ROYL Royale Energy Inc (QB)

Exhibit 10.1

 

 

EXCHANGE AGREEMENT

 

This EXCHANGE AGREEMENT (this “Agreement”) is entered into as of June 30, 2024 (the “Closing Date), by and among Royale Energy, Inc., a Delaware corporation (the “Company”), «Legal_Name» (the “Holder”). Each of the Holder and the Company is a “Party”, and together are the “Parties.”

 

WHEREAS, the Company has issued and outstanding 2,466,455 shares of its Series B 3.5% Convertible Preferred Stock (“Series B Preferred Stock”) which are held by certain shareholders, including the Holder (collectively, the “Preferred Holders”);

 

WHEREAS, the Company and the Preferred Holders desire to provide for the exchange of all outstanding shares of the Company’s Series B Preferred Stock to the Company in consideration for certain shares of Royale Common Stock, certain Royale Senior Notes, certain options to purchase Royale Common Stock, and Holder’s pro rata share of certain specified property interests (the “Preferred Exchange”);

 

WHEREAS, the Parties to this Agreement desire to conclude the exchange of Holder’s Series B Preferred Stock for cash and Royale Senior Notes in accordance with terms of this Agreement concurrently with and conditioned upon successful completion of Preferred Exchange transactions with other holders of Series B Preferred Stock;

 

WHEREAS, the Holder is the legal and beneficial owner of «Pref_B» shares of Series B Preferred Stock and all rights to unpaid dividends related thereto (the “Shares”), with an aggregate liquidation value of «Liq_Val» (the “Liquidation Value”); and

 

WHEREAS, the Company desires to purchase and acquire from the Holder, and the Holder desires to sell and exchange with the Company, all of the Shares, together with all unpaid dividends and all rights, options and privileges related to the Shares, for the following consideration (collectively, the “Exchange Consideration”):

 

(i)          «Common» shares of Royale Common Stock;

(ii)         Royale Senior Notes in the aggregate principal amount of «Note»;

(iii)        «Options» options to purchase Royale Common Stock for $0.10 per share exercisable at any time up to five years after the Closing Date; and

(iv)        Royale’s conveyance of «ORRI» (percent) of certain overriding royalties interests;

(v)         Royale’s conveyance of certain real property interests to (the “PH Holdco”) a holding company owned by the Preferred Holders, whom have so elected;

 

NOW, THEREFORE, in consideration of the premises and covenants contained in this Agreement, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the Holder and the Company agree as follows:

 

 

ARTICLE 1

DEFINITIONS, USAGE, ETC.

 

SECTION 1.1     Defined Terms. As used in this Agreement, the terms below have the following meanings:

 

“Affiliate” means, as to any Person, any other Person which directly or indirectly controls, or is under common control with, or is controlled by, such Person. As used in this definition “control” (including, with its correlative meanings, “controlled by” and “under common control with”) means possession, directly or indirectly, of power to direct or cause the direction of management or policies (whether through ownership of securities or partnership or other ownership interest, by contract or otherwise).

 

“Applicable Law” means, with respect to any Person, any Law applicable to such Person or its business, properties or assets.

 

“Certificate of Designation” means the Royale Energy, Inc. (formerly known as Royale Energy Holdings, Inc.) Certificate of Designation of Series B 3.5% Redeemable Convertible Preferred Stock to be Designated Serie B Preferred Stock, filed with the Secretary of State of the State of Delaware as provided by the General Corporation Law of the State of Delaware.

 

“Closing” means the closing of the transactions contemplated by this Agreement.

 

“Code” means the Internal Revenue Code of 1986, and the regulations thereunder, in each case as amended, reformed or otherwise modified from time to time.

 

“Exchange Consideration” has the meaning assigned to such term in the recitals to this Agreement.

 

“Governmental Authority” means any domestic, foreign, international, supranational, national, provincial, regional, federal, state, municipal or local government, any instrumentality, subdivision, court, administrative or regulatory agency or commission or other authority thereof, or any quasi-governmental or private body exercising any regulatory, taxing, importing or other governmental or quasi-governmental authority.

 

“Indebtedness” means all obligations of the Company owed to the Holder under the Indenture, as well as the guarantees of such obligations.

 

“Law” means all applicable statutes, rules of law, rules, regulations, orders, writs, decrees, rulings, judgments, awards, agreements, approvals, authorizations, consents, licenses, clearances, waivers, permits, memoranda of understanding, commitment letters or similar understandings of or with any court, arbitrator or Governmental Authority.

 

“Lien” means any mortgage, deed of trust, lien, pledge, charge, claim, security interest, restrictive covenant or easement or encumbrance of any kind, whether or not filed, recorded or otherwise perfected under Applicable Law, as well as the interest of a vendor or lessor under any conditional sale agreement, capital lease or other title retention agreement.

 

 

“Material Adverse Effect” has the meaning assigned to such term in Section 5.1.

 

“Party” or “Parties” has the meaning assigned to such term in the preamble.

 

“Person” means any corporation, limited liability company, joint venture, partnership, individual, limited partnership, trust or other business entity.

 

“Company” has the meaning assigned to such term in the preamble to this Agreement.

 

“Representative” means any officer, director, employee, partner, trustee, attorney, accountant, advisor, agent or other representative of any Person.

 

“Second Lien Notes” means the notes issued by the Company to evidence the obligations under the Indenture.

 

“Securities Act” has the meaning assigned to such term in Section 4.5.

 

“Holder” has the meaning assigned to such term in the preamble to this Agreement.

 

“Holder’s Assigned Obligations” has the meaning assigned to such term in the recitals to this Agreement.

 

“Holder’s Proportional Share” means the fraction which results from dividing the number of shares of Series B Preferred Stock held by Holder immediately prior to closing on the Closing Date by the number of Series B Preferred Stock held by all of the Preferred Holders (including Shares held by Holder) immediately prior to closing on the Closing Date.

 

“Royale Common Stock” means the Common Stock, $0.001 par value per share, of the Company.

 

“Royale Common Stock Options” means options issued by Royale Energy Inc. to purchase Royale Common Stock for $0.10 per share in cash exercisable at any time up to five years after the Closing Date in substantially the form attached as Exhibit A.

 

“Royale Senior Notes” means the Series 2024 Senior Promissory Notes of Royale Energy, Inc. in substantially the form attached as Exhibit B hereto to be issued by the Company in connection with the Preferred Exchange.

 

“Specified ORRI Interests” means 50% of the overriding royalty interests held by the Company and/or its Affiliates in Alaska, as of the Effective Date of this Agreement.

 

“Specified Property Interests” means all of Company’s interest in Fee Property in Kern County California described by APN numbers 409-022-27-4, 409-170-19-8, and 409-232-01-4.

 

“Subsidiary” or “subsidiary” means, with respect to any Person, any corporation, limited liability company, joint venture, limited partnership or partnership of which such Person (a) beneficially owns, either directly or indirectly, more than 50% of (i) the total combined voting power of all classes of voting securities of such entity, (ii) the total combined equity interests or

 

 

(iii) the capital or profit interests in the case of a partnership; or (b) otherwise has the power to vote or to direct the voting of sufficient securities to elect a majority of the board of directors or similar governing body.

 

“Transfer Tax” means any federal, state, county, local, foreign and other sales, use, transfer, conveyance, documentary transfer, recording or other similar tax, fee or charge imposed upon the sale, transfer or assignment of property or any interest therein or the recording thereof, and any penalty, addition to tax or interest with respect thereto, but such term shall not include any tax on, based upon or measured by, the net income, gains or profits from such sale, transfer or assignment of the property or any interest therein.

 

“VWAP” has the meaning assigned to such term in the Certificate of Designation.

 

SECTION 1.2     Usage of Terms. Except where the context otherwise requires, words importing the singular number shall include the plural number and vice-versa.

 

SECTION 1.3     References to Articles and Sections. All references in this Agreement to Articles and Sections (and other subdivisions), Exhibits and Schedules refer to the corresponding Articles, Sections (and other subdivisions), Exhibits and Schedules of to this Agreement, unless the context expressly, or by necessary implication, otherwise requires.

 

ARTICLE 2

EXCHANGE OF THE SHARES FOR ROYALE SENIOR NOTES AND OTHER CONSIDERATION

 

SECTION 2.1     Sale and Purchase of the Shares.

 

(a)     On the terms and subject to the conditions contained in this Agreement, (a) the Holder is selling, conveying, transferring and assigning to the Company, and the Company is acquiring from the Holder, the Shares, together with all unpaid dividends and all rights, options and privileges related to the Shares, and (b) the Company is paying and delivering the Exchange Consideration to the Holder as consideration for the sale, conveyance, transfer and assignment of the Shares. At the Closing, the Holder shall either (i) to the extent such Series B Preferred Shares are certificated, (A) surrender the certificate or certificates, duly endorsed for transfer, to the Company or the Company’s transfer agent, who shall mark the certificates representing the surrendered Shares as “CANCELLED”, and (B) if such certificate or certificates, to the extent such Series B Preferred Shares are certificated, have been lost, stolen or destroyed, the holder must notify the Corporation’s transfer agent that such certificates have been lost, stolen or destroyed and execute an agreement satisfactory to the Corporation to indemnify the Corporation from any loss incurred by it in connection with such certificate or certificates, or (ii) to the extent the Series B Preferred Shares are uncertificated, sign and deliver a letter of

 

 

transmittal in the form of Exhibit C providing for the transfer and assignment of the uncertificated Shares to the Company.

 

(b)     The Holder and the Company agree that (i) the liquidation preference amount of all Shares to be surrendered in exchange for the Exchange Consideration is $10.00 per share, or «Pref_B» X $10.00 per Share or «Liq_Val» in the aggregate, and (ii) the Exchange Consideration for each Share exchanged by Holder comprises (A) 9 shares of Royale Common Stock, plus (B) Royale Senior Notes in an original principal amount equal to 10% of the Liquidation Value of such Share (i.e., $1.00 principal amount of Royale Senior Note per Share), plus (C) Royale Common Stock Options to purchase 10.143840 shares of Royale Common Stock for each Share exchanged, plus (D) Holders Proportional share of the Specified ORRI Interests, plus, if so elected (E) Holder’s Proportional share of the Specified Property Interests to PH Holdco, divided by the number of Shares.

 

SECTION 2.2     Waiver. The Holder hereby waives and releases any and all rights and claims it may have against the Company and its directors, officers, employees, agents and affiliates, for any matter arising in or relating to any and all periods on or before the Closing Date. Such waiver shall be subject to and effective upon the consummation of the Closing.

 

SECTION 2.3     Taxes.

 

(a)     The Company shall not pay any Transfer Taxes or any documentary stamp taxes that may be payable in respect of the transfer of the Shares or the issuance of the Royale Senior Notes and the other Exchange Consideration.

 

(b)     The Holder agrees to complete, execute and deliver, accurately and in a manner reasonably satisfactory to the Company, a valid U.S. Internal Revenue Service form W-8 and W-9, as applicable, or any successor form, and any required attachments thereto, and any other tax related forms required by the Company (i) upon execution of this Agreement and thereafter prior to the date on which the form becomes invalid, (ii) promptly upon reasonable demand by the Company, and (iii) promptly upon learning that any such form (or successor thereto) previously provided has become obsolete or incorrect.

 

ARTICLE 3

CLOSING

 

The Closing shall take place as soon as practicable after the conditions set forth in Article 6 hereof have been satisfied by the Holder and the Company, at such time and place as the Holder and the Company shall mutually agree.

 

 

ARTICLE 4

REPRESENTATIONS AND WARRANTIES OF THE HOLDER

 

The Holder hereby represents and warrants to the Company as follows:

 

SECTION 4.1     Power and Authority; Authorization; Binding Effect. The Holder has all necessary power and authority to execute and deliver this Agreement, to consummate the transactions contemplated hereby and to perform its obligations hereunder in accordance with the terms of this Agreement. This Agreement has been duly authorized, executed and delivered by the Holder and constitutes a legal, valid and binding obligation of the Holder enforceable against the Holder in accordance with its terms, except as may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors’ rights in general and subject to general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law).

 

SECTION 4.2     Ownership of the Shares. The Holder is the record and beneficial owner of the Shares, and, upon sale and delivery of the Shares to the Company as provided herein, the Holder will convey to the Company good and marketable title to the Shares, free and clear of all Liens other than Liens created by the Company, if any, or restrictions on transfer under federal and state securities Laws.

 

SECTION 4.3     Consents and Approvals. No consent, approval or authorization of, or declaration, filing or registration with, any Governmental Authority or other Person is required to be made or obtained by the Holder in connection with the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby, except for consents, approvals, filings and similar requirements, the failure of which to be obtained or made would not reasonably be expected to, individually or in the aggregate, prevent the Holder from performing under this Agreement in all material respects.

 

SECTION 4.4     Compliance with Applicable Law; No Conflicts. The execution, delivery and performance by the Holder of this Agreement, the sale and exchange of the Shares pursuant to this Agreement and the consummation of the other transactions contemplated hereby (a) will not violate any Applicable Law or any order or decree of any court or governmental instrumentality applicable to the Holder or any of its property; and (b) will not conflict with or result in the breach or termination of, constitute a default under or accelerate any performance required by, any indenture, mortgage, deed of trust, lease, agreement or other instrument to which the Holder is a party or by which the Holder or any of its property is bound.

 

SECTION 4.5     Investment Representations. The Holder:

 

(a)     is familiar with transactions of the kind and scope reflected in this Agreement;

 

(b)     has made its own independent investigation and appraisal of the financial condition and affairs of the Company and its Subsidiaries and has conducted its own evaluation of the Royale Common Stock and Royale

 

 

Senior Notes and the Company’s creditworthiness and will continue to do so;

 

(c)     (i) is an “accredited investor,” as that term is defined in Regulation D under the Securities Act of 1933, as amended (the “Securities Act”), and (ii) has such knowledge, skill, sophistication and experience in business and financial matters, based on actual participation, that it is capable of evaluating the merits and risks of an investment in the Royale Common Stock and Royale Senior Notes and the suitability thereof for such Holder; and

 

(d)     is exchanging the Shares for the Royale Common Stock and Royale Senior Notes for its own account for investment purposes and not with a view to the distribution thereof in violation of applicable securities laws.

 

SECTION 4.6     Foreign Holders. If the Holder is not a United States person (as defined by Section 7701(a)(30) of the Code), such Holder hereby represents that it has satisfied itself as to the full observance of the laws of its jurisdiction in connection with any invitation to subscribe for the Royale Common Stock and Royale Senior Notes or any use of this Agreement, including: (i) the legal requirements within its jurisdiction for the purchase of the Royale Common Stock and Royale Senior Notes, (ii) any foreign exchange restrictions applicable to such purchase, (iii) any governmental or other consents that may need to be obtained, and (iv) the income tax and other tax consequences, if any, that may be relevant to the purchase, holding, redemption, sale, or transfer of the Royale Common Stock and Royale Senior Notes. The Holder’s exchange for and continued beneficial ownership of the Royale Common Stock and Royale Senior Notes, will not violate any applicable securities or other laws of such Holder’s jurisdiction. The funds used to purchase the Shares to be exchanged for the Royale Common Stock and Royale Senior Notes do not violate the anti-money laundering provisions of the Money Laundering Control Act of 1986 or the Bank Secrecy Act of 1970, as amended by the USA Patriot Act of 2001.

 

SECTION 4.7     Restricted Securities. The Holder understands that the Royale Common Stock and Royale Senior Notes are characterized as “restricted securities” under the Securities Act inasmuch as they are being acquired from the Company in a transaction not involving a public offering and that under the Securities Act and applicable regulations thereunder such securities may be resold without registration under the Securities Act only in certain limited circumstances. The Holder acknowledges that the Royale Common Stock and Royale Senior Notes must be held indefinitely unless subsequently registered under the Securities Act or unless an exemption from such registration is available. In this connection, such Holder represents that such Holder is familiar with Rule 144 promulgated under the Securities Act, as presently in effect, and understands the resale limitations imposed thereby and by the Securities Act. Such Holder understands that the Company is under no obligation to register any of the securities sold hereunder. Such Holder understands that no public market now exists for any of the Royale Common Stock and Royale Senior Notes and that a public market may never exist for such securities.

 

 

SECTION 4.8     Legend. It is understood that each of the Royale Senior Notes will bear the following legend (in addition to any other legend as may be required):

 

THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE TRANSFERRED WITHOUT REGISTRATION UNDER THE SECURITIES ACT OR STATE SECURITIES LAWS OR IN A TRANSACTION WHICH IS EXEMPT FROM REGISTRATION THEREUNDER.

 

SECTION 4.9     Additional Transfer Restrictions on Royale Senior Notes. Without in any way limiting the representations set forth above, the Holder further acknowledges and agrees that the Royale Senior Notes are subject to additional restrictions on transfer as set forth in the form of the Royale Senior Notes.

 

SECTION 4.10     Consent to Exchange by Other Series B Preferred Holders. By execution of this Agreement, the Holder hereby consents to the exchange by the Company of shares of Royale Common Stock and Royale Senior Notes for all outstanding Series B Preferred Shares held by the Preferred Holders.

 

ARTICLE 5

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

 

The Company represents and warrants to the Holder as follows:

 

SECTION 5.1     Due Organization. The Company is a duly organized and a validly existing corporation in good standing under the laws of the State of Delaware. Each of the Company’s Subsidiaries has been duly organized and is a validly existing limited liability company in good standing under the laws of the State of Delaware. The Company has the power, authority and capacity to execute and deliver this Agreement, to perform its obligations hereunder, and to consummate the Preferred Exchange contemplated hereby. The Company and each of its Subsidiaries is duly qualified to do business as a foreign corporation or other legal entity in good standing in all other jurisdictions in which its ownership or lease of property or the conduct of its business requires such qualification, except in any case where the failure to be so qualified would not have material adverse effect on the condition (financial or other), business, properties, results of operations or prospects of the Company and its Subsidiaries taken as a whole (a “Material Adverse Effect”).

 

SECTION 5.2     Power and Authority; Authorization; Binding Effect. The Company has all necessary corporate power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby and to perform its obligations hereunder. This Agreement has been duly authorized, executed and delivered by the Company and constitutes a legal, valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except as may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors’ rights in general and subject to general

 

 

principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law).

 

SECTION 5.3     Valid Issuance. In accordance with this Agreement, (i) the shares of Royale Common Stock included in the Exchange Consideration will be validly issued, fully paid and nonassessable shares of Royale Common Stock and, upon the conclusion of the Preferred Exchange, the Holder will hold all of the legal and beneficial title to such shares of Royale Common Stock, free and clear of all Liens, other than Liens created by the Holder, if any, or restrictions on transfer under federal and state securities Laws. and (ii) the Royale Senior Notes included in the Exchange Consideration will be duly authorized, validly issued and outstanding indebtedness of the Company, the Holder will hold all of the legal and beneficial title to such shares of Royale Senior Notes, free and clear of all Liens, other than Liens created by the Holder, if any or restrictions on transfer under federal and state securities Laws. No holder of any outstanding shares of capital stock of the Company and no holder of any outstanding Indebtedness of the Company is entitled to any preemptive or other rights to subscribe for any shares of Royale Common Stock or any of the Royale Senior Notes included in the Exchange Consideration.

 

SECTION 5.4     Capitalization. The authorized capital of the Company consists, immediately prior to the Closing, of: (i) 280,000,000 shares of common stock, $0.001 par value per share (the “Common Stock”), 71,863,829 shares of which are issued and outstanding immediately prior to the Closing; and (ii) 3,000,000 shares of preferred stock, all of which has been designated Series B Preferred Stock, 2,466,455 of which are issued and outstanding immediately prior to the Closing. The rights, privileges and preferences of the Series B Preferred Stock are as stated in the Royale Energy, Inc. (formerly known as Royale Energy Holdings, Inc.) Certificate of Designation. Exhibit F hereto sets forth the capitalization of the Company immediately following the Closing, including without limitation the number of shares of the following: (i) issued and outstanding Common Stock and (ii) the aggregate amount of all issued and outstanding Royale Senior Notes. Except with respect to Royale Common Stock and the Royale Senior Notes to be issued to Preferred Holders in exchange for their Series B Preferred Stock, there are no outstanding (a) securities or obligations of the Company or any of its Subsidiaries convertible into or exchangeable for any membership units or capital stock of the Company or any such Subsidiary, (b) warrants, rights or options to subscribe for or purchase from the Company or any such Subsidiary any such membership units or capital stock or any such convertible or exchangeable securities or obligations, or (c) obligations of the Company or any such Subsidiary to issue any membership units or shares of capital stock, any such convertible or exchangeable securities or obligations, or any such warrants, rights or options.

 

SECTION 5.5     Consents and Approvals. To the Company’s knowledge, no consent, approval or authorization of, or declaration, filing or registration with, any Governmental Authority or other Person is required to be made or obtained by the Company in connection with the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby, except for consents, approvals, filings and similar requirements, the failure of which to be obtained or made would not reasonably be expected to, individually or in the aggregate, prevent the Company from performing under this Agreement in all material respects.

 

 

SECTION 5.6     Compliance with Applicable Law; No Conflicts. Subject to waivers and consents obtained prior to the Closing, the execution, delivery and performance by the Company of this Agreement and the consummation of the transactions contemplated hereby (a) will not violate any Applicable Law, or any order or decree of any court or governmental instrumentality applicable to Company, any of Company’s Subsidiaries or any of their property; (b) will not conflict with or result in the breach or termination of, constitute a default under or accelerate any performance required by, any indenture, mortgage, deed of trust, lease, agreement or other instrument to which Company or any of its Subsidiaries is a party or by which Company, any of its Subsidiaries or any of their property is bound, and (c) will not result in a breach or violation of the charter or bylaws, or other formation documents, of the Company or its Subsidiaries.

 

SECTION 5.7     Litigation. There are no pending actions, suits or proceedings against or involving the Company or any of its property, or involving any of its Subsidiaries or any of their respective properties, that could reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect, or that would materially and adversely affect the ability of the Company to perform its obligations under this Agreement, or that are otherwise material in the context of the sale of the Shares; and, to the Company’s knowledge, no such actions, suits or proceedings are threatened or contemplated.

 

SECTION 5.8     Investment Company. The Company is not and, after giving effect to the sale of the Shares, will not be an “investment company” as defined in the Investment Company Act of 1940, as amended.

 

SECTION 5.9     Brokers. No broker, finder or investment banker is entitled to any brokerage, finder’s or other fee or commission in connection with the origination, negotiation or execution of this Agreement or the other transactions contemplated by this Agreement based upon arrangements made by or on behalf of the Company.

 

ARTICLE 6

CLOSING DELIVERIES AND CONDITIONS

 

SECTION 6.1     Deliveries. The following actions shall be taken on the date of the Closing, except as otherwise provided below, in connection with and as a condition to the consummation of the transactions contemplated hereby, all of which shall be deemed to have been taken simultaneously:

 

(a)     Holder shall execute and deliver an original counterpart of this Agreement to the Company, and a duly authorized officer of the Company shall execute and deliver an original counterpart of this Agreement to Holder;

 

(b)     the Holder shall execute and deliver a stock certificate, or letter of transmittal evidencing the assignment and transfer of all right, title and interest in and to the Shares to the Company;

 

 

(c)     the Company shall issue and deliver to Holder a Royale Senior Note in the original principal amount of 10% of the aggregate Liquidation Preference of all Shares exchanged by Holder;

 

(d)     within 30 days following Closing, the Company shall issue and deliver to Holder a stock certificate, or notice of book entry, evidencing the issuance of ten shares of Royale Common Stock for each Share exchanged by Holder;

 

(e)     the Company shall execute and deliver to the Holder a receipt in the form attached hereto as Exhibit D; and

 

(f)     the Holder shall execute and deliver to the Company a receipt in the form attached hereto as Exhibit E.

 

SECTION 6.2     Additional Conditions Precedent to Obligations of the Holder. The obligations of the Holder to exchange the Shares for the Exchange Consideration on the date of the Closing is subject to the satisfaction, or the waiver by the Holder, on or before the date of the Closing of the conditions set forth below. If on the date of the Closing any of the conditions specified in this Section 6.2 shall not have been fulfilled, the Holder shall, at its election, be relieved of all of its obligations under this Agreement.

 

(a)     Each representation and warranty contained in Section 5 hereof shall be true, correct and complete in all material respects on and as of the date of the Closing.

 

(b)     The Company shall have performed, satisfied and complied in all material respects with the covenants and conditions required hereby to be performed, satisfied or complied with by it at or before the Closing including, without limitation, the transfer, assignment and conveyance by the Company of Holder’s Proportional Share of the Specified ORRI Interests, and if so elected, the Specified Property Interests to the PH Holdco, if applicable, and Holder’s Proportional Share of that certain overriding royalty interest.

 

(c)     Preferred Holders holding at least 100% of the Series B Preferred Stock have executed and delivered an exchange agreement to the Company providing for the exchange of all of their shares of Series B Preferred Stock for Royale Common Stock and Royale Senior Notes on substantially the same terms as this Agreement.

 

SECTION 6.3     Additional Conditions Precedent to Obligations of the Company. The obligations of the Company to deliver the Exchange Consideration for the Holder’s in exchange for the Shares on the date of the Closing is subject to the satisfaction, or the waiver by the Company, on or before the date of the Closing of the conditions set forth below. If on the date of the Closing any of the conditions specified in this Section 6.3 shall not have been fulfilled, the Company shall, at its election, be relieved of all of its obligations under this Agreement.

 

 

(a)     Each representation and warranty contained in Section 4 hereof shall be true, correct and complete in all material respects on and as of the date of the Closing.

 

(b)     The Holder shall have performed, satisfied and complied in all material respects with the covenants and conditions required hereby to be performed, satisfied or complied with by it at or before the Closing.

 

(c)     The Company shall have entered into exchange agreements with Preferred Holders holding at least 80% of the Series B Preferred Stock have executed and delivered an exchange agreement to the Company providing for the exchange of all of their shares of Series B Preferred Stock for Royale Common Stock and Royale Senior Notes on substantially the same terms as this Agreement.

 

ARTICLE 7

MISCELLANEOUS

 

SECTION 7.1     Survival. All representations and warranties made in this Agreement and in any document, certificate or statement delivered pursuant hereto or in connection herewith shall survive until the first anniversary of the execution and delivery of this Agreement.

 

SECTION 7.2     Expenses. Except as otherwise expressly provided in this Agreement, each Party shall bear and pay its own costs and expenses incurred in connection with the transactions contemplated by this Agreement.

 

SECTION 7.3     Notices. Unless otherwise provided in this Agreement, any notice, request, instruction or other communication to be given hereunder by either Party to the other shall be in writing and (a) delivered personally, (b) mailed by first-class mail, postage prepaid, (such mailed notice to be effective four days after the date it is mailed) or (c) sent by email transmission, with a confirmation sent by way of one of the above methods, as follows:

 

 

If to the Holder, addressed to:

 

«Legal_Name»

 

«Signer_Name»

 

«Address»

 

«Email»

 

If to the Company, addressed to:

 

Royale Energy, Inc.
1530 Hilton Head Road #205
El Cajon, CA 92019
Attn: CEO and Chairman of the Board

 

Either Party may designate in a writing to the other Party any other address or email number to which, and any other Person to whom or which, a copy of any such notice, request, instruction or other communication should be sent.

 

SECTION 7.4     Governing Law; Jurisdiction. THE PARTIES HEREBY AGREE THAT THIS AGREEMENT, AND THE RESPECTIVE RIGHTS, DUTIES AND OBLIGATIONS OF THE PARTIES HEREUNDER, SHALL ALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAWS THEREUNDER. TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, EACH OF THE PARTIES HEREBY (i) IRREVOCABLY CONSENT AND AGREES THAT ANY LEGAL OR EQUITABLE ACTION OR PROCEEDINGS ARISING UNDER OR IN CONNECTION WITH THIS AGREEMENT SHALL BE BROUGHT EXCLUSIVELY IN THE COURTS OF THE UNITED STATES OF AMERICA FOR THE STATE OF DELAWARE; AND (ii) BY EXECUTION AND DELIVERY OF THIS AGREEMENT, IRREVOCABLY SUBMITS TO AND ACCEPTS, WITH RESPECT TO ANY SUCH ACTION OR PROCEEDINGS, FOR ITSELF AND IN RESPECT OF ITS PROPERTIES AND ASSETS, FOR PURPOSES OF THIS AGREEMENT, THE JURISDICTION OF THE AFORESAID COURTS, AND IRREVOCABLY WAIVES ANY OBJECTION TO VENUE IN SUCH COURTS.

 

SECTION 7.5     No Consequential or Punitive Damages. Neither Party hereto (or any of their respective Affiliates) shall, under any circumstance, be liable to the other Party (or its Affiliates) for any consequential, exemplary, special, indirect, incidental or punitive damages claimed by such other Party under the terms of or due to any breach of this Agreement, including, but not limited to, loss of revenue or income, cost of capital, or loss of business reputation or opportunity.

 

SECTION 7.6     Titles. The headings of the articles and sections of this Agreement are inserted for convenience of reference only and shall not affect the meaning or interpretation of this Agreement.

 

SECTION 7.7     Waiver. No failure of a Party to require, and no delay by a Party in requiring, the other Party to comply with any provision of this Agreement shall constitute a waiver of the right to require such compliance. No failure of a Party to exercise, and no delay by a Party

 

 

in exercising, any right or remedy under this Agreement shall constitute a waiver of such right or remedy. No waiver by a Party of any right or remedy under this Agreement shall be effective unless made in writing. Any waiver by a Party of any right or remedy under this Agreement shall be limited to the specific instance and shall not constitute a waiver of such right or remedy in the future.

 

SECTION 7.8     Binding; Third-Party Beneficiaries. This Agreement shall be binding upon the Parties and upon each of their respective successors and assignees and shall inure to the benefit of, and be enforceable by, each Party and each of their respective successors and assignees; provided, however, that, with the exception of an assignment by the Holder to any Affiliate thereof, neither Party shall assign any right or obligation arising pursuant to this Agreement without first obtaining the written consent of the other Party. Nothing contained herein shall confer upon any Person other than the Parties and their permitted successors and assigns, any right to insist upon or to enforce the performance or observance of any of the obligations contained herein.

 

SECTION 7.9     Entire Agreement. This Agreement together with all of the other documents executed contemporaneously with this Agreement and relating to the Preferred Exchange contains the entire agreement, between the Parties with respect to the subject of this Agreement, and supersedes each course of conduct previously pursued, accepted or acquiesced in, and each written and oral agreement and representation previously made, by the Parties with respect thereto, whether or not relied or acted upon.

 

SECTION 7.10     Severability. Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.

 

SECTION 7.11     Modification. No course of performance or other conduct hereafter pursued, accepted or acquiesced in, and no oral agreement or representation made in the future, by the Parties, whether or not relied or acted upon, and no usage of trade, whether or not relied or acted upon, shall modify or terminate this Agreement, impair or otherwise affect any obligation of the Parties pursuant to this Agreement or otherwise operate as a waiver of any such right or remedy. No modification of this Agreement or waiver of any such right or remedy shall be effective unless made in writing duly executed by the Company and the Holder.

 

SECTION 7.12     Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original and all of which taken together shall constitute one and the same instrument. Either Party may execute this Agreement by facsimile signature and the other Party shall be entitled to rely on such facsimile signature as evidence that this Agreement has been duly executed by such Party. Either Party executing this Agreement by facsimile signature shall immediately forward to the other Party an original signature page by overnight mail or delivery service.

 

 

IN WITNESS WHEREOF, each of the Company and the Holder has caused to be executed by a duly authorized officer this Agreement on the day and year indicated at the beginning of this Agreement.

 

COMPANY

 

Royale Energy, Inc.

 

                                                            

Johnny Jordan, Chief Executive Officer

 

 

 

HOLDER

 

«Legal_Name»

 

By:                                                       
«Signer_Name»

 

 

EXHIBIT A

 

Form of Stock Option Agreement

 

 

 

 

EXHIBIT B

 

Form of Royale Senior Note

 

 

 

 

EXHIBIT C

 

Form of Letter of Transmittal

 

 

 

 

EXHIBIT D

 

RECEIPT

 

THIS RECEIPT, dated as of _____________, is executed and delivered by Royale Energy, Inc. (the “Company”) to «Legal_Name» (the “Holder”) in connection with the Purchase and Sale Agreement, dated as of «Effective_Date» (the “Exchange Agreement”), between the Company and the Holder. Capitalized terms used herein and not otherwise defined herein have the meanings ascribed to such terms in the PSA.

 

The Company represents and warrants to the Holder that the following statements are true and correct as of the date of Closing:

 

1.

At Closing, the Company took possession and title to «Pref_B» shares of Series B Preferred Stock and all rights to unpaid dividends related thereto (the “Shares”), with an aggregate liquidation value of «Liq_Val» (the “Liquidation Value”) by

●

stock certificate # __________

●

Letter of Transmittal _____

 

2.

At Closing, the Company duly executed and delivered to the Holder (i) a notice of book entry evidencing the issuance of «Common» of Royale Common Stock, and (ii) a Royale Senior Note in the original principal amount of «Note».

 

IN WITNESS WHEREOF, the Company has executed this Receipt as of the date first above written.

 

 

ROYALE ENERGY, INC.

 

 

By: Johnny Jordan

 

__________________________                           

Title: Chief Executive Officer

 

 

EXHIBIT E

 

RECEIPT

 

THIS RECEIPT, dated as of ____________, is executed and delivered by «Legal_Name» (the “Holder”) to Royale Energy, Inc., a Delaware corporation (the “Company”), in connection with the Purchase and Sale Agreement, dated as of «Effective_Date» (the “Exchange Agreement”), between the Company and the Holder. Capitalized terms used herein and not otherwise defined herein have the meanings ascribed to such terms in the PSA.

 

The Holder represents and warrants to the Company that the following statements are true and correct:

 

1.

At Closing, the Holder received an (i) notice of book entry evidencing the issuance of «Common» of Royale Common Stock, and (ii) a Royale Senior Note in the original principal amount of «Note».

 

2.

At Closing, the Holder transferred to the Company «Pref_B» shares of Series B Preferred Stock and all rights to unpaid dividends related thereto (the “Shares”), with an aggregate liquidation value of «Liq_Val» (the “Liquidation Value”) by

●

stock certificate # __________

●

Letter of Transmittal _____

 

IN WITNESS WHEREOF, the Holder has executed this Receipt as of the date first above written.

 

 

«Legal_Name»

 

 

____________________________

«Signer_Name»_____

 

 

 

EXHIBIT F

 

Capitalization of the Company

 

(giving effect to the Preferred Exchange)

 

 

 

 

Exhibit 10.2 

 

 

THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR UNDER ANY APPLICABLE STATE LAW. THIS NOTE MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR PLEDGED WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS EXCEPT (1) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT (2) TO ROYALE ENERGY, INC. OR ANY SUBSIDIARY THEREOF, (3) TO A PERSON WHOM THE HOLDER REASONABLY BELIEVES IS A “QUALIFIED INSTITUTIONAL BUYER” AS DEFINED IN RULE 144A UNDER THE ACT (A “QIB”) PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QIB IN COMPLIANCE WITH RULE 144A UNDER THE ACT, (4) OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 904 UNDER THE ACT, (5) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE ACT (IF AVAILABLE), (6) TO AN INSTITUTIONAL “ACCREDITED INVESTOR” (AS DEFINED IN RULE 501(A)(1), (2), (3) OR (7) OF REGULATION D UNDER THE ACT) OR (7) PURSUANT TO ANOTHER EXEMPTION FROM REGISTRATION UNDER THE ACT, AND, IN EACH CASE, IN ACCORDANCE WITH ANY APPLICABLE STATE SECURITIES LAWS. FOR PURPOSES OF CLAUSES (6) AND (7) ABOVE, AN OPINION OF COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED MAY BE REQUESTED BY ROYALE ENERGY, INC. AS USED HEREIN, THE TERMS “OFFSHORE TRANSACTION,” “UNITED STATES” AND “U.S. PERSON” HAVE THE MEANINGS GIVEN TO THEM BY RULE 902 OF REGULATION S UNDER THE ACT.

 

THIS NOTE IS SUBJECT TO THE SUBORDINATION PROVIONS SET FORTH HEREIN. BY ITS ACCEPTANCE OF THIS NOTE, THE HOLDER HEREOF AGREES TO BE BOUND BY SUCH SUBORDINATION PROVISIONS TO THE SAME EXTENT THAT “HOLDER” (AS DEFINED HEREIN) IS BOUND.

 

FORM OF SERIES 2024 SENIOR PROMISSORY NOTE

 

[$ 1,166,496.00]

[October 1, 2024]

 

FOR VALUE RECEIVED, the undersigned, ROYALE ENERGY, INC., a Delaware corporation, with a mailing address of 1530 Hilton Head Road, Suite 205, El Cajon, California 92019 (“Maker” or the “Company”), promises to pay to the order of Jordan Enterprises Limited Partnership, a California Limited partnership (together with any future holder of this Proimssor Note, the “Holder”), in lawful money of the United States of America, in the principal sum of One Million, One Hundred Sixty Six Thousand Four Hundred Ninty Six Dollars ($1,166,496.00)], together with interest at the Stated Interest Rate (as defined below), payable at such time and in such manner as provided below. This Promissory Note (this “Note”) is designated a “Series 2024 Senior Promissory Note” of the Company and it ranks pari passu with all other all other senior, unsecured debt of the Company, including all other Series 2024 Senior Promissory Notes of the Company. This Note is subject to prior payment of senior secured indebtedness and obligations of Maker. The Note is issued under terms of the Transaction Agreement as provided in Section 6 below.

 

1.    Interest Rate. Subject to Section 3 hereof, the interest rate on this Note shall be fixed at the rate of zero percent (0.00%) per annum on the outstanding daily principal balance of this Note at all times from the date of this Note set forth above (the “Effective Date”) through the close of business on December 31, 2025 (the “First Interest Period End Date”); and immediately

 

 

thereafter the interest rate shall automatically reset such that outstanding daily principal balance of this Note from day to day outstanding shall bear interest at a rate of five percent (5.00%) per annum at all times from the First Interest Period End Date through December 31, 2027 (the “Second Interest Period End Date”); and immediately thereafter the interest rate shall automatically reset such that outstanding daily principal balance of this Note from day to day outstanding shall bear interest at a rate of eight percent (8.00%) per annum at all times from the Second Interest Period End Date through June 30, 2029 (the “Maturity Date”) and until all outstanding principal hereunder has been paid in full (as applicable, the “Stated Interest Rate”); it being understood that the Stated Interest Rate shall not exceed the Maximum Rate and shall in any event be subject to the provisions of Section 3 below.

 

2.    Payment.

 

(a)    Interest; Time of Payments; PIK Interest Election. During the period from the First Interest Period End Date until the Maturity Date and thereafter until all outstanding principal hereunder is repaid in full in cash, interest shall accrue on the outstanding principal balance of this Note at the applicable Stated Interest Rate and shall be payable monthly in arrears not later than the fifth business day of each month (each such date is an “Interest Due Date”); provided, however, that during the period from the First Interest Period End Date until the Second Interest Period End Date (the “Second Interest Period” herein) following the delivery by Maker to Holder of a PIK Notice, in the form attached as Exhibit A hereto, and continuing until the first Interest Due Date following the delivery by Maker to Holder of a PIK Revocation Notice, in the form attached as Exhibit B hereto, Maker shall make no cash payment of interest on this Note and in lieu of such payments, all accrued and unpaid interest shall be added automatically and immediately, without any further action by Maker or Holder, to the outstanding principal amount of the Note on and as of each such monthly Interest Due Date (“PIK Interest”). For absence of doubt, Maker shall have no right to substitute PIK Interest for cash interest payments due under this Note with respect to interest due during any period under this Note other than interest due during the Second Interest Period. In addition, subject to the terms contained herein, all outstanding principal of this Note, together with all accrued and unpaid interest at the Stated Interest Rate, shall be due and payable on the Maturity Date in a single lump sum payment.

 

(b)    Mandatory Prepayment. Upon closing of the sale of the Company, or substantially all assets or ownership interests of the Company at any time when amounts are outstanding under terms of this Note, the Maker shall prepay the outstanding principal balance due under this Note together with all accrued and unpaid interest thereon at the Stated Interest Rate within three (3) business days following closing and receipt of funds from such transaction.

 

(c)    Optional Prepayments. The Maker may prepay at any time, and from time to time up to and including the Maturity Date, all or any portion of the outstanding principal balance due under this Note, without premium or penalty, provided that each such prepayment is accompanied by all accrued and unpaid interest thereon; provided further, that the Maker shall pay the entire remaining outstanding principal balance, if any, due under this Note, together with accrued and unpaid interest thereon, to Holder on the

 

 

Maturity Date. Any partial prepayments shall be applied first to accrued and unpaid interest with the remainder, if any, applied to the payment of principal.

 

(d)    Manner of Payment. All payments due under the Note shall be made in U.S. dollars in immediately available funds to Holder. If any payment on the Note is due on a day which is not a Business Day (as hereinafter defined), such payment shall be due on the next succeeding Business Day. “Business Day” means any day other than a Saturday, Sunday or legal holiday in the State of Texas or California.

 

(e)    Any payment of any amount due hereunder, whether principal, interest, fees or expenses, which is overdue for more than forty-five (45) days shall incur a penalty in the amount of $100.00 per day for each day thereafter during which such payment remains unpaid.

 

3.    Maximum Rate. Regardless of any provision in this Note or in any other document or instrument executed in connection herewith, it is the intention of both Holder and the Company that Holders not (a) contract for, charge, take, reserve, receive, or apply, as interest on all or any part of the principal of this Note any amount in excess of the Maximum Rate or the Maximum Amount or (b) receive any unearned interest, in violation of any applicable law. If any acceleration of the maturity of this Note or any payment under this Note or any other document or instrument executed in connection herewith produces a rate in excess of the Maximum Rate or if any Holder shall for any reason receive any such unearned interest or if any transaction contemplated hereby or by any such other document or instrument would otherwise be usurious under applicable law, then (i) the aggregate of all interest under applicable usury laws that is contracted for, charged, taken, reserved, received or applied under this Note, such other documents or instruments, or otherwise shall under no circumstances exceed the Maximum Amount, (ii) neither the Company nor any other person shall be obligated to pay the amount of such interest to the extent that it is in excess of the Maximum Amount, (iii) any excess or unearned interest shall be deemed to be and shall be treated as a partial prepayment or repayment of principal and any remaining excess or unearned interest will be refunded to the Company, and (iv) the provisions of this Note and such other documents or instruments shall immediately be deemed reformed, without the necessity of the execution of any new document or instrument, so as to comply with all applicable usury laws. For purposes herein, “Maximum Amount” and “Maximum Rate” respectively mean the maximum non-usurious amount and the maximum non-usurious rate of interest that, under applicable law, the Holders permitted to contract for, charge, take, reserve or receive on the outstanding principal amount of this Note.

 

4.    Certain Representations.

 

(a)    Due Organization; Valid Existence. The Company is a corporation duly organized and validly existing under the laws the State of Delaware, has the right to transact business in the State of Delaware and is in good standing and qualified to do business as a foreign business entity in each jurisdiction where the conduct of its business requires such qualification.

 

(b)    Corporate Power. The execution, delivery, and performance by the Company of this Note and the consummation of the transactions contemplated hereby and thereby are within the governing power of the governing bodies of the Company, have been

 

 

duly authorized by all necessary governing actions of such governing bodies, and do not contravene the governing agreements of the Company or any law binding on or affecting the Company.

 

(c)    Authorization and Approvals. No permit and no notice to or filing with any governmental authority or any other person is required for the due execution, delivery, and performance by the Company of this Note or the other documents and instruments executed in connection herewith to which it is a party, except for (i) those permits that have been obtained or made on or prior to the date hereof and that are in full force and effect, and (ii) those notices to and filings with any governmental authority or any other person that have been provided or made on or prior to the date hereof.

 

(d)    Enforceable Obligations. This Note and the other documents and instruments executed in connection herewith to which the Company is a party have been duly executed and delivered by the Company. This Note and such other documents and instruments are the legal, valid and binding obligation of the Company, enforceable against the Company in accordance with their respective terms, except as such enforceability may be limited by any applicable bankruptcy, insolvency, reorganization, moratorium, or similar law affecting creditors’ rights generally and by general principles of equity.

 

(e)    True and Complete Disclosure. All factual information (excluding estimates) heretofore or contemporaneously furnished by or on behalf of the Company in writing to Holder for purposes of or in connection with this Note, the other documents and instruments executed in connection herewith to which the Company is a party or any transaction contemplated hereby or thereby is, and all other such factual information hereafter furnished by or on behalf of the Company in writing to Holder shall be, to its best knowledge, true, complete and accurate in all material respects on the date as of which such information is dated or certified and did not or will not, as the case may be, contain any untrue statement of a material fact or omit to state, as of the date delivered, any material fact or liability necessary to make the statements contained therein not misleading at such time.

 

5.    Covenants.

 

(a)    Compliance with Laws, Etc. the Company shall comply in all material respects with all applicable laws.

 

(b)    Preservation of Rights, etc. the Company shall preserve and maintain, as applicable, its rights, franchises and privileges in the jurisdiction where its properties are located.

 

(c)    Notice of Default; Claims. the Company shall furnish to Holder prompt written notice, and in any event within ten (10) days after Maker acquires knowledge, of (x) the occurrence of any Default under this Note, and (y) any claims, legal or arbitration proceedings, before any governmental authority, or disputes, pending, or, to the best knowledge of the Company, threatened, against the Company which could reasonably be expect to cause a material adverse effect on the Company.

 

 

(d)    Further Assurances. The Company shall cure promptly any defects in the creation and issuance of this Note and the execution and delivery of this Note and the other documents and instruments executed in connection herewith to which it is a party at the request of Holder. The Company at its own expense will promptly execute and deliver to Holder upon its reasonable request all such other documents, agreements and instruments to comply with or accomplish the covenants and agreements of the Company under the Note and such other documents and instruments.

 

6.    Transaction Agreement. Maker issued this Note and each of the other Series 2024 Senior Promissory Notes issued under either i) the Exchange Agreement (the “Exchange Agreement”) dated as of October 1, 2024, and/or ii) the Release Agreement dates (the “Release Agreement”) dated as of October 1, 2024, collectively referred to as “Transaction Agreement”. The terms of this Note and the other Series 2024 Senior Promissory Notes include those stated in the Agreement. This Note and the other Series 2024 Senior Promissory Notes are subject to all such terms, and Holder is referred to the Transaction Agreement for a statement of such terms.

 

7.    Events of Default and Remedies. The occurrence of any one or more of the following events with respect to Maker shall constitute an event of default hereunder (“Event of Default”):

 

(a)    Payment Default. If Maker shall fail to pay when the principal, interest due or the Commitment Fee with respect to this Note on the Maturity Date.

 

(b)    Acceleration of Material Indebtedness. If an event occurs which results in the acceleration of outstanding indebtedness of the Company under the Credit Agreement, or the acceleration of payment obligations of the Company under any agreement in an amount equal to or greater than $10,000,000 and such amounts are not paid in full within 60 days.

 

(c)    Covenant Default.The Company shall default in the observance or performance of any other agreement contained in this Note (other than a payment default) and such default continues unremedied for 15 days.

 

(d)    Bankruptcy and Insolvency. If, pursuant to or within the meaning of the United States Bankruptcy Code or any other federal or state law relating to insolvency or relief of debtors (a “Bankruptcy Law”), Maker shall (i) commence a voluntary case or proceeding; (ii) consent to the entry of an order for relief against it in an involuntary case; (iii) consent to the appointment of a trustee, receiver, assignee, liquidator or similar official; (iv) make an assignment for the benefit of its creditors; or (v) admit in writing its inability to pay its debts as they become due.

 

(e)    Appointment of Receiver. If an involuntary bankruptcy proceeding is commenced against Maker or a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that (i) appoints a trustee, receiver, assignee, liquidator or similar official for Maker or substantially all of Maker’s properties, or (ii) orders the liquidation of Maker, and in each case the proceeding, order or decree is not dismissed within 90 days.

 

 

Maker shall notify Holder in writing within ten (10) days after the occurrence of any Event of Default of which Maker acquires knowledge.

 

8.    Remedies. upon the occurrence of an Event of Default hereunder (unless all Events of Default have been cured or waived by Holder), Holder may, at its option (i) by written notice to Maker, declare the entire unpaid principal balance of this Note, together with all accrued interest thereon and all other amounts related thereto, immediately due and payable regardless of any prior forbearance, and/or (ii) exercise any and all rights and remedies available to it under applicable law, including, without limitation, the right to collect from Maker all sums due under this Note. Each right and remedy available to Holder shall be cumulative of and in addition to each other such right and remedy. No delay on the part of Holder in the exercise of any right or remedy available to Holder shall operate as a waiver thereof, nor shall any single or partial exercise thereof or exercise of any other such right or remedy. Enforcement by Holder of any security for the payment hereof shall not constitute any election by Holder of remedies so as to preclude the exercise of any other remedy available to Holder.

 

9.    Transfer or Replacement of the Note; Accredited Investor.

 

(a)    Note Transfer; Replacement. This Note is a separate and detachable security, transferable only on the books of Maker at the office of the Maker by the registered Holder hereof in person or by an attorney duly authorized in writing, upon surrender of this Note to the Maker for transfer. The Maker may require and condition any proposed transfer on its receipt of definitive written information reasonably requested concerning the prospective transferee. Upon any such transfer, a new Note will be issued to the transferee or transferees in exchange for this Note. Upon receipt by the Maker of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Note, and, in case of loss, theft or destruction, of an agreement of indemnity, Maker will make and deliver a new Note of like tenor, in lieu of this Note. This Note shall be promptly canceled by Maker upon the surrender hereof in connection with any exchange, transfer or replacement.

 

(b)    Investment Purposes. The Holder represents that it is acquiring the Note for investment purposes and not with a view to the resale or distribution in violation of the Securities Act of 1933, as amended (the “Securities Act”) of all or any part thereof. The Holder acknowledges that the Note has not been registered under the Securities Act or the securities or “blue sky” laws of any state or other domestic or foreign jurisdiction (collectively, the “Securities Laws”), and that none of such securities may be sold, transferred or otherwise disposed of except pursuant to an effective registration statement thereunder or an applicable exemption therefrom.

 

(c)    Accredited Investor. The Holder (i) has such knowledge and experience in financial and business matters that such Holder is capable of evaluating the merits and risks of his or her investment in the Note and has the financial ability to assume the monetary risk associated therewith; (ii) is able to bear the complete loss of his or her investment in the Note; has received such documents and information from the Maker as such Holder has requested and has had the opportunity to ask questions of and receive answers from the Maker and the terms and conditions of the offering of the notes and to obtain additional information; (iii) is an “accredited investor” as defined in Rule 501(a) of Regulation D promulgated under the Securities Act; and (iv) is not relying upon any statements or instruments made or issued by any person other than the Maker in making a decision to invest in the Note.

 

 

(d)    Restrictions on Transfer. This Note has not been registered under the Securities Laws, and no such registration is contemplated. This Note shall not be transferable except in compliance with the provisions of the Securities Laws, which require registration, or an applicable exemption from registration, for each transfer or other disposition of the Note. This Note and each note issued in exchange for or upon transfer of this Note shall be stamped or otherwise imprinted with a legend in substantially the following form:

 

“THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR UNDER ANY APPLICABLE STATE LAW. THIS NOTE MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR PLEDGED WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS EXCEPT (1) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT (2) TO ROYALE ENERGY, INC. OR ANY SUBSIDIARY THEREOF, (3) TO A PERSON WHOM THE HOLDER REASONABLY BELIEVES IS A “QUALIFIED INSTITUTIONAL BUYER” AS DEFINED IN RULE 144A UNDER THE ACT (A “QIB”) PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QIB IN COMPLIANCE WITH RULE 144A UNDER THE ACT, (4) OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 904 UNDER THE ACT, (5) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE ACT (IF AVAILABLE), (6) TO AN INSTITUTIONAL “ACCREDITED INVESTOR” (AS DEFINED IN RULE 501(A)(1), (2), (3) OR (7) OF REGULATION D UNDER THE ACT) OR (7) PURSUANT TO ANOTHER EXEMPTION FROM REGISTRATION UNDER THE ACT, AND, IN EACH CASE, IN ACCORDANCE WITH ANY APPLICABLE STATE SECURITIES LAWS. FOR PURPOSES OF CLAUSES (6) AND (7) ABOVE, AN OPINION OF COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED MAY BE REQUESTED BY ROYALE ENERGY, INC. AS USED HEREIN, THE TERMS “OFFSHORE TRANSACTION,” “UNITED STATES” AND “U.S. PERSON” HAVE THE MEANINGS GIVEN TO THEM BY RULE 902 OF REGULATION S UNDER THE ACT.”

 

10.    Cumulative Rights. No delay on the part of Holder in the exercise of any power or right under this Note, or under any document or instrument executed in connection herewith, shall operate as a waiver thereof, and no single or partial exercise of any such power or right or any other power or right shall operate as a waiver thereof. Enforcement by Holder of any security for the payment hereof shall not constitute any election by Holder of remedies so as to preclude the exercise of any other remedy available to Holder.

 

11.    Waiver. Except as provided for herein, the Company hereby waives demand, presentment, protest, notice of intention to accelerate, notice of acceleration, notice of protest, and any and all lack of diligence or delay in collection or the filing of suit hereon which may occur, and agrees that its liability on this Note shall not be affected by any renewal or extension in the time of payment hereof, by any indulgences, or by any release or change in any security for the extensions, indulgences, release, or changes, regardless of the number of such renewals, extensions, indulgences, releases, or changes.

 

12.     Amendment. The Note may not be amended orally, but only by an agreement in writing signed by Maker and Holder.

 

13.    Notices. Any notice or demand given hereunder by Holder shall be in writing and be deemed

 

 

to have been given and received (a) when actually received by the Company, if delivered in person or by courier or messenger, or (b) two Business Days (as hereinafter defined) after a letter containing such notices, certified or registered, with postage prepaid addressed to the Company, is deposited in the United States Mail. The address of each of the Company and Holder is set forth in the first full paragraph of this Note, or such other address as any party hereto shall advise to the other parties hereto by written notice sent by certified or registered letter.

 

14.    Governing Law. THE MAKER OF THIS NOTE IS A CORPORATION ORGANIZED AND EXISTING UNDER THE LAWS OF THE STATE OF DELAWARE AND THE LAWS OF SUCH STATE SHALL GOVERN THE CONSTRUCTION, VALIDITY, ENFORCE‐MENT, AND INTERPRETATION HEREOF, EXCEPT TO THE EXTENT FEDERAL LAWS OTHERWISE GOVERN THE VALIDITY, CONSTRUCTION, ENFORCEMENT, AND INTER‐PRETATION HEREOF.

 

15.    Submission to Jurisdiction. MAKER HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY DELAWARE STATE OR FEDERAL COURT SITTING IN THE STATE OF DELAWARE IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS NOTE OR THE TRANSACTION AGREEMENT.

 

16.    JURY TRIAL WAIVER. AS PERMITTED BY APPLICABLE LAW, EACH OF BORROWER, AGENT AND LENDERS WAIVES THEIR RESPECTIVE RIGHTS TO A TRIAL BEFORE A JURY IN CONNECTION WITH ANY CLAIM, DISPUTE, OR CONTROVERSY THAT ARISES WITH RESPECT TO THIS NOTE OR THE TRANSACTION AGREEMENT OR SUCH OTHER DOCUMENTS RELATED THERETO (ALL OF THE FOREGOING, A “DISPUTE”), AND ANY SUCH DISPUTE SHALL BE RESOLVED BY A JUDGE SITTING WITHOUT A JURY.

 

17.    Headings. The headings of the sections of this note are inserted for convenience only and shall not be deemed to constitute a part hereof.

 

18.    Successors and Assigns. All of the covenants, stipulations, promises, and agreements in this Note by or on behalf of Maker shall bind its successors and assigns, whether so expressed or not; provided, however, that Maker may not, without the prior written consent of Holder, assign any rights, duties, or obligations under this Note. Any assignment in violation of the foregoing shall be null and void. Holder may assign any of its respective rights, duties, or obligations under this Note and shall provide notice of same to Maker.

 

19.    DAMAGES. EACH OF BORROWER, AGENT AND LENDERS EXPRESSLY AND IRREVOCABLY WAIVES, TO THE MAXIMUM EXTENT NOT PROHIBITED BY LAW, ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY SUCH ACTION AGAINST ANOTHER PARTY, ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES, OR DAMAGES OTHER THAN, OR IN ADDITION TO, ACTUAL DAMAGES.

 

20.    Business Day; Payments. As used herein, “Business Day” means, for all purposes, a weekday, Monday through Friday, except a legal holiday or a day on which banking institutions in State of Texas are authorized or required by law to be closed. Payment of the principal of, and interest on, this Note shall be due and payable in lawful money of the United States of America at the address of Holder set forth in the first full paragraph of this Note on or before 10:00 a.m. central standard time on the day such payment is due. In any case where a payment of principal or interest

 

 

is due on a day that is not a Business Day, Maker shall be entitled to delay such payment until the next succeeding Business Day.

 

 

21.    ENTIRE AGREEMENT. THIS NOTE AND THE TRANSACTION AGREEMENT REPRESENT THE FINAL AGREEMENT AMONG MAKER AND HOLDER AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS BY AND BETWEEN SUCH PERSONS. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN SUCH PERSONS.

 

[Remainder of Page Intentionally Left Blank.]

 

 

IN WITNESS WHEREOF, the undersigned has executed this Note as of the day and year first above written.

 

MAKER:

 

ROYALE ENERGY, INC.

 

 

By:________________________

Johnny Jordan

Chief Executive Officer

 

 

Acknowledged and Agreed:

 

HOLDER:

Jordan Enterprises Limited Partnership

 

__________________________________________

By: Johnny Jordan

 

 

 

 

Exhibit 10.3 

 

 

THE OPTION ISSUED PURSUANT TO THIS AGREEMENT AND THE SHARES ISSUABLE UPON THE EXERCISE THEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND STATE SECURITIES LAWS AND MAY NOT BE SOLD, PLEDGED, OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT AND STATE SECURITIES LAWS OR IN A TRANSACTION WHICH IS EXEMPT FROM REGISTRATION THEREUNDER.

 

Royale Energy, Inc.

Stock Option Agreement

 

This STOCK OPTION AGREEMENT (this “Option Agreement”) is entered into October 1, 2024 (the “Effective Date”), between Royale Energy, Inc., a Delaware corporation (the “Company”), and PEM Resources Limited Partnership (“Optionee”) a former holder of the Company’s Series B 3.5% Convertible Preferred Stock Series B Preferred Stock of the Company (“Series B Preferred Stock”).

 

WHEREAS, Optionee entered into the Exchange Agreement of even date herewith (the “Exchange Agreement”) in connection with the Company’s recapitalization transaction consummated effective October 1, 2024, for the sale and exchange of all of Optionee’s shares of Series B 3.5% Convertible Preferred Stock of the Company (the “Share”) in consideration for the Exchange Consideration (as defined in the Exchange Agreement);

 

WHEREAS, the Exchange Consideration to be delivered to Optionee under the Exchange Agreement includes options to purchase Royale Common pursuant to certain terms and conditions, and the Company and Optionee desire to set forth and memorialize terms of their agreement regarding such options to purchase Royale Common Stock in this Option Agreement;

 

NOW, THEREFORE, in consideration of the mutual covenants contained herein, the parties do hereby agree as follows:

 

SECTION 1. ISSUANCE OF OPTION.

 

Subject to the terms and conditions set forth in this Agreement, the Company hereby issues to Optionee the option to purchase 439,218 shares of Royale Common Stock (the “Option Shares”) at the exercise price of $0.10 per share as of the Effective Date, subject to adjustment as provided herein (the “Exercise Price”). This option is issued pursuant to the Exchange Agreement and comprises a part of the Exchange Consideration payable to Optionee. This option is not issued in consideration for employment or other services, and is not connected with any form of compensation plan for employees, advisors, contractors, consultants or any other service provider to the Company. Capitalized terms used in this Option Agreement (including the preamble and recitals) are defined in Section 14 of this Agreement.

 

 

SECTION 2. RIGHT TO EXERCISE AND VESTING.

 

(a)    Exercisability. Subject to the other conditions set forth in this Agreement, all or part of this option may be exercised at any time prior to its expiration.

 

(b)    No Vesting Requirement. There is no vesting or other condition to the exercisability of the Options. Optionee may exercise the option for 100% of the Option Shares, or any portion thereof, at any time beginning on the Effective Date through and including the Expiration Date.

 

SECTION 3. NO TRANSFER OR ASSIGNMENT OF OPTION.

 

Except as otherwise provided in this Agreement, this option and the rights and privileges conferred hereby shall not be sold, pledged or otherwise transferred (whether by operation of law or otherwise) and shall not be subject to sale under execution, attachment, levy or similar process.

 

SECTION 4. EXERCISE PROCEDURES.

 

(a)    Notice of Exercise. The Optionee or the Optionee’s representative may exercise this option by giving written notice to the Company pursuant to Section 11(c). The notice shall specify the election to exercise this option, the number of Option Shares for which it is being exercised and the form of payment. The notice shall be signed by the person exercising this option. In the event that this option is being exercised by the representative of the Optionee, the notice shall be accompanied by proof (satisfactory to the Company) of the representative’s right to exercise this option. The Optionee or the Optionee’s representative shall deliver to the Company, at the time of giving the notice, payment in a form permissible under Section 5 for the full amount of the Exercise Price.

 

(b)    Issuance of Option Shares. After receiving a proper notice of exercise, the Company shall either:

 

(i)    cause to be issued a certificate or certificates for the Option Shares as to which this option has been exercised, registered in the name of Optionee or its designee (or in the names of such Person and his or her spouse as community property or as joint tenants with right of survivorship), and cause such certificate or certificates to be delivered to or upon the order of the Optionee; or

 

(ii)     If the Option Shares are to be uncertificated, cause the Company’s transfer agent to record the issuance and delivery of the Option Shares in the name of Optionee or its designee on the books of the Company (or in the names of such person and his or her spouse as community property or as joint tenants with right of survivorship), and deliver a confirmation to Optionee confirming record ownership of the Options Shares as designated by Optionee.

 

(c)    Withholding Taxes. In the event that the Company determines that it is required to withhold any tax as a result of the exercise of this option, the Optionee, as a condition to the exercise of this option, shall make arrangements satisfactory to the Company to enable it to satisfy all withholding requirements. The Optionee shall also make arrangements satisfactory

 

 

to the Company to enable it to satisfy any withholding requirements that may arise in connection with the vesting or disposition of Option Shares purchased by exercising this option.

 

SECTION 5. PAYMENT FOR STOCK.

 

(a)    Cash. All or part of the Exercise Price may be paid in cash or cash equivalents.

 

SECTION 6. TERM AND EXPIRATION.

 

Basic Term. This option shall in any event expire on June 30, 2029.

 

SECTION 7. LEGALITY OF INITIAL ISSUANCE.

 

None of the Option Shares shall be issued upon the exercise of this option unless and until the Company has determined that:

 

(a)    The Company and the Optionee have taken any actions required to register the Option Shares under the Securities Act or to perfect an exemption from the registration requirements thereof;

 

(b)    Any applicable listing requirement of any stock exchange or other securities market on which the Stock is listed has been satisfied; and

 

(c)    Any other applicable provision of state or federal law has been satisfied.

 

SECTION 8. NO REGISTRATION RIGHTS.

 

The Company may, but shall not be obligated to, register or qualify the sale of Shares under the Securities Act or any other applicable law. The Company shall not be obligated to take any affirmative action in order to cause the sale of Option Shares under this Option Agreement to comply with any law.

 

SECTION 9. RESTRICTIONS ON TRANSFER.

 

(a)    Securities Law Restrictions. Regardless of whether the offering and sale of the Option Shares have been registered under the Securities Act or have been registered or qualified under the securities laws of any state, the Company at its discretion may impose restrictions upon the sale, pledge or other transfer of such Shares (including the placement of appropriate legends on stock certificates or the imposition of stop‑transfer instructions) if, in the judgment of the Company, such restrictions are necessary or desirable in order to achieve compliance with the Securities Act, the securities laws of any state or any other law.

 

(b)    Market Stand-Off. In connection with any underwritten public offering by the Company of its equity securities pursuant to an effective registration statement filed under the Securities Act, the Optionee shall not directly or indirectly sell, make any short sale of, loan, hypothecate, pledge, offer, grant or sell any option or other contract for the purchase of, purchase any option or other contract for the sale of, or otherwise dispose of or transfer, or agree to engage in any of the foregoing transactions with respect to, any Option Shares acquired under this Option Agreement without the prior written consent of the Company or its underwriters. Such

 

 

restriction (the “Market Stand-Off”) shall be in effect for such period of time following the date of the final prospectus for the offering as may be requested by the Company or such underwriters. In no event, however, shall such period exceed 180 days. In the event of the declaration of a stock dividend, a spin‑off, a stock split, an adjustment in conversion ratio, a recapitalization or a similar transaction affecting the Company’s outstanding securities without receipt of consideration, any new, substituted or additional securities which are by reason of such transaction distributed with respect to any Option Shares subject to the Market Stand-Off, or into which such Option Shares thereby become convertible, shall immediately be subject to the Market Stand-Off. In order to enforce the Market Stand-Off, the Company may impose stop-transfer instructions with respect to the Option Shares acquired under this Option Agreement until the end of the applicable stand-off period. The Company’s underwriters shall be beneficiaries of the Option Agreement set forth in this Subsection (b). This Subsection (b) shall not apply to Option Shares registered in the public offering under the Securities Act, and the Optionee shall be subject to this Subsection (b) only if the directors and officers of the Company are subject to similar arrangements.

 

(c)    Investment Intent at Grant. The Optionee represents and agrees that the Option Shares to be acquired upon exercising this option will be acquired for investment, and not with a view to the sale or distribution thereof.

 

(d)    Investment Intent at Exercise. In the event that the sale of Option Shares under this Option Agreement is not registered under the Securities Act, but an exemption is available which requires an investment representation or other representation, the Optionee shall represent and agree at the time of exercise that the Option Shares being acquired upon exercising this option are being acquired for investment, and not with a view to the sale or distribution thereof, and shall make such other representations as are deemed necessary or appropriate by the Company and its counsel.

 

(e)    Legends. All certificates evidencing Option Shares acquired subject to this Option Agreement shall bear a legend in substantially the form set forth below (and such other restrictive legends as are required or deemed advisable under the provisions of any applicable law):

 

“THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED, OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT AND STATE SECURITIES LAWS AND MAY NOT BE SOLD, PLEDGED, OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT AND STATE SECURITIES LAWS OR IN A TRANSACTION WHICH IS EXEMPT FROM REGISTRATION THEREUNDER.”

 

(f)    Removal of Legends. If, in the opinion of the Company and its counsel, any legend placed on a stock certificate representing Option Shares sold under this Option Agreement is no longer required, the holder of such certificate shall be entitled to exchange such certificate for a certificate representing the same number of Option Shares but without such legend.

 

 

(g)    Administration. Any determination by the Company and its counsel in connection with any of the matters set forth in this Section 9 shall be conclusive and binding on the Optionee and all other persons.

 

SECTION 10. ADJUSTMENT OF OPTION SHARES.

 

(a)    General. In the event of a subdivision of the outstanding Royale Common Stock, a declaration of a dividend payable in Royale Common Stock, a declaration of an extraordinary dividend payable in a form other than shares of Royale Common Stock in an amount that has a material effect on the Fair Market Value of the Stock, a combination or consolidation of the outstanding Royale Common Stock into a lesser number of shares, a recapitalization, a spin-off, a reclassification or a similar occurrence, the Board of Directors shall make appropriate adjustments in one or more of (i) the number of Option Shares covered by this option or (ii) the Exercise Price.

 

(b)    Mergers and Consolidations. In the event that the Company is a party to a merger or consolidation, this option shall be an obligation of the Company subject to terms of the agreement of merger or consolidation. The Company may participate in such agreement of merger or consolidation in its sole discretion without the Optionee’s consent, but subject to Optionee’s right to exercise this option on or prior to consummation of such merger or consolidation, and the agreement of merger or consolidation may provide for:

 

(i)    The continuation of this option by the Company (if the Company is the surviving corporation);

 

(ii)    The assumption of this option by the surviving corporation or its parent;

 

(iii)    The substitution by the surviving corporation or its parent of options with substantially the same terms for this option; or

 

(iv)    The cancellation of this option without payment of any consideration.

 

(c)    Reservation of Rights. Except as provided otherwise in this Agreement, the Optionee shall have no rights by reason of (i) any subdivision or consolidation of shares of stock of any class, (ii) the payment of any dividend or (iii) any other increase or decrease in the number of shares of stock of any class. Any issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall not affect, and no adjustment by reason thereof shall be made with respect to, the number or Exercise Price of Option Shares subject to this option. The grant of this option shall not affect in any way the right or power of the Company to make adjustments, reclassifications, reorganizations or changes of its capital or business structure, to merge or consolidate or to dissolve, liquidate, sell or transfer all or any part of its business or assets.

 

SECTION 11. MISCELLANEOUS PROVISIONS.

 

(a)    Rights as a Stockholder. Neither the Optionee nor the Optionee’s representative shall have any rights as a stockholder with respect to any Option Shares subject to

 

 

this option until the Optionee or the Optionee’s representative becomes entitled to receive such Option Shares by filing a notice of exercise and paying the Exercise Price pursuant to Sections 4 and 5.

 

(b)    Notice. Any notice required by the terms of this Option Agreement shall be given in writing and shall be deemed effective upon personal delivery or upon deposit with the United States Postal Service, by registered or certified mail, with postage and fees prepaid. Notice shall be addressed to the Company at its principal executive office and to the Optionee at the address provided beneath his or signature to this Option Agreement or, if different, to the address that he or she most recently provided to the Company.

 

(c)    Entire Agreement. This Option Agreement constitutes the entire contract between the parties hereto with regard to the subject matter hereof. It supersedes any other agreements, representations or understandings (whether oral or written and whether express or implied) which relate to the subject matter hereof.

 

(d)    Choice of Law. This Option Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware, as such laws are applied to contracts entered into and performed in such State.

 

SECTION 12. NO GUARANTEE OF TAX CONSEQUENCES.

 

The Company and the Board of Directors make no commitment or guarantee that any federal or state tax treatment will apply or be available to any person eligible for benefits under this option. The Optionee has been advised to obtain, and has been provided the opportunity to obtain, independent legal and tax advice regarding the issuance and exercise of this option and the disposition of any Option Shares acquired upon exercise of this option.

 

SECTION 13. DEFINITIONS.

 

(a)    “Board of Directors” shall mean the Board of Directors of the Company, as constituted from time to time or, if a Committee has been appointed, such Committee.

 

(b)    “Code” shall mean the Internal Revenue Code of 1986, as amended.

 

(c)    “Committee” shall mean the Board of Directors, or any committee of the Board of Directors appointed by the Board of Directors to administer this Agreement.

 

(d)    “Common Share” shall mean one share of the Royale Common Stock, as adjusted in accordance with this Option Agreement.

 

(e)    “Company” shall mean Royale Energy, Inc., a Delaware corporation.

 

(f)    “Exercise Price” shall mean $0.10 per share, subject to adjustment as provided herein, multiplied by the number of Option Shares with respect to which this option is being exercised.

 

 

(g)    “Fair Market Value” shall mean the fair market value of a share of Royale Common Stock, as determined by the Board of Directors in good faith. Such determination shall be conclusive and binding on all persons.

 

(h)    “Nonstatutory Option” shall mean a stock option not described in Sections 422(b) or 423(b) of the Code.

 

(i)    “Option Agreement” shall mean this Stock Option Agreement.

 

(j)    “Option Shares” shall mean the shares of Royale Common Stock issuable upon the full exercise of this option, as may be adjusted from time to time pursuant to the terms of this Agreement.

 

(k)    “Person” means any corporation, limited liability company, joint venture, partnership, individual, limited partnership, trust or other business entity.

 

(l)    “Royale Common Stock” shall mean the Common Stock of the Company.

 

(m)   “Securities Act” shall mean the Securities Act of 1933, as amended.

 

[Signature page follows]

 

 

IN WITNESS WHEREOF, this Stock Option Agreement is executed and entered into effective as of the day and year first above written.

 

	Royale Energy, Inc. 1530 Hilton Head Road #205 El Cajon, CA 92019   __________________________ Johnny Jordan, Chief Executive Officer
	PEM Resources Limited Partnership 104 W. Anapamu St., Suite C Santa Barbara, CA 93101-3126   __________________________ Mike McCaskey

 

 

 

Royale Energy, Inc.

NOTICE OF STOCK OPTION EXERCISE

 

You must sign Page 3 of this Notice before submitting it to the Company.

 

Optionee Information:

 

Name:	Social Security Number:
Address:	Employee Number:

 

Option Information:

Issuance Effective Date: October 1, 2024		Type of Stock Option:
Exercise Price per Share: $      .10		☐ Noncompensatory
Total number of shares of Common Stock of Royale Energy, Inc. (the “Company”) covered by option: __________________

 

Exercise Information:

 

Number of shares of Common Stock of the Company for which option is being exercised now: ________________. (These shares are referred to below as the “Purchased Shares.”)
Total Exercise Price for the Purchased Shares: $____________
Form of payment enclosed [check all that apply]:
☐ Check for $____________, made payable to “Royale Energy, Inc.”
Name(s) in which the Purchased Shares should be registered:
☐ In my name only
☐ In the names of my spouse and myself as community property		My spouse’s name (if applicable):
☐ In the names of my spouse and myself as joint tenants with the right of survivorship		_____________________________________
☐ In the name of an eligible revocable trust [requires Stock Transfer Agreement]		Full legal name of revocable trust: _____________________________________ _____________________________________ _____________________________________
The certificate for the Purchased Shares should be sent to the following address:		____________________________________________ ____________________________________________ ____________________________________________ ____________________________________________

 

 

 

Representations and Acknowledgments of the Optionee:

 

SECTION 1.     I represent and warrant to the Company that I am acquiring and will hold the Purchased Shares for investment for my account only, and not with a view to, or for resale in connection with, any “distribution” of the Purchased Shares within the meaning of the Securities Act of 1933, as amended (the “Securities Act”).

 

SECTION 2.     I understand that the Purchased Shares have not been registered under the Securities Act by reason of a specific exemption therefrom and that the Purchased Shares must be held indefinitely, unless they are subsequently registered under the Securities Act or I obtain an opinion of counsel (in form and substance satisfactory to the Company and its counsel) that registration is not required.

 

SECTION 3.     I acknowledge that the Company is under no obligation to register the Purchased Shares.

 

SECTION 4.     I am aware of the adoption of Rule 144 by the Securities and Exchange Commission under the Securities Act, which permits limited public resales of securities acquired in a non-public offering, subject to the satisfaction of certain conditions. These conditions include (without limitation) that certain current public information about the issuer is available, that the resale occurs only after the holding period required by Rule 144 has been satisfied, that the sale occurs through an unsolicited “broker’s transaction” and that the amount of securities being sold during any three-month period does not exceed specified limitations. I understand that the conditions for resale set forth in Rule 144 have not been satisfied and that the Company has no plans to satisfy these conditions in the foreseeable future.

 

SECTION 5.     I will not sell, transfer or otherwise dispose of the Purchased Shares in violation of the Securities Act, the Securities Exchange Act of 1934, or the rules promulgated thereunder, including Rule 144 under the Securities Act.

 

SECTION 6.     I acknowledge that I have received and had access to such information as I consider necessary or appropriate for deciding whether to invest in the Purchased Shares and that I had an opportunity to ask questions and receive answers from the Company regarding the terms and conditions of the issuance of the Purchased Shares.

 

SECTION 7.     I am aware that my investment in the Company is a speculative investment that has limited liquidity and is subject to the risk of complete loss. I am able, without impairing my financial condition, to hold the Purchased Shares for an indefinite period and to suffer a complete loss of my investment in the Purchased Shares.

 

SECTION 8.     I acknowledge that the Purchased Shares remain subject to the Company’s right of first refusal and the market stand-off (sometimes referred to as the “lock-up”) and may remain subject to the Company’s right of repurchase at the exercise price, all in accordance with the applicable Stock Option Agreement.

 

SECTION 9.     I acknowledge that I am acquiring the Purchased Shares subject to all other terms of the Stock Option Agreement.

 

SECTION 10.     I acknowledge that the Company has encouraged me to consult my own adviser to determine the form of ownership that is appropriate for me. In the event that I choose to transfer my Purchased Shares to a trust, I agree to sign a Stock Transfer Agreement. In the event that I choose to transfer my Purchased Shares to a trust that is not an eligible revocable trust, I also acknowledge that the transfer will be treated as a “disposition” for tax purposes.

 

 

SECTION 11.     I acknowledge that the Company has encouraged me to consult my own adviser to explain the federal income tax consequences of an option exercise and the tax consequences of acquiring the Purchased Shares at this time.

 

SECTION 12.     I agree to seek the consent of my spouse to the extent required by the Company to enforce the foregoing.

 

 

Signature:		Date:
PEM Resources Limited Partnership

Mike McCaskey

 

 

 

 

Exhibit 10.4

 

 

RELEASE AGREEMENT

 

This Release Agreement (“Agreement”) is entered into as of October (the “Closing Date”) by and between Royale Energy, Inc., a Delaware corporation (the “Company”), and Nelda Mae Swift (the “Holder”). Each of the Holder and the Company is a “Party”, and together are the “Parties.”

 

WHEREAS, the Company owes certain historical payment obligations to the Holder in the amount of $33,188.49 (the “Historical Liability”); and

 

WHEREAS, in exchange for the consideration specified in this Agreement, the Holder desires to release the Company from all of its direct liabilities, duties, and obligations to the Holder related to the Historical Liability.

 

Accordingly, the parties agree as follows:

 

1.    In exchange for the consideration specified in Section 2 below, the Holder hereby fully releases and discharges the Company and its present and former employees, officers and directors from and against those actions, causes of action, suits, losses, liabilities, rights, debts, dues, sums of money, accounts, reckonings, obligations, costs, expenses, liens, bonds, bills, specialties, covenants, contracts, controversies, agreements, promises, variances, trespasses, damages, judgments, extents, executions, claims, and demands, of every kind and nature whatsoever, whether now known or unknown, foreseen or unforeseen, matured or unmatured, suspected or unsuspected, in law, admiralty, or equity (the “Released Claims”) that the Holder is entitled to pursue against the Company in connection with or related to the Historical Liability. The Holder further covenants and agrees not to institute or cause to be instituted any legal proceeding of any nature whatsoever related to any of the Released Claims, premised upon any legal theory or claim except that a legal proceeding may be filed solely to enforce the terms of this Agreement.

 

2.    In exchange for the release of the Released Claims by the Holder, the Company agrees that it will issue the following to the Holder:

 

a.

773,332 of shares (the “Common Shares”) of the Company’s common stock, par value $.001 par value (the “Royale Common Stock”).

 

b.

The Series 2024 Senior Promissory Notes of Royale Energy, Inc. in substantially the form attached as Exhibit A hereto in the principal amount of 85,925.85 (the “Royale Note”).

 

3.    The Company represents and warrants to the Holder as follows:

 

a.

The Company is a duly organized and a validly existing corporation in good standing under the laws of the State of Delaware. Each of the Company’s Subsidiaries has been duly organized and is a validly existing limited liability company in good standing under the laws of the State of

 

 

Delaware. The Company has the power, authority and capacity to execute and deliver this Agreement, to perform its obligations hereunder.

 

b.

The Company has all necessary corporate power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby and to perform its obligations hereunder. This Agreement has been duly authorized, executed and delivered by the Company and constitutes a legal, valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except as may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors’ rights in general and subject to general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law).

 

c.

In accordance with this Agreement, (i) the Common Shares will be validly issued, fully paid and nonassessable shares of Royale Common Stock and the Holder will hold all of the legal and beneficial title to such Common Shares, free and clear of all liens, other than liens created by the Holder, if any, or restrictions on transfer under federal and state securities Laws, and (ii) the Royale Note will be duly authorized, validly issued and outstanding indebtedness of the Company, the Holder will hold all of the legal and beneficial title to the Royale Note, free and clear of all liens, other than liens created by the Holder, if any or restrictions on transfer under federal and state securities Laws. No holder of any outstanding shares of capital stock of the Company and no holder of any outstanding Indebtedness of the Company is entitled to any preemptive or other rights to subscribe for any of the Common Shares or the Royale Note.

 

4.    The Holder hereby represents and warrants to the Company as follows:

 

a.    The Holder has all necessary power and authority to execute and deliver this Agreement, to consummate the transactions contemplated hereby and to perform its obligations hereunder in accordance with the terms of this Agreement. This Agreement has been duly authorized, executed and delivered by the Holder and constitutes a legal, valid and binding obligation of the Holder enforceable against the Holder in accordance with its terms, except as may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors’ rights in general and subject to general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law).

 

b.    No consent, approval or authorization of, or declaration, filing or registration with, any governmental authority or other person is required to be made

 

 

or obtained by the Holder in connection with the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby, except for consents, approvals, filings and similar requirements, the failure of which to be obtained or made would not reasonably be expected to, individually or in the aggregate, prevent the Holder from performing under this Agreement in all material respects.

 

c.    The execution, delivery and performance by the Holder of this Agreement and the consummation of the other transactions contemplated hereby (a) will not violate any law or any order or decree of any court or governmental instrumentality applicable to the Holder or any of its property; and (b) will not conflict with or result in the breach or termination of, constitute a default under or accelerate any performance required by, any indenture, mortgage, deed of trust, lease, agreement or other instrument to which the Holder is a party or by which the Holder or any of its property is bound.

 

d.    The Holder:

 

i.

is familiar with transactions of the kind and scope reflected in this Agreement;

 

ii.

has made its own independent investigation and appraisal of the financial condition and affairs of the Company and its Subsidiaries and has conducted its own evaluation of the Common Shares and Royale Note and the Company’s creditworthiness and will continue to do so;

 

iii.

(A) is an “accredited investor,” as that term is defined in Regulation D under the Securities Act of 1933, as amended (the “Securities Act”), and (B) has such knowledge, skill, sophistication and experience in business and financial matters, based on actual participation, that it is capable of evaluating the merits and risks of an investment in the Common Shares and Royale Note and the suitability thereof for such Holder; and

 

iv.

is releasing the Released Claims for the Common Shares and the Royale Note for its own account for investment purposes.

 

e.

If the Holder is not a United States person (as defined by Section 7701(a)(30) of the Internal Revenue Code of 1986), such Holder hereby represents that it has satisfied itself as to the full observance of the laws of its jurisdiction in connection with any invitation to acquire for the Common Shares and the Royale Note or any use of this Agreement, including: (i) the legal requirements within its jurisdiction for the purchase of the Common Shares and the Royale Note, (ii) any

 

 

foreign exchange restrictions applicable to such purchase, (iii) any governmental or other consents that may need to be obtained, and (iv) the income tax and other tax consequences, if any, that may be relevant to the purchase, holding, redemption, sale, or transfer of the Common Shares and the Royale Note. The Holder’s acquisition of and continued beneficial ownership of the Common Shares and the Royale Note, will not violate any applicable securities or other laws of such Holder’s jurisdiction.

 

f.

The Holder understands that the Common Shares and the Royale Note are characterized as “restricted securities” under the Securities Act inasmuch as they are being acquired from the Company in a transaction not involving a public offering and that under the Securities Act and applicable regulations thereunder such securities may be resold without registration under the Securities Act only in certain limited circumstances. The Holder acknowledges that the Common Shares and the Royale Note must be held indefinitely unless subsequently registered under the Securities Act or unless an exemption from such registration is available. In this connection, such Holder represents that such Holder is familiar with Rule 144 promulgated under the Securities Act, as presently in effect, and understands the resale limitations imposed thereby and by the Securities Act. Such Holder understands that the Company is under no obligation to register any of the securities sold hereunder.

 

5.    Each party to this Agreement shall bear its own fees and expenses (including attorneys’ fees) incurred in connection with this Agreement and the consummation of the transactions contemplated by this Agreement.

 

6.    No amendment, modification, supplement, termination, consent or waiver of any provision of this Agreement, nor consent to any departure herefrom, will in any even be effective unless the same is in writing and is signed by the party against whom enforcement of the same is sought. Any waiver of any provision of this Agreement and any consent to any departure from the terms of any provision of this Agreement is to be effective only in the specific instance and for the specific purpose for which it is given.

 

7.    THE PARTIES HEREBY AGREE THAT THIS AGREEMENT, AND THE RESPECTIVE RIGHTS, DUTIES AND OBLIGATIONS OF THE PARTIES HEREUNDER, SHALL ALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAWS THEREUNDER. TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, EACH OF THE PARTIES HEREBY (i) IRREVOCABLY CONSENT AND AGREES THAT ANY LEGAL OR EQUITABLE ACTION OR PROCEEDINGS ARISING UNDER OR IN CONNECTION WITH THIS AGREEMENT SHALL BE BROUGHT EXCLUSIVELY IN

 

 

THE COURTS OF THE UNITED STATES OF AMERICA FOR THE STATE OF DELAWARE; AND (ii) BY EXECUTION AND DELIVERY OF THIS AGREEMENT, IRREVOCABLY SUBMITS TO AND ACCEPTS, WITH RESPECT TO ANY SUCH ACTION OR PROCEEDINGS, FOR ITSELF AND IN RESPECT OF ITS PROPERTIES AND ASSETS, FOR PURPOSES OF THIS AGREEMENT, THE JURISDICTION OF THE AFORESAID COURTS, AND IRREVOCABLY WAIVES ANY OBJECTION TO VENUE IN SUCH COURTS.

 

8.    The headings contained in this Agreement are for the purposes of reference only and shall not limit, define, extend or otherwise affect the meaning or scope of this Agreement or any provision hereof.

 

9.    This Agreement may be executed in any number of counterparts, each of which shall constitute an original and all of which, taken together, shall constitute one and the same instrument.

 

10.    This Agreement shall be binding upon the Parties and upon each of their respective successors and assignees and shall inure to the benefit of, and be enforceable by, each Party and each of their respective successors and assignees; provided, however, that, with the exception of an assignment by the Holder to any Affiliate thereof, neither Party shall assign any right or obligation arising pursuant to this Agreement without first obtaining the written consent of the other Party. Nothing contained herein shall confer upon any Person other than the Parties and their permitted successors and assigns, any right to insist upon or to enforce the performance or observance of any of the obligations contained herein.

 

11.    For purposes of this Agreement, (i) the words “include,” “includes” and “including” are deemed to be followed by the words “without limitation”; (ii) the word “or” is not exclusive; (iii) the words “herein,” “hereof,” “hereby,” “hereto,” and “hereunder” refer to this Agreement as a whole; (iv) words denoting the singular have a comparable meaning when used in the plural, and vice-versa; and (v) words denoting any gender include all genders. The parties drafted this Agreement without regard to any presumption or rule requiring construction or interpretation against the party drafting an instrument or causing any instrument to be drafted.

 

12.    All provisions, covenants and agreements herein are binding upon and inure to the benefit of, and be enforceable by or against, the parties hereto and their respective successors and assigns.

 

13.    This Agreement is the sole and entire agreement of the parties regarding the subject matter contained herein, and supersedes all prior and contemporaneous understandings, agreements, representations, and warranties, both written and oral, regarding such subject matter.

 

 

[Signature Page Follows]

 

 

 

IN WITNESS WHEREOF, the undersigned has executed this Agreement to be effective as of the date set forth above.

 

COMPANY

 

Royale Energy, Inc.

 

                                                         

Johnny Jordan

Chief Executive Officer

 

 

HOLDER

 

Nelda Mae Swift

 

 

                                                         

Nelda Mae Swift

 

 

Exhibit A

 

Royale Note

 

[See attached]

 

 

 

Exhibit 99.1

 

 

Royale Energy Inc. Simplifies Capital Structure Amidst Plans for Future Growth

 

San Diego, CA, October 15, 2024 — Royale Energy Inc. ("Royale" or the "Company"), a Delaware-based corporation, is pleased to announce the successful completion of a series of strategic financial transactions aimed at simplifying its capital structure and more closely aligning the interests of its diverse stakeholders. This series of transactions better positions Royale to pursue future growth opportunities and continue on the path toward relisting on a major exchange.

 

As part of this comprehensive effort, Royale Energy Inc. has executed key agreements that include the issuance of common stock, stock options, and Series 2024 Senior Unsecured Promissory Notes in exchange for all of the outstanding Series B Preferred Stock.  As a result, Royale now has one class of equity outstanding, its common stock.  These transactions were conducted with former holders of the Company’s Series B Preferred Stock and other long-term liability holders, effectively resolving over $24 million of Series B Preferred liquidation preference value and approximately $3 million of pre-merger liabilities.

 

The recapitalization initiative involved the issuance of common stock and promissory notes to settle outstanding claims, alongside stock options granted as part of an exchange agreement. These measures not only strengthen Royale’s financial position but also ensure that the interests of all stakeholders are more closely aligned with the Company’s long-term objectives.

 

“By simplifying our capital structure, we are positioning Royale to pursue new opportunities that align with our growth strategy and deliver enhanced value to our shareholders” said Chris Parada, Chairman of Royale Energy Inc. “This important step will enable the company to gain greater access to even more strategic opportunities as well as access to more traditional sources of capital. I would like to express my gratitude to the former preferred stockholders, other stakeholders, and the Royale Board for their efforts to conclude this transformational recapitalization.”

 

Johnny Jordan, CEO of Royale Energy Inc., added, “Consolidating all shareholders into a single class of stock demonstrates our commitment to building shareholder value for everyone. This move underscores our dedication to creating a unified and equitable structure that benefits all of our investors.”

 

Royale Energy Inc. remains committed to executing its strategic vision and delivering value through disciplined financial management and targeted growth initiatives. The successful completion of these transactions marks a significant step forward in the Company’s ongoing efforts to streamline operations and enhance shareholder value.

 

About Royale Energy Inc.: Royale Energy Inc. is a Delaware corporation engaged in the exploration, development, and production of oil and natural gas. The Company is focused on creating long-term value through the efficient management of its assets and strategic partnerships.

 

For more information, please visit www.royaleenergy.com [royaleenergy.com] or contact Investor Relations at IR@royaleenergy.com.

 

v3.24.3

Document And Entity Information	Oct. 11, 2024
Document Information Line Items
Entity Registrant Name	Royale Energy, Inc.
Document Type	8-K
Amendment Flag	false
Entity Central Index Key	0001694617
Document Period End Date	Oct. 11, 2024
Entity Emerging Growth Company	false
Entity Incorporation, State or Country Code	DE
Entity File Number	000-55912
Entity Tax Identification Number	81-4596368
Entity Address, Address Line One	1530 Hilton Head Road, Suite 205
Entity Address, City or Town	El Cajon
Entity Address, State or Province	CA
Entity Address, Postal Zip Code	92019
City Area Code	(619)
Local Phone Number	383-6600
Title of 12(b) Security	None
Written Communications	false
Soliciting Material	false
Pre-commencement Tender Offer	false
Pre-commencement Issuer Tender Offer	false
No Trading Symbol Flag	true

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