Exhibit 10.2


    EXHIBIT
      10.2

    


    THIS
      AMENDMENT IS DATED JANUARY 9, 2006 TO THE ORIGINAL AGREEMENT DATED AUGUST 12,
      2005, BELOW. 

    


    SECURITY
      AGREEMENT

    


    THIS
      SECURITY AGREEMENT (the "Agreement"), is entered into and made effective as
      of
      August 12, 2005, by and between Hyperdynamics Corp., a Delaware corporation
      with
      its principal place of business located at 9700 Bissonnet, Suite 1700, Houston,
      Texas 77036 and it's subsidiaries (the "Company"), and the Dutchess Private
      Equities Fund, II, LP (the "Secured Party"). 

    


    WHEREAS,
      the Company shall issue and sell to the Secured Party, as provided in the
      Subscription Agreement of even date herewith between the Company and the Secured
      Party (the "Subscription Agreement"), and the Secured Party shall purchase
      up to
      One Million Five Hundred Thousand Dollars ($1,500,000) of secured convertible
      debentures (the "Convertible Debentures"), which shall be convertible into
      shares of the Company's common stock, par value $0.001 (the "Common Stock")
      (as
      converted, the "Conversion Shares") in the respective amounts set forth in
      the
      Subscription Agreement ("Holder"); 

    


    WHEREAS,
      to induce the Secured Party to enter into the transaction contemplated by the
      Subscription Agreement, the Debenture Agreement, Warrant Agreement, the
      Debenture Registration Rights Agreement of even date herewith between the
      Company and the Secured Party (the "Debenture Registration Rights Agreement"),
      and the Irrevocable Transfer Agent Instructions among the Company, the Secured
      Party, Transfer Agent, and Dutchess Capital Management, LLC (the "Irrevocable
      Transfer Agent Agreement") (collectively referred to as the "Transaction
      Documents"), the Company hereby grants to the Secured Party a security interest
      in and to the pledged property identified on Exhibit A hereto (collectively
      referred to as the "Pledged Property") until the satisfaction of the
      Obligations, as defined herein below. 

    


    NOW,
      THEREFORE, in consideration of the promises and the mutual covenants herein
      contained, and for other good and valuable consideration, the adequacy and
      receipt of which are hereby acknowledged, the parties hereto hereby agree as
      follows: 

    


    ARTICLE
      1. DEFINITIONS
      AND INTERPRETATIONS 

    


    Section
      1.1. Recitals. 

    


    The
      above
      recitals are true and correct and are incorporated herein, in their entirety,
      by
      this reference. 

    


    Section
      1.2. Interpretations. 

    


    Nothing
      herein expressed or implied is intended or shall be construed to confer upon
      any
      person other than the Secured Party any right, remedy or claim under or by
      reason hereof. 

    


    Section
      1.3. Obligations Secured. 

    


    The
      obligations secured hereby are any and all obligations of the Company now
      existing or hereinafter incurred to the Secured Party, whether oral or written
      and whether arising before, on or after the date hereof including, without
      limitation, those obligations of the Company to the Secured Party under this
      Agreement, the Transaction Documents, and any other amounts now or hereafter
      owed to the Secured Party by the Company thereunder or hereunder (collectively,
      the "Obligations"). 

    


    ARTICLE
      2. PLEDGED
      COLLATERAL, ADMINISTRATION OF COLLATERAL AND TERMINATION OF SECURITY INTEREST
      

    


    Section
      2.1. Pledged Property. 

    


    (a)
      Company hereby pledges to the Secured Party, and creates in the Secured Party
      for its benefit, a security interest for such time until the Obligations are
      paid in full, in and to all of the property of the Company as set forth in
      Exhibit "A" attached hereto (collectively, the "Pledged Property"): The Pledged
      Property, as set forth in Exhibit "A" attached hereto, and the products thereof
      and the proceeds of all such items are hereinafter collectively referred to
      as
      the "Pledged Collateral." 

    


    (b)
      Simultaneously with the execution and delivery of this Agreement, the Company
      shall make, execute, acknowledge, file, record and deliver to the Secured Party
      any documents reasonably requested by the Secured Party to perfect its security
      interest in the Pledged Property. Simultaneously with the execution and delivery
      of this Agreement, the Company shall make, execute, acknowledge and deliver
      to
      the Secured Party such documents and instruments, including, without limitation,
      financing statements, certificates, affidavits and forms as may, in the Secured
      Party's reasonable judgment, be necessary to effectuate, complete or perfect,
      or
      to continue and preserve, the security interest of the Secured Party in the
      Pledged Property, and the Secured Party shall hold such documents and
      instruments as secured party, subject to the terms and conditions contained
      herein. 

    


    Section
      2.2. Rights; Interests; Etc. 

    


    (a)
      So
      long as no Event of Default (as hereinafter defined) shall have occurred and
      be
      continuing: 

    (i)
      the
      Company shall be entitled to exercise any and all rights pertaining to the
      Pledged Property or any part thereof for any purpose not inconsistent with
      the
      terms hereof; and 

    


    (ii)
      the
      Company shall be entitled to receive and retain any and all payments paid or
      made in respect of the Pledged Property. 

    


    (b)
      Upon
      the occurrence and during the continuance of an Event of Default: 

    (i)
      All
      rights of the Company to exercise the rights which it would otherwise be
      entitled to exercise pursuant to Section 2.2(a)(i) hereof and to receive
      payments which it would otherwise be authorized to receive and retain pursuant
      to Section 2.2(a)(ii) hereof shall be suspended, and all such rights shall
      thereupon become vested in the Secured Party who shall thereupon have the sole
      right to exercise such rights and to receive and hold as Pledged Collateral
      such
      payments; provided, however, that if the Secured Party shall become entitled
      and
      shall elect to exercise its right to realize on the Pledged Collateral pursuant
      to Article 5 hereof, then all cash sums received by the Secured Party, or held
      by Company for the benefit of the Secured Party and paid over pursuant to
      Section 2.2(b)(ii) hereof, shall be applied against any outstanding Obligations;
      and, 

    (ii)
      All
      interest, dividends, income and other payments and distributions which are
      received by the Company contrary to the provisions of Section 2.2(b)(i) hereof
      shall be received in trust for the benefit of the Secured Party, shall be
      segregated from other property of the Company and shall be forthwith paid over
      to the Secured Party; or 

    (iii)
      The
      Secured Party in its sole discretion shall be authorized to sell any or all
      of
      the Pledged Property at public or private sale in order to recoup all of the
      outstanding principal plus accrued interest owed pursuant to the Convertible
      Debenture as described herein 

    (c)
      An
      Event of Default hereunder shall be deemed to occur upon an Event of Default
      under Article 6 of the Convertible Debentures, or any material violation of
      the
      Transaction Documents. 

    


    ARTICLE
      3. ATTORNEY-IN-FACT;
      PERFORMANCE 

    


    Section
      3.1. Secured Party Appointed Attorney-In-Fact. 

    


    Upon
      the
      occurrence of an Event of Default, the Company hereby appoints the Secured
      Party
      as its attorney-in-fact, with full authority in the place and stead of the
      Company and in the name of the Company or otherwise, from time to time in the
      Secured Party's discretion to take any action and to execute any instrument
      which the Secured Party may reasonably deem necessary to accomplish the purposes
      of this Agreement, including, without limitation, to receive and collect all
      instruments made payable to the Company representing any payments in respect
      of
      the Pledged Collateral or any part thereof and to give full discharge for the
      same. The Secured Party may demand, collect, receipt for, settle, compromise,
      adjust, sue for, foreclose, or realize on the Pledged Property as and when
      the
      Secured Party may determine. To facilitate collection, the Secured Party may
      notify account debtors and obligors on any Pledged Property or Pledged
      Collateral to make payments directly to the Secured Party. 

    


    Section
      3.2. Secured Party May Perform. 

    


    If
      the
      Company fails to perform any agreement contained herein, the Secured Party,
      at
      its option, may itself perform, or cause performance of, such agreement, and
      the
      expenses of the Secured Party incurred in connection therewith shall be included
      in the Obligations secured hereby and payable by the Company under Section
      8.3.


    


    ARTICLE
      4. REPRESENTATIONS
      AND WARRANTIES 

    


    Section
      4.1. Authorization; Enforceability. 

    


    Each
      of
      the parties hereto represents and warrants that it has taken all action
      necessary to authorize the execution, delivery and performance of this Agreement
      and the transactions contemplated hereby; and upon execution and delivery,
      this
      Agreement shall constitute a valid and binding obligation of the respective
      party, subject to applicable bankruptcy, insolvency, reorganization, moratorium
      and similar laws affecting creditors' rights or by the principles governing
      the
      availability of equitable remedies. 

    


    Section
      4.2. Ownership of Pledged Property. 

    


    The
      Company warrants and represents that it is the legal and beneficial owner of
      the
      Pledged Property free and clear of any lien, security interest, option or other
      charge or encumbrance for the property and assets made by Trendsetter Production
      Company, a wholly-owned subsidiary of the Company..

    


    ARTICLE
      5. DEFAULT;
      REMEDIES; SUBSTITUTE COLLATERAL 

    


    Section
      5.1. Default and Remedies

    


    (a)
      If an
      Event of Default occurs, then in each such case the Secured Party may declare
      the Obligations to be due and payable immediately, by a notice in writing to
      the
      Company, and upon any such declaration, the Obligations shall become immediately
      due and payable. If an Event of Default occurs and is continuing for the period
      set forth therein, then the Obligations shall automatically become immediately
      due and payable without declaration or other act on the part of the Secured
      Party. 

    


    (b)
      Upon
      the occurrence of an Event of Default, the Secured Party shall: (i) be entitled
      to receive all distributions with respect to the Pledged Collateral, (ii) to
      cause the Pledged Property to be transferred into the name of the Secured Party
      or its nominee, (iii) to dispose of the Pledged Property, and (iv) to realize
      upon any and all rights in the Pledged Property then held by the Secured Party.
      

    


    Section
      5.2. Method of Realizing Upon the Pledged Property: Other Remedies.


    


    Upon
      the
      occurrence of an Event of Default, in addition to any rights and remedies
      available at law or in equity, the following provisions shall govern the Secured
      Party's right to realize upon the Pledged Property: 

    


    (a)
      Any
      item of the Pledged Property may be sold for cash or other value in any number
      of lots at brokers board, public auction or private sale and may be sold without
      demand, advertisement or notice (except that the Secured Party shall give the
      Company ten (10) days' prior written notice of the time and place or of the
      time
      after which a private sale may be made (the "Sale Notice")), which notice period
      is hereby agreed to be commercially reasonable. At any sale or sales of the
      Pledged Property, the Company may bid for and purchase the whole or any part
      of
      the Pledged Property and, upon compliance with the terms of such sale, may
      hold,
      exploit and dispose of the same without further accountability to the Secured
      Party. The Company will execute and deliver, or cause to be executed and
      delivered, such instruments, documents, assignments, waivers, certificates,
      and
      affidavits and supply or cause to be supplied such further information and
      take
      such further action as the Secured Party reasonably shall require in connection
      with any such sale. 

    


    (b)
      Any
      cash being held by the Secured Party as Pledged Collateral and all cash proceeds
      received by the Secured Party in respect of, sale of, collection from, or other
      realization upon all or any part of the Pledged Collateral shall be applied
      as
      follows: 

    (i)
      to
      the payment of all amounts due the Secured Party for the expenses reimbursable
      to it hereunder or owed to it pursuant to Section 8.3 hereof; 

    (ii)
      to
      the payment of the Obligations then due and unpaid. 

    (iii)
      the
      balance, if any, to the person or persons entitled thereto, including, without
      limitation, the Company. 

    


    (c)
      In
      addition to all of the rights and remedies which the Secured Party may have
      pursuant to this Agreement, the Secured Party shall have all of the rights
      and
      remedies provided by law, including, without limitation, those under the Uniform
      Commercial Code. 

    (i)
      If
      the Company fails to pay such amounts due upon the occurrence of an Event of
      Default which is continuing, then the Secured Party may institute a judicial
      proceeding for the collection of the sums so due and unpaid, may prosecute
      such
      proceeding to judgment or final decree and may enforce the same against the
      Company and collect the monies adjudged or decreed to be payable in the manner
      provided by law out of the property of Company, wherever situated. 

    (ii)
      The
      Company agrees that it shall be liable for any reasonable fees, expenses and
      costs incurred by the Secured Party in connection with enforcement, collection
      and preservation of the Transaction Documents, including, without limitation,
      reasonable legal fees and expenses, and such amounts shall be deemed included
      as
      Obligations secured hereby and payable as set forth in Section 8.3 hereof.
      

    


    Section
      5.3. Proofs of Claim. 

    


    In
      case
      of the pendency of any receivership, insolvency, liquidation, bankruptcy,
      reorganization, arrangement, adjustment, composition or other judicial
      proceeding relating to the Company or the property of the Company or of such
      other obligor or its creditors, the Secured Party (irrespective of whether
      the
      Obligations shall then be due and payable as therein expressed or by declaration
      or otherwise and irrespective of whether the Secured Party shall have made
      any
      demand on the Company for the payment of the Obligations), subject to the rights
      of Previous Security Holders, shall be entitled and empowered, by intervention
      in such proceeding or otherwise: (i) to file and prove a claim for the whole
      amount of the Obligations and to file such other papers or documents as may
      be
      necessary or advisable in order to have the claims of the Secured Party
      (including any claim for the reasonable legal fees and expenses and other
      expenses paid or incurred by the Secured Party permitted hereunder and of the
      Secured Party allowed in such judicial proceeding), and (ii) to collect and
      receive any monies or other property payable or deliverable on any such claims
      and to distribute the same; and any custodian, receiver, assignee, trustee,
      liquidator, sequestrator or other similar official in any such judicial
      proceeding is hereby authorized by the Secured Party to make such payments
      to
      the Secured Party and, in the event that the Secured Party shall consent to
      the
      making of such payments directed to the Secured Party, to pay to the Secured
      Party any amounts for expenses due it hereunder. 

    


    Section
      5.4. Duties Regarding Pledged Collateral. 

    


    The
      Secured Party shall have no duty as to the collection or protection of the
      Pledged Property or any income thereon or as to the preservation of any rights
      pertaining thereto, beyond the safe custody and reasonable care of any of the
      Pledged Property actually in the Secured Party's possession. 

    


    ARTICLE
      6. AFFIRMATIVE
      COVENANTS 

    


    The
      Company covenants and agrees that, from the date hereof and until the
      Obligations have been fully paid and satisfied, unless the Secured Party shall
      consent otherwise in writing (as provided in Section 8.4 hereof): 

    


    Section
      6.1. Existence, Properties, Etc. 

    


    (a)
      The
      Company shall do, or cause to be done, all things, or proceed with due diligence
      with any actions or courses of action, that may be reasonably necessary (i)
      to
      maintain Company's due organization, valid existence and good standing under
      the
      laws of its state of incorporation, and (ii) to preserve and keep in full force
      and effect all qualifications, licenses and registrations in those jurisdictions
      in which the failure to do so could have a Material Adverse Effect (as defined
      below); and (b) the Company shall not do, or cause to be done, any act impairing
      the Company's corporate power or authority (i) to carry on the Company's
      business as now conducted, and (ii) to execute or deliver this Agreement or
      any
      other document delivered in connection herewith, including, without limitation,
      any UCC-1 Financing Statements, if so required by the Secured Party to which
      it
      is or will be a party, or perform any of its obligations hereunder or
      thereunder. For purpose of this Agreement, the term "Material Adverse Effect"
      shall mean any material and adverse affect as determined by Secured Party in
      its
      sole discretion, whether individually or in the aggregate, upon (a) the
      Company's assets, business, operations, properties or condition, financial
      or
      otherwise; (b) the Company's to make payment as and when due of all or any
      part
      of the Obligations; or (c) the Pledged Property. 

    


    Section
      6.2. Financial Statements and Reports. 

    


    The
      Company shall furnish to the Secured Party within a reasonable time such
      financial data as the Secured Party may reasonably request, including, without
      limitation, the following: 

    


    (a)
      The
      balance sheet of the Company as of the close of each fiscal year, the statement
      of earnings and retained earnings of the Company as of the close of such fiscal
      year, and statement of cash flows for the Company for such fiscal year, all
      in
      reasonable detail, prepared in accordance with generally accepted accounting
      principles consistently applied, certified by the chief executive and chief
      financial officers of the Company as being true and correct and accompanied
      by a
      certificate of the chief executive and chief financial officers of the Company,
      stating that the Company has kept, observed, performed and fulfilled each
      covenant, term and condition of this Agreement during such fiscal year and
      that
      no Event of Default hereunder has occurred and is continuing, or if an Event
      of
      Default has occurred and is continuing, specifying the nature of same, the
      period of existence of same and the action the Company proposes to take in
      connection therewith; 

    (b)
      A
      balance sheet of the Company as of the close of each month, and statement of
      earnings and retained earnings of the Company as of the close of such month,
      all
      in reasonable detail, and prepared substantially in accordance with generally
      accepted accounting principles consistently applied, certified by the chief
      executive and chief financial officers of the Company as being true and correct;
      and 

    (c)
      Copies of all accountants' reports and accompanying financial reports submitted
      to the Company by independent accountants in connection with each annual
      examination of the Company. 

    


    Section
      6.3. Accounts and Reports. 

    


    The
      Company shall maintain a standard system of accounting in accordance with
      generally accepted accounting principles consistently applied and provide,
      at
      its sole expense, to the Secured Party the following: 

    


    (a)
      as
      soon as available, a copy of any notice or other communication alleging any
      nonpayment or other material breach or default, or any foreclosure or other
      action respecting any material portion of its assets and properties, received
      respecting any of the indebtedness of the Company in excess of $15,000 (other
      than the Obligations), or any demand or other request for payment under any
      guaranty, assumption, purchase agreement or similar agreement or arrangement
      respecting the indebtedness or obligations of others in excess of $15,000,
      including any received from any person acting on behalf of the Secured Party
      or
      beneficiary thereof; and 

    


    (b)
      within fifteen (15) days after the making of each submission or filing, a copy
      of any report, financial statement, notice or other document, whether periodic
      or otherwise, submitted to the shareholders of the Company, or submitted to
      or
      filed by the Company with any governmental authority involving or affecting
      (i)
      the Company that could have a Material Adverse Effect; (ii) the Obligations;
      (iii) any part of the Pledged Collateral; or (iv) any of the transactions
      contemplated in this Agreement or the Loan Instruments. 

    


    Section
      6.4. Maintenance of Books and Records; Inspection. 

    


    The
      Company shall maintain its books, accounts and records in accordance with
      generally accepted accounting principles consistently applied, and permit the
      Secured Party, its officers and employees and any professionals designated
      by
      the Secured Party in writing, at any time to visit and inspect any of its
      properties (including but not limited to the collateral security described
      in
      the Transaction Documents and/or the Loan Instruments), corporate books and
      financial records, and to discuss its accounts, affairs and finances with any
      employee, officer or director thereof. 

    


    Section
      6.5. Maintenance and Insurance. 

    


    (a)
      The
      Company shall maintain or cause to be maintained, at its own expense, all of
      its
      assets and properties in good working order and condition, making all necessary
      repairs thereto and renewals and replacements thereof. 

    


    (b)
      The
      Company shall maintain or cause to be maintained, at its own expense, insurance
      in form, substance and amounts (including deductibles), which the Company deems
      reasonably necessary to the Company's business, (i) adequate to insure all
      assets and properties of the Company, which assets and properties are of a
      character usually insured by persons engaged in the same or similar business
      against loss or damage resulting from fire or other risks included in an
      extended coverage policy; (ii) against public liability and other tort claims
      that may be incurred by the Company; (iii) as may be required by the Transaction
      Documents and/or applicable law and (iv) as may be reasonably requested by
      Secured Party, all with adequate, financially sound and reputable insurers.
      

    


    Section
      6.6. Contracts and Other Collateral. 

    


    The
      Company shall perform all of its obligations under or with respect to each
      instrument, receivable, contract and other intangible included in the Pledged
      Property to which the Company is now or hereafter will be party on a timely
      basis and in the manner therein required, including, without limitation, this
      Agreement. 

    


    Section
      6.7. Defense of Collateral, Etc. 

    


    The
      Company shall defend and enforce its right, title and interest in and to any
      part of: (a) the Pledged Property; and (b) if not included within the Pledged
      Property, those assets and properties whose loss could have a Material Adverse
      Effect, the Company shall defend the Secured Party's right, title and interest
      in and to each and every part of the Pledged Property, each against all manner
      of claims and demands on a timely basis to the full extent permitted by
      applicable law. 

    


    Section
      6.8. Payment of Debts, Taxes, Etc. 

    


    The
      Company shall pay, or cause to be paid, all of its indebtedness and other
      liabilities and perform, or cause to be performed, all of its obligations in
      accordance with the respective terms thereof, and pay and discharge, or cause
      to
      be paid or discharged, all taxes, assessments and other governmental charges
      and
      levies imposed upon it, upon any of its assets and properties on or before
      the
      last day on which the same may be paid without penalty, as well as pay all
      other
      lawful claims (whether for services, labor, materials, supplies or otherwise)
      as
      and when due. 

    


    Section
      6.9. Taxes and Assessments; Tax Indemnity. 

    


    The
      Company shall (a) file all tax returns and appropriate schedules thereto that
      are required to be filed under applicable law, prior to the date of delinquency,
      (b) pay and discharge all taxes, assessments and governmental charges or levies
      imposed upon the Company, upon its income and profits or upon any properties
      belonging to it, prior to the date on which penalties attach thereto, and (c)
      pay all taxes, assessments and governmental charges or levies that, if unpaid,
      might become a lien or charge upon any of its properties; provided, however,
      that the Company in good faith may contest any such tax, assessment,
      governmental charge or levy described in the foregoing clauses (b) and (c)
      so
      long as appropriate reserves are maintained with respect thereto. 

    


    Section
      6.10. Compliance with Law and Other Agreements. 

    


    The
      Company shall maintain its business operations and property owned or used in
      connection therewith in material compliance with (a) all applicable federal,
      state and local laws, regulations and ordinances governing such business
      operations and the use and ownership of such property, and (b) all agreements,
      licenses, franchises, indentures and mortgages to which the Company is a party
      or by which the Company or any of its properties is bound. Without limiting
      the
      foregoing, the Company shall pay all of its indebtedness promptly in accordance
      with the terms thereof. 

    


    Section
      6.11. Notice of Default. 

    


    The
      Company shall give written notice to the Secured Party of the occurrence of
      any
      default or Event of Default under this Agreement, the Transaction Documents
      or
      any other Loan Instrument or any other agreement of Company for the payment
      of
      money, promptly upon the occurrence thereof. 

    


    Section
      6.12. Notice of Litigation. 

    The
      Company shall give notice, in writing, to the Secured Party of (a) any actions,
      suits or proceedings wherein the amount at issue is in excess of $10,000,
      instituted by any persons against the Company, or materially affecting any
      of
      the assets of the Company, and (b) any dispute, not resolved within fifteen
      (15)
      days of the commencement thereof, between the Company on the one hand and any
      governmental or regulatory body on the other hand, which might reasonably be
      expected to have a Material Adverse Effect on the business operations or
      financial condition of the Company. 

    


    


    


    ARTICLE
      7. NEGATIVE
      COVENANTS 

    


    The
      Company covenants and agrees that, from the date hereof until the Obligations
      have been fully paid and satisfied, the Company shall not, unless the Secured
      Party shall consent otherwise in writing: 

    


    Section
      7.1. Liens and Encumbrances. 

    


    The
      Company shall not directly or indirectly make, create, incur, assume or permit
      to exist any assignment, transfer, pledge, mortgage, security interest or other
      lien or encumbrance of any nature in, to or against any part of the Pledged
      Property or of the Company's capital stock, or offer or agree to do so, or
      own
      or acquire or agree to acquire any asset or property of any character subject
      to
      any of the foregoing encumbrances (including any conditional sale contract
      or
      other title retention agreement), or assign, pledge or in any way transfer
      or
      encumber its right to receive any income or other distribution or proceeds
      from
      any part of the Pledged Property or the Company's capital stock; or enter into
      any sale-leaseback financing respecting any part of the Pledged Property as
      lessee, or cause or assist the inception or continuation of any of the
      foregoing. 

    


    Section
      7.2. Certificate of Incorporation, By-Laws, Mergers, Consolidations,
      Acquisitions and Sales. 

    


    Without
      the prior express written consent of the Secured Party, which shall not be
      unreasonably withheld, the Company shall not: 

    (a)
      Amend
      its Certificate of Incorporation or By-Laws; 

    (b)
      issue
      any new Common Stock including those on Form S8, or issue any Common Stock
      from
      the currently filed S8 ("S8 Shares"), unless the:

    i)
      recipient(s) of the S8 Shares is issued an amount equal to less than two hundred
      and fifty thousand (250,0000) shares per ninety (90) day period 

    ii)
      recipient(s) of the S8 Shares execute(s) a leak-out agreement stating that
      the
      collective recipient(s) of the S8 Shares shall restrict selling to a maximum
      of
      ten percent (10%) of the total volume each day; or,

    iii)
      Company's stock price is above one dollar and fifty cents ($1.50) per share;
      

    iv)
      Company issues restricted 144 common stock issued for purchase of operating
      assets, oil companies, or oil leases for HYD Resources Corporation or if such
      issuance of stock, stock option, bond, or note or other corporate securities,
      or
      obligations is required by existing agreements the company already has
      outstanding prior to closing.

    (c)
      sell,
      transfer, convey, grant a security additional interest in or lease all or any
      substantial part of its assets, nor

    (d)
      create any subsidiaries nor convey any of its assets to any subsidiary.


    


    Section
      7.3. Management, Ownership. 

    


    The
      Company acknowledges that the ownership, executive staff and management of
      the
      Company are material factors in the Secured Party's willingness to institute
      and
      maintain a lending relationship with the Company. 

    


    Section
      7.4. Dividends, Etc. 

    


    The
      Company shall not declare or pay any dividend of any kind, in cash or in
      property, on any class of its capital stock, nor purchase, redeem, retire or
      otherwise acquire for value any shares of such stock, nor make any distribution
      of any kind in respect thereof, nor make any return of capital to shareholders,
      nor make any payments in respect of any pension, profit sharing, retirement,
      stock option, stock bonus, incentive compensation or similar plan (except as
      required or permitted hereunder), without the prior written consent of the
      Secured Party. 

    


    Section
      7.5. Guaranties; Loans. 

    


    The
      Company shall not guarantee nor be liable in any manner, whether directly or
      indirectly, or become contingently liable after the date of this Agreement
      in
      connection with the obligations or indebtedness of any person or persons, except
      for (i) the indebtedness currently secured by the liens identified on the
      Pledged Property identified on Exhibit A hereto and (ii) the endorsement of
      negotiable instruments payable to the Company for deposit or collection in
      the
      ordinary course of business. The Company shall not make any loan, advance or
      extension of credit to any person other than in the normal course of its
      business. 

    


    Section
      7.6. Intentionally Omitted.

    


    Section
      7.7. Conduct of Business. 

    


    The
      Company will continue to engage, in an efficient and economical manner, in
      a
      business of the same general type as conducted by it on the date of this
      Agreement. 

    


    Section
      7.8. Places of Business. 

    


    Without
      prior written consent of the Secured Party, the Company shall not change the
      location of its chief place of business, chief executive office or any place
      of
      business disclosed to the Secured Party or move any of the Pledged Property
      from
      its current location without thirty (30) days' prior written notice to the
      Secured Party in each instance. 

    


    ARTICLE
      8. MISCELLANEOUS
      

    


    Section
      8.1. Notices. 

    


    All
      notices or other communications required or permitted to be given pursuant
      to
      this Agreement shall be in writing and shall be considered as duly given on:
      (a)
      the date of delivery, if delivered in person, by nationally recognized overnight
      delivery service or (b) five (5) days after mailing if mailed from within the
      continental United States by certified mail, return receipt requested to the
      party entitled to receive the same: 

    


    If
      to the
      Secured Party: 

     

    Douglas
      Leighton

    Dutchess
      Private Equities Fund, II, LP

    312
      Stuart St, Third Floor

    Boston,
      MA 02116

    Telephone:
      617-960-3570

    Facsimile:
      617-249-0947

    


    And
      if to
      the Company:

     

    Kent
      Watts

    Hyperdynamics
      Corp.

    9700
      Bissonnet, Suite 1700

    Houston,
      Texas 77036

    Telephone:
      (713) 353-9400

    Facsimile:
      (713) 353-9421

    


    With
      a
      copy to: 

    


    Any
      party
      may change its address by giving notice to the other party stating its new
      address. Commencing on the tenth (10th) day after the giving of such notice,
      such newly designated address shall be such party's address for the purpose
      of
      all notices or other communications required or permitted to be given pursuant
      to this Agreement. 

    


    Section
      8.2. Severability. 

    


    If
      any
      provision of this Agreement shall be held invalid or unenforceable, such
      invalidity or unenforceability shall attach only to such provision and shall
      not
      in any manner affect or render invalid or unenforceable any other severable
      provision of this Agreement, and this Agreement shall be carried out as if
      any
      such invalid or unenforceable provision were not contained herein. 

    


    Section
      8.3. Expenses. 

    


    In
      the
      event of an Event of Default, the Company will pay to the Secured Party the
      amount of any and all reasonable expenses, including the reasonable fees and
      expenses of its counsel, which the Secured Party may incur in connection with:
      (i) the custody or preservation of, or the sale, collection from, or other
      realization upon, any of the Pledged Property; (ii) the exercise or enforcement
      of any of the rights of the Secured Party hereunder or (iii) the failure by
      the
      Company to perform or observe any of the provisions hereof. 

    


    Section
      8.4. Waivers, Amendments, Etc. 

    


    The
      Secured Party's delay or failure at any time or times hereafter to require
      strict performance by Company of any undertakings, agreements or covenants
      shall
      not waiver, affect, or diminish any right of the Secured Party under this
      Agreement to demand strict compliance and performance herewith. Any waiver
      by
      the Secured Party of any Event of Default shall not waive or affect any other
      Event of Default, whether such Event of Default is prior or subsequent thereto
      and whether of the same or a different type. None of the undertakings,
      agreements and covenants of the Company contained in this Agreement, and no
      Event of Default, shall be deemed to have been waived by the Secured Party,
      nor
      may this Agreement be amended, changed or modified, unless such waiver,
      amendment, change or modification is evidenced by an instrument in writing
      specifying such waiver, amendment, change or modification and signed by the
      Secured Party. 

    


    Section
      8.5. Continuing Security Interest. 

    


    This
      Agreement shall create a continuing security interest in the Pledged Property
      and shall: (i) remain in full force and effect until payment in full of the
      Obligations; and (ii) be binding upon the Company and its successors and heirs
      and (iii) inure to the benefit of the Secured Party and its successors and
      assigns. Upon the payment or satisfaction in full of the Obligations, the
      Company shall be entitled to the return, at its expense, of such of the Pledged
      Property as shall not have been sold in accordance with Section 5.2 hereof
      or
      otherwise applied pursuant to the terms hereof. 

    


    Section
      8.6. Independent Representation. 

    


    Each
      party hereto acknowledges and agrees that it has received or has had the
      opportunity to receive independent legal counsel of its own choice and that
      it
      has been sufficiently apprised of its rights and responsibilities with regard
      to
      the substance of this Agreement. 

    


    Section
      8.7. Applicable Law: Jurisdiction. 

    


    This
      Agreement shall be governed by and interpreted in accordance with the laws
      of
      the Commonwealth of Massachusetts without regard to the principles of conflict
      of laws. The parties further agree that any action between them shall be heard
      in Suffolk County, Massachusetts. 

    


    Section
      8.8. Waiver of Jury Trial. 

    


    AS
      A
      FURTHER INDUCEMENT FOR THE SECURED PARTY TO ENTER INTO THIS AGREEMENT AND TO
      MAKE THE FINANCIAL ACCOMMODATIONS TO THE COMPANY, THE COMPANY HEREBY WAIVES
      ANY
      RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING RELATED IN ANY WAY TO THIS
      AGREEMENT AND/OR ANY AND ALL OTHER DOCUMENTS RELATED TO THIS TRANSACTION.


    


    DISPUTES
      SUBJECT TO ARBITRATION GOVERNED BY MASSACHUSETTS LAW

    


    All
      disputes arising under this agreement shall be governed by and interpreted
      in
      accordance with the laws of the Commonwealth of Massachusetts, without regard
      to
      principles of conflict of laws. The parties to this agreement will submit all
      disputes arising under this agreement to arbitration in Boston, Massachusetts
      before a single arbitrator of the American Arbitration Association (“AAA”). The
      arbitrator shall be selected by application of the rules of the AAA, or by
      mutual agreement of the parties, except that such arbitrator shall be an
      attorney admitted to practice law in the Commonwealth of Massachusetts. No
      party
      to this agreement will challenge the jurisdiction or venue provisions as
      provided in this section. 

    


    Section
      8.9. Entire Agreement. 

    


    This
      Agreement constitutes the entire agreement among the parties and supersedes
      any
      prior agreement or understanding among them with respect to the subject matter
      hereof. 

    


    *
      *
      *

    


    IN
      WITNESS WHEREOF, the parties hereto have executed this Security Agreement as
      of
      the date first above written. 

    


    COMPANY:
      

    Hypderdynamics,
      Inc.

    


    ________________________

    Kent
      Watts, CEO

    


    SECURED
      PARTY: 

    Dutchess
      Private Equities Fund, II, LP

    


    


    _________________________

    Douglas
      H. Leighton, Managing Member

    Dutchess
      Capital Management, LLC;

    General
      Partner to:

    Dutchess
      Private Equities Fund, II, LP

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    


    EXHIBIT
      A DEFINITION
      OF PLEDGED PROPERTY

    


    (INCLUDED
      IN SECURITY AGREEMENT DATED AUGUST 12, 2005 BETWEEN THE COMPANY AND THE
      INVESTOR)