Document:

ex10_4.htm

    
      

    

    
      	
              Exhibit
      10.4

            	
              Escrow
      Agreement.

            

    

    

     

    Execution
Copy**

     

     

     

    ESCROW
AGREEMENT

     

     

    This
ESCROW AGREEMENT (the “Agreement”) is made
and entered into on February 6, 2008, by and among HYPERDYNAMICS CORPORATION
(the “Company”), YA GLOBAL
INVESTMENTS, L.P., (the “Buyer”), YORKVILLE
ADVISORS, LLC (“Investment Manager”),
and DAVID GONZALEZ, ESQ., as escrow agent (the “Escrow
Agent”).  The Company, the Buyer, and Yorkville may be referred
to individually as a “Party” or collectively as the “Parties.”  All
capitalized terms used herein but not defined herein shall have the meanings
ascribed to them in that certain Securities Purchase Agreement dated February 6,
2008 entered into by and between the Company and the Buyer (the “Securities
Purchase Agreement”).

     

    R
E C I T A L S

     

     

    WHEREAS, the Company and the
Buyer have entered into a Securities Purchase Agreement, pursuant to which the
Company shall issue and sell to the Buyer, and the Buyer shall purchase certain
Securities;

     

    WHEREAS, at all times while
the Buyer holds any of the Securities, the Investment Manager shall perform
monitoring and managing services for the Buyer in connection with the Buyer’s
purchase and investment in the Securities and the Buyer’s rights and obligations
under the Securities Purchase Agreement and other related documents and
agreements, and during such time, the Investment Manager shall be paid on a
quarterly basis, a fee from the Buyer for services performed;

     

    WHEREAS, pursuant to the
Securities Purchase Agreement, the Parties desire that the Monitoring Fees (as
defined in the Securities Purchase Agreement) be deposited into a segregated
escrow account to be held by the Escrow Agent and disbursed to the Investment
Manager on a quarterly basis as set forth in this Agreement as it performs its
monitoring and managing services for the Buyer;

     

    WHEREAS, Escrow Agent has
agreed to accept, hold, and disburse the Monitoring Fees deposited with it
hereunder in accordance with the terms of this Agreement.

     

     

    A
G R E E M E N T

     

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

     

    1.               
 Appointment of
Escrow Agent.  The
Company, the Buyer, and the Investment Manager hereby mutually appoint and
designate the Escrow Agent to receive, hold and release, as escrow agent, the
Escrow Funds (as defined below) and Escrow Agent hereby accepts such appointment
and designation, all in accordance with the terms hereof.

     

    2.                  Escrow
Delivery.

     

    
      
         

      

      
        1

        
          

        

      

      
         

      

    

     

    2.1.
Escrow
Funds.  Escrow Agent is hereby authorized and directed to use
its bank account as an escrow account for purposes of this
Agreement.  The Company shall deposit into the Escrow Account all of
the Monitoring Fees in accordance with the terms and conditions of Section
4(g)(ii) of the Securities Purchase Agreement (such Monitoring Fee funds
actually deposited into the Escrow Account shall be referred to as the “Escrow
Funds”).  Such Escrow Funds shall be wired to the following
account in accordance with the wire instructions below and shall be held by
Escrow Agent and released only in accordance with the terms of this
Agreement.

     

    
      	
              Bank:

            	
              Wachovia,
      N.A. of New Jersey

            
	
              Routing
      #:

            	
              031201467

            
	
              Account
      #:

            	
              2000014931121

            
	
              Name
      on Account:

            	
              David
      Gonzalez Attorney Trust Account

            
	
              Name
      on Sub-Account:

            	
              Hyperdynamics
      Corporation/Monitoring Fee

            

    

    

     

    3.                 
Conditions of
Escrow.

     

    3.1.
The Escrow
Deposit.  Escrow
Agent shall hold the Escrow Funds until all funds have been disbursed in
accordance with this Agreement (the “Term”) for the
benefit of the Buyer. The Escrow Funds shall be deposited into the Escrow
Account by the Company and the Buyer as set forth in the Securities Purchase
Agreement.  Upon each deposit into the Escrow Account, the Buyer shall
provide to the Escrow Agent a completed Monitoring Fee Schedule in the form
attached hereto as Exhibit A (a “Monitoring Fee
Schedule”) with respect to such deposit into escrow setting forth the
date and amount of such deposit and the schedule of disbursements to be made
from escrow.

     

    3.2.
Release of Escrow
Funds.   The
Escrow Agent shall disburse the Escrow Funds in accordance with the following
procedures:

     

    (i)           The
Escrow Agent shall disburse the designated portion of the Escrow Funds to the
Investment Manager in the amounts and at the times set forth on the Monitoring
Fee Schedules promptly upon receipt from the Buyer of a signed written
instruction directing the Escrow Agent to make such disbursement.  In
disbursing Escrow Funds, the Escrow Agent is authorized to rely upon such
written instruction from the Buyer and may accept any signatory from the Buyer
that Escrow Agent has on file.

     

    (ii)           In
the event that the Securities are Fully Retired (as defined in the Securities
Purchase Agreement) prior to the full disbursement of all the Escrow Funds, the
Buyer and the Company shall execute a joint written instruction directing the
Escrow Agent to disburse the remaining Escrow Funds to the Company, or to such
other Person as set forth in such joint written direction, provided however, the
Buyer may instruct, by delivery of a signed written instruction, which the
Buyer, in its sole determination  may provide, the Escrow Agent to
disburse all or a portion of the remaining Escrow Funds to the Buyer, which
amount shall be credited to any fees, costs, expenses, or other amounts owed to
the Buyer from the Company pursuant to the Securities, the Securities Purchase
Agreement, or any related documents after the Securities are Fully Retired, so
long as the Buyer first provides the Company with advanced written notice of
such amounts owed to it and provides the Company with five business days to
directly pay such amounts to the Buyer.

     

    
      
         

      

      
        2

        
          

        

      

      
         

      

    

    3.3.
Conflict.  If
a controversy arises between the Parties concerning the release of the Escrow
Funds hereunder, they shall notify Escrow Agent.  In that event (or,
in the absence of such notification, if in the good faith judgment of Escrow
Agent such controversy exists), Escrow Agent shall not be required to resolve
such controversy or take an action but shall be entitled to await resolution of
the controversy by joint written instructions from the Parties or may
immediately return the Escrow Funds to the respective Parties, in which event
Escrow Agent shall have no further liability hereunder.  If a suit is
commenced against Escrow Agent, it may answer by way of interpleader and name
the Parties as additional parties to such action, and Escrow Agent may tender
the Escrow Funds into such court for determination of the respective rights,
titles and interests of the Parties.  Upon such tender, Escrow Agent
shall be entitled to receive from the Parties its reasonable attorneys’ fees and
expenses incurred in connection with said interpleader action or in any related
action or suit.  If and when Escrow Agent shall so interplead such
Parties, or either of them, and deliver the Escrow Funds to the clerk of such
court, all of its duties hereunder shall cease, and it shall have no further
obligation in this regard.

     

    3.4.
Cause of
Action.  The Company agrees and acknowledges that in no event
shall it have any cause of action, standing, claim, or any other rights against
the Buyer or the Investment Manager with respect written instructions provided
by the Buyer or disbursements made to the Investment Manager in accordance with
Section 3.2. hereunder.

     

    4.               
  Escrow
Agent.

     

    4.1.
Liability of Escrow
Agent.  The
Parties acknowledge, understand and agree that Escrow Agent has accepted Escrow
Agent’s appointment under this Agreement and shall perform and satisfy Escrow
Agent’s duties, liabilities and obligations under this Agreement only as an
accommodation to the Parties.  The Parties, jointly and severally,
hereby indemnify Escrow Agent and each representative of Escrow Agent and hereby
agree to hold Escrow Agent and each such representative free and harmless from
and to defend and protect Escrow Agent and such representative against any claim
made, asserted or threatened against Escrow Agent or such representative
(including any such claim made, asserted or threatened by the Parties), and any
claim incurred by Escrow Agent or such representative, excluding, however, any
claim arising from the gross negligence, willful misconduct, criminal conduct or
intentionally tortuous conduct of Escrow Agent or such
representative.

     

    4.2.
Proceeding.  Escrow
Agent, in Escrow Agent’s sole discretion, may commence any judicial proceeding
necessary or appropriate to determining the respective rights of the Parties
under this Agreement or to interpreting or enforcing any term, condition or
other provision of this Agreement.  The Parties shall jointly and
severally be liable for any and all costs and expenses (including attorneys
fees, expert witness fees, accounting fees and related costs) incurred by Escrow
Agent in connection with such proceeding.

     

    5.               
  Termination.  This
Agreement shall be terminated upon the occurrence of any one of the following:
(i) the release of all the Escrow Funds in accordance with the terms and
conditions of Section 0 hereof; or (ii) otherwise by
written mutual consent signed by the Parties.

     

    6.              
   Notice.  All
notices, demands, requests, or other communications which may be or are required
to be given, served or sent by any of the Parties or the Escrow Agent to any
other party  pursuant to this Agreement shall be in writing and shall
be hand delivered (including delivery by courier), sent by facsimile, sent by a
nationally recognized overnight delivery service, or mailed by first-class,
registered or certified mail, return receipt requested, postage prepaid,
addressed to the parties last known address or such other address as the
addressee may indicate by written notice to the other Parties or the Escrow
Agent.  Each notice, demand, request or communication that is given or
made in the manner described above shall be deemed sufficiently given or made
for all purposes at such time as it is delivered to the addressee (with the
return receipt, the delivery receipt or the affidavit of messenger being deemed
conclusive but not exclusive evidence of such delivery) or at such time as
delivery is refused by the addressee upon presentation.

     

    
      
         

      

      
        3

        
          

        

      

      
         

      

    

    7.               
  Benefit
and Assignment.  None
of the Parties may assign this Agreement without the prior written consent of
all Parties and the Escrow Agent.  This Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and their respective
successors and assigns as permitted hereunder.  No person or entity
other than the Parties and their respective successors and assigns is or shall
be entitled to bring any action to enforce any provision in this Agreement
against any of the Parties, and the covenants and agreements set forth in this
Agreement shall be solely for the benefit of, and shall be enforceable only by,
the Parties or their respective successors and assigns.

     

    8.         
       Entire Agreement;
Amendment. This
Agreement, along with the Purchase Agreement and any other agreement executed on
the date hereof between the Parties, contains the entire agreement among the
parties with respect to the subject matter hereof and supersedes all prior oral
or written agreements, commitments or understandings with respect to such
matters.  This Agreement may not be changed orally, but only by an
instrument in writing signed by the Party against whom enforcement of any
waiver, change, modification, extension or discharge is sought.

     

    9.                 
Headings.  The headings of
the sections and subsections contained in this Agreement are inserted for
convenience only and do not form a part or affect the meaning, construction or
scope thereof.

     

    10.               
Governing Law;
Venue.  This
Agreement shall be governed and constructed under and in accordance with the
laws of the State of New Jersey (but not including the conflicts of laws and
rules thereof).  For purposes of any action or proceeding involving
this Agreement each of the parties to this Agreement expressly submits to the
jurisdiction of the federal and state courts located in the State of New Jersey
and consents to the service of any process or paper by registered mail or by
personal service within or without the State of New Jersey in accordance with
applicable law, provided a reasonable time for appearance is
allowed.  Each Party hereby acknowledges that Hudson County, New
Jersey is the proper venue for any action brought hereunder.

     

    11.                Signature in
Counterparts.  This
Agreement may be executed in separate counterparts, none of which need contain
the signature of all parties, each of which shall be deemed to be an original
and all of which taken together constitute one and the same
instrument.  It shall not be necessary in making proof of this
Agreement to produce or account for more than the number of counterparts
containing the respective signatures of, or on behalf of, all of the parties
hereto.

     

    12.               
Attorney’s
Fees.  Should
any action be commenced between any of the Parties concerning the matters set
forth in this Agreement or the right and duties of any other Party in relation
thereto, the prevailing Party in such action shall be entitled, in addition to
such other relief as may be granted, to a reasonable sum as and for its
attorney’s fees and costs; except that Escrow Agent’s attorney’s fees and costs
incurred in connection with disputes arising hereunder between Company, the
Buyer, and the Investment Manager shall be paid by Company, the Buyer and the
Investment Manager as otherwise provided herein.

     

    
      
         

      

      
        4

        
          

        

      

      
         

      

    

    13.           
  Conflict
Waiver.  The Company hereby acknowledge that the Escrow Agent
is general counsel to the Buyer, a partner of the Investment Manager and counsel
to both the Buyer and the Investment Manager  in connection with the
transactions contemplated and referred herein.  The Company agrees
that in the event of any dispute arising in connection with this Agreement or
otherwise in connection with any transaction or agreement contemplated and
referred herein, the Escrow Agent shall be permitted to continue to represent
the Buyer and the Investment Manager and the Company will not seek to disqualify
such counsel.  The Company waives any right to seek the
disqualification of Escrow Agent to act as legal counsel to the Buyer or the
Investment Manager as a result of Escrow Agent’s duties
hereunder.  The Buyer and the Investment Manager hereby consents to
Escrow Agent acting as escrow agent pursuant to the terms of this Agreement and
hereby acknowledge that in so acting, Escrow Agent shall be bound to act in
accordance with this Agreement and not in the best interest of the Buyer or the
Investment Manager and may be required to enforce its rights under this
Agreement against the Buyer or the Investment Manager.  The Buyer or
the Investment Manager further acknowledges and agrees that all communication
delivered to Escrow Agent in furtherance of this Agreement or Escrow Agent’s
duties hereunder may not be kept confidential by Escrow Agent and may not be
protected by the attorney-client privilege.  The Buyer or the
Investment Manager hereby waive the conflict of interest and any potential
conflict of interest that may arise as a result of Escrow Agent’s performance of
its duties or exercise of its rights under this Agreement.

     

    [Remainder
of Page Intentionally Left Blank]

     

    
      
        
           

        

        
          5

          
            

          

        

        
           

        

      

    

    

    IN
WITNESS WHEREOF, each of the parties has caused this Agreement to be duly
executed and delivered in its name and on its behalf, all as of the date and
year first above written.

     

    
      	 
      	
              “Company”

            
	 
      	
              Hyperdynamics
      Corporation

            
	 
      	 
      
	 
      	
              By:
      /s/ Kent Watts

            
	 
      	
              Name:
      Kent Watts

            
	 
      	
              Title:  President
      and CEO

            
	 
      	 
      
	 
      	 
      
	 
      	 
      
	 
      	
              “Buyer”

            
	 
      	 
      
	 
      	
              YA
      Global Investments, L.P.

            
	 
      	 
      
	 
      	
              By:
      Yorkville Advisors, LLC

            
	 
      	
              Its:  Investment
      Manager

            
	 
      	 
      
	 
      	
              By:
      /s/ Mark Angelo

            
	 
      	
              Name:
      Mark Angelo

            
	 
      	
              Title:  Portfolio
      Manager

            
	 
      	 
      
	 
      	 
      
	 
      	 
      
	 
      	
              “Investment
      Manager”

            
	 
      	 
      
	 
      	
              Yorkville
      Advisors, LLC

            
	 
      	 
      
	 
      	
              By
      /s/ Mark Angelo

            
	 
      	
              Name:
      Mark Angelo

            
	 
      	
              Title:  Portfolio
      Manager

            
	 
      	 
      
	 
      	 
      
	 
      	
              “Escrow
      Agent”

            
	 
      	 
      
	 
      	
              By:
      /s/ David Gonzalez, Esq

            
	 
      	
              Name:
      David Gonzalez, Esq.

            

    

    
      
         

      

      
        6

        
          

        

      

      
         

      

    

    EXHIBIT
A

    

    MONITORING
FEE SCHEDULE

    RELATING
TO HYPERDYNAMICS CORPORATION

    

    To:           Escrow
Agent

    Date:        February
___, 2008

    

    In
accordance with the Agreement, upon each deposit into the Escrow Account, the
Buyer shall provide to the Escrow Agent a completed Monitoring Fee Schedule with
respect to such deposit into escrow setting forth the date and amount of such
deposit and the Schedule of Disbursements to be made to the Investment Manager
from the Escrow Account.  Below please find the Monitoring Fee
Schedule in connection with the Monitoring Fee to be deposited into the Escrow
Account pursuant to a Closing under the Securities Purchase
Agreement:

    

    Part I.  Deposits
of Monitoring Fee Into Escrow Account

    

    Deposit
Into Escrow
Account                                                                $80,000.00                                           Date
of DepositFebruary __,
2008

    

    Part II.  Schedule
of Disbursements to Investment Manager From Escrow Account

    

    
      	
              Disbursement
      Date

            	 	
              Disbursement
      Amount

            	 	 	
              Remaining
      Escrow

              Funds

            	 
	
              March
      1, 2008

            	 	$	20,000	 	 	$	60,000	 
	
              April
      1, 2008

            	 	$	2,727	 	 	$	57,273	 
	
              May
      1, 2008

            	 	$	2,727	 	 	$	54,545	 
	
              June
      1, 2008

            	 	$	2,727	 	 	$	51,818	 
	
              July
      1, 2008

            	 	$	2,727	 	 	$	49,091	 
	
              August
      1, 2008

            	 	$	2,727	 	 	$	46,364	 
	
              September
      1, 2008

            	 	$	2,727	 	 	$	43,636	 
	
              October
      1, 2008

            	 	$	2,727	 	 	$	40,909	 
	
              November
      1, 2008

            	 	$	2,727	 	 	$	38,182	 
	
              December
      1, 2008

            	 	$	2,727	 	 	$	35,455	 
	
              January
      1, 2009

            	 	$	2,727	 	 	$	32,727	 
	
              February
      1, 2009

            	 	$	2,727	 	 	$	30,000	 
	
              March
      1, 2009

            	 	$	2,727	 	 	$	27,273	 
	
              April
      1, 2009

            	 	$	2,727	 	 	$	24,545	 
	
              May
      1, 2009

            	 	$	2,727	 	 	$	21,818	 
	
              June
      1, 2009

            	 	$	2,727	 	 	$	19,091	 
	
              July
      1, 2009

            	 	$	2,727	 	 	$	16,364	 
	
              August
      1, 2009

            	 	$	2,727	 	 	$	13,636	 
	
              September
      1, 2009

            	 	$	2,727	 	 	$	10,909	 
	
              October
      1, 2009

            	 	$	2,727	 	 	$	8,182	 
	
              November
      1, 2009

            	 	$	2,727	 	 	$	5,455	 
	
              December
      1, 2009

            	 	$	2,727	 	 	$	2,727	 
	
              January
      1, 2010

            	 	$	2,727	 	 	$	0	 

    

     

     

    7ex10_5.htm

    
      

    

    
      	
              Exhibit
      10.5

            	
              Bank
      Account Control Agreement for HYD Resources
  Corporation.

            

    

     

     

    CONTROL ACCOUNT
AGREEMENT

     

    (Deposit
Account)

    

    This
Control Account Agreement (“Agreement”) is
entered into effective the ______ day of February 2008, by, between, and among
The Frost National Bank, a national banking association (“Bank”), HYD
Resources, a Texas Corporation (“Debtor”) and YA
Global Investments, L.P., a Cayman Islands exempt partnership (“Secured
Party”).

    

    RECITALS

    

     

    A.           Debtor
maintains with Bank the deposit account (the “Control Account”)
described on Schedule 1 attached hereto and incorporated herein by
reference.

    

     

    B.           Debtor
has granted to Secured Party a security interest in the Control Account and all
amounts or items of value deposited, credited or held in, and proceeds of, the
Control Account (collectively, the “Deposits”) pursuant
to a Security Agreement and certain other documents signed by Debtor and/or
certain affiliates of Debtor in connection with the loan to be made by Secured
Party to Debtor and/or certain affiliates of Debtor (herein called the “Collateral
Documents”).

    

     

    C.           Debtor
has requested that Bank enter into this Agreement to provide for Secured Party's
control of, and to perfect the security interest of Secured Party in, the
Control Account, and Bank has agreed to Debtor’s request, subject to the terms
and conditions of this Agreement.

     

    

    AGREEMENT

     

     

    NOW THEREFORE, in
consideration of the foregoing and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties to this
Agreement hereby agree as follows:

     

    
      
        
           

        

        
           

          
            

          

        

        
           

        

      

    

    

    1.           Control.  Bank
shall comply with written instructions (“Notice”) in the form
as set forth on Exhibit "A" attached hereto and incorporated herein by
reference, originated by Secured Party and given to Bank in accordance with this
Agreement, directing disposition of the Deposits in the Control Account,
provided such Deposits are available for withdrawal in accordance with the Funds Availability Policy
Disclosure as set forth in the Deposit Account Agreement between Debtor
and the Bank (the “Deposit Account
Agreement”), without the further consent by the
Debtor.  Without limiting the generality or legal effect of the
foregoing, if Secured Party instructs Bank in writing to pay the balance of the
Control Account to or for the benefit of the Secured Party, Bank shall pay the
balance of such Control Account as and when such funds are available for
withdrawal in accordance with the Funds Availability Policy
Disclosure as set forth in the Deposit Account Agreement to or for the
benefit of Secured Party in accordance with such written
instructions.

     

     

    2.           Debtor’s
Rights in Control Account. Notwithstanding the foregoing, the Debtor
shall be entitled to dispose of funds in the Control Account unless and until
the Bank has received the Notice to the contrary from the Secured Party;
provided, however, that the Debtor acknowledges that its disposition privileges
may be revoked solely by the Secured Party.  The Debtor and the Bank
agree that upon the Bank's receipt of such Notice from the Secured Party (which
Notice shall be deemed to be a representation by the Secured Party that Secured
Party's giving of such instructions is permitted by agreement of the Debtor)
directing the Bank not to permit the Debtor to dispose of any funds from the
Control Account, the Debtor (and/or its affiliates and its manager) cannot and
will not, and the Bank will not permit the Debtor (and/or its affiliates or its
manager) to, dispose of any funds from the Control Account and will not honor
any checks or other items drawn by the Debtor (and/or its affiliates or its
manager) on the Control Account, until such time as Secured Party advises Bank
in writing that Secured Party no longer claims any interest in the Control
Account, or until this Agreement is terminated.

     

     

    3.           Account
Information.  The Bank agrees, that if so directed on Schedule
1, in addition to the original statement which will be provided to the Debtor,
that the Bank will provide the Secured Party with a duplicate statement with
respect to the Control Account substantially concurrently with the delivery
thereof to the Debtor and such other account information reasonably requested in
writing by the Secured Party from time to time.  The Debtor hereby
authorizes the Bank to provide any account information requested by the Secured
Party.  Debtor further authorizes Bank to disclose to Secured Party,
upon request, any other agreement relating to the Control
Account,  that purports to allow any other person or entity (other
than the Debtor owning such Control Account) to provide instructions directing
disposition of funds in the Control Account without the further consent of the
Debtor.  Bank agrees that it will not enter into any agreement with
any person or entity in connection with the Control Account by which Bank is
obligated to comply with instructions from such person or entity which conflict
with this Agreement.

     

     

    4.           Charges
to Control Account.  The Bank may debit the Control Account for
reasonable fees, costs, charges, and expenses incurred in the ordinary course of
operating and maintaining the Control Account, including without limitation, the
costs, expenses, and liability associated with returned items, in accordance
with its Deposit Account Agreement, and for any costs and expenses set forth in
Paragraph 13 herein. Bank may also debit the Control Account for its customary
charges for duplicate statements and other information furnished to Secured
Party.

     

    
      
        
           

        

        
           

          
            

          

        

        
           

        

      

    

     

    5.           Returned
Items. If any items previously credited to the Control Account should be
returned to the Bank, then the Bank shall have the right to charge any or all of
such returned items to the Control Account or an alternative account maintained
by Debtor with Bank as specified on Schedule 1, hereinafter called the "Charge
Account."  However, if after delivery by the Bank to the
Secured Party of any funds in the Control Account pursuant to this Agreement
there are insufficient collected funds in the Control Account or the Charge
Account to reimburse the Bank for the full amount of all such returned items,
then upon written demand by Bank to the Secured Party, the Secured Party shall
wire transfer to the Bank immediately available funds in an amount equal to the
lesser of (i) the full amount of the unreimbursed portion of such returned
items, or (ii) the amount of the funds representing returned items delivered by
Bank to and received by Secured Party.  Bank shall never be required
hereunder to pay Debtor or Secured Party from uncollected funds (i.e., funds
that are not available for withdrawal in accordance with the Funds Availability Policy
Disclosure as set forth in the Deposit Account Agreement), in the Control
Account.

     

     

    6.           Proper
Application. Upon distribution of any funds to or for the benefit of the
Secured Party hereunder, Bank shall have no duty to see to the proper
application or use of such funds by the Secured Party, and Bank shall not in any
manner whatsoever be answerable to Debtor for any loss, misapplication or
non-application of any such funds by Secured Party.

     

     

    7.           Other
Encumbrances and Setoff. The Debtor agrees that it will not permit the
Control Account to become subject to any other pledge, assignment, security
interest, lien, charge or encumbrance of any kind, nature or description, other
than the Collateral Documents.  The Bank agrees that, except as
provided in Sections 4, 5, 11, and 13 of this Agreement, it will subordinate any
right of setoff against the Deposits credited to the Control Account or the
monies or instruments relating thereto or held therein and will not otherwise
apply the Deposits credited to the Control Account or the monies or instruments
relating thereto or held therein to satisfy any indebtedness, liability or
obligation of the Debtor or any other person or entity to the
Bank.  If Bank, notwithstanding this subordination of right of
set-off, creates or asserts any lien, encumbrance or claim on or security
interest in the Control Account or Deposits, Bank agrees that such lien,
encumbrance or claim or security interest shall be subordinate and junior to
Secured Party's security interest in the Control Account and
Deposits.

     

     

    8.           Representations
by Bank. The Bank represents and warrants that (i) the Control Account is
not evidenced by any instrument, (ii) the Debtor is the record owner of the
Control Account, (iii) as of the date of this Agreement, the books and records
of the Bank do not disclose the existence of any claim or interest in the
Control Account other than the interests of the Debtor and the Secured Party,
and (iv) the Bank has not entered into any control agreement with any person or
entity with respect to the Control Account or the funds deposited therein or the
proceeds thereof.

     

     

    9.           Termination.  This
Agreement shall terminate and be of no force and effect upon receipt by the Bank
of written notice from the Secured Party that the Secured Party no longer claims
an interest in the Control Account.  This Agreement may be terminated
by Bank, with or without cause, upon its delivery of thirty (30) days prior
written notice thereof to Debtor and Secured Party, and upon the expiration of
such thirty (30) day period, all of Bank’s obligations hereunder shall
cease.  Upon the effective date of such termination, Bank will
simultaneously transmit to the Secured Party all collected funds, if any, then
on deposit in the Control Account. All rights of Bank under paragraphs 4, 5, 11,
and 13 shall survive any termination of this Agreement.

     

    
      
        
           

        

        
           

          
            

          

        

        
           

        

      

    

    

    10.         Reliance.
Bank, without liability to any party, may act in reliance upon any writing or
instrument or signature which it, in good faith, believes to be genuine, may
assume the validity and accuracy of any statement or assertion contained in such
a writing or instrument, and may assume that any person purporting to give any
writing, notice, advice or instructions in connection with the provisions of
this Agreement has been so duly authorized. In the event of a conflict between
any instruction or direction given to the Bank by the Secured Party and any
instruction or direction given to the Bank by or on behalf of the Debtor, Bank
shall comply with the instruction or direction given by the Secured Party.
Without limiting the generality of the foregoing, Bank shall be conclusively
entitled to assume that Secured Party's giving of a Notice is permitted by
agreement of the Debtor.

     

     

    11.         Indemnification
of the Bank; Exculpation. Except in
cases of the Bank's gross negligence or willful misconduct, Debtor hereby agrees
to indemnify the Bank and hold it harmless from any and all claims, liabilities,
losses, actions, suits or proceedings at law or in equity (collectively,
“Claims”), or any other expenses, fees or charges of any character or nature
which Bank may incur or with which it may be threatened by reason of the Bank's
actions under this Agreement, including but not limited to, any Claims caused or
alleged to be caused by the sole or concurrent negligence of Bank, its employees
or agents; and, in connection therewith, to indemnify Bank against any and all
expenses, including without limitation, reasonable attorneys' fees and expenses
incurred by Bank. Bank may itself defend any suit brought against it and
shall be equally entitled to receive reimbursement from the Debtor, its
reasonable attorneys' fees, expenses, and all fees and costs incident to any
appeals which may result. Debtor
and Secured Party agree that Bank shall have no liability to either of them for
any loss or damage that either or both may claim to have suffered or incurred,
either directly or indirectly, by reason of this Agreement or any transaction or
service contemplated by this Agreement, regardless of whether such loss or
damage is caused or alleged to be caused by the sole or concurrent negligence of
Bank, its employees or agents, unless occasioned solely by the gross negligence
or willful misconduct of Bank. In no event shall Bank be liable for
losses or delays resulting from computer malfunction, interruption of
communication facilities, labor difficulties or other causes beyond the Bank's
reasonable control or for indirect, special or consequential
damages.

     

     

    12.         Duties.
Bank undertakes to perform only such duties as are expressly set forth in this
Agreement, and no implied duties or obligations shall be read into this
Agreement against the Bank. Bank shall have no duty to investigate or determine
whether an event of default exists under the Collateral Documents or if Debtor
has agreed that Secured Party has the right to send a Notice prior to complying
with any Notice.  Except for this Agreement, the Bank is not a party
to, and is not bound by, or charged with notice of, any of the terms and
conditions of any agreements, including without limitation, the Collateral
Documents, between the Secured Party and Debtor or any other party, and the Bank
has not assumed any obligation or liability under such agreements, arrangements
or understandings.

     

    
      
        
           

        

        
           

          
            

          

        

        
           

        

      

    

    

    13.          Disputes;
Interpleader.  If there is any disagreement or dispute in
connection with this Agreement or the subject matter hereof, or in the event of
adverse or inconsistent claims or demands upon, or inconsistent instructions to,
the Bank, other than with respect to Debtor, or if the Bank in good faith is in
doubt as to what action to take pursuant to this Agreement, the Bank may, at its
election, refuse to comply with any such claims, demands, or instructions, or
refuse to take any other action pursuant to this Agreement until:

     

    

    (a)          the
rights of all persons involved in the dispute have been fully and finally
adjudicated by a court of competent jurisdiction or the Bank has resolved any
such doubts to its good faith satisfaction; or

    

    (b)          all
disputes have been resolved between the parties involved, and the Bank has
received written notice thereof satisfactory to it signed by all
parties.

    

    Without
limiting the generality of the foregoing, the Bank may, at its election,
interplead the funds in the Control Account or any portion thereof with a court
of competent jurisdiction in Bexar County, Texas, or commence judicial
proceedings for declaratory judgment, and the Bank shall be entitled to recover
from Debtor or the Control Account, its reasonable attorneys' fees and costs in
connection with any such interpleader or declaratory judgment
action.

     

     

    14.         Court
Orders.  The Bank is expressly authorized to comply with and
obey any orders, judgments, or decrees of any court with respect to the Control
Account or any matter relating to this Agreement.  In the event the
Bank obeys or complies with any such order, judgment or decree of any court, the
Bank shall not be liable to any of the parties hereto or to any other person by
reason of such compliance, notwithstanding any such order, judgment or decree
being subsequently reversed, modified, annulled, set aside, vacated or found to
have been entered without jurisdiction.

    
 

    15.          Notices.  All
notices, instructions, requests, demands or other communications required or
permitted to be given pursuant to this Agreement shall be in writing and given
by (i) personal delivery, (ii) expedited delivery service with proof
of delivery, or (iii) United States mail, postage prepaid, registered or
certified mail, return receipt requested, sent to the intended addressee at the
address set forth on Schedule 1 and shall be deemed to have been received
either, in the case of personal delivery, as of the time of personal delivery,
in the case of expedited delivery service, as of the date of first attempted
delivery at the address and in the manner provided herein, or in the case of
mail, upon actual receipt.  Any party shall have the right to change
its address for notice hereunder to any other location within the continental
United States by notice to the other parties of such new address at least thirty
(30) days prior to the effective date of such new address. Bank shall have a
reasonable period of time, not to exceed two business days (any date the bank is
open for business), to comply with and implement any Notice actually received by
Bank from Secured Party.

    
 

    16.         Unenforceability.  If
any portion of this Agreement shall be held invalid or unenforceable, then so
far as is reasonable and possible, the remainder of this Agreement shall be
considered valid and operative and effect shall be given to the intent
manifested by the portion held invalid or unenforceable.

    

    
      
        
           

        

        
           

          
            

          

        

        
           

        

      

    

    

    17.           Amendments;
Entire Agreement.   The provisions of this Agreement may
not be amended, supplemented, waived, or changed orally, except by a writing
signed by all of the parties to this Agreement. This Agreement, together with
all schedules attached hereto represent the entire agreement by and between the
parties hereto concerning the subject matter hereof and supersedes any prior
oral or written agreements by and between the parties respecting the subject
matter of this Agreement.  In the event of a conflict between the
provisions of this Agreement and any other agreement between Bank and Debtor (or
any of its affiliates), the provisions of this Agreement shall
control.

    

     

    18.           Headings.  The
headings, captions and arrangements used in this Agreement are for convenience
only, and shall not affect the interpretation of this Agreement.

     

     

    19.           Successors
and Assigns. This Agreement may not be assigned by any party hereto
without the prior written consent of Bank.  The rights created by this
Agreement shall inure to the benefit of, and the obligations created hereby
shall be binding upon, the successors and assigns (where permitted) of the Bank,
Debtor, and the Secured Party.

     

     

    20.           Governing
Law.  This Agreement is being executed and delivered, and is
intended to be performed, in the State of Texas, which is Bank’s jurisdiction
for purposes of Article 9 of the Uniform Commercial Code, as adopted in
Texas.  The laws of the State of Texas shall govern the validity,
construction, enforcement and interpretation of this Agreement.  This
Agreement is performable in Bexar County, Texas.

    
 

    21.           Counterparts.  This Agreement
may be executed in any number of counterparts, all of which when taken together
shall constitute one and the same agreement, and any of the parties to this
Agreement may execute the Agreement by signing any of the
counterparts.

    
 

    22.           WAIVER
OF JURY TRIAL. Each
party to this Agreement waives all right to trial by jury of any and all claims
relating in any way to this Agreement or the transactions contemplated by this
Agreement. Each party to this Agreement acknowledges that this is a waiver of a
legal right and is made knowingly and voluntarily after consultation with
counsel. Each party to this Agreement agrees that all such claims shall be tried
before a judge of a court having jurisdiction, without a
jury.

    

    

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    EXECUTED as of the date first
above written.

    

    SECURED
PARTY:

    

    
      	
              YA
      GLOBAL INVESTMENTS, L.P.

            
	 
      	 
      
	
              By:

            	
              Yorkville
      Advisors, LLC

            
	
              Its:

            	
              Investment
      Manager

            
	 
      	 
      
	 
      	 
      
	
              By:

            	
              /s/
      Mark Angelo

            
	
              Name:

            	
              Mark
      Angelo

            
	
              Its:

            	
              Portfolio
      Manager

            

    

    

     

    II.           BANK:

     

    

    
      	
              THE
      FROST NATIONAL BANK

            	 
      
	 
      	 
      	 
      
	
              By:

            	 
      	 
      
	
              Printed
      Name:

            	 
      	 
      
	
              Title:

            	 
      	 
      

    

     

     

    III.           DEBTOR:

     

    

    HYD
Resources

    

    By: /s/
Kent Watts

    Printed
Name: Kent Watts

    Title:
President and CEO

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