EXHIBIT
10.3


 


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 YA GLOBAL INVESTMENTS, L.P. (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”); and


 


WHEREAS,
YA Global’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



 


	1.1		Definitions 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



 


	2.1	Royalties.
                                         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:
25% of Net Sales



 


	2.3		Manner 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



 


	3.1	Recordkeeping.
                                         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.



 


	3.2	Reports.
                                         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. 



 




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	4.		EFFECTIVE
DATE AND EXPIRATION



 


	4.1	Generally.
                                         This Royalty Agreement shall become effective on the Execution Date (the “Effective
                                         Date”) and shall expire on the expiration of the Royalty Term.



 


	4.2	Post-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.



 


	4.3	Survival.
                                         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



 


	5.1	Entire
                                         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.



 


	5.2	Amendments
                                         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.



 


	5.3	Succession
                                         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.



 


	5.4	No
                                         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.



 


	5.5	Governing
                                         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.



 




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	5.6	Severability.
                                         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.



 


	5.7	Expenses.
                                         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.



 


	5.8	Notices.
                                         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.



 


	5.9	Construction.
                                         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.



 


	5.10	Counterparts.
                                         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. 	 	YA
    GLOBAL INVESTMENTS, L.P.
	 	 	 
	 	 	 	By:
    	Yorkville
    Advisors, LLC
	 	 	 	Its:	Investment
    Manager
	 	 	 	 	 
	By:	 	 	By:	 
	Name:	Stephen
    Schoepfer	 	Name:	Mark
    Angelo
	Title:	Chief
    Executive Officer	 	Its:	Portfolio
    Manager]


 




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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.


 




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APPENDIX
B TO ROYALTY AGREEMENT


 


ALLOCATED
WELLS


 


  


 




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