EXHIBIT 10.9

 

ROYALTY AGREEMENT

 

THIS ROYALTY AGREEMENT (this “Royalty Agreement”), made and entered into as of
February 5, 2014 (the “Execution Date”), is by and between WESTPORT ENERGY LLC,
a Delaware limited liability company (the “Westport”), and QUEENSBURY, INC. (the
“Holder”). Collectively, Westport and the Holder are referred to as the
“Parties.”

 

WHEREAS, YA Global Investments, L.P. (“YA Global”) and Westport have previously
executed that certain Securities Purchase Agreement dated as February 5, 2014
(the “SPA”) pursuant to which Westport issued and sold that certain secured
convertible debenture in the original principal amount of $1,080,000 (the
“Convertible Debentures”) wherein;

 

WHEREAS, pursuant to the terms of the SPA and in consideration of YA Global
purchasing the Convertible Debenture, YA Global received a transferable right to
receive royalty payments with respect to 25% of net gas sales resulting from
certain Westport wells identified in Appendix B attached hereto (the “Allocated
Wells”);

 

WHEREAS, pursuant to an assignment agreement dated February 5, 2014 (the
“Assignment Agreement”) YA Global assigned one half of its rights to receive
payments of sales from the Allocated Wells to Queensbury, Inc. (“Queensbury”) so
that Queensbury is entitled to 12.5% of net gas sales resulting from the
Allocated Wells and YA Global is entitled to 12.5% of net gas sales resulting
from the Allocated Wells; and

 

WHEREAS, Queensbury’s rights to the net gas sales shall be set forth in and
controlled by this Royalty Agreement.

 

NOW THEREFORE, the Parties agree as follows:

 

1.DEFINITIONS    1.1Definitions of capitalized terms used in this Royalty
Agreement shall have the meanings given in Appendix A or elsewhere in the
Royalty Agreement.    2.ROYALTY PAYMENTS    2.1Royalties. Westport shall pay the
Holder royalties on Net Sales from each of the Allocated Wells during the
Royalty Term according to the following rates:

 

  (a)Allocated Wells: 12.5% of Net Sales

 

2.3Manner of Payment. Royalty payments due under this Section 2 are due 30 days
after the end of each Accounting Period and shall be paid in United States
dollars.

 

 

 

 

3.REPORTS AND PAYMENTS    3.1Recordkeeping. Westport shall, and shall obligate
its Affiliates to, keep full and accurate records (prepared in accordance with
United States Generally Accepted Accounting Principles consistently applied) of
Westport’s or its Affiliates’ gas sales and such other matters as may affect the
determination of any amount payable to the Holder under this Royalty Agreement,
in sufficient detail to reasonably enable the Holder or their representatives to
determine any amounts payable to the Holder under this Royalty Agreement. Such
records shall be kept at Westport’s or its Affiliates’ principal place of
business and, with all necessary supporting data, books and ledgers, shall,
during all reasonable times for the 2 years following the end of the Accounting
Period to which each shall pertain, be open for inspection at reasonable times
during normal business hours (and upon at least 30 days prior written notice) no
more than one time per calendar year by an independent audit firm selected by
the Holder (reasonably acceptable to Westport) for the purpose of verifying the
accuracy of any payment report required under this Royalty Agreement or any
amount payable hereunder. The results of each inspection shall be binding on the
Holder and Westport absent mathematical error. The Holder shall bear all costs
associated with such inspections.    3.2Reports. With each quarterly payment,
Recipient shall deliver to the Holder true and accurate report, giving such
particulars of the business conducted by Westport or its Affiliates during the
preceding four (4) Accounting Periods under this Royalty Agreement as are
reasonably pertinent to an accounting for any royalty or other payments
hereunder, along with the amount of royalties payable for such Accounting
Period. If no payments are due, it shall be so reported. Such quarterly reports
shall include, but not be limited to, the following information:

 

(a)Quantity of gas sold by Westport or its Affiliates during the applicable
Accounting Period;     (b)The monetary amount of such sales;     (c)Actual gross
sales and Net Sales for the Allocated Wells; and     (d)Total royalties payable
to the Holder including a calculation thereof.

 

 

 

 

4.EFFECTIVE DATE AND EXPIRATION    4.1Generally. This Royalty Agreement shall
become effective on the Execution Date (the “Effective Date”) and shall expire
on the expiration of the Royalty Term.    4.2Post-Expiration Obligations. Upon
the expiration of this Royalty Agreement, Westport shall submit all reports
required by Section 3 and pay the Holder all royalties due or accrued on gas
sales from the Allocated Wells up to and including the date of expiration.   
4.3Survival. Upon the expiration of this Royalty Agreement, nothing herein shall
be construed to release either party from any obligation that matured prior to
the date of such expiration and Section 5 shall survive any such expiration.

 

5.MISCELLANEOUS    5.1Entire Agreement. This Royalty Agreement constitutes the
entire agreement among the Parties and supersedes any prior understandings,
agreements, or representations by or among the Parties, written or oral, that
may have related in any way to the subject matter hereof. The appendices
identified in this Royalty Agreement are incorporated herein by reference and
made a part hereof.    5.2Amendments and Waivers. No amendment or waiver of any
provision of this Royalty Agreement shall be valid unless the same shall be in
writing and signed by each Party. No waiver by any Party of any default,
misrepresentation or breach of warranty or covenant hereunder, whether
intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation or breach of warranty or covenant hereunder or affect
in any way any rights arising by virtue of any prior or subsequent such
occurrence.    5.3Succession and Assignment. This Royalty Agreement and all of
the provisions hereof shall be binding upon, inure to the benefit of, and be
enforceable by, the Parties and their respective successors and permitted
assigns. Westport may not assign this Royalty Agreement, or any of its rights or
obligations hereunder, without the prior written consent of the Holder. The
Holder may assign this Royalty Agreement in whole or in part, and any of its
rights or obligations hereunder, without the consent of Westport.    5.4No
Third-Party Beneficiaries. This Royalty Agreement shall not confer any rights or
remedies upon any party other than the Parties and their respective successors
and permitted assigns.    5.5Governing Law. This Royalty Agreement shall be
governed by and construed in accordance with the domestic Laws of the State of
New Jersey, without giving effect to any choice of law or conflict of law
provision or rule (whether of the State of New Jersey or any other jurisdiction)
that would cause the application of the laws of any jurisdiction other than the
State of New Jersey. The Recipient agrees that venue for any action, suit,
litigation or other proceeding arising out of or in any way relating to this
Royalty Agreement, or the matters referred to therein, shall be in Hudson
County, New Jersey. The Recipient hereby waives and agrees not to assert by way
of motion, as a defense, or otherwise, in any suit, action or proceeding, any
claim that (A) the suit, action or proceeding is brought in an inconvenient
forum or (B) the venue of the suit, action or proceeding is improper.

 

 

 

5.6Severability. If any provision in this Royalty Agreement shall be invalid,
illegal, or unenforceable in any jurisdiction, the validity, legality, and
enforceability of the remaining provisions, or of such provision or obligation
in any other jurisdiction, shall not in any way be affected or impaired thereby.
   5.7Expenses. Except as otherwise specifically provided in this Royalty
Agreement, each Party will bear its own expenses (including fees and
disbursements of legal counsel, accountants, financial advisors and other
professional advisors) incurred in connection with the preparation, negotiation,
execution, delivery and performance of this Royalty Agreement.    5.8Notices.
All notices, requests, demands, consents, instructions or other communications
required or permitted hereunder shall be in writing and faxed, mailed or
delivered to each party at the respective addresses of the parties as set forth
in the SPA, or at such other address or facsimile number as the Parties shall
have furnished to each other in writing.    5.9Construction. In the construction
of this Royalty Agreement, the rule of construction that a document is to be
construed most strictly against a party who prepared the same shall not be
applied, it being agreed that all parties have participated in the preparation
of the final form of this Royalty Agreement.    5.10Counterparts. This Royalty
Agreement may be executed in two or more counterparts, each of which shall be
deemed an original but all of which together will constitute one and the same
instrument. This Royalty Agreement may be executed by facsimile, photo or
electronic signature and such facsimile, photo or electronic signature shall
constitute an original for all purposes.

 

The Parties have duly executed this Royalty Agreement as of the Effective Date.

 

WESTPORT ENERGY HOLDINGS INC.   QUEENSBURY, INC.           By:     By:   Name:
Stephen Schoepfer   Name:   Title: Chief Executive Officer   Title:  

 

 

 

 

APPENDIX A TO ROYALTY AGREEMENT

 

DEFINITIONS

 

“Accounting Period” shall mean each 3-month period ending March 31, June 30,
September 30 and December 31.

 

“Affiliate” shall mean: (a) in the case of corporate entities, direct or
indirect ownership of at least 50% of the stock or participating shares entitled
to vote for the election of directors or the power to control such entity; and
(b) in the case of non-corporate entities, direct or indirect ownership of at
least 50% of the equity interest or the power to control such entity.

 

“Net Sales” shall mean, without duplication, all gross revenues invoiced by
Westport or any of its Affiliates for gas sales from the Allocated Wells, less
all reasonably related expenses or other accruals relating thereto including but
not limited to: (1) royalties or the like paid to third parties on gas sales
from the Allocated Wells; (2) discounts, rebates and deductions, or any other
consideration accrued to customers based on volumes and/or revenues
commercialized, or any other deductions or the like allowed (whether in cash or
trade) to customers for quantity purchases, prompt payments or other special
conditions; (3) credits, write-offs, collection fees, allowances or refunds, not
exceeding the original invoice amount, for claims, returns, collections or bad
debts, and any other allowances made for deficient goods or services; (4)
transportation expenses, including any and all carriage or insurance charges,
packaging, freight, and costs of delivery; and (5) sales and use taxes and other
fees or taxes imposed by any government or governmental agency, including, but
not limited to any import, export or customs duties. Net Sales shall be
determined from books and records maintained in accordance with United States
Generally Accepted Accounting Principles, consistently applied throughout the
organization and across all Allocated Wells giving rise to Net Sales.

 

“Royalty Term” shall mean, with respect to each Allocated Well, the period
commencing on the Effective Date and ending when such well is no longer capable
of producing gas.

 

 

 

 

APPENDIX B TO ROYALTY AGREEMENT

 

ALLOCATED WELLS

 

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