amended (the “IRC”).

I. In the Mergers, (1) Royale Merger Sub will be merged with and into Royale, the corporate existence of the Royale Merger Sub will cease, each issued and outstanding share of Royale common stock will be converted into one share of Parent Common Stock, and Royale will become a direct, wholly owned Subsidiary of Parent; and (2) Matrix Merger Sub will be merged with and into Matrix, the corporate existence of Matrix Merger Sub will cease, and each issued and outstanding share of Matrix Common Stock will be converted into the number of shares of Parent Common Stock as determined by the Matrix Conversion Ratio, and Matrix will become a direct, wholly owned Subsidiary of Parent.

J. The Constituent Corporations desire to make certain representations, warranties, covenants and agreements in connection with the Merger and also to prescribe various conditions of the Merger.

NOW, THEREFORE, in consideration of the mutual covenants and agreements hereinafter set forth and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

The following terms have the meanings specified or referred to in this ARTICLE I:

“Action” means any claim, action, cause of action, demand, lawsuit, arbitration, inquiry, audit, notice of violation, proceeding, litigation, citation, summons, subpoena or investigation of any nature, civil, criminal, administrative, regulatory or otherwise, whether at law or in equity.

“Affiliate” of a Person means any other Person that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, such Person. The term “control” (including the terms “controlled by” and “under common control with”) means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise.

“Aggregate Matrix Number” has the meaning set forth in Section 3.02(c).

“Aggregate Royale Number” has the meaning set forth in Section 3.02(c).

“Agreement” has the meaning set forth in the preamble.

“Ancillary Documents” means:

A.	The Debt Exchange Agreement with the holders of approximately $20,124,000.00 in aggregate principal amount of subordinated promissory notes issued by Matrix, Matrix Operator and the Matrix LPs in substantially the form attached hereto as Exhibit A;

B.	The Certificate of Designation of Series B Preferred Stock in substantially the form attached hereto as Exhibit B;

C.	The LP Exchange Agreement with the holders of all limited partnership interests of Matrix Investments L.P., a California Limited Partnership, in substantially the form attached hereto as Exhibit C;

D.	The LP Exchange Agreement with the holders of all limited partnership interests of Matrix Las Cienegas Limited Partnership, a California limited partnership in substantially the form attached hereto as Exhibit D;

E.	The LP Exchange Agreement with the holders of all limited partnership interests of Matrix Permian Investments, LP, a Texas limited partnership in substantially the form attached hereto as Exhibit E;

F.	The Matrix Operator Stock Exchange Agreements with the holders of all outstanding common stock of Matrix Oil Corporation, a California corporation in substantially the form attached hereto as Exhibit F;

G.	Employment Agreements between Parent and Jonathan Gregory, Donald Hosmer, Stephen Hosmer, Johnny Jordan, Joe Paquette and Jay Sheevel, all in a form reasonably acceptable to Royale and Matrix;

H.	The Section 351 Plan in substantially the form attached hereto as Exhibit G; and

 “Audited Financial Statements” has the meaning set forth in Section 4.06.

“Balance Sheet” has the meaning set forth in Section 4.06.

“Balance Sheet Date” has the meaning set forth in Section 4.06.

“Benefit Plan” has the meaning set forth in Section 4.19.

“Business Day” means any day except Saturday, Sunday or any other day on which commercial banks located in California are authorized or required by Law to be closed for business.

“Capital Stock Consideration” has the meaning set forth in Section 3.04.

“CCC” has the meaning set forth in recital A of this Agreement.

“CERCLA” means the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended by the Superfund Amendments and Reauthorization Act of 1986, 42 U.S.C. §§ 9601 et seq.

“Closing” has the meaning set forth in Section 2.02.

“Closing Date” has the meaning set forth in Section 2.02.

“Contracts” means all contracts, leases, deeds, mortgages, licenses, instruments, notes, commitments, undertakings, indentures, joint ventures and all other agreements, commitments and legally binding arrangements, whether written or oral.

“Contributions” has the meaning set forth in Section 6.19.

“Debt Exchange” has the meaning set forth in Section 3.03(c).

“Debt Exchange Consideration” has the meaning set forth in Section 3.03(c).

“DGCL” means the Delaware General Corporation Law, as amended from time to time.

“D&O Indemnified Party” has the meaning set forth in Section 6.09(a).

“D&O Indemnifying Parties” has the meaning set forth in Section 6.09(c).

“D&O Tail Policy” has the meaning set forth in Section 6.09(d).

“Disclosure Schedules” means the Disclosure Schedules delivered by Matrix concurrently with the execution and delivery of this Agreement.

“Dissenting Shares” has the meaning set forth in Section 2.05.

“Dollars or $” means the lawful currency of the United States.

“DWI Business” means the business of Royale in connection with the sale of working interests by Royale in certain Royale Interests in order to finance the drilling and development costs of such Royale Interests.

“Employee Benefit Plan” is defined in Section 4.19(l)(i).

“Encumbrance” means any charge, claim, community property interest, pledge, condition, equitable interest, lien (statutory or other), option, security interest, mortgage, easement, encroachment, right of way, right of first refusal, or restriction of any kind, including any restriction on use, voting, transfer, receipt of income or exercise of any other attribute of ownership.

“End Date” has the meaning set forth in Section 9.01(d)(i).

“Environmental Law” means any applicable Law, and any Governmental Order or binding agreement with any Governmental Authority: (a) relating to pollution (or the cleanup thereof) or the protection of natural resources, endangered or threatened species, human health or safety, or the environment (including ambient air, soil, surface water or groundwater, or subsurface strata); or (b) concerning the presence of, exposure to, or the management, manufacture, use, containment, storage, recycling, reclamation, reuse, treatment, generation, discharge, transportation, processing, production, disposal or remediation of any Hazardous Materials. The term “Environmental Law” includes, without limitation, the following (including their implementing regulations and any state analogs): the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended by the Superfund Amendments and Reauthorization Act of 1986, 42 U.S.C. §§ 9601 et seq.; the Solid Waste Disposal Act, as amended by the Resource Conservation and Recovery Act of 1976, as amended by the Hazardous and Solid Waste Amendments of 1984, 42 U.S.C. §§ 6901 et seq.; the Federal Water Pollution Control Act of 1972, as amended by the Clean Water Act of 1977, 33 U.S.C. §§ 1251 et seq.; the Toxic Substances Control Act of 1976, as amended, 15 U.S.C. §§ 2601 et seq.; the Emergency Planning and Community Right-to-Know Act of 1986, 42 U.S.C. §§ 11001 et seq.; the Clean Air Act of 1966, as amended by the Clean Air Act Amendments of 1990, 42 U.S.C. §§ 7401 et seq.; and the Occupational Safety and Health Act of 1970, as amended, 29 U.S.C. §§ 651 et seq.

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended, and the regulations promulgated thereunder.

“ERISA Affiliate” means, with respect to a Person, all employers (whether or not incorporated) that would be treated together with such Person or any of its Affiliates as a “single employer” within the meaning of Section 414 of the IRC.

“Exchange Agent” has the meaning set forth in Section 3.05(a).

“Exchanges” has the meaning set forth in Recital H.

“Excluded Matrix Shares” has the meaning set forth in Section 3.02(b).

“Excluded Royale Shares” has the meaning set forth in Section 3.01(b).

“Financial Statements” has the meaning set forth in Section 4.06.

“GAAP” means United States generally accepted accounting principles in effect from time to time.

“Governmental Authority” means any federal, state, local or foreign government or political subdivision thereof, or any agency or instrumentality of such government or political subdivision, or any self-regulated organization or other non-governmental regulatory authority or quasi-governmental authority (to the extent that the rules, regulations or orders of such organization or authority have the force of Law), or any arbitrator, court or tribunal of competent jurisdiction.

“Governmental Order” means any order, writ, judgment, injunction, decree, stipulation, determination or award entered by or with any Governmental Authority.

“Hazardous Materials” means: (a) any material, substance, chemical, waste, product, derivative, compound, mixture, solid, liquid, mineral or gas, in each case, whether naturally occurring or manmade, that is hazardous, acutely hazardous, toxic, or words of similar import or regulatory effect under Environmental Laws; and (b) any petroleum or petroleum-derived products, radon, radioactive materials or wastes, asbestos in any form, lead or lead-containing materials, urea formaldehyde foam insulation, and polychlorinated biphenyls.

“HSR Act” means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.

“Hydrocarbons” means oil, natural gas, condensate, liquefied natural gas, NGL and other liquids or gaseous hydrocarbons or other substances (including minerals) produced or associated therewith, combinations or constituents thereof and extractions therefrom.

“Indebtedness” means, with respect to a Person and without duplication, all (a) indebtedness for borrowed money; (b) obligations for the deferred purchase price of property or services, (c) long or short-term obligations evidenced by notes, bonds, debentures or other similar instruments; (d) obligations under any interest rate, currency swap or other hedging agreement or arrangement; (e) capital lease obligations; (f) reimbursement obligations under any letter of credit, banker’s acceptance or similar credit transactions; (g) guarantees made by such Person on behalf of any third party in respect of obligations of the kind referred to in the foregoing clauses (a) through (f); and (h) any unpaid interest, prepayment penalties, premiums, costs and fees that would arise or become due as a result of the prepayment of any of the obligations referred to in the foregoing clauses (a) through (g).

“Intellectual Property” means all intellectual property and all rights, interests and protections that are associated with, similar to, or required for the exercise of, any of the foregoing, however arising, pursuant to the Laws of any jurisdiction throughout the world, whether registered or unregistered, including any and all: (a) trademarks, service marks, trade names, brand names, logos, trade dress, design rights and other similar designations of source, sponsorship, association or origin, together with the goodwill connected with the use of and symbolized by, and all registrations, applications and renewals for, any of the foregoing; (b) internet domain names, whether or not trademarks, registered in any top-level domain by any authorized private registrar or Governmental Authority, web addresses, web pages, websites and related content, accounts with Twitter, Facebook and other social media companies and the content found thereon and related thereto, and URLs; (c) works of authorship, expressions, designs and design registrations, whether or not copyrightable, including copyrights, author, performer, moral and neighboring rights, and all registrations, applications for registration and renewals of such copyrights; (d) inventions, discoveries, trade secrets, business and technical information and know-how, databases, data collections and other confidential and proprietary information and all rights therein; (e) patents (including all reissues, divisionals, provisionals, continuations and continuations-in-part, re-examinations, renewals, substitutions and extensions thereof), patent applications, and other patent rights and any other Governmental Authority-issued indicia of invention ownership (including inventor’s certificates, petty patents and patent utility models); and (f) software and firmware, including data files, source code, object code, application programming interfaces, architecture, files, records, schematics, computerized databases and other related specifications and documentation.

“Interim Balance Sheet” has the meaning set forth in Section 4.06.

“Interim Balance Sheet Date” has the meaning set forth in Section 4.06.

“Interim Financial Statements” has the meaning set forth in Section 4.06.

“IRC” has the meaning assigned in recital G of the Agreement.

“Knowledge” means, (i) when used with respect to Matrix, the actual or constructive knowledge of any director or executive officer of Matrix, after reasonable inquiry with any Person directly reporting to any such director or executive officer, and (ii) when used with respect to Royale, the actual or constructive knowledge of any director or executive officer of Royale, after reasonable inquiry with any Person directly reporting to any such director or executive officer.

“Law” means any statute, law, ordinance, regulation, rule, code, order, constitution, treaty, common law, judgment, decree, other requirement or rule of law of any Governmental Authority.

“Letter of Intent” has the meaning set forth in Section 6.02(b).

“Liabilities” has the meaning set forth in Section 4.07.

“Losses” means losses, damages, liabilities, deficiencies, Actions, judgments, interest, awards, penalties, fines, costs or expenses of whatever kind, including reasonable attorneys’ fees

and the cost of enforcing any right to indemnification hereunder and the cost of pursuing any insurance providers; provided, however, that “Losses” shall not include punitive damages, except to the extent actually awarded to a Governmental Authority or other third party.

“LP Exchange” has the meaning set forth in Section 3.03(a).

“Material Contract” means, with respect to a Person, any of the following:

A.	Any Contract that requires future expenditures by such Person in excess of $100,000 in any twelve (12) month period, or that provide for payments to such Person in excess of $100,000;

B.

Each Contract for Leased Real Property and each Contract or other right pursuant to which such Person uses or possesses any Personal Property (other than Personal Property owned by such Person), in each case that provide for aggregate payments by or to such Person in excess of $100,000 during any twelve (12) month period, provided that any such Contracts related to the Matrix Interests (with respect to Matrix) or the Royale Interests (with respect to Royale) need not be listed on the applicable Disclosure Schedule or Royale Disclosure Schedule;

C.

Each Contract pursuant to which such Person licenses or uses any Intellectual Property (other than standard licenses for non-custom, commercially available off-the-shelf software, for which the annual amounts owed by such Person do not exceed $5,000 individually), in each case that provide for aggregate payments by such Person in excess of $100,000 during any twelve (12) month period;

D.

Any Contract relating to Indebtedness for borrowed money, any outstanding reimbursement obligation of such Person with respect to letters of credit, bankers’ acceptances or similar facilities issued for the account of such Person or granting a lien on any of such Person’s assets to any Person, in each case in excess of $100,000, other than (i) accounts receivable and payable, and (ii) loans to direct or indirect wholly owned Subsidiaries of such Person;

E.	Any Contract creating or guaranteeing any surety bond in favor of such Person or supporting any of its Contracts or customers, together with a list of each such outstanding surety bond and the amount thereof, in each case in excess of $100,000;

F.

Any Contract with any 5% stockholder, director or executive officer of such Person, or any member of his or her immediate family, or any Affiliate of any of such Persons, including any Contract providing for the furnishing of services by, rental of real or personal property from or otherwise requiring payments to or for the benefit of any such Person;

G.

Any Contract containing any covenant (x) materially limiting the right of such Person to engage in any line of business, make use of any Intellectual Property or compete with any Person in any line of business; (y) granting any exclusive distribution or supply rights; or (z) otherwise restricting, in any material respect, such Person from freely engaging in the business of selling, distributing or manufacturing any products or services;

H.

Any Contract granting an option or first refusal, first offer or similar preferential right to purchase or acquire any of such Person’s assets to any other Person (other than the purchase of inventory pursuant to customer contracts entered into in the ordinary course of business consistent with past practice), in each case that provide for aggregate payments by or to such Person in excess of $100,000 during any twelve (12) month period;

I.	Any Contract pursuant to which payments are required or acceleration of benefits is required upon a change of control of such Person or similar event, in each case that provide for aggregate payments by or to such Person in excess of $100,000 during any twelve (12) month period;

J.

Any Contract that is material to such Person or any of its assets and that requires the consent or waiver of a third party prior to such Person consummating the transactions contemplated hereby, in each case that provide for aggregate payments by or to such Person in excess of $100,000 during any twelve (12) month period; or

K.	Any Contract that constitutes a partnership or joint venture agreement (excluding any tax partnership).

“Matrix” has the meaning set forth in the preamble.

“Matrix Benefit Plans” has the meaning set forth in Section 4.19.

“Matrix Board” has the meaning set forth in the recitals.

“Matrix Board Recommendation” has the meaning set forth in Section 4.02(b).

“Matrix Certificates” has the meaning set forth in Section 3.06(a).

“Matrix Charter Documents” has the meaning set forth in Section 4.03.

“Matrix Common Stock” means the common stock, no par value per share, of Matrix, including all shares common stock into which outstanding shares of Matrix’s preferred stock are convertible and which are issuable upon exercise outstanding warrants and options to purchase Matrix’s common stock.

“Matrix Conversion Ratio” has the meaning set forth in Section 3.02(c).

“Matrix Group Capital” means the agreed value of the securities and interests to be contributed by way of merger or exchange with Parent or its Subsidiaries by:  (i) holders of Matrix common stock in connection with the Matrix Merger; (ii) the Matrix LP Holders in connection with the LP Exchange; and (iii) the Matrix Operator Holders in connection with the Matrix Operator Stock Exchange.

“Matrix Insurance Policies” has the meaning set forth in Section 4.15.

“Matrix Intellectual Property” means all Intellectual Property that is owned or held for use by Matrix.

“Matrix Interests” means, with respect to Matrix and its Subsidiaries and the Matrix LPs (a) direct and indirect interests in and rights with respect to Hydrocarbons and related properties and assets of any kind and nature, direct or indirect, including working and leasehold interests and operating rights and royalties, overriding royalties, production payments, net profit interests, carried interests, and other non-working interests and non-operating interests in the oil, gas and mineral fee or leasehold estate; (b) all  rights with respect to Hydrocarbons or revenues therefrom; (c) all Contracts in connection therewith and the leasehold estates created thereby and the lands covered by the Contracts relating to the Hydrocarbons or included in units with which such Contracts may have been pooled or united; (d) surface interests, fee interests, reversionary interests, reservations and concessions; (e) all easements, surface use agreements, rights of way, licenses and permits, in each case, in connection with leases, the drilling of wells or the processing, storage, disposition, transportation or sale of Hydrocarbons, (f) all interests in machinery, equipment (including wells, well equipment and machinery), oil and gas production, gathering, transmission, treating, processing and storage facilities (including tanks, tank batteries, pipelines, flow lines, gathering systems and metering equipment) pumps, water plants, electric plants, gasoline and gas platforms, processing plans, compressor stations, separation plants, refineries, testing and monitoring equipment, in each case, in connection with any leases, the drilling of wells or the production, gathering, processing, storage, disposition, transportation or sale of Hydrocarbons, and (g) all other interests of any kind or character associated with, appurtenant to, or necessary for the operation of any of the foregoing.

“Matrix IP Registrations” means all Matrix Intellectual Property that is subject to any issuance registration, application or other filing by, to or with any Governmental Authority or authorized private registrar in any jurisdiction, including registered trademarks, domain names and copyrights, issued and reissued patents and pending applications for any of the foregoing.

“Matrix LP Holders” has the meaning set forth in Section 3.03(a).

“Matrix LPs” has the meaning set forth in Recital E.

“Matrix Material Adverse Effect” means any event, occurrence, fact, condition or change that is, or would reasonably be expected to become, individually or in the aggregate, materially adverse to (i) the business, results of operations, prospects, condition (financial or otherwise), or assets of Matrix and its Subsidiaries and the Matrix LPs, taken as a whole, or (ii) the ability of Matrix and the Matrix LPs to consummate the transactions contemplated hereby on a timely basis; provided, however, that, for the purposes of clause (i), a Matrix Material Adverse

Effect shall not be deemed to include events, occurrences, facts, conditions or changes arising out of, relating to or resulting from: (a) changes generally affecting the economy, financial or securities markets; (b) the announcement of the transactions contemplated by this Agreement; (c) any outbreak or escalation of war or any act of terrorism; or (d) general conditions in the industry in which Matrix and its Subsidiaries operate; provided further, however, that any event, change and effect referred to in clauses (a), (c) or (d) immediately above shall be taken into account in determining whether a Matrix Material Adverse Effect has occurred or would reasonably be expected to occur to the extent that such event, change or effect has a disproportionate effect on Matrix and its Subsidiaries, taken as a whole, compared to other participants in the industries in which Matrix and its Subsidiaries conduct their businesses.

“Matrix Merger Consideration” has the meaning set forth in Section 3.02(c).

“Matrix Merger Effective Time” has the meaning set forth in Section 2.03(b).

“Matrix Merger Sub” has the meaning set forth in the preamble.

“Matrix Merger Sub Shares” has the meaning set forth in Section 5.04(c).

“Matrix Operator Holders” has the meaning set forth in Section 3.03(b).

“Matrix Operator Stock Exchange” has the meaning set forth in Section 3.03(b).

“Matrix Operator Stock Exchange Agreement” has the meaning set forth in Section 3.03(b).

“Matrix Operator Stock Exchange Consideration” has the meaning set forth in Section 3.03(b).

“Matrix Senior Indebtedness” has the meaning set forth in Section 6.18.

“Matrix Shares” means shares of capital stock of Matrix Oil Management Corporation, a California corporation.

“Matrix Stockholder” means a holder of Matrix Common Stock.

“Maximum Premium” has the meaning set forth in Section 6.09(d).

“Merger” has the meaning set forth in the recitals.

“Parent” has the meaning set forth in the Preamble.

“Parent Common Stock” has the meaning set forth in Section 2.01(a) of this Agreement.

“Parent Shares” means shares of capital stock of Royale Energy Holdings, Inc., a Delaware corporation.

“Parent Stockholder” means a holder of Parent Common Stock or Series B Preferred Stock.

“Permitted Liens” means (a) statutory liens for current Taxes or other governmental charges not yet due and payable or the amount or validity of which is being contested in good faith (provided appropriate reserves required pursuant to GAAP have been made in respect thereof), (b) mechanics’, carriers’, workers’, repairers’ and similar statutory liens arising or incurred in the ordinary course of business for amounts which are not delinquent or which are being contested by appropriate proceedings (provided appropriate reserves required pursuant to GAAP have been made in respect thereof), (c) zoning, entitlement, building and other land use regulations imposed by Governmental Entities having jurisdiction over such Person’s owned or leased real property, which are not violated by the current use and operation of such real property, (d) covenants, conditions, restrictions, easements and other similar non-monetary matters of record affecting title to such Person’s owned or leased real property, which do not materially impair the occupancy or use of such real property for the purposes for which it is currently used in connection with such Person’s businesses, (e) any right of way or easement related to public roads and highways, which do not materially impair the occupancy or use of such real property for the purposes for which it is currently used in connection with such Person’s businesses, (f) liens securing capital lease obligations, equipment leases or other purchase money Indebtedness, provided that the obligations secured by such lien are secured only by the property leased or purchased under such capital lease, equipment lease or purchase money Indebtedness and such obligations are not increased in amount, (g) liens to operators and non-operators under joint operating agreements, unitization and pooling agreements arising in the ordinary course of the business to secure amounts owing, which amounts are not yet due or are being contested in good faith by appropriate proceedings, provided that such reserve as may be required by GAAP shall have been made therefor and that, despite the existence of such reserves, to the extent that any such liens relate to the Matrix Interests, with respect to Matrix, or the Royale Interests, with respect to Royale, such liens would not be reasonably be expected to materially impair the value, use of, or proceeds derived from, such Matrix Interests or Royale Interests, as applicable, (h) Production Burdens, and (i) liens arising under workers’ compensation, unemployment insurance, social security, retirement and similar legislation.

“Permits” means all permits, licenses, franchises, approvals, authorizations, registrations, certificates, variances and similar rights obtained, or required to be obtained, from Governmental Authorities.

“Person” means an individual, corporation, partnership, joint venture, limited liability company, Governmental Authority, unincorporated organization, trust, association or other entity.

“Pre-Closing Taxes” means Taxes of Matrix for any pre-Closing Tax period.

“Production Burden” means all royalty interests, overriding royalty interests, production payments, net profit interests or other similar interests that constitute a burden on, and are measure by or are payable out of, the production of Hydrocarbons or the proceeds realized from the sale or other disposition thereof.

“Proxy Statement/Prospectus” has the meaning set forth in Section 3.04.

“Registration Statement” has the meaning set forth in Section 3.04.

“Release” means any actual or threatened release, spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, dumping, abandonment, disposing or allowing to escape or migrate into or through the environment (including, without limitation, ambient air (indoor or outdoor), surface water, groundwater, land surface or subsurface strata or within any building, structure, facility or fixture).

“Representative” means, with respect to any Person, any and all directors, officers, employees, consultants, financial advisors, counsel, accountants and other agents of such Person.

“Requisite Matrix Vote” has the meaning set forth in Section 4.02(a).

“Requisite Royale Vote” has the meaning set forth in Section 5.02(a).

“Requisite Exchange Approvals” has the meaning set forth in Section 4.02(a).

“Right of Way” is defined in Section 4.10.

“Royale” has the meaning set forth in the preamble.

“Royale Benefit Plans” has the meaning set forth in Section 5.16.

“Royale Certificates” has the meaning set forth in Section 3.05(a).

“Royale Charter Documents” has the meaning set for in Section 5.03.

“Royale Common Stock” means the common stock, no par value per share, of Royale, including the shares of common stock of Royale which are issuable upon exercise outstanding warrants and options to purchase Royale’s common stock.

“Royale Conversion Ratio” has the meaning set forth in Section 3.01(c).

“Royale Disclosure Schedule” has the meaning set forth in Article V.

“Royale Financial Statements” has the meaning set forth in Section 5.06.

“Royale Insurance Policies” has the meaning set forth in Section 5.15.

“Royale Intellectual Property” means all Intellectual Property that is owned or held for use by Royale.

“Royale Interests” means, with respect to Royale and its Subsidiaries (a) direct and indirect interests in and rights with respect to Hydrocarbons and related properties and assets of any kind and nature, direct or indirect, including working and leasehold interests and operating rights and royalties, overriding royalties, production payments, net profit interests, carried interests, and other non-working interests and non-operating interests in the oil, gas and mineral

fee or leasehold estate; (b) all rights with respect to Hydrocarbons or revenues therefrom; (c) all Contracts in connection therewith and the leasehold estates created thereby and the lands covered by the Contracts relating to the Hydrocarbons or included in units with which such Contracts may have been pooled or united; (d) surface interests, fee interests, reversionary interests, reservations and concessions; (e) all easements, surface use agreements, rights of way, licenses and permits, in each case, in connection with leases, the drilling of wells or the processing, storage, disposition, transportation or sale of Hydrocarbons, (f) all interests in machinery, equipment (including wells, well equipment and machinery), oil and gas production, gathering, transmission, treating, processing and storage facilities (including tanks, tank batteries, pipelines, flow lines, gathering systems and metering equipment) pumps, water plants, electric plants, gasoline and gas platforms, processing plans, compressor stations, separation plants, refineries, testing and monitoring equipment, in each case, in connection with any leases, the drilling of wells or the production, gathering, processing, storage, disposition, transportation or sale of Hydrocarbons, and (g) all other interests of any kind or character associated with, appurtenant to, or necessary for the operation of any of the foregoing.

“Royale IP Registrations” means all Royale Intellectual Property that is subject to any issuance registration, application or other filing by, to or with any Governmental Authority or authorized private registrar in any jurisdiction, including registered trademarks, domain names and copyrights, issued and reissued patents and pending applications for any of the foregoing.

“Royale Material Adverse Effect” means any event, occurrence, fact, condition or change that is, or would reasonably be expected to become, individually or in the aggregate, materially adverse to (i) the business, results of operations, prospects, condition (financial or otherwise), or assets of  the Royale Parties, taken as a whole, or (ii) the ability of the Royale Parties to consummate the transactions contemplated hereby on a timely basis; provided, however, that, for the purposes of clause (i), a Royale Material Adverse Effect shall not be deemed to include events, occurrences, facts, conditions or changes arising out of, relating to or resulting from: (a) changes generally affecting the economy, financial or securities markets; (b) the announcement of the transactions contemplated by this Agreement; (c) any outbreak or escalation of war or any act of terrorism; (d) changes in the price or trading volume of Royale Common Stock; or (e) general conditions in the industry in which the Royale Parties operate; provided further, however, that any event, change and effect referred to in clauses (a), (c) or (d) immediately above shall be taken into account in determining whether a Royale Material Adverse Effect has occurred or would reasonably be expected to occur to the extent that such event, change or effect has a disproportionate effect on the Royale Parties, taken as a whole, compared to other participants in the industries in which Royale Parties conduct their businesses.

“Royale Merger Consideration” has the meaning set forth in Section 3.01(c).

“Royale Merger Effective Time” has the meaning set forth in Section 2.03(a).

“Royale Merger Sub” has the meaning set forth in the preamble.

“Royale Merger Sub Shares” has the meaning set forth in Section 5.04(b).

“Royale Party” means Royale, Parent, Royale Merger Sub and Matrix Merger Sub together with their respective Subsidiaries.

“Royale Shares” means shares of capital stock of Royale Energy, Inc. a California corporation.

“Royale Stockholder” means a holder of Royale Common Stock.

“Royale Stockholders Meeting” has the meaning set forth in Section 6.03(d).

“Section 351 Plan” means the Section 351 Plan of Merger and Exchange in the form attached hereto as Exhibit G.

“Series B Preferred Stock” means Series B 3.5% Convertible Preferred Stock of Parent.

“Shares” means Royale Shares or Matrix Shares or shares of capital stock of any Constituent Corporation as the context may require.

“Stockholder” means a Matrix Stockholder, a Royale Stockholder or a Parent Stockholder, as the context shall require.

“Stockholder Representative” has the meaning set forth in Section 7.03(c).

“Straddle Period” has the meaning set forth in Section 7.04.

“Subsidiary” means, when used with respect to any party, any corporation or other organization, whether incorporated or unincorporated, a majority of the securities or other interests of which having by their terms ordinary voting power to elect a majority of the board of directors or others performing similar functions with respect to such corporation or other organization is directly or indirectly owned or controlled by such party or by any one or more of its subsidiaries, or by such party and one or more of its subsidiaries.

“Surviving Corporation” has the meaning set forth in Section 2.01.

“Tax Claim” has the meaning set forth in Section 7.05.

“Taxes” means all federal, state, local, foreign and other income, gross receipts, sales, use, production, ad valorem, transfer, franchise, registration, profits, license, lease, service, service use, withholding, payroll, employment, unemployment, estimated, excise, severance, environmental, stamp, occupation, premium, property (real or personal), real property gains, windfall profits, customs, duties or other taxes, fees, assessments or charges of any kind whatsoever, together with any interest, additions or penalties with respect thereto and any interest in respect of such additions or penalties.

“Tax Return” means any return, declaration, report, claim for refund, information return or statement or other document relating to Taxes, including any schedule or attachment thereto, and including any amendment thereof.

“Union” has the meaning set forth in Section 4.20(b).

“WARN Act” means the federal Worker Adjustment and Retraining Notification Act of 1988, and similar state, local and foreign laws related to plant closings, relocations, mass layoffs and employment losses.

shall become effective at such time as such certificates of merger have been duly filed with both the Secretary of State of the State of California and the Secretary of State of the State of Delaware, respectively, or at such later date or time as may be agreed by Matrix and Royale in writing and specified in the respective certificates of Merger in accordance with the CCC and the DGCL (the effective time of the Merger being hereinafter referred to as the “Royale Merger Effective Time”).

(i) from and after the Royale Merger Effective Time, all property, rights, privileges, immunities, powers, franchises, licenses and authority of Royale and Royale Merger Sub shall vest in Royale as the surviving corporation of the Royale Merger, and all debts, liabilities, obligations, restrictions and duties of each of Royale and Royale Merger Sub shall become the debts, liabilities, obligations, restrictions and duties of Royale as the surviving corporation of the Royale Merger; and

(ii) from and after the Matrix Merger Effective Time, all property, rights, privileges, immunities, powers, franchises, licenses and authority of Matrix and Matrix Merger Sub shall vest in Matrix as the surviving corporation of the Matrix Merger, and all debts, liabilities, obligations, restrictions and duties of each of Matrix and Matrix Merger Sub shall become the debts, liabilities, obligations, restrictions and duties of Matrix as the surviving corporation of the Matrix Merger.

thereafter amended in accordance with the terms thereof or as provided by applicable Law, and (ii) the by-laws of Royale Merger Sub as in effect immediately prior to the Royale Merger Effective Time shall be the by-laws of Royale Energy, Inc. as the surviving corporation of the Royale Merger until thereafter amended in accordance with the terms thereof, the certificate of incorporation of the surviving corporation or as provided by applicable Law; provided, however, in each case, that the name of the corporation set forth therein shall be changed to the name of Royale Energy Funds, Inc.

Shares shall be treated as if they had been converted as of the applicable Effective Time into the Royale Merger Consideration or the Matrix Merger Consideration, as applicable, to the extent, if any, which such holder is entitled pursuant to Section 3.01 or Section 3.02 (as applicable), without interest thereon. Royale and Matrix shall each provide the other with prompt written notice of any demands which they receive for appraisal of any of their outstanding Shares in connection with the Mergers, any withdrawal of any such demand and any other demand, notice or instrument delivered to them prior to the applicable Effective Time pursuant to the CCC that relates to such demand.  Except with the prior written consent of Matrix, Royale shall not make any payment with respect to, or settle or offer to settle, any such demands.  Except with the prior written consent of Royale, Matrix shall not make any payment with respect to, or settle or offer to settle, any such demands.

Section 2.06  Directors and Officers.   

(i) The board of directors shall initially be comprised of eight (8) members which shall include Jonathan Gregory, Harry Hosmer, Johnny Jordan, and five (5) independent directors, which shall include Jon Clarkson, Rod Eson and Gabriel L. Ellisor (selected by Matrix) and Ronald Buck and Ronald Verdier (selected by Royale), all of which director nominees are named on Exhibit H hereto;

(ii) Harry E. Hosmer shall serve as chairman of the board of directors until the first annual meeting of shareholders following the Closing Date (after which shareholder’s meeting, Mr. Hosmer will receive the title of Chairman Emeritus of Holdings); and

(iii) Initial officers of the corporation shall include the following persons and such additional officers that are be selected by the board of directors from time to time:

 

Chief Executive Officer	Jonathan Gregory
(Principal Executive Officer)
President (Chief Operating Officer)	Johnny Jordan
Chief Financial Officer
(Principal Accounting Officer)	Stephen M. Hosmer

 

such shares, the “Excluded Royale Shares”), shall automatically be cancelled and retired and shall cease to exist, and no payment or consideration shall be made with respect thereto;

such shares of Royale Common Stock shall receive, in exchange therefor, certificates representing the shares of Parent Common Stock or, if shares of Parent Common Stock represented by a book entry only will be issued, appropriate alternative arrangements for the issuance of such shares shall be made, and such Royale Certificate shall forthwith be canceled.  If delivery of the certificates representing Parent Common Stock is to be made to a Person other than the Person in whose name the Royale Certificate surrendered is registered, or if uncertificated shares represented by a book entry will be issued to such other Person in exchange for such Royale Certificates, it shall be a condition of exchange that the Royale Certificate so surrendered be properly endorsed or otherwise be in proper form for transfer and that the Person requesting such exchange pay any transfer or other Taxes required by reason of the transfer or payment of the Merger Consideration to a Person other than the registered holder of the Royale Certificate surrendered, or establish to the satisfaction of Parent that such Tax has been paid or is not applicable. In accordance with the Bylaws of Royale and Parent, Parent shall be entitled to treat the registered owner of all of the shares of Royale Common Stock as the owner thereof, and after the Royale Merger Effective Time, as the owner of the Merger Consideration, for all purposes, until Royale Certificates representing such shares (and such Merger Consideration) have been surrendered by the registered owner thereof in accordance with the provisions of this Section 3.05 (other than Royale Certificates representing Excluded Shares and other than Royale Certificates representing Dissenting Shares).

down to the next whole applicable share, and such Royale Stockholder will not receive cash or any other compensation in lieu of such fractional share of Parent Common Stock.

Section 3.06  Exchange of Certificates by Matrix Stockholders. 

and title to Matrix Certificates shall pass, only upon proper delivery of Matrix Certificates to the Exchange Agent, and which shall be in such form and shall have such other customary provisions as Parent may reasonably specify) and instructions for use in effecting the surrender of Matrix Certificates in exchange for stock certificates representing the Merger Consideration. Upon surrender to the Exchange Agent of a Matrix Certificate or, with respect to uncertificated shares of Matrix Common Stock, such other evidence of ownership as the Exchange Agent or Parent may reasonably request, together with such letter of transmittal duly executed and such other documents as may be reasonably required by the Exchange Agent, the record holder of such shares of Matrix Common Stock shall receive, in exchange therefor, certificates representing the shares of Parent Common Stock or, if shares of Parent Common Stock represented by a book entry only will be issued, appropriate alternative arrangements for the issuance of such shares shall be made, as applicable, and such Matrix Certificate shall forthwith be canceled.  If delivery of the certificates representing Parent Common Stock is to be made to a Person other than the Person in whose name the Matrix Certificate surrendered is registered, or if uncertificated shares represented by a book entry will be issued to such other Person in exchange for such Matrix Certificates, it shall be a condition of exchange that the Matrix Certificate so surrendered be properly endorsed or otherwise be in proper form for transfer and that the Person requesting such exchange pay any transfer or other Taxes required by reason of the transfer or payment of the Merger Consideration to a Person other than the registered holder of Matrix Certificate surrendered, or establish to the satisfaction of Parent that such Tax has been paid or is not applicable. In accordance with the Bylaws of Parent, Parent shall be entitled to treat the registered owner of all of the shares of Matrix Common Stock as the owner thereof, and after the Matrix Merger Effective Time, as the owner of the Merger Consideration, for all purposes, until Matrix Certificates representing such shares (and such Merger Consideration) have been surrendered by the registered owner thereof in accordance with the provisions of this Section 3.06 (other than Matrix Certificates representing Matrix Excluded Shares and other than Matrix Certificates representing Matrix Dissenting Shares).

uncertificated shares of Parent Common Stock represented by a book entry will be issued, as applicable, as contemplated by this Section 3.06.

Except as set forth in the correspondingly numbered Section of the Disclosure Schedules, Matrix represents and warrants to Royale that the statements contained in this ARTICLE IV are true and correct as of the date hereof.

or will be a party has been duly executed and delivered by Matrix (assuming due authorization, execution and delivery by each other party thereto), such Ancillary Document will constitute a legal and binding obligation of Matrix enforceable against it in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium and similar Laws affecting creditors’ rights and remedies generally, and subject, as to enforceability, to general principles of equity, including principles of commercial reasonableness, good faith and fair dealing (regardless of whether enforcement is sought in a proceeding at Law or in equity).

(a) The authorized capital stock of Matrix consists of 250,000 shares of common stock, no par value (the “Matrix Shares”), of which 7,085 Matrix Shares are issued and outstanding as of the close of business on the date of this Agreement.

(b) Section 4.04 of the Disclosure Schedules set forth, as of the date hereof, the name of each Person that is the registered owner of any Matrix Shares and the number of Matrix Shares owned by such Person.

to enforceability, to general principles of equity, including principles of commercial reasonableness, good faith and fair dealing (regardless of whether enforcement is sought in a proceeding at Law or in equity).  Other than as described in Section 4.09 of the Disclosure Schedules, Matrix and each of the Matrix LPs is not, and Matrix has no Knowledge that any other party thereto is,  in material default under any such Material Contract, no material payments or other obligations are past due except for amounts being contested in good faith, and no circumstance exists that, with notice, the passage of time or both, would constitute a default under any Material Contract of Matrix by Matrix or each of the Matrix LPs by Matrix or the Matrix LPs or, to the Knowledge of Matrix, by any other party thereto.  Matrix has not received any written notice of a default, alleged failure to perform or any offset or counterclaim with respect to any Material Contract of Matrix that has not been fully remedied and withdrawn.

(a) Except as would not reasonably be expected to have a Matrix Material Adverse Effect, Matrix or a Subsidiary of Matrix and the Matrix LPs each respectively owns and has either good and valid title in fee or a valid leasehold interest, Right of Way (defined below) or other rights to the land, mineral and other subsurface rights, buildings, structures and other improvements thereon and fixtures thereto necessary to permit it to conduct its business as currently conducted, in each case free and clear of all liens (except in all cases for Permitted Liens).  Except as would not reasonably be expected to have a Matrix Material Effect, all leases, Rights of Way or other agreements under which Matrix or any of its Subsidiaries or the Matrix LPs lease, access or use any real property are valid, binding and are in force and effect against Matrix or any of its Subsidiaries or the Matrix LPs and, to the Knowledge of Matrix, the counterparties thereto, in accordance with their respective terms, and neither Matrix nor any of its Subsidiaries or the Matrix LPs are in default under any such leases, Rights of Way or other agreements.

(i) Except as would not reasonably be expected to have a Matrix Material Adverse Effect, Matrix and its Subsidiaries and the Matrix LPs, as applicable, have defensible title to all of the Matrix Interests forming the basis for the reserves reflected in the Audited Financial Statements except for such Matrix Interests sold, used, farmed out or otherwise disposed of since December 31, 2015, in the ordinary course of business and the Matrix Interests owned by Matrix Royalty, free and clear of all liens and Production Burdens other than Production Burdens not yet earned, due or payable and Permitted Liens (other than Production Burdens).  Except as would not reasonably be expected to have a Matrix Material Adverse Effect or as set forth on Section 4.10(c)(i) of the Disclosure Schedules, (i) none of the proceeds from the sale of Hydrocarbons produced from the Matrix Interests in any producing well are being held in suspense for any reason, and (ii) there are no calls on production or, preferential rights to purchase Hydrocarbons and neither Matrix nor any of its Subsidiaries is obligated to deliver Hydrocarbons or proceeds from the sale thereof at a future point in time without receiving payment therefor at or after the time of delivery (other than gas balancing arrangements), except for the rights of any lessor to take free gas under the terms of any applicable lease for its use on the lands covered by such lease.  Except as would not reasonably be expected to have a Matrix Material Adverse Effect, Matrix and each applicable Subsidiary and the Matrix LPs (A) are in compliance with all valuation agreements, and settlement agreements with respect to Production Burdens, and (B) have paid or will cause to be paid when due all Production Burdens with respect to the Matrix Interests and each other royalty, Tax or similar payment, except for such amounts that are being held in suspense as permitted pursuant to applicable Law or the terms of the applicable Contract or as reserved against in the Financial Statements.

(ii) All of the wells owned, leased, operated or used by Matrix and its Subsidiaries and the Matrix LPs and all water, carbon dioxide or injection wells located on any property owned, leased, operated or used by Matrix and its Subsidiaries or otherwise associated with the Matrix Interests have been drilled, completed and operated within the limits permitted by the applicable Contract granting such rights and applicable Law, and all drilling and completion (and plugging and abandonment) of such wells and all related development, production and other operations have been conducted in compliance with all applicable Laws except, in each case, as would not reasonably be expected to have a Matrix Material Adverse Effect.  No well owned, leased, operated or used by Matrix or any of its Subsidiaries are subject to material penalties on allowables because of overproduction or violation of any applicable Law.

(iii) All Matrix Interests operated by Matrix and its Subsidiaries and the Matrix LPs have been operated in accordance with reasonable, prudent field practices and in compliance with the applicable Contracts, except where the failure to so operate would not reasonably be expected to have a Matrix Material Adverse Effect. None of the Interests of Matrix or its Subsidiaries is subject to any preferential purchase, consent or similar right that would become operative as a result of the Transactions, except for any such preferential purchase, consent or similar rights that would not reasonably be expected to have a Matrix Material Adverse Effect.  Except as set forth on Section 4.10(c) of Disclosure Schedules, none of the Matrix Interests are subject to any Tax partnership agreement or provisions requiring a partnership income Tax Return.

 

 

Section 4.11  Intellectual Property. 

effect with respect to the period covered. Matrix has not received any written notice of cancellation of or materially adverse alteration of coverage under, any of such Matrix Insurance Policies. All premiums or installment payments of premiums due on such Matrix Insurance Policies have either been paid or, if due and payable prior to Closing, will be paid prior to Closing in accordance with the payment terms of each Insurance Policy. All such Matrix Insurance Policies are valid and binding in accordance with their terms. Except as set forth on Section 4.15 of the Disclosure Schedules, there are no material claims related to the business of Matrix pending under any such Insurance Policies as to which coverage has been questioned, denied or disputed or in respect of which there is an outstanding reservation of rights. Matrix is not in material default under, and has not otherwise failed to comply with, in any material respect, any provision contained in any such Matrix Insurance Policy.

(a) Except as set forth in Section 4.16(a) of the Disclosure Schedules, there are no Actions pending or, to Matrix’s Knowledge, threatened (a) against or by Matrix and the Matrix LPs affecting any of its properties or assets; or (b) against or by Matrix and the Matrix LPs that challenges or seeks to prevent, enjoin or otherwise delay the transactions contemplated by this Agreement. No event has occurred or circumstances exist that may give rise to, or serve as a basis for, any such Action.

(a) Except as set forth in Section 4.17(a) of the Disclosure Schedules, Matrix and each of the Matrix LPs has complied, and is now complying, with all Laws applicable to it or its business, properties or assets, in each case, except as would not reasonably be expected to have a Matrix Material Adverse Effect.

summary plan descriptions, the most recent determination letter (or opinion letter) received from the Internal Revenue Service, the most recent Form 5500 Annual Reports, and all related trust agreements associated with such Matrix Benefit Plan.

(i) To the Knowledge of Matrix, there have been no “prohibited transaction,” as such term is defined in Section 406 of ERISA or Section 4975 of the IRC, with respect to any such Matrix Benefit Plan that would subject Matrix or any ERISA Affiliate to a tax or penalty imposed pursuant to Section 4975 of the IRC or Section 502(c), (i) or (l) of ERISA.

(ii) Neither Matrix nor, to the Knowledge of Matrix, any ERISA Affiliate (by way of indemnification, directly or otherwise) has any liability or penalty under Sections 4976 through 4980 of the IRC or Title I of ERISA with respect to any Matrix Benefit Plan.

(iii) No action, suit, proceeding, hearing or investigation with respect to the administration or the investment of the assets of any Matrix Benefit Plan (other than routine claims for benefits) is pending or, to the Knowledge of Matrix, threatened, and to the Knowledge of Matrix, there is no basis for any such action, suit, proceeding, hearing or investigation, except, in each case, as would not reasonably be expected to have a Matrix Material Adverse Effect.

(i) “Employee Benefit Plan” means, with respect to any Person, the following, whether written or oral:  (A) any nonqualified deferred compensation or retirement plan or arrangement that is an Employee Pension Benefit Plan, (B) any qualified defined contribution retirement plan or arrangement that is an Employee Pension Benefit Plan, (C) any qualified defined benefit retirement plan or arrangement that is an Employee Pension Benefit Plan, (D) any Employee Welfare Benefit Plan or fringe benefit plan or program, or (E) any profit sharing, bonus, stock option, stock purchase, severance or incentive plan, agreement or arrangement that is sponsored, maintained or contributed to by such Person or any ERISA Affiliate of such Person for the benefit of the employees, former employees, independent contractors or agents of such Person or any ERISA Affiliate or has been so sponsored, maintained or contributed to at any time prior to the Closing Date.

(ii) “Employee Pension Benefit Plan” has the meaning set forth in Section 3(2) of ERISA.

(iii) “Employee Welfare Benefit Plan” has the meaning set forth in Section 3(1) of ERISA.

 

(i) the taxable years of Matrix as to which the applicable statutes of limitations on the assessment and collection of Taxes have not expired;

(ii) those years for which examinations by the taxing authorities have been completed; and

(iii) those taxable years for which examinations by taxing authorities are presently being conducted.

 

(i) any change in a method of accounting under Section 481 of the IRC (or any comparable provision of state, local or foreign Tax Laws), or use of an improper method of accounting, for a taxable period ending on or prior to the Closing Date;

(ii) an installment sale or open transaction occurring on or prior to the Closing Date;

(iii) a prepaid amount received on or before the Closing Date;

(iv) any closing agreement under Section 7121 of the IRC, or similar provision of state, local or foreign Law; or

(v) any election under Section 108(i) of the IRC.

Except as set forth in the correspondingly numbered Section of the disclosure schedules delivered by Royale to Matrix at or prior to the execution and delivery of this Agreement (the “Royale Disclosure Schedules”) the Royale Parties jointly and severally represent and warrant to Matrix that the statements contained in this ARTICLE V are true and correct as of the date hereof.

delivery by each other party thereto), such Ancillary Document will constitute a legal and binding obligation of each Royale Party enforceable against it in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium and similar Laws affecting creditors’ rights and remedies generally, and subject, as to enforceability, to general principles of equity, including principles of commercial reasonableness, good faith and fair dealing (regardless of whether enforcement is sought in a proceeding at Law or in equity).

 

 

 

 

(c) 

(i) Except as would not reasonably be expected to have a Royale Material Adverse Effect, the Royale Parties and their Subsidiaries, as applicable, have defensible title to all of the Royale Interests forming the basis for the reserves reflected in the Royale Financial Statements except for such Royale Interests sold, used, farmed out or otherwise disposed of since December 31, 2015, in the ordinary course of business, free and clear of all liens and Production Burdens other than Production Burdens not yet earned, due or payable and Permitted Liens (other than Production Burdens).  Except as would not reasonably be expected to have a Royale Material Adverse Effect or as set forth on Section 5.10(c)(i) of the Royale Disclosure Schedules, (i) none of the proceeds from the sale of Hydrocarbons produced from the Royale Interests in any producing well are being held in suspense for any reason, and (ii) there are no calls on production or preferential rights to purchase Hydrocarbons and the Royale Parties nor any of their Subsidiaries are not obligated to deliver Hydrocarbons or proceeds from the sale thereof at a future point in time without receiving payment therefor at or after the time of delivery (other than gas balancing arrangements), except for the rights of any lessor to take free gas under the terms of any applicable lease for its use on the lands covered by such lease.  Except as would not reasonably be expected to have a Royale Material Adverse Effect, the Royale Parties and each applicable Subsidiary (A) are in compliance with all valuation agreements, and settlement agreements with respect to Production Burdens, and (B) have paid or will cause to be paid when due all Production Burdens with respect to the Royale Interests and each other royalty, Tax or similar payment, except for such amounts that are being held in suspense as permitted pursuant to applicable Law or the terms of the applicable Contract or as reserved against in the Royale Financial Statements.

(ii) All of the wells owned, leased, operated or used by the Royale Parties and their Subsidiaries and all water, carbon dioxide or injection wells located on any property owned, leased, operated or used by the Royale Parties and their Subsidiaries or otherwise associated with the Royale Interests have been drilled, completed and operated within the limits permitted by the applicable Contract granting such rights and applicable Law, and all drilling and completion (and plugging and abandonment) of such wells and all related development, production and other operations have been conducted in compliance with all applicable Laws except, in each case, as would not reasonably be expected to have a Royale Material Adverse Effect.  No well owned, leased, operated or used by any Royale Party or any of their Subsidiaries are subject to material penalties on allowables because of overproduction or violation of any applicable Law.

(iii) All Royale Interests operated by the Royale Parties and their Subsidiaries have been operated in accordance with reasonable, prudent field practices and in compliance with the applicable Contracts, except where the failure to so operate would not reasonably be expected to have a Royale Material Adverse Effect.  None of the Interests of the Royale Parties or their Subsidiaries is subject to any preferential purchase, consent or similar right that would become operative as a result of the Transactions, except for any such preferential purchase, consent or similar rights that would not reasonably be expected to have a Royale Material Adverse Effect.  Except as set forth on Section 5.10(c)(iii) of Royale Disclosure Schedules, none of the Royale Interests are subject to any Tax partnership agreement or provisions requiring a partnership income Tax Return.

 

 

Section 5.11  Intellectual Property. 

 

 

(i) To the Knowledge of each Royale Party, there have been no “prohibited transaction,” as such term is defined in Section 406 of ERISA or Section 4975 of the IRC, with respect to any such Royale Benefit Plan that would subject any Royale Party or ERISA Affiliate to a tax or penalty imposed pursuant to Section 4975 of the IRC or Section 502(c), (i) or (l) of ERISA.

(ii) No Royale Party nor, to the Knowledge of any Royale Party, any ERISA Affiliate (by way of indemnification, directly or otherwise) has any liability or penalty under Sections 4976 through 4980 of the IRC or Title I of ERISA with respect to any Royale Benefit Plan.

(iii) No action, suit, proceeding, hearing or investigation with respect to the administration or the investment of the assets of any Royale Benefit Plan (other than routine claims for benefits) is pending or, to the Knowledge of any Royale Party, threatened, and to the Knowledge of any Royale Party, there is no basis for any such action, suit, proceeding, hearing or investigation, except, in each case, as would not reasonably be expected to have a Royale Material Adverse Effect.

employee of any Royale Party; (ii) materially increase any benefits otherwise payable by the Royale Parties; or (iii) result in the acceleration of the time of payment or vesting of any such benefits.

Section 5.17  Employment Matters. 

 

(i) the taxable years of  Royale as to which the applicable statutes of limitations on the assessment and collection of Taxes have not expired;

(ii) those years for which examinations by the taxing authorities have been completed; and

(iii) those taxable years for which examinations by taxing authorities are presently being conducted.

 

(i) any change in a method of accounting under Section 481 of the IRC (or any comparable provision of state, local or foreign Tax Laws), or use of an improper method of accounting, for a taxable period ending on or prior to the Closing Date;

(ii) an installment sale or open transaction occurring on or prior to the Closing Date;

(iii) a prepaid amount received on or before the Closing Date;

(iv) any closing agreement under Section 7121 of the IRC, or similar provision of state, local or foreign Law; or

(v) any election under Section 108(i) of the IRC.

 

 

agreements described in the registration statement on Form S-8 filed with the SEC by Royale on April 16, 2016), or any options, warrants or rights of any kind to acquire any Shares, or of any debt or equity securities convertible into or exchangeable for its Shares, or (ii) incur or assume any indebtedness for borrowed money or guarantee any indebtedness or issue or sell any debt securities or options, warrants, calls or other rights to acquire any debt securities of Matrix or Royale, respectively, or any of its applicable Subsidiaries; except each of Royale and Matrix may from time to time, borrow, repay and reborrow under its revolving credit facility, and pledge their properties, issue debt securities and amend, modify, increase, extend, replace or refinance such bank credit facility;

 

following filing with the SEC. Royale shall as soon as reasonably practicable (i) notify Matrix of the receipt of any comments from the SEC with respect to the Registration Statement and any request by the SEC for any amendment to the Registration Statement or for additional information and (ii) provide Matrix with copies of all written correspondence between Royale and its Representatives, on the one hand, and the SEC, on the other hand, with respect to the Registration Statement. Each of the parties shall use reasonable best efforts to cause the Proxy Statement/Prospectus to be mailed to the stockholders of Royale and Matrix as promptly as practicable after the date on which the Registration Statement is declared effective under the Securities Act.

approve this Agreement and related transactions, including the applicable Exchange Agreement, (the “Requisite Partners’ Consent”) in accordance with the requirements of the applicable organizational documents, including the partnership agreement, of each Matrix LP and the California Uniform Limited Partnership Act of 2008, as amended, on or before the time of the Royale Stockholders Meeting, and, in connection therewith, Matrix shall cause each Matrix LP to mail the Proxy Statement/Prospectus to the Limited Partners as soon as reasonably practicable after the date of this Agreement. Matrix shall, and shall cause each of the Matrix LPs to, use reasonable best efforts to (i) solicit consents from the Limited Partners, in compliance with all applicable laws, in favor of the adoption of this Agreement, the applicable Exchange Agreement and approval of the Exchanges, and (ii) take all other actions necessary or advisable to secure the vote or consent of the Limited Partners required by applicable Law to obtain such approval. All materials submitted to the Limited Partners in accordance with this Section 6.04(b) shall be subject to Royale’s advance review and reasonable approval.  The Matrix shall, and shall cause each of the Matrix LPs to, keep Royale updated with respect to such consent solicitation results as requested Royale.  Notwithstanding anything contained herein to the contrary, the Matrix and the Matrix LPs shall not be required to deliver or continue solicitation of consents from the Limited Partners if this Agreement is terminated before the Royale Stockholders Meeting is held.

 

Section 6.05  Certain Pre-Merger Actions of Royale Parties.   

 

(i) any fact, circumstance, event or action the existence, occurrence or taking of which (A) has had, or could reasonably be expected to have, individually or in the aggregate, a Matrix Material Adverse Effect, (B) has resulted in, or could reasonably be expected to result in, any representation or warranty made by Matrix hereunder not being true and correct, or (C) has resulted in, or could reasonably be expected to result in, the failure of any of the conditions set forth in Section 8.01 or 8.02 to be satisfied;

(ii) any notice or other communication from any Person alleging that the consent of such Person is or may be required in connection with the transactions contemplated by this Agreement;

(iii) any notice or other communication from any Governmental Authority in connection with the transactions contemplated by this Agreement; and

(iv) any Actions commenced or, to Matrix’s Knowledge, threatened against, relating to or involving or otherwise affecting Matrix that, if pending on the date of this Agreement, would have been required to have been disclosed pursuant to Section 4.16 or that relates to the consummation of the transactions contemplated by this Agreement

(i) any fact, circumstance, event or action the existence, occurrence or taking of which (A) has had, or could reasonably be expected to have, individually or in the aggregate, a Royale Material Adverse Effect, (B) has resulted in, or could reasonably be expected to result in, any representation or warranty made by any of the Royale Parties hereunder not being true and correct, or (C) has resulted in, or could reasonably be expected to result in, the failure of any of the conditions set forth in Section 8.01 or 8.03 to be satisfied;

(ii) any notice or other communication from any Person alleging that the consent of such Person is or may be required in connection with the transactions contemplated by this Agreement;

(iii) any notice or other communication from any Governmental Authority in connection with the transactions contemplated by this Agreement; and

(iv) any Actions commenced or, to the Knowledge of any of the Royale Parties, is threatened against, relating to or involving or otherwise affecting any of the Royale Parties that, if pending on the date of this Agreement, would have been required to have been disclosed pursuant to Section 5.13 or that relates to the consummation of the transactions contemplated by this Agreement.

 

(i) respond to any inquiries by any Governmental Authority regarding antitrust or other matters with respect to the transactions contemplated by this Agreement or any Ancillary Document;

(ii) avoid the imposition of any order or the taking of any action that would restrain, alter or enjoin the transactions contemplated by this Agreement or any Ancillary Document; and

(iii) in the event any Governmental Order adversely affecting the ability of the parties to consummate the transactions contemplated by this Agreement or any Ancillary Document has been issued, to have such Governmental Order vacated or lifted.

 

Section 6.09  Directors’ and Officers’ Indemnification and Insurance.   

 

 

 

 

(i) the Matrix Stockholders as the owners of the Matrix Common Stock surrendered by them in the Matrix Merger through the close of the day on which the Matrix Merger Effective Time occurs;

(ii) the Royale Stockholders as the owners of the Royale Shares surrendered by them in the Royale Merger through the close of the day on which the Royale Merger Effective Time occurs;

(iii) the Matrix LP Holders as the owners of their respective limited partnership interests in the Matrix LPs surrendered by them in the LP Exchanges through the close of the Closing Date for the applicable LP Exchange Agreement;

(iv) the Matrix Operator Holders as the owners of the shares of capital stock of Matrix Operator surrendered by them in the Matrix Operator Stock Exchange through the close of the Closing Date for the Matrix Operator Stock Exchange Agreement;

(v) each Matrix LP as terminating pursuant to Section 708 of the IRC as of the close of the Closing Date for the applicable LP Exchange Agreement, and

(vi) the Matrix Operator as an S corporation through the close of the Closing Date for the Matrix Operator Stock Exchange Agreement (on which date its taxable year shall end ), and as a C

 

corporation eligible to join in filing a consolidated federal income tax return with Parent commencing at the beginning of the day following such Closing Date.

 

 

 

 

 

 

 

(i) a certificate, dated the Closing Date and signed by a duly authorized officer of Matrix, that each of the conditions set forth in Section 8.02(a) and Section 8.02(b) have been satisfied;

(ii) a certificate of the Secretary or an Assistant Secretary (or equivalent officer) of Matrix certifying that (A) attached thereto are true and complete copies of (1) all resolutions adopted by the Matrix Board authorizing the execution, delivery and performance of this Agreement and the Ancillary Documents and the consummation of the transactions contemplated hereby and thereby and (2) resolutions of the Stockholders approving the Merger and adopting this Agreement, and (B) all such resolutions are in full force and effect and are all the resolutions adopted in connection with the transactions contemplated hereby and thereby;

(iii) a certificate of the Secretary or an Assistant Secretary (or equivalent officer) of Matrix certifying the names and signatures of the officers of Matrix authorized to sign this Agreement, the Ancillary Documents and the other documents to be delivered hereunder and thereunder;

(iv) a good standing certificate (or its equivalent) from the secretary of state or similar Governmental Authority of the jurisdiction under the Laws in which the Royale Parties are organized;

(v) the Section 351 Plan;

(vi) certificates of non-foreign status delivered by each of Matrix’s stockholders under Section 1445 of the IRC; and

(vii) such other documents or instruments as Royale reasonably requests and are reasonably necessary to consummate the transactions contemplated by this Agreement.

(i) instructions to Royale’s transfer agent to issue and deliver to the shareholders of Matrix Merger Consideration to be issued as provided in Section 3.02(c);

(ii) instructions to Royale’s transfer agent to issue and deliver to the holders of convertible debt of Matrix the Debt Exchange Consideration as provided in Section 3.03(c);

(iii) evidence that the Matrix Senior Indebtedness shall have been assumed by Parent or paid off as of the Closing Date in accordance with Section 6.18;

(iv) a certificate, dated the Closing Date and signed by a duly authorized officer of each Royale Party, that each of the conditions set forth in Section 8.03(a) and Section 8.03(b) have been satisfied;

(v) a certificate of the Secretary or an Assistant Secretary (or equivalent officer) of the Royale Parties certifying that attached thereto are true and complete copies of all resolutions adopted by the board of directors of the Royale Parties authorizing the execution, delivery and performance of this Agreement and the Ancillary Documents and the consummation of the transactions contemplated

hereby and thereby, and that all such resolutions are in full force and effect and are all the resolutions adopted in connection with the transactions contemplated hereby and thereby;

(vi) a certificate of the Secretary or an Assistant Secretary (or equivalent officer) of the Royale Parties certifying the names and signatures of the officers of the Royale Parties authorized to sign this Agreement, the Ancillary Documents and the other documents to be delivered hereunder and thereunder;

(vii) evidence of the establishment of a new Subsidiary and the transfer of all of the assets related to the DWI Business of Royale (including assets held in trust for its investors);

(viii) the Section 351 Plan;

(ix) employment agreements executed by Parent and each of Jonathan Gregory, Donald Hosmer,  Stephen Hosmer, Johnny Jordan, Joe Paquette and Jay Sheevel, all in a form reasonably acceptable to Royale and Matrix;

(x) certificates or other evidence reasonably satisfactory to Matrix confirming that none of the Royale Stockholders owning more than 5% of the number of shares of Royale Common Stock outstanding immediately before the Royale Merger is a “foreign person” within the meaning of Treasury Regulation § 1445-2(b); and

(xi) such other documents or instruments as Matrix reasonably requests and are reasonably necessary to consummate the transactions contemplated by this Agreement.

(i) no Royale Party is then in material breach of any provision of this Agreement and there has been a breach, inaccuracy in or failure to perform any representation, warranty, covenant or agreement made by Matrix pursuant to this Agreement that would give rise to the failure of any of the conditions specified in Article VIII and such breach, inaccuracy or failure has not been cured by Matrix within 30 days of Matrix’s receipt of written notice of such breach from Royale; or

(ii) any of the conditions set forth in Section 8.01 or Section 8.02 shall not have been fulfilled by March 31, 2017 (the “Outside Date”), or if it becomes impossible or extremely unlikely for any such conditions to be fulfilled by the Outside Date, unless such failure shall be due to the failure of the Royale Parties to perform or comply with any of the covenants, agreements or conditions hereof to be performed or complied with by it prior to the Closing;

(i) Matrix is not then in material breach of any provision of this Agreement and there has been a breach, inaccuracy in or failure to perform any representation, warranty, covenant or

agreement made by any Royale Party pursuant to this Agreement that would give rise to the failure of any of the conditions specified in Article VIII and such breach, inaccuracy or failure has not been cured by such Royale Party within 30 days of Royale’s receipt of written notice of such breach from Matrix; or

(ii) any of the conditions set forth in Section 8.01 or Section 8.03 shall not have been fulfilled by the Outside Date, or if it becomes impossible or extremely unlikely for any such conditions to be fulfilled by the Outside Date, unless such failure shall be due to the failure of Matrix to perform or comply with any of the covenants, agreements or conditions hereof to be performed or complied with by it prior to the Closing; or

(i) the Merger has not been consummated on or before the Outside Date; provided, that the right to terminate this agreement pursuant to this subsection shall not be available to any party whose breach of any representation, warranty, covenant or agreement set forth in this Agreement has been the cause of, or resulted in, the failure of the Merger to be consummated on or before the Outside Date.

(ii) there shall be any Law that makes consummation of the transactions contemplated by this Agreement illegal or otherwise prohibited or any Governmental Authority shall have issued a Governmental Order restraining or enjoining the transactions contemplated by this Agreement, and such Governmental Order shall have become final and non-appealable;

(iii) this Agreement has been submitted to the stockholders of Royale for adoption at a duly convened Royale Stockholders Meeting and the Requisite Royale Vote shall not have been obtained at such meeting (including any adjournment or postponement thereof;) or

(iv) this Agreement has been submitted to the stockholders of Matrix for adoption at a duly convened Matrix Stockholders Meeting and the Requisite Matrix Vote shall not have been obtained at such meeting (including any adjournment or postponement thereof).

If to Matrix:	Matrix Oil Management Corporation
	104 W. Anapamu Street, Suite C
	Santa Barbara, CA 93101
	E-mail: jjordan@matrixoil.com
	Attention: Johnny Jordan, Executive Vice President
with a copy to:	Porter Hedges LLP
	1000 Main Street, 36th Floor
	Houston, Texas 77002
	E-mail: edelpozo@porterhedges.com
	Attention: Ephraim del Pozo

If to Royale, Matrix Merger Sub or Royale Merger Sub:	Royale Energy, Inc.
	1870 Cordell Court, Suite 210
	El Cajon, California 92020
	Email: hosmer@royl.com
	Attention:  Stephen M. Hosmer, Chief Financial Officer
with a copy to:	Strasburger & Price, LLP
	720 Brazos Street, Suite 700
	Austin, Texas 78701
	Email:  lee.polson@strasburger.com
	Attention:  Lee Polson

 

AND AGREE NOT TO PLEAD OR CLAIM IN ANY SUCH COURT THAT ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.

[SIGNATURE PAGE FOLLOWS]

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first written above by their respective officers thereunto duly authorized.

Matrix Oil Management Corporation

By_____________________

Name:

Title:

Royale Energy, Inc.

By_____________________

Name:

Title:

Royale Energy Holdings, Inc.

By_____________________

Name:

Title:

Royale Merger Sub, Inc.

By_____________________

Name:

Title:

Matrix Merger Sub, Inc.

By_____________________

Name:

Title:

MATRIX GROUP CAPITAL

Entity		Matrix Group Capital				% of Matrix Group Capital
Matrix Oil Management Corporation		$	141,870.00				0.8671	%
Matrix Oi Corporation		$	250,000.00				00015	%
Matrix Investments L.P.		$	11,471,350.00				70.1100	%
Matrix Las Cienegas Limited Partnership		$	3,108,900.00				19.0008	%
Matrix Permian Investments, LP		$	1,639,570.00				10.0206	%
Total		$	16,361,940.00				100.0000	%

DEBT EXCHANGE AGREEMENT

BY AND AMONG

ROYALE ENERGY HOLDINGS, INC.

ROYALE ENERGY, INC.

AND

THE HOLDERS

OF

CERTAIN SUBORDINATED PROMISSORY NOTES

ISSUED BETWEEN JUNE 6, 2016 AND AUGUST 22, 2016

BY

MATRIX OIL MANAGEMENT CORPORATION

AND CERTAIN AFFILIATES

[                              ]

TABLE OF CONTENTS

 

 

ARTICLE I DEFINITIONS		1
ARTICLE II AGREEMENT FOR EXCHANGE; CLOSING		15
Section 2.01	Exchange of MI LP Interests for the Exchange Consideration	15
Section 2.02	Payment of Exchange Consideration	15
Section 2.03	No Fractional Shares	15
Section 2.04	Non-Survival of Representations and Warranties	16
ARTICLE III ESCROW; CLOSING		16
Section 3.01	Escrow Closing	16
Section 3.02	Delivery of Notes	16
Section 3.03	Exchange Closing	16
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE HOLDERS		17
Section 4.01	No Conflicts under Governing Documents; Consents	17
Section 4.05	No Conflict with Certain Other Borrower Indebtedness	18
Section 4.11	No Other Representations or Warranties	19
ARTICLE V REPRESENTATIONS AND WARRANTIES OF ROYALE AND THE PARENT		20
Section 5.01	Organization and Qualification of the Royale Parties	20
Section 5.02	Authority; Board Approval	20
Section 5.03	No Conflicts; Consents	21
Section 5.04	Capitalization	22
Section 5.05	No Prior Operations; No Subsidiaries	23
Section 5.06	SEC Reports; Financial Statements	23
Section 5.07	Undisclosed Liabilities	24
Section 5.08	Absence of Certain Changes, Events and Conditions	24
Section 5.09	Royale Material Contracts	24
Section 5.10	Properties and Assets	25
Section 5.11	Intellectual Property	27
Section 5.12	Insurance	28
Section 5.13	Legal Proceedings; Governmental Orders	28
Section 5.14	Compliance With Laws; Permits	29
Section 5.15	Environmental Laws	29
Section 5.16	Employee Benefit Matters	29
Section 5.17	Employment Matters	32
Section 5.18	Taxes	33
Section 5.19	Books and Records	35
Section 5.20	Related Party Transactions	35

Section 5.21	Brokers	35
Section 5.22	Legal Proceedings	35
Section 5.23	Registration Statement	35
Section 5.24	Opinion of Financial Advisor	36
Section 5.25	No Other Representations or Warranties	36
ARTICLE VI CERTAIN COVENANTS AND AGREEMENTS OF PARENT, ROYALE AND THE HOLDERS		36
Section 6.01	Conduct of Business Prior to the Closing	36
Section 6.02	Registration Statement; Approval by Royale’s Stockholders	38
Section 6.03	Approval of the Holders	39
Section 6.04	Approval of the Borrowers	39
Section 6.05	Certain Pre-Merger Actions of Royale Parties	40
Section 6.06	Notice of Certain Events	40
Section 6.07	Public Announcements	40
Section 6.08	Governmental Approvals and Consents	41
Section 6.09	Closing Conditions	42
Section 6.10	Subsequent Filings	42
Section 6.11	Stockholder Litigation	42
Section 6.12	Listing on National Securities Exchange	42
Section 6.13	Further Assurances	42
Section 6.14	Certain Tax Matters	43
Section 6.15	Matrix Senior Indebtedness	44
Section 6.16	Consents to Matrix Merger and Other Exchanges	44
Section 6.17	Holder Indebtedness and Receivables	44
ARTICLE VII RESERVED		44
ARTICLE VIII CONDITIONS TO CLOSING		44
Section 8.01	Conditions to Obligations of All Parties	45
Section 8.02	Conditions to Obligations of Royale and Parent	46
Section 8.03	Conditions to Obligations of Holders	47
Section 8.04	Closing Deliverables	49
ARTICLE IX TERMINATION		51
Section 9.01	Termination	51
Section 9.02	Effect of Termination	52
ARTICLE X MISCELLANEOUS		52
Section 10.01	Expenses	52
Section 10.02	Notices	53
Section 10.03	Interpretation	53

Section 10.04	Headings	54
Section 10.05	Severability	54
Section 10.06	Entire Agreement	54
Section 10.07	Successors and Assigns	54
Section 10.08	Amendment and Modification; Waiver	54
Section 10.09	Governing Law; Submission to Jurisdiction; Waiver of Jury Trial	55
Section 10.10	Specific Performance	55
Section 10.11	Counterparts	55

DEBT EXCHANGE AGREEMENT

This DEBT EXCHANGE AGREEMENT (this “Agreement”) made effective as of [   ], by and among ROYALE ENERGY, INC., a California corporation (“Royale”), ROYALE ENERGY HOLDINGS, INC., a Delaware corporation (the “Parent”), and EACH OF THE UNDERSIGNED PERSONS (the “Holders”), who, collectively, are all of the holders of approximately $20,124,000.00 in aggregate principal amount of certain subordinated promissory notes (the “Notes”) jointly issued between June 6, 2016 and August 22, 2016, by the following entities as borrowers (collectively, the “Borrowers”):  Matrix Oil Management Corporation, a California corporation (“Matrix”), Matrix Oil Corporation, a California corporation (“Matrix Operator”), Matrix Investments L.P., a California Limited Partnership (“Matrix Investments”), Matrix Las Cienegas Limited Partnership, a California limited partnership (“Matrix Las Cienegas”), Matrix Pipeline L.P., a California limited partnership, Matrix Royalty, LP, a Texas limited partnership, and Matrix Permian Investments, LP, a Texas limited partnership (“Matrix Permian”).  Defined terms used herein have the respective meanings set forth in ARTICLE I.

WHEREAS, Parent and the Holders desire to provide for the transfer by the Holders to Parent of all of the Notes in exchange for shares of Parent’s Series B 3.5% Convertible Preferred Stock (“Series B Preferred Stock”) (the “Exchange”);

WHEREAS, the parties to the Exchange desire to conclude the Exchange concurrently with and conditioned upon successful completion of certain other exchange transactions as well as successful completion of the merger of Matrix Merger Sub, Inc., a California corporation and a direct, wholly-owned Subsidiary of Parent (“Matrix Merger Sub”), with and into Matrix, with Matrix as the surviving corporation and a wholly-owned subsidiary of Parent (the “Matrix Merger”);

WHEREAS, the Matrix Merger and the Exchange together with several related transactions involving the assignment of partnership interests of the Matrix LPs to Parent in exchange for common stock of Parent (“Parent Common Stock”) are part of an overall plan that is intended to qualify as exchanges under the provisions of Section 351 of the Internal Revenue Code of 1986, as amended.

NOW, THEREFORE, in consideration of the premises and the representations, warranties and agreements herein contained, and intending to be legally bound hereby, the parties agree as follows:

The following terms have the meanings specified or referred to in this ARTICLE I:

“Action” means any claim, action, cause of action, demand, lawsuit, arbitration, inquiry, audit, notice of violation, proceeding, litigation, citation, summons, subpoena or investigation of any nature, civil, criminal, administrative, regulatory or otherwise, whether at law or in equity.

“Affiliate” of a Person means any other Person that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, such Person.

The term “control” (including the terms “controlled by” and “under common control with”) means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise.

“Agreement” has the meaning set forth in the preamble.

“Ancillary Documents” means:

A.	This Agreement;

B.	The Certificate of Designation of Series B Preferred Stock in substantially the form attached as Exhibit A to the Merger Agreement;

C.	The LP Exchange Agreement with the holders of all limited partnership interests of Matrix Investments L.P., a California Limited Partnership, in substantially the form attached as Exhibit B to the Merger Agreement (the “Matrix Investments LP Exchange Agreement”);

D.	The LP Exchange Agreement with the holders of all limited partnership interests of Matrix Las Cienegas Limited Partnership, a California limited partnership in substantially the form attached as Exhibit C to the Merger Agreement (the “Matrix Las Cienegas LP Exchange Agreement”);

E.	The LP Exchange Agreement with the holders of all limited partnership interests of Matrix Permian Investments, LP, a Texas limited partnership in substantially the form attached as Exhibit D to the Merger Agreement (the “Matrix Permian LP Exchange Agreement”);

F.	The Matrix Operator Stock Exchange Agreements with the holders of all outstanding common stock of Matrix Oil Corporation, a California corporation in substantially the form attached as Exhibit E to the Merger Agreement (the “Matrix Operator Stock Exchange Agreement”);

G.	Employment Agreements between Parent and Jonathan Gregory, Donald Hosmer, Stephen Hosmer, Johnny Jordan, Joe Paquette and Jay Sheevel, all in a form reasonably acceptable to Royale and Matrix; and

H.	The Section 351 Plan in substantially the form attached hereto as Exhibit F to the Merger Agreement.

“Business Day” means any day except Saturday, Sunday or any other day on which commercial banks located in California are authorized or required by Law to be closed for business.

“Capital Stock Consideration” means, collectively, the shares of Parent Common Stock to be issued as the Royale Merger Consideration, the Matrix Merger Consideration, the Matrix LP Exchange Consideration and the Matrix Operator Stock Exchange Consideration and the

shares of the Series B Preferred Stock to be issued in connection with the Exchange Consideration.

 “CCC” means the California Corporations Code.

“Closing” has the meaning set forth in Section 3.03.

“Closing Date” has the meaning set forth in Section 3.03.

“Contracts” means all contracts, leases, deeds, mortgages, licenses, instruments, notes, commitments, undertakings, indentures, joint ventures and all other agreements, commitments and legally binding arrangements, whether written or oral.

“Contributions” has the meaning set forth in Section 6.16.

“Credit Documents” means the Notes and all other documents evidencing the Indebtedness, including the Subordination Agreement by and among the Matrix, Matrix Operator and the Matrix LPs, the Holders, and Arena Limited SPV, LLC, and the documents transferring title to the Notes or the other Credit Documents.

“Note Indebtedness” means all obligations of the Borrowers owed to the Holders under the Notes and the other Credit Documents.

 “Debt Exchange” means the exchange of approximately $20,124,000.00 aggregate principal amount of subordinated promissory notes issued by Matrix, Matrix Operator and the Matrix LPs by the holders thereof for shares of the Parent’s Series B Preferred Stock pursuant to terms of certain definitive exchange agreements providing for execution of such exchange concurrently with consummation of the Mergers.

“DGCL” means the Delaware General Corporation Law, as amended from time to time.

“Disclosure Schedules” means the Disclosure Schedules delivered by Matrix and Royale concurrently with the execution and delivery of this Agreement.

“DWI Business” means the business of Royale in connection with the sale of working interests by Royale in certain Royale Interests in order to finance the drilling and development costs of such Royale Interests.

“Employee Benefit Plan” is defined in Section 5.16(m)(i).

“Employee Pension Benefit Plan” is defined in Section 5.16(m)(ii).

“Employee Welfare Benefit Plan” is defined in Section 5.16(m) (iii).

“Encumbrance” means any charge, claim, community property interest, pledge, condition, equitable interest, lien (statutory or other), option, security interest, mortgage, easement, encroachment, right of way, right of first refusal, or restriction of any kind, including

any restriction on use, voting, transfer, receipt of income or exercise of any other attribute of ownership.

“Environmental Law” means any applicable Law, and any Governmental Order or binding agreement with any Governmental Authority: (a) relating to pollution (or the cleanup thereof) or the protection of natural resources, endangered or threatened species, human health or safety, or the environment (including ambient air, soil, surface water or groundwater, or subsurface strata); or (b) concerning the presence of, exposure to, or the management, manufacture, use, containment, storage, recycling, reclamation, reuse, treatment, generation, discharge, transportation, processing, production, disposal or remediation of any Hazardous Materials. The term “Environmental Law” includes, without limitation, the following (including their implementing regulations and any state analogs): the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended by the Superfund Amendments and Reauthorization Act of 1986, 42 U.S.C. §§ 9601 et seq.; the Solid Waste Disposal Act, as amended by the Resource Conservation and Recovery Act of 1976, as amended by the Hazardous and Solid Waste Amendments of 1984, 42 U.S.C. §§ 6901 et seq.; the Federal Water Pollution Control Act of 1972, as amended by the Clean Water Act of 1977, 33 U.S.C. §§ 1251 et seq.; the Toxic Substances Control Act of 1976, as amended, 15 U.S.C. §§ 2601 et seq.; the Emergency Planning and Community Right-to-Know Act of 1986, 42 U.S.C. §§ 11001 et seq.; the Clean Air Act of 1966, as amended by the Clean Air Act Amendments of 1990, 42 U.S.C. §§ 7401 et seq.; and the Occupational Safety and Health Act of 1970, as amended, 29 U.S.C. §§ 651 et seq.

“ERISA Affiliate” means, with respect to a Person, all employers (whether or not incorporated) that would be treated together with such Person or any of its Affiliates as a “single employer” within the meaning of Section 414 of the IRC.

“Escrow Agent” has the meaning set forth in Section 3.01.

“Escrow Closing” has the meaning set forth in Section 3.01.

“Exchange” has the meaning set forth in first recital of this Agreement.

“Exchange Act” means the Securities Exchange Act of 1934, as amended.

“Exchange Consideration” has the meaning set forth in Section 2.01.

 “Exchanges” means the Exchange and the Other Exchanges. The Exchanges are related transactions involving the assignment of property to Parent in exchange for common or preferred stock of Parent as part of an overall plan to capitalize Parent, and for federal income tax purposes, it is intended that the Mergers and the Exchanges shall qualify as exchanges under the provisions of Section 351 of the IRC.

“GAAP” means has the meaning set forth in Section 5.06.

“Governmental Authority” means any federal, state, local or foreign government or political subdivision thereof, or any agency or instrumentality of such government or political subdivision, or any self-regulated organization or other non-governmental regulatory authority or

quasi-governmental authority (to the extent that the rules, regulations or orders of such organization or authority have the force of Law), or any arbitrator, court or tribunal of competent jurisdiction.

“Governing Documents” means, with respect to any business entity, all documents by which such entity established its legal existence, was authorized to conduct business in its jurisdiction of organization or which govern its internal affairs, including, without limitation,  its articles of incorporation, articles of organization, limited partnership agreement, operating agreement, limited liability company agreement, bylaws and any other governing document, as applicable, of such entity.

“Governmental Order” means any order, writ, judgment, injunction, decree, stipulation, determination or award entered by or with any Governmental Authority.

“Hazardous Materials” means: (a) any material, substance, chemical, waste, product, derivative, compound, mixture, solid, liquid, mineral or gas, in each case, whether naturally occurring or manmade, that is hazardous, acutely hazardous, toxic, or words of similar import or regulatory effect under Environmental Laws; and (b) any petroleum or petroleum-derived products, radon, radioactive materials or wastes, asbestos in any form, lead or lead-containing materials, urea formaldehyde foam insulation, and polychlorinated biphenyls.

“Holder Representative” means Johnny Jordan.

“HSR Act” means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.

“Hydrocarbons” means oil, natural gas, condensate, liquefied natural gas, NGL and other liquids or gaseous hydrocarbons or other substances (including minerals) produced or associated therewith, combinations or constituents thereof and extractions therefrom.

“Indebtedness” means, with respect to a Person and without duplication, all (a) indebtedness for borrowed money; (b) obligations for the deferred purchase price of property or services, (c) long or short-term obligations evidenced by notes, bonds, debentures or other similar instruments; (d) obligations under any interest rate, currency swap or other hedging agreement or arrangement; (e) capital lease obligations; (f) reimbursement obligations under any letter of credit, banker’s acceptance or similar credit transactions; (g) guarantees made by such Person on behalf of any third party in respect of obligations of the kind referred to in the foregoing clauses (a) through (f); and (h) any unpaid interest, prepayment penalties, premiums, costs and fees that would arise or become due as a result of the prepayment of any of the obligations referred to in the foregoing clauses (a) through (g).

“Intellectual Property” means all intellectual property and all rights, interests and protections that are associated with, similar to, or required for the exercise of, any of the foregoing, however arising, pursuant to the Laws of any jurisdiction throughout the world, whether registered or unregistered, including any and all: (a) trademarks, service marks, trade names, brand names, logos, trade dress, design rights and other similar designations of source, sponsorship, association or origin, together with the goodwill connected with the use of and symbolized by, and all registrations, applications and renewals for, any of the foregoing; (b)

internet domain names, whether or not trademarks, registered in any top-level domain by any authorized private registrar or Governmental Authority, web addresses, web pages, websites and related content, accounts with Twitter, Facebook and other social media companies and the content found thereon and related thereto, and URLs; (c) works of authorship, expressions, designs and design registrations, whether or not copyrightable, including copyrights, author, performer, moral and neighboring rights, and all registrations, applications for registration and renewals of such copyrights; (d) inventions, discoveries, trade secrets, business and technical information and know-how, databases, data collections and other confidential and proprietary information and all rights therein; (e) patents (including all reissues, divisionals, provisionals, continuations and continuations-in-part, re-examinations, renewals, substitutions and extensions thereof), patent applications, and other patent rights and any other Governmental Authority-issued indicia of invention ownership (including inventor’s certificates, petty patents and patent utility models); and (f) software and firmware, including data files, source code, object code, application programming interfaces, architecture, files, records, schematics, computerized databases and other related specifications and documentation.

“IRC” means the U.S. Internal Revenue Code of 1986, as amended.

“Knowledge” means, (i) when used with respect to Matrix, the actual or constructive knowledge of any director or executive officer of Matrix, after reasonable inquiry with any Person directly reporting to any such director or executive officer, and (ii) when used with respect to Royale, the actual or constructive knowledge of any director or executive officer of Royale, after reasonable inquiry with any Person directly reporting to any such director or executive officer.

“Law” means any statute, law, ordinance, regulation, rule, code, order, constitution, treaty, common law, judgment, decree, other requirement or rule of law of any Governmental Authority.

“Letter of Intent” has the meaning set forth in Section 9.02(a).

“Letter of Transmittal” has the meaning set forth in Section 8.04

“Liabilities” has the meaning set forth in Section 5.07.

“LP Exchange” means the exchange of all limited partnership interests in the respective Matrix LPs for shares of common stock of Parent concurrently with the consummation of the Matrix Merger.

“LP Exchange Agreement” means the applicable agreement and plan of exchange concerning the exchange of all limited partnership interests of specified Matrix LP for shares of common stock of Parent concurrently with the consummation of the Matrix Merger.

“Material Contract” means, with respect to a Person, any of the following:

A.	Any Contract that requires future expenditures by such Person in excess of $100,000 in any twelve (12) month period, or that provide for payments to such Person in excess of $100,000;

B.

Each Contract for Leased Real Property and each Contract or other right pursuant to which such Person uses or possesses any Personal Property (other than Personal Property owned by such Person), in each case that provide for aggregate payments by or to such Person in excess of $100,000 during any twelve (12) month period, provided that any such Contracts related to the Matrix Interests (with respect to Matrix) or the Royale Interests (with respect to Royale) need not be listed on the applicable Disclosure Schedule;

C.

Each Contract pursuant to which such Person licenses or uses any Intellectual Property (other than standard licenses for non-custom, commercially available off-the-shelf software, for which the annual amounts owed by such Person do not exceed $5,000 individually), in each case that provide for aggregate payments by such Person in excess of $100,000 during any twelve (12) month period;

D.

Any Contract relating to Indebtedness for borrowed money, any outstanding reimbursement obligation of such Person with respect to letters of credit, bankers’ acceptances or similar facilities issued for the account of such Person or granting a lien on any of such Person’s assets to any Person, in each case in excess of $100,000, other than (i) accounts receivable and payable, and (ii) loans to direct or indirect wholly owned Subsidiaries of such Person;

E.	Any Contract creating or guaranteeing any surety bond in favor of such Person or supporting any of its Contracts or customers, together with a list of each such outstanding surety bond and the amount thereof, in each case in excess of $100,000;

F.

Any Contract with any 5% stockholder, director or executive officer of such Person, or any member of his or her immediate family, or any Affiliate of any of such Persons, including any Contract providing for the furnishing of services by, rental of real or personal property from or otherwise requiring payments to or for the benefit of any such Person;

G.

Any Contract containing any covenant (x) materially limiting the right of such Person to engage in any line of business, make use of any Intellectual Property or compete with any Person in any line of business; (y) granting any exclusive distribution or supply rights; or (z) otherwise restricting, in any material respect, such Person from freely engaging in the business of selling, distributing or manufacturing any products or services;

H.

Any Contract granting an option or first refusal, first offer or similar preferential right to purchase or acquire any of such Person’s assets to any other Person (other than the purchase of inventory pursuant to customer contracts entered into in the ordinary course of business consistent with past practice), in each case that provide for aggregate payments by or to such Person in excess of $100,000 during any twelve (12) month period;

I.	Any Contract pursuant to which payments are required or acceleration of benefits is required upon a change of control of such Person or similar event, in each case that provide for aggregate payments by or to such Person in excess of $100,000 during any twelve (12) month period;

J.

Any Contract that is material to such Person or any of its assets and that requires the consent or waiver of a third party prior to such Person consummating the transactions contemplated hereby, in each case that provide for aggregate payments by or to such Person in excess of $100,000 during any twelve (12) month period; or

K.	Any Contract that constitutes a partnership or joint venture agreement (excluding any tax partnership).

“Matrix” has the meaning set forth in the first recital.

 “Matrix Common Stock” means the common stock, no par value per share, of Matrix, including all shares common stock into which outstanding shares of Matrix’s preferred stock are convertible and which are issuable upon exercise outstanding warrants and options to purchase Matrix’s common stock.

 “Matrix Interests” means, with respect to Matrix and its Subsidiaries and the Matrix LPs (a) direct and indirect interests in and rights with respect to Hydrocarbons and related properties and assets of any kind and nature, direct or indirect, including working and leasehold interests and operating rights and royalties, overriding royalties, production payments, net profit interests, carried interests, and other non-working interests and non-operating interests in the oil, gas and mineral fee or leasehold estate; (b) all  rights with respect to Hydrocarbons or revenues therefrom; (c) all Contracts in connection therewith and the leasehold estates created thereby and the lands covered by the Contracts relating to the Hydrocarbons or included in units with which such Contracts may have been pooled or united; (d) surface interests, fee interests, reversionary interests, reservations and concessions; (e) all easements, surface use agreements, rights of way, licenses and permits, in each case, in connection with leases, the drilling of wells or the processing, storage, disposition, transportation or sale of Hydrocarbons, (f) all interests in machinery, equipment (including wells, well equipment and machinery), oil and gas production, gathering, transmission, treating, processing and storage facilities (including tanks, tank batteries, pipelines, flow lines, gathering systems and metering equipment) pumps, water plants, electric plants, gasoline and gas platforms, processing plans, compressor stations, separation plants, refineries, testing and monitoring equipment, in each case, in connection with any leases, the drilling of wells or the production, gathering, processing, storage, disposition, transportation or sale of Hydrocarbons, and (g) all other interests of any kind or character associated with, appurtenant to, or necessary for the operation of any of the foregoing.

“Matrix Investments LP Exchange Agreement” has the meaning set forth in the definition of “Ancillary Documents”.

“Matrix Las Cienegas LP Exchange Agreement” has the meaning set forth in the definition of “Ancillary Documents”.

“Matrix LP Holders” means the holders of all limited partnership interests of the Matrix LPs.

“Matrix LPs” means, collectively, 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.

“Matrix LP Interests” means, collectively, all limited partnership interests of each of the Matrix LPs.

“Matrix Merger” has the meaning set forth in the recitals.

“Matrix Merger Consideration” means the number of shares of Parent Coon Stock into which Matrix common stock converts in connection with the Matrix Merger determined in accordance with the Merger Agreement.

“Matrix Merger Effective Time” means the time the Matrix Merger shall become effective as such certificates of merger have been duly filed with the Secretary of State of the State of California and the Secretary of State of the State of Delaware, respectively, or at such later date or time as may be agreed by Matrix and Royale in writing and specified in the respective certificates of merger in accordance with the requirements of the CCC and DGCL.

“Matrix Merger Sub” has the meaning set forth in the recitals.

“Matrix Merger Sub Shares” has the meaning set forth in Section 5.04(d).

“Matrix Operator” means Matrix Oil Corporation, a California corporation.

“Matrix Operator Stock Exchange Agreement” has the meaning set forth in the definition of “Ancillary Documents”.

“Matrix Permian LP Exchange Agreement” has the meaning set forth in the definition of “Ancillary Documents”.

“Matrix Pipeline” has the meaning set forth in the preamble.

“Matrix Royalty” has the meaning set forth in the preamble.

“Matrix Senior Indebtedness” has the meaning set forth in Section 6.15.

“Matrix Shares” means shares of capital stock of Matrix Oil Management Corporation, a California corporation.

“Matrix Stockholder” means a holder of Matrix Common Stock.

“Mergers” means, collectively, the Matrix Merger and the Royale Merger.

“Merger Agreement” means the Agreement and Plan of Merger dated as of November 30, 2016, among the Royale Parties and Matrix.

 “Other Exchanges” means the exchange of Parent Common Stock for (i) all limited partnership interests of Matrix Las Cienegas Limited Partnership pursuant to the Matrix Las Cienegas LP Exchange Agreement, (ii) all limited partnership interests of Matrix Permian Investments, LP pursuant to the Matrix Permian LP Exchange Agreement, (iii) all limited partnership interests of Matrix Investments L.P. pursuant to the Matrix Investments LP Exchange Agreement, and (iv) all capital stock of Matrix Operator pursuant to the Matrix Operator Stock Exchange Agreement. The Other Exchanges are all of the Exchanges other than the Exchange (which concerns the exchange of all subordinated notes of Matrix, Matrix Operator and the Matrix LPs for shares of Parent’s Series B Preferred Stock).

“Other Exchange Interests” means the interests conveyed in the Other Exchanges for shares of Parent Common Stock including (i) all limited partnership interests of each of the Matrix LPs, and (ii) all capital stock of Matrix Operator.

“Other Exchange Approvals” means the Requisite Approvals relating to the Exchanges other than those required for the Exchange.

“Outside Date” has the meaning set forth in Section 9.01(b)(ii).

“Parent” has the meaning set forth in the preamble.

“Parent Common Stock” has the meaning set forth in the recitals.

“Parent Shares” means shares of capital stock of Royale Energy Holdings, Inc., a Delaware corporation.

“Parent Stockholder” means a holder of Parent Common Stock or Series B Preferred Stock.

“Partnership Charter Documents” means the documents by which any Matrix LP and its respective subsidiaries established their legal existence, were authorized to conduct business in their jurisdiction of organization or which govern their internal affairs, including, without limitation, any articles of incorporation, articles of association, operating agreement, partnership agreement, bylaws or similar documents.

“Permitted Liens” means (a) statutory liens for current Taxes or other governmental charges not yet due and payable or the amount or validity of which is being contested in good faith (provided appropriate reserves required pursuant to GAAP have been made in respect thereof), (b) mechanics’, carriers’, workers’, repairers’ and similar statutory liens arising or incurred in the ordinary course of business for amounts which are not delinquent or which are being contested by appropriate proceedings (provided appropriate reserves required pursuant to GAAP have been made in respect thereof), (c) zoning, entitlement, building and other land use regulations imposed by Governmental Entities having jurisdiction over such Person’s owned or leased real property, which are not violated by the current use and operation of such real property, (d) covenants, conditions, restrictions, easements and other similar non-monetary

matters of record affecting title to such Person’s owned or leased real property, which do not materially impair the occupancy or use of such real property for the purposes for which it is currently used in connection with such Person’s businesses, (e) any right of way or easement related to public roads and highways, which do not materially impair the occupancy or use of such real property for the purposes for which it is currently used in connection with such Person’s businesses, (f) liens securing capital lease obligations, equipment leases or other purchase money Indebtedness, provided that the obligations secured by such lien are secured only by the property leased or purchased under such capital lease, equipment lease or purchase money Indebtedness and such obligations are not increased in amount, (g) liens to operators and non-operators under joint operating agreements, unitization and pooling agreements arising in the ordinary course of the business to secure amounts owing, which amounts are not yet due or are being contested in good faith by appropriate proceedings, provided that such reserve as may be required by GAAP shall have been made therefor and that, despite the existence of such reserves, to the extent that any such liens relate to the Matrix Interests, with respect to Matrix, or the Royale Interests, with respect to Royale, such liens would not be reasonably be expected to materially impair the use of, or proceeds derived from, such Matrix Interests or Royale Interests, as applicable, (h) Production Burdens, and (i) liens arising under workers’ compensation, unemployment insurance, social security, retirement and similar legislation.

“Permits” means all permits, licenses, franchises, approvals, authorizations, registrations, certificates, variances and similar rights obtained, or required to be obtained, from Governmental Authorities.

“Person” means an individual, corporation, partnership, joint venture, limited liability company, Governmental Authority, unincorporated organization, trust, association or other entity.

“Plan of Exchange” has the meaning set forth in Section 2.01.

“Production Burden” means all royalty interests, overriding royalty interests, production payments, net profit interests or other similar interests that constitute a burden on, and are measure by or are payable out of, the production of Hydrocarbons or the proceeds realized from the sale or other disposition thereof.

“Proxy Statement/Prospectus” means the filing with the SEC of Royale’s proxy statement relating to a special meeting of the Royale shareholders to consider and vote on this Agreement and the transactions contemplated in the Merger Agreement.

“Registration Statement” means a registration statement on Form S-4 under the Securities Act filed by Royale on behalf of Parent, with respect to the transactions contemplated in the Merger Agreement.

“Representative” means, with respect to any Person, any and all directors, officers, employees, consultants, financial advisors, counsel, accountants and other agents of such Person.

“Requisite Approvals” mean, in the case of consummation of the Mergers, receipt of the Requisite Matrix Vote and the Requisite Royale Vote, and with respect to the Exchanges, all consents, approvals or waivers required from the Matrix LP Holders, Matrix Operator Holders,

the respective general partners of each Matrix LP and the holders of subordinated notes of Matrix, Matrix Operator and the Matrix LPs, to consummate each of the respective Exchanges.

“Requisite Matrix Vote” means adoption of the Merger Agreement by the affirmative vote or consent of holders of two-thirds of the outstanding shares of Matrix common stock (“Requisite Matrix Vote”).

“Requisite Royale Vote” has the meaning set forth in Section 5.02(a).

“Right of Way” has the meaning set forth in Section 5.10(b).

“Royale” has the meaning set forth in the preamble.

“Royale Benefit Plans” has the meaning set forth in Section 5.16.

“Royale Charter Documents” means the Governing Documents of each of the Royale Parties, respectively.

“Royale Common Stock” means the common stock, no par value per share, of Royale, including all shares of common stock into which outstanding shares of Royale’s preferred stock are convertible and which are issuable upon exercise outstanding warrants and options to purchase Royale’s common stock.

“Royale Convertible Notes” has the meaning set forth in Section 8.03(j).

“Royale Financial Statements” has the meaning set forth in Section 5.06.

“Royale Insurance Policies” has the meaning set forth in Section 5.12.

“Royale Intellectual Property” means all Intellectual Property that is owned or held for use by Royale.

“Royale Interests” means, with respect to Royale and its Subsidiaries (a) direct and indirect interests in and rights with respect to Hydrocarbons and related properties and assets of any kind and nature, direct or indirect, including working and leasehold interests and operating rights and royalties, overriding royalties, production payments, net profit interests, carried interests, and other non-working interests and non-operating interests in the oil, gas and mineral fee or leasehold estate; (b) all rights with respect to Hydrocarbons or revenues therefrom; (c) all Contracts in connection therewith and the leasehold estates created thereby and the lands covered by the Contracts relating to the Hydrocarbons or included in units with which such Contracts may have been pooled or united; (d) surface interests, fee interests, reversionary interests, reservations and concessions; (e) all easements, surface use agreements, rights of way, licenses and permits, in each case, in connection with leases, the drilling of wells or the processing, storage, disposition, transportation or sale of Hydrocarbons, (f) all interests in machinery, equipment (including wells, well equipment and machinery), oil and gas production, gathering, transmission, treating, processing and storage facilities (including tanks, tank batteries, pipelines, flow lines, gathering systems and metering equipment) pumps, water plants, electric plants, gasoline and gas platforms, processing plans, compressor stations, separation plants, refineries,

testing and monitoring equipment, in each case, in connection with any leases, the drilling of wells or the production, gathering, processing, storage, disposition, transportation or sale of Hydrocarbons, and (g) all other interests of any kind or character associated with, appurtenant to, or necessary for the operation of any of the foregoing.

“Royale IP Registrations” means all Royale Intellectual Property that is subject to any issuance registration, application or other filing by, to or with any Governmental Authority or authorized private registrar in any jurisdiction, including registered trademarks, domain names and copyrights, issued and reissued patents and pending applications for any of the foregoing.

“Royale Material Adverse Effect” means any event, occurrence, fact, condition or change that is, or would reasonably be expected to become, individually or in the aggregate, materially adverse to (i) the business, results of operations, prospects, condition (financial or otherwise), or assets of  the Royale Parties, taken as a whole, or (ii) the ability of the Royale Parties to consummate the transactions contemplated hereby on a timely basis; provided, however, that, for the purposes of clause (i), a Royale Material Adverse Effect shall not be deemed to include events, occurrences, facts, conditions or changes arising out of, relating to or resulting from: (a) changes generally affecting the economy, financial or securities markets; (b) the announcement of the transactions contemplated by this Agreement; (c) any outbreak or escalation of war or any act of terrorism; (d) changes in the price or trading volume of Royale Common Stock; or (e) general conditions in the industry in which the Royale Parties operate; provided further, however, that any event, change and effect referred to in clauses (a), (c) or (d) immediately above shall be taken into account in determining whether a Royale Material Adverse Effect has occurred or would reasonably be expected to occur to the extent that such event, change or effect has a disproportionate effect on the Royale Parties, taken as a whole, compared to other participants in the industries in which Royale Parties conduct their businesses.

“Royale Merger” means Royale Merger Sub shall be merged with and into Royale with Royale as the surviving corporation and a wholly-owned Subsidiary of Parent.

“Royale Merger Consideration” means the number of shares of Parent Common Stock into which Royale Common Stock converts in connection with the Royale Merger determined in accordance with the Merger Agreement.

 “Royale Merger Effective Time” means the time the Royale Merger shall become effective as such certificates of merger have been duly filed with the Secretary of State of the State of California and the Secretary of State of the State of Delaware, respectively, or at such later date or time as may be agreed by Matrix and Royale in writing and specified in the respective certificates of merger in accordance with the requirements of the CCC and DGCL.

“Royale Merger Sub” means Royale Merger Sub, Inc., a California corporation and direct, wholly-owned Subsidiary of Parent.

“Royale Merger Sub Shares” has the meaning set forth in Section 5.04(c).

“Royale Parties” means Royale, Parent, Royale Merger Sub, Inc., a California corporation and a direct, wholly-owned Subsidiary of Parent and Matrix Merger Sub, Inc., a

California corporation and a direct, wholly-owned Subsidiary of Parent, together with their respective Subsidiaries.

“Royale Preferred Stock” means the Series AA Convertible Preferred Stock of Royale.

“Royale Shares” means shares of capital stock of Royale Energy, Inc. a California corporation.

“Royale Stockholder” means a holder of Royale Common Stock or Royale Preferred Stock.

“Royale Stockholders Meeting” has the meaning set forth in Section 6.02(b).

“SEC” has the meaning set forth in Section 6.02(a).

“SEC Reports” has the meaning set forth in Section 5.06.

“Securities Act” means the Securities Act of 1933, as amended.

“Section 351 Plan” means the Section 351 Plan of Merger and Exchange in the form attached hereto as Exhibit D.

“Series B Preferred Stock” has the meaning set forth in the recitals.

“Shares” means Royale Shares or Matrix Shares or shares of capital stock of any Constituent Corporation as the context may require.

“Stockholder” means a Matrix Stockholder, a Royale Stockholder or a Parent Stockholder, as the context shall require.

“Subsidiary” means, when used with respect to any party, any corporation or other organization, whether incorporated or unincorporated, a majority of the securities or other interests of which having by their terms ordinary voting power to elect a majority of the board of directors or others performing similar functions with respect to such corporation or other organization is directly or indirectly owned or controlled by such party or by any one or more of its subsidiaries, or by such party and one or more of its subsidiaries.

“Taxes” means all federal, state, local, foreign and other income, gross receipts, sales, use, production, ad valorem, transfer, franchise, registration, profits, license, lease, service, service use, withholding, payroll, employment, unemployment, estimated, excise, severance, environmental, stamp, occupation, premium, property (real or personal), real property gains, windfall profits, customs, duties or other taxes, fees, assessments or charges of any kind whatsoever, together with any interest, additions or penalties with respect thereto and any interest in respect of such additions or penalties.

“Tax Return” means any return, declaration, report, claim for refund, information return or statement or other document relating to Taxes, including any schedule or attachment thereto, and including any amendment thereof.

“Union” has the meaning set forth in Section 5.17(b).

(a) Each Holder shall assign, transfer and deliver to Parent at Closing all right, title and interest in and to all of the outstanding Notes held by such Holder, representing the aggregate principal amount of Note Indebtedness set forth opposite such Holder’s name on Exhibit B attached hereto, in exchange for the Exchange Consideration (as defined below) to be delivered by Parent to Holder at Closing; and

(b) In exchange for such Notes, Parent hereby shall issue and deliver to each Holder at Closing the following consideration (the “Exchange Consideration”):  (1) the number of shares of Series B Preferred Stock set forth opposite such Holder’s name on Exhibit B attached hereto, plus (2) the number of shares of Series B Preferred Stock equal to (A) the amount of accrued and unpaid interest payable with respect to such Holder’s outstanding Notes immediately prior to Closing (expressed in US dollars), divided by (B) $10.00.

another date, time or place for the Closing.  At the Closing, the parties will release or cause the Escrow Agent to release the escrowed documents from escrow to the parties designated to receive such documents under the Escrow Agreement, and Parent shall pay and deliver the Exchange Consideration to the Holders as prescribed in this Agreement.

Each Holder separately, and with respect only to his matters and circumstances, hereby represents and warrants to Royale and the Parent that the following statements are true and correct.

by it of this Agreement have been duly authorized by all necessary action on the part of the general partners, managers or other governing authority of such Holder.

Except as set forth in the correspondingly numbered Section of the Disclosure Schedules, Royale and Parent, jointly and severally represent and warrant to the Holders that the statements contained in this are true and correct as of the date hereof.

Agreement and each Ancillary Document to which each Royale Party is or will be a party has been duly executed and delivered by the Royale Parties (assuming due authorization, execution and delivery by each other party thereto), such Ancillary Document will constitute a legal and binding obligation of each Royale Party enforceable against it in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium and similar Laws affecting creditors’ rights and remedies generally, and subject, as to enforceability, to general principles of equity, including principles of commercial reasonableness, good faith and fair dealing (regardless of whether enforcement is sought in a proceeding at Law or in equity).

filing of the certificate of merger with the Secretary of State of Delaware, (iii) the filing of the Registration Statement with the SEC, and (iv) such filings as may be required under the HSR Act.

created by statute, Royale Charter Documents or any agreement to which any Royale Party is a party; and (iii) free of any Encumbrances created by any Royale Party in respect thereof, other than restrictions as may exist under applicable securities Law and liens in favor of the Royale Parties’ lenders as listed on Section 5.04(h) of the Disclosure Schedules. All issued and outstanding shares of Royale Common Stock, Royale Preferred Stock, Parent Shares, Royale Merger Sub Shares and Matrix Merger Sub Shares were issued in compliance with applicable Law.

dates thereof and the results of operations and cash flows for the periods then ended, subject, in the case of unaudited statements, to normal, immaterial, year-end audit adjustments.

be expected to have a Royale Material Adverse Effect, the Royale Parties and each applicable Subsidiary (A) are in compliance with all valuation agreements, and settlement agreements with respect to Production Burdens, and (B) have paid or will cause to be paid when due all Production Burdens with respect to the Royale Interests and each other royalty, Tax or similar payment, except for such amounts that are being held in suspense as permitted pursuant to applicable Law or the terms of the applicable Contract or as reserved against in the Royale Financial Statements.

each Royale Party, expected proposals or elections for drilling, completing, recompleting, reworking, facilities or similar activities that would require such commitment on behalf of the Royale Parties or any of their Subsidiaries within one year of the Royale Merger Effective Time in any of the Royale Interests or any of the contracts governing any of the Royale Interests.

approval, registration or qualification or there remains a period of time in which to obtain such approval, registration or qualification retroactive to the date of any material amendment that has not previously received such approval, registration or qualification.

(i) To the Knowledge of each Royale Party, there have been no “prohibited transaction,” as such term is defined in Section 406 of ERISA or Section 4975 of the IRC, with respect to any such Royale Benefit Plan that would subject any Royale Party or ERISA Affiliate to a tax or penalty imposed pursuant to Section 4975 of the IRC or Section 502(c), (i) or (l) of ERISA.

(ii) No Royale Party nor, to the Knowledge of any Royale Party, any ERISA Affiliate (by way of indemnification, directly or otherwise) has any liability or penalty under Sections 4976 through 4980 of the IRC or Title I of ERISA with respect to any Royale Benefit Plan.

(iii) No action, suit, proceeding, hearing or investigation with respect to the administration or the investment of the assets of any Royale Benefit Plan (other than routine claims for benefits) is pending or, to the Knowledge of any Royale Party, threatened, and to the Knowledge of any Royale Party, there is no basis for any such action, suit, proceeding, hearing or investigation, except, in each case, as would not reasonably be expected to have a Royale Material Adverse Effect.

(i) “Employee Benefit Plan” means, with respect to any Person, the following, whether written or oral:  (A) any nonqualified deferred compensation or retirement plan or arrangement that is an Employee Pension Benefit Plan, (B) any qualified defined contribution retirement plan or arrangement that is an Employee Pension Benefit Plan, (C) any qualified defined benefit retirement plan or arrangement that is an Employee Pension Benefit Plan, (D) any Employee Welfare Benefit Plan or fringe benefit plan or program, or (E) any profit sharing, bonus, stock option, stock purchase, severance or incentive plan, agreement or arrangement that is sponsored, maintained or contributed to by such Person or any ERISA Affiliate of such Person for the benefit of the employees, former employees, independent contractors or agents of

such Person or any ERISA Affiliate or has been so sponsored, maintained or contributed to at any time prior to the Closing Date.

(ii) “Employee Pension Benefit Plan” has the meaning set forth in Section 3(2) of ERISA.

(iii) “Employee Welfare Benefit Plan” has the meaning set forth in Section 3(1) of ERISA.

independent contractor of the Royale Parties, including, without limitation, any claim relating to unfair labor practices, employment discrimination, harassment, retaliation, equal pay, wage and hours or any other employment-related matter arising under applicable Laws.

(i) the taxable years of  Royale as to which the applicable statutes of limitations on the assessment and collection of Taxes have not expired;

(ii) those years for which examinations by the taxing authorities have been completed; and

(iii) those taxable years for which examinations by taxing authorities are presently being conducted.

(i) any change in a method of accounting under Section 481 of the IRC (or any comparable provision of state, local or foreign Tax Laws), or use of an improper method of accounting, for a taxable period ending on or prior to the Closing Date;

(ii) an installment sale or open transaction occurring on or prior to the Closing Date;

(iii) a prepaid amount received on or before the Closing Date;

(iv) any closing agreement under Section 7121 of the IRC, or similar provision of state, local or foreign Law; or

(v) any election under Section 108(i) of the IRC.

supplement thereof, contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made therein, in the light of the circumstances under which they were made, not misleading. Notwithstanding the foregoing, no representation or warranty is made by the Royale Parties with respect to statements made or incorporated by reference therein based on information supplied by Matrix expressly for inclusion or incorporation by reference in the Registration Statement. The Registration Statement will comply as to form in all material respects with the requirements of the Exchange Act.

The Holders further agree with the Parent and Royale, and Royale and Parent further agree with the Holders, that from the date hereof through the Closing Date:

dividends by a direct or wholly-owned Subsidiary of the applicable Person to its parent, or (iv) repurchase, redeem or otherwise acquire, or modify or amend, any capital stock, partnership interest or any other securities or any rights, warrants or options to acquire any such securities except, with respect to each of the foregoing, the issuance of securities upon the exercise of outstanding options, warrants, rights, or upon the conversion of outstanding securities;

shall use reasonable best efforts to (i) solicit from the holders of Royale Common Stock and the Royale Preferred Stock proxies, in compliance with all applicable laws, in favor of the adoption of this Agreement and approval of the Merger and (ii) take all other actions necessary or advisable to secure the vote or consent of the holders of Royale Common Stock and Royale Preferred Stock, if any, required by applicable Law to obtain such approval. Notwithstanding anything contained herein to the contrary, Royale shall not be required to hold Royale Stockholders Meeting if this Agreement is terminated before the meeting is held.

(i)

any fact, circumstance, event or action the existence, occurrence or taking of which (A) has had, or could reasonably be expected to have, individually or in the aggregate, a Royale Material Adverse Effect, (B) has resulted in, or could reasonably be expected to result in, any representation or warranty made by any of the Royale Parties hereunder not being true and correct, or (C) has resulted in, or could reasonably be expected to result in, the failure of any of the conditions set forth in Section 8.01 or 8.03 to be satisfied;

(ii)	any notice or other communication from any Person alleging that the consent of such Person is or may be required in connection with the transactions contemplated by this Agreement;

(iii)

any notice or other communication from any Governmental Authority in connection with the transactions contemplated by this Agreement; and

(iv)

any Actions commenced or, to the Knowledge of any of the Royale Parties, is threatened against, relating to or involving or otherwise affecting any of the Royale Parties that, if pending on the date of this Agreement, would have been required to have been disclosed pursuant to Section 5.13 or that relates to the consummation of the transactions contemplated by this Agreement.

(on behalf of itself and certain Matrix LPs) and Royale.  Royale, in its discretion, shall be entitled to convene an investor conference call in conjunction with the issuance of such press release.  Except for the press release and such conference call, no party shall issue or cause the publication of any press release or other public announcement (to the extent not previously issued or made in accordance with this Agreement) with respect to this Agreement, the Mergers, the Ancillary Documents, the Exchanges, or the other transactions contemplated hereby without the prior written consent of the other parties (which consent shall not be unreasonably withheld or delayed), except as may be required by Law, including applicable SEC requirements, applicable fiduciary duties or by any applicable listing agreement with a mutually agreed national securities exchange (in which case such party shall not issue or cause the publication of such press release or other public statement without prior consultation with the other party).

(i) respond to any inquiries by any Governmental Authority regarding antitrust or other matters with respect to the transactions contemplated by this Agreement or any Ancillary Document;

(ii) avoid the imposition of any order or the taking of any action that would restrain, alter or enjoin the transactions contemplated by this Agreement or any Ancillary Document; and

(iii) in the event any Governmental Order adversely affecting the ability of the parties to consummate the transactions contemplated by this Agreement or any Ancillary Document has been issued, to have such Governmental Order vacated or lifted.

assets, businesses or interests which, in any case, could reasonably be expected to result in a Royale Material Adverse Effect, or which would materially and adversely impact the economic or business benefits to Parent, Royale or their respective stockholders or partners, of the transactions contemplated by this Agreement; or (iii) any material modification or waiver of the terms and conditions of this Agreement.

(i) the Matrix Stockholders as the owners of the Matrix Common Stock surrendered by them in the Matrix Merger through the close of the day on which the Matrix Merger Effective Time occurs;

(ii) the Royale Stockholders as the owners of the Royale Shares surrendered by them in the Royale Merger through the close of the day on which the Royale Merger Effective Time occurs;

(iii) the Matrix LP Holders as the owners of their respective limited partnership interests in the Matrix LPs surrendered by them in the LP Exchanges through the close of the Closing Date for the applicable LP Exchange Agreement;

(iv) the Matrix Operator Holders as the owners of the shares of capital stock of Matrix Operator surrendered by them in the Matrix Operator Stock Exchange through the close of the Closing Date for the Matrix Operator Stock Exchange Agreement;

(v) each Matrix LP as terminating pursuant to Section 708 of the IRC as of the close of the Closing Date for the applicable LP Exchange Agreement, and

(vi) the Matrix Operator as an S corporation through the close of the Closing Date for the Matrix Operator Stock Exchange Agreement (on which date its taxable year shall end ), and as a C corporation eligible to join in filing a consolidated federal income tax return with Parent commencing at the beginning of the day following such Closing Date.

The obligations of all Parties to consummate the transactions contemplated by this Agreement shall be subject to the fulfillment, at or prior to the Closing, of each of the following conditions:

nonrecognition of gain or loss under  Section 351 of the IRC.  In rendering the opinion described in this Section 8.02(f), Strasburger & Price, LLP shall have received and may rely upon the certificates and representations referred to in Section 6.14.

the CCC with respect to shares of Royale Common Stock in connection with the Royale Merger or any of the Exchanges.

(i) Each Holder shall have executed and delivered to the Escrow Agent the Escrow Agreement, this Agreement, a properly executed and completed Letter of Transmittal with respect thereto, in the form attached to Exhibit C (“Letter of Transmittal”) which shall be delivered to the Escrow Agent together with all of such Holder’s outstanding the Notes; provided, however, if one or more Notes held by any registered holder of the Notes has been lost, stolen or destroyed, such holder may deliver a Lost Note Affidavit and Indemnity Agreement in form and substance satisfactory to the Borrowers and Royale in substitution for such lost, stolen or destroyed Notes;

(ii) Each Holder that is a corporation or limited liability company shall provide a certificate of the Secretary or an Assistant Secretary (or equivalent officer) of the corporation or limited liability company certifying the names and signatures of the officers authorized to sign this Agreement and the other documents to be delivered hereunder, and each Holder that is a partnership shall provide a certificate of its general partner, or if the general partner is a corporation or limited liability company, a certificate of the Secretary or an Assistant Secretary (or equivalent officer) of the corporation or limited liability company that is such general partner certifying the names and signatures of the officers of the officers authorized to sign this Agreement on behalf of such general partner and the other documents to be delivered hereunder;

(iii) a good standing certificate (or its equivalent) from the secretary of state or similar Governmental Authority of the jurisdiction under the Laws in which any Holder that is a business entity is  organized;

(iv) the Section 351 Plan; and

(v) such other documents or instruments as Royale reasonably requests and are reasonably necessary to consummate the transactions contemplated by this Agreement.

(i) instructions to Parent’s transfer agent to issue and deliver the Exchange Consideration to each of the Holders as provided in this Agreement, in each case registered in the name of the Persons specified in the respective Letters of Transmittal;

(ii) instructions to Royale’s transfer agent to issue and deliver the consideration to be delivered in connection with the Mergers and the Other Exchanges pursuant to the Requisite Approvals to such Persons entitled to receive such consideration in accordance with such Requisite Approvals;

(iii) evidence that the Matrix Senior Indebtedness shall have been assumed by Parent or paid off as of the Closing Date in accordance with Section 6.14;

(iv) a certificate, dated the Closing Date and signed by a duly authorized officer of each Royale Party, that each of the conditions set forth in Section 8.03(a) and Section 8.03(b) have been satisfied;

(v) a certificate of the Secretary or an Assistant Secretary (or equivalent officer) of the Royale Parties certifying that attached thereto are true and complete copies of all resolutions adopted by the board of directors of the Royale Parties authorizing the execution, delivery and performance of this Agreement and the Ancillary Documents and the consummation of the transactions contemplated hereby and thereby, and that all such resolutions are in full force and effect and are all the resolutions adopted in connection with the transactions contemplated hereby and thereby;

(vi) a certificate of the Secretary or an Assistant Secretary (or equivalent officer) of the Royale Parties certifying the names and signatures of the officers of the Royale Parties authorized to sign this Agreement, the Ancillary Documents and the other documents to be delivered hereunder and thereunder;

(vii) evidence of the establishment of a new Subsidiary and the transfer of all of the assets related to the DWI Business of Royale (including assets held in trust for its investors);

(viii) the Section 351 Plan;

(ix) employment agreements executed by Parent and each of Jonathan Gregory, Donald Hosmer, Stephen Hosmer, Johnny Jordan, Joe Paquette and Jay Sheevel, all in a form reasonably acceptable to Royale and Matrix;

(x) certificates or other evidence reasonably satisfactory to the Holders confirming that none of the Royale Stockholders owning more than 5% of the number of shares of Royale Common Stock outstanding immediately before the Royale Merger is a “foreign person” within the meaning of Treasury Regulation § 1445-2(b); and

(xi) such other documents or instruments as the Holders reasonably requests and are reasonably necessary to consummate the transactions contemplated by this Agreement.

the Escrow Agent to release and deliver to Royale or its designee all of the Letters of Transmittal and Notes held in escrow by Escrow Agent pursuant to the Escrow Agreement.

This Agreement may be terminated at any time prior to the Closing:

(i) no Royale Party is then in material breach of any provision of this Agreement and there has been a breach, inaccuracy in or failure to perform any representation, warranty, covenant or agreement made by the Holders pursuant to this Agreement that would give rise to the failure of any of the conditions specified in ARTICLE VIII and such breach, inaccuracy or failure has not been cured by the Holders within 30 days of the Holders’ receipt of written notice of such breach from Royale; or

(ii) any of the conditions set forth in Section 8.01 or Section 8.02 shall not have been fulfilled by March 31, 2017  (the “Outside Date”), or if it becomes impossible or extremely unlikely for any such conditions to be fulfilled by the Outside Date, unless such failure shall be due to the failure of the Royale Parties to perform or comply with any of the covenants, agreements or conditions hereof to be performed or complied with by it prior to the Closing;

(i) the Holders are not then in material breach of any provision of this Agreement and there has been a breach, inaccuracy in or failure to perform any representation, warranty, covenant or agreement made by any Royale Party pursuant to this Agreement that would give rise to the failure of any of the conditions specified in ARTICLE VIII and such breach, inaccuracy or failure has not been cured by such Royale Party within 30 days of Royale’s receipt of written notice of such breach from the Holders; or

(ii) any of the conditions set forth in Section 8.01 or Section 8.03 shall not have been fulfilled by the Outside Date, or if it becomes impossible or extremely unlikely for any such conditions to be fulfilled by the Outside Date, unless such failure shall be due to the failure of the Holders to perform or comply with any of the covenants, agreements or conditions hereof to be performed or complied with by it prior to the Closing; or

(i) the Merger has not been consummated on or before the Outside Date; provided, that the right to terminate this agreement pursuant to this subsection shall not be available to any party whose breach of any representation, warranty, covenant or agreement set forth in this Agreement has been the cause of, or resulted in, the failure of the Closing to be consummated on or before the Outside Date.

(ii) there shall be any Law that makes consummation of the transactions contemplated by this Agreement illegal or otherwise prohibited or any Governmental Authority shall have issued a Governmental Order restraining or enjoining the transactions contemplated by this Agreement, and such Governmental Order shall have become final and non-appealable;

(iii) this Agreement has been submitted to the stockholders of Royale for adoption at a duly convened Royale Stockholders Meeting and the Requisite Royale Vote shall not have been obtained at such meeting (including any adjournment or postponement thereof); or

(iv) this Agreement has been submitted to the Holders and the Holders’ Consent shall not have been obtained.

Agreement shall be construed without regard to any presumption or rule requiring construction or interpretation against the party drafting an instrument or causing any instrument to be drafted. The Disclosure Schedules and Exhibits referred to herein shall be construed with, and as an integral part of, this Agreement to the same extent as if they were set forth verbatim herein.

[SIGNATURE PAGE FOLLOWS]

IN WITNESS WHEREOF, this Agreement and Plan of Exchange has been duly executed and delivered effective as of the date first hereinabove written.

PARENT:


Royale Energy Holdings, Inc.

By_____________________

Name:

Title:

ROYALE:

Royale Energy, Inc.

By__________________________________

Name:

Title:

HOLDERS:


 

__________________________________

Name: Johnny Jordan, Individually

__________________________________

Name: Jeffrey R. Kerns, Individually

__________________________________

Name: Nelda Mae Swift

Jordan Enterprises Limited Partnership

Name:_______________________________

PEM Resources Limited Partnership

Name:________________________________

Title:_________________________________

Meeteetse Limited Partnership

Name:________________________________ 

Title:_________________________________

SIRC Properties LLC

Name:________________________________ 

Title:_________________________________

Groves Investments Profit Sharing Plan

By:__________________________________

Name:________________________________