Document:

Exhibit 4.3

    Exhibit
      4.3

    

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

    

    WARRANT
      AGREEMENT

    

    THESE
      SECURITIES AND THE SECURITIES ISSUABLE UPON THEIR EXERCISE HAVE NOT BEEN
      REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE TRANSFERRED UNLESS
      COVERED BY AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT, A "NO ACTION"
      LETTER FROM THE SECURITIES AND EXCHANGE COMMISSION WITH RESPECT TO SUCH
      TRANSFER, A TRANSFER MEETING THE REQUIREMENTS OF RULE 144 OF THE SECURITIES
      AND
      EXCHANGE COMMISSION, OR AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER TO
      THE
      EFFECT THAT ANY SUCH TRANSFER IS EXEMPT FROM SUCH
      REGISTRATION.

    

    

    Hyperdynamics
      Corp., Inc.

    

    WARRANT
      NO. August 101

    

    Dated:
      August 12 2005

    

    

    Hyperdynamics
      Corp., Inc.,
      a
      corporation organized under the laws of the State of Delaware (the "Company"),
      hereby certifies that, for value received from Dutchess Private Equities Fund,
      II, L.P., ("Holder"), is entitled, subject to the terms set forth below, to
      purchase from the Company up to a total of five hundred thousand (500,000)
      shares of Common Stock, $.001 par value per share (the "Common Stock"), of
      the
      Company (each such share, a "Warrant Share" and all such shares, the "Warrant
      Shares") at an exercise price equal to the Fixed Conversion Price (as defined
      in
      the Debenture Agreement). The Warrant may be exercised on a cashless basis
      anytime after issuance through and including the fifth (5th) anniversary of
      its
      issuance (the "Expiration Date"), subject to the following terms and
      conditions:

    

    

    1. Registration
      of Warrant.
      The
      Company shall register this Warrant, upon records to be maintained by the
      Company for that purpose (the "Warrant Register"), in the name of the record
      Holder hereof from time to time. The Company may deem and treat the registered
      Holder of this Warrant as the absolute owner hereof for the purpose of any
      exercise hereof or any distribution to the Holder, and for all other purposes,
      and the Company shall not be affected by notice to the contrary.

    

    2. Registration
      of Transfers and Exchanges.
      

    

    (a) The
      Company or the transfer agent shall enter or record the transfer of any portion
      of this Warrant in the Warrant Register, upon surrender of this Warrant to
      the
      Transfer Agent or to the Company at the office specified in or pursuant to
      Section 3(b). Upon any such registration or transfer, a new warrant to purchase
      Common Stock, in substantially the form of this Warrant (any such new warrant,
      a
      "New Warrant"), evidencing the portion of this Warrant so transferred shall
      be
      issued to the transferee and a New Warrant evidencing the remaining portion
      of
      this Warrant not so transferred, if any, shall be issued to the transferring
      Holder. The acceptance of the New Warrant by the transferee thereof shall be
      deemed the acceptance of such transferee of all of the rights and obligations
      of
      a holder of a Warrant.

    

    (b) This
      Warrant is exchangeable, upon the surrender hereof by the Holder to the office
      of the Company specified in or pursuant to Section 3(b) for one or more New
      Warrants, evidencing in the aggregate the right to purchase the number of
      Warrant Shares which may then be purchased hereunder. Any such New Warrant
      will
      be dated the date of such exchange.

    

    3. Duration
      and Exercise of Warrants.
      

    

    (a) This
      Warrant shall be exercisable by the registered Holder on any business day before
      5:00 P.M., Boston time, at any time and from time to time on or after the date
      hereof to and including the Expiration Date. At 5:00 P.M., Boston time on the
      Expiration Date, the portion of this Warrant not exercised prior thereto shall
      be and become void and of no value. Prior to the Expiration Date, the Company
      may not call or otherwise redeem this Warrant without the prior written consent
      of the Holder.

    

    (b) Subject
      to Sections 2(b), 6 and 10, upon surrender of this Warrant, with the Form of
      Election to Purchase attached hereto duly completed and signed, to the Company
      at its address for notice set forth in Section 12 and upon payment of the
      Exercise Price multiplied by the number of Warrant Shares that the Holder
      intends to purchase hereunder, in the manner provided hereunder, all as
      specified by the Holder in the Form of Election to Purchase, the Company shall
      promptly (but in no event later than 5 business days after the Date of Exercise
      (as defined herein)) issue or cause to be issued and cause to be delivered
      to or
      upon the written order of the Holder and in such name or names as the Holder
      may
      designate, a certificate for the Warrant Shares issuable upon such exercise,
      free of restrictive legends except (i) either in the event that a registration
      statement covering the resale of the Warrant Shares and naming the Holder as
      a
      selling stockholder thereunder is not then effective or the Warrant Shares
      are
      not freely transferable without volume restrictions pursuant to Rule 144(k)
      promulgated under the Securities Act of 1933, as amended (the "Securities Act"),
      or (ii) if this Warrant shall have been issued pursuant to a written agreement
      between the original Holder and the Company, as required by such agreement.
      Any
      person so designated by the Holder to receive Warrant Shares shall be deemed
      to
      have become holder of record of such Warrant Shares as of the Date of Exercise
      (as defined in this subsection) of this Warrant. A "Date of Exercise" means
      the
      date on which the Company shall have received (i) this Warrant (or any New
      Warrant, as applicable), with the Form of Election to Purchase attached hereto
      (or attached to such New Warrant) appropriately completed and duly signed,
      and
      (ii) payment of the Exercise Price for the number of Warrant Shares so indicated
      by the holder hereof to be purchased.

    

    (c) This
      Warrant shall be exercisable, either in its entirety or, from time to time,
      for
      a portion of the number of Warrant Shares. If less than all of the Warrant
      Shares which may be purchased under this Warrant are exercised at any time,
      the
      Company shall issue or cause to be issued, at its expense, a New Warrant
      evidencing the right to purchase the remaining number of Warrant Shares for
      which no exercise has been evidenced by this Warrant. In the event the Common
      Stock representing the Warrant Shares is not delivered per the written
      instructions of the Purchaser, within ten (10) business days after the Notice
      of
      Election and Warrant is received by the Company (the “Delivery Date”), then in
      such event the Company shall pay to Holder one-half percent (0.5%) in cash,
      of
      the dollar value of the Warrant Shares to be issued per each day after the
      Delivery Date that the Warrant Shares are not delivered. The Company
      acknowledges that its failure to deliver the Warrant Shares by the Delivery
      Date
      will cause the Holder to suffer damages in an amount that will be difficult
      to
      ascertain. Accordingly, the parties agree that it is appropriate to include
      in
      this Warrant a provision for liquidated damages. The parties acknowledge and
      agree that the liquidated damages provision set forth in this section represents
      the parties’ good faith effort to quantify such damages and, as such, agree that
      the form and amount of such liquidated damages are reasonable and will not
      constitute a penalty. The payment of liquidated damages shall not relieve the
      Company from its obligations to deliver the Common Stock pursuant to the terms
      of this Warrant. The Company shall make any payments incurred under this Section
      3 in immediately available funds within ten (10) business days from the date
      of
      issuance of the applicable Warrant Shares. Nothing herein shall limit Holder’s
      right to pursue actual damages or cancel the Notice of Election for the
      Company’s failure to issue and deliver Common Stock to the Holder within fifteen
      (15) business days following the Delivery Date.

    

    4. Registration
      Rights.
      During
      the term of this Warrant, the Company agrees to use its best efforts to file,
      within
      fifteen (15) days of the Company filing its Form 10K for 2005, but in no event
      later than October 15, 2005,
      a
      registration statement with the Securities and Exchange Commission covering
      the
      resale of the Warrant Shares and naming the Holder as a selling stockholder
      thereunder (unless the Warrant Shares are otherwise freely transferable without
      volume restrictions pursuant to Rule 144(k) or Rule 144A promulgated under
      the
      Act). The registration rights granted to the Holder pursuant to this Section
      shall continue until all of the Holder's Warrant Shares have been sold in
      accordance with an effective registration statement or upon the Expiration
      Date.
      The Company will pay all registration expenses in connection therewith.

    

    5.
      Payment
      of Taxes.
      The
      Company will pay all documentary stamp taxes attributable to the issuance of
      Warrant Shares upon the exercise of this Warrant; provided, however, that the
      Company shall not be required to pay any tax that may be payable in respect
      of
      any transfer involved in the registration of any certificates for Warrant Shares
      or Warrants in a name other than that of the Holder. The Holder shall be
      responsible for all other tax liability that may arise as a result of holding
      or
      transferring this Warrant or receiving Warrant Shares upon exercise
      hereof.

    

    6. Replacement
      of Warrant.
      If this
      Warrant is mutilated, lost, stolen or destroyed, the Company shall issue or
      cause to be issued in exchange and substitution for and upon cancellation
      hereof, or in lieu of and substitution for this Warrant, a New Warrant, but
      only
      upon receipt of evidence reasonably satisfactory to the Company of such loss,
      theft or destruction and indemnity, if requested, satisfactory to it. Applicants
      for a New Warrant under such circumstances shall also comply with such other
      reasonable regulations and procedures and pay such other reasonable charges
      as
      the Company may prescribe.

    

    7. Reservation
      of Warrant Shares.
      The
      Company covenants that it will at all times reserve and keep available out
      of
      the aggregate of its authorized but unissued Common Stock, solely for the
      purpose of enabling it to issue Warrant Shares upon exercise of this Warrant
      as
      herein provided, the number of Warrant Shares which are then issuable and
      deliverable upon the exercise of this entire Warrant, free from preemptive
      rights or any other actual contingent purchase rights of persons other than
      the
      Holder (taking into account the adjustments and restrictions of Section 8.
      The
      Company covenants that all Warrant Shares that shall be so issuable and
      deliverable shall, upon issuance and the payment of the applicable Exercise
      Price in accordance with the terms hereof, be duly and validly authorized,
      issued and fully paid and nonassessable. If the Company does not have a
      sufficient amount of Common Stock authorized to reserve for the Warrant Shares,
      it shall use its best efforts to place before shareholder vote a proposal to
      increase the number of its authorized shares as soon as reasonably
      practicable.

    

    8. Certain
      Adjustments.
      The
      Exercise Price and number of Warrant Shares issuable upon exercise of this
      Warrant are subject to adjustment from time to time as set forth in this Section
      8. Upon each such adjustment of the Exercise Price pursuant to this Section
      8,
      the Holder shall thereafter prior to the Expiration Date be entitled to
      purchase, at the Exercise Price resulting from such adjustment, the number
      of
      Warrant Shares obtained by multiplying the Exercise Price in effect immediately
      prior to such adjustment by the number of Warrant Shares issuable upon exercise
      of this Warrant immediately prior to such adjustment and dividing the product
      thereof by the Exercise Price resulting from such adjustment. 

    

    (a) If
      the
      Company, at any time while this Warrant is outstanding, (i) shall pay a stock
      dividend (except scheduled dividends paid on outstanding preferred stock as
      of
      the date hereof which contain a stated dividend rate) or otherwise make a
      distribution or distributions on shares of its Common Stock or on any other
      class of capital stock and not the Common Stock payable in shares of Common
      Stock, (ii) subdivide outstanding shares of Common Stock into a larger number
      of
      shares, or (iii) combine outstanding shares of Common Stock into a smaller
      number of shares, the Exercise Price shall be multiplied by a fraction of which
      the numerator shall be the number of shares of Common Stock (excluding treasury
      shares, if any) outstanding before such event and of which the denominator
      shall
      be the number of shares of Common Stock (excluding treasury shares, if any)
      outstanding after such event. Any adjustment made pursuant to this Section
      shall
      become effective immediately after the record date for the determination of
      stockholders entitled to receive such dividend or distribution and shall become
      effective immediately after the effective date in the case of a subdivision
      or
      combination, and shall apply to successive subdivisions and
      combinations.

    

    (b) In
      case
      of any reclassification of the Common Stock, any consolidation or merger of
      the
      Company with or into another person, the sale or transfer of all or
      substantially all of the assets of the Company or any compulsory share exchange
      pursuant to which the Common Stock is converted into other securities, cash
      or
      property, then the Holder shall have the right thereafter to exercise this
      Warrant only into the shares of stock and other securities and property
      receivable upon or deemed to be held by holders of Common Stock following such
      reclassification, consolidation, merger, sale, transfer or share exchange,
      and
      the Holder shall be entitled upon such event to receive such amount of
      securities or property equal to the amount of Warrant Shares such Holder would
      have been entitled to had such Holder exercised this Warrant immediately prior
      to such reclassification, consolidation, merger, sale, transfer or share
      exchange. The terms of any such consolidation, merger, sale, transfer or share
      exchange shall include such terms so as to continue to give to the Holder the
      right to receive the securities or property set forth in this Section 9(b)
      upon
      any exercise following any such reclassification, consolidation, merger, sale,
      transfer or share exchange. 

    

    (c) 
      If the
      Company, at any time while this Warrant is outstanding, shall distribute to
      all
      holders of Common Stock (and not to holders of this Warrant) evidences of its
      indebtedness or assets or rights or warrants to subscribe for or purchase any
      security (excluding those referred to in Sections 8(a), (b) and (d)), then
      in
      each such case the Exercise Price shall be determined by multiplying the
      Exercise Price in effect immediately prior to the record date fixed for
      determination of stockholders entitled to receive such distribution by a
      fraction of which the denominator shall be the Exercise Price determined as
      of
      the record date mentioned above, and of which the numerator shall be such
      Exercise Price on such record date less the then fair market value at such
      record date of the portion of such assets or evidence of indebtedness so
      distributed applicable to one outstanding share of Common Stock as determined
      by
      the Company's independent certified public accountants that regularly examines
      the financial statements of the Company (an "Appraiser"). 

    

    (d) If,
      at
      any time while this Warrant is outstanding, the Company shall issue or cause
      to
      be issued rights or warrants to acquire or otherwise sell or distribute shares
      of Common Stock for a consideration per share less than the Exercise Price
      then
      in effect, then, forthwith upon such issue or sale, the Exercise Price shall
      be
      reduced to the price (calculated to the nearest cent) determined by multiplying
      the Exercise Price in effect immediately prior thereto by a fraction, the
      numerator of which shall be the sum of (i) the number of shares of Common Stock
      outstanding immediately prior to such issuance, and (ii) the number of shares
      of
      Common Stock which the aggregate consideration received (or to be received,
      assuming exercise or conversion in full of such rights, warrants and convertible
      securities) for the issuance of such additional shares of Common Stock would
      purchase at the Exercise Price, and the denominator of which shall be the sum
      of
      the number of shares of Common Stock outstanding immediately after the issuance
      of such additional shares. Such adjustment shall be made successively whenever
      such an issuance is made.

    

    (e) For
      the
      purposes of this Section 8, the following clauses shall also be
      applicable:

    

    (i)
      Record
      Date.
      In case
      the Company shall take a record of the holders of its Common Stock for the
      purpose of entitling them (A) to receive a dividend or other distribution
      payable in Common Stock or in securities convertible or exchangeable into shares
      of Common Stock, or (B) to subscribe for or purchase Common Stock or securities
      convertible or exchangeable into shares of Common Stock, then such record date
      shall be deemed to be the date of the issue or sale of the shares of Common
      Stock deemed to have been issued or sold upon the declaration of such dividend
      or the making of such other distribution or the date of the granting of such
      right of subscription or purchase, as the case may be.

    

    (ii)
      Treasury
      Shares.
      The
      number of shares of Common Stock outstanding at any given time shall not include
      shares owned or held by or for the account of the Company, and the disposition
      of any such shares shall be considered an issue or sale of Common
      Stock.

    

    (f) All
      calculations under this Section 8 shall be made to the nearest cent or the
      nearest 1/100th of a share, as the case may be.

    

    (g) Whenever
      the Exercise Price is adjusted pursuant to Section 8(c) above, the Holder,
      after
      receipt of the determination by the Appraiser, shall have the right to select
      an
      additional appraiser (which shall be a nationally recognized accounting firm),
      in which case the adjustment shall be equal to the average of the adjustments
      recommended by each of the Appraiser and such appraiser. The Holder shall
      promptly mail or cause to be mailed to the Company, a notice setting forth
      the
      Exercise Price after such adjustment and setting forth a brief statement of
      the
      facts requiring such adjustment. Such adjustment shall become effective
      immediately after the record date mentioned above.

    

    (h) If:

    

    (i) the
      Company shall declare a dividend (or any other distribution) on its Common
      Stock; or

    

    (ii) the
      Company shall declare a special nonrecurring cash dividend on or a redemption
      of
      its Common Stock; or

    

    (iii) the
      Company shall authorize the granting to all holders of the Common Stock rights
      or warrants to subscribe for or purchase any shares of capital stock of any
      class or of any rights; or

    

    (iv) the
      approval of any stockholders of the Company shall be required in connection
      with
      any reclassification of the Common Stock of the Company, any consolidation
      or
      merger to which the Company is a party, any sale or transfer of all or
      substantially all of the assets of the Company, or any compulsory share exchange
      whereby the Common Stock is converted into other securities, cash or property;
      or

    

    (v) the
      Company shall authorize the voluntary dissolution, liquidation or winding up
      of
      the affairs of the Company, then the Company shall cause to be mailed to each
      Holder at their last addresses as they shall appear upon the Warrant Register,
      at least 30 calendar days prior to the applicable record or effective date
      hereinafter specified, a notice stating (x) the date on which a record is to
      be
      taken for the purpose of such dividend, distribution, redemption, rights or
      warrants, or if a record is not to be taken, the date as of which the holders
      of
      Common Stock of record to be entitled to such dividend, distributions,
      redemption, rights or warrants are to be determined or (y) the date on which
      such reclassification, consolidation, merger, sale, transfer or share exchange
      is expected to become effective or close, and the date as of which it is
      expected that holders of Common Stock of record shall be entitled to exchange
      their shares of Common Stock for securities, cash or other property deliverable
      upon such reclassification, consolidation, merger, sale, transfer, share
      exchange, dissolution, liquidation or winding up; provided,
      however,
      that
      the failure to mail such notice or any defect therein or in the mailing thereof
      shall not affect the validity of the corporate action required to be specified
      in such notice. 

    

    9. Payment
      of Exercise Price.
      The
      Holder pay the Exercise Price in 

    one
      of
      the following manners:

    

    1.
      Within
      twelve (12) months of the date of this Warrant Agreement:

    

    (a) Cash
      Exercise.
      The
      Holder shall deliver immediately available funds;

    

    2.
      After
      twelve (12) months of the date of this Warrant Agreement:

    

    (a) Cash
      Exercise.
      The
      Holder shall deliver immediately available funds;

    

    (b) Cashless
      Exercise.
      The
      Holder shall surrender this Warrant to the Company together with a notice of
      cashless exercise, in which event the Company shall issue to the Holder the
      number of Warrant Shares determined as follows:

    

    X
      = Y
      (A-B)/A

    where:

    X
      = the
      number of Warrant Shares to be issued to
      the
      Holder.

    

    Y
      = the
      number of Warrant Shares with respect to which this Warrant is being
      exercised.

    

    A
      = the
      average closing bid price of the Common Stock for the five (5) trading days
      immediately prior to the Date of Exercise.

    

    B
      = the
      Exercise Price.

    

    For
      purposes of Rule 144 promulgated under the Securities Act, it is intended,
      understood and acknowledged that the Warrant Shares issued in a cashless
      exercise transaction shall be deemed to have been acquired by the Holder, and
      the holding period for the Warrant Shares shall be deemed to have been
      commenced, on the issue date.

    

    (c) The
      Holder is limited in the amount of this Warrant it may exercise. In no event
      shall the Holder be entitled to exercise any amount of this Warrant in excess
      of
      that amount upon exercise of which the sum of (1) the number of shares of Common
      Stock beneficially owned (as such term is defined under Section 13(d) and Rule
      13d-3 of the Securities Exchange Act of 1934 (the 1934 Act”)) by the Holder, and
      (2) the number of Warrant Shares issuable upon the exercise of any Warrants
      then
      owned by Holder, would result in beneficial ownership by the Holder of more
      than
      9.9% of the outstanding shares of Common Stock of the Company, as determined
      in
      accordance with Rule13d-1(j). Furthermore, the Company shall not process any
      exercise that would result in beneficial ownership by the Holder of more than
      9.9% of the outstanding shares of Common Stock of the Company. 

    

    10. Fractional
      Shares.
      The
      Company shall not be required to issue or cause to be issued fractional Warrant
      Shares on the exercise of this Warrant. The number of full Warrant Shares which
      shall be issuable upon the exercise of this Warrant shall be computed on the
      basis of the aggregate number of Warrant Shares purchasable on exercise of
      this
      Warrant so presented. If any fraction of a Warrant Share would, except for
      the
      provisions of this Section 10, be issuable on the exercise of this Warrant,
      the
      Company shall pay an amount in cash equal to the Exercise Price multiplied
      by
      such fraction.

    

    11. Notices.
      Any and
      all notices or other communications or deliveries hereunder shall be in writing
      and shall be deemed given and effective on the earliest of (i) the date of
      transmission, if such notice or communication is delivered via facsimile at
      the
      facsimile telephone number specified in this Section prior to 5:00 p.m. (New
      York City time) on a business day, (ii) the business day after the date of
      transmission, if such notice or communication is delivered via facsimile at
      the
      facsimile telephone number specified in this Section later than 5:00 p.m.
      (Boston time) on any date and earlier than 11:59 p.m. (Boston time) on such
      date, (iii) the business day following the date of mailing, if sent by
      nationally recognized overnight courier service, or (iv) upon actual receipt
      by
      the party to whom such notice is required to be given. The addresses for such
      communications shall be: (i) if to the Company, to:

    

    Kent
      Watts

    Hyperdynamics
      Corp.

    9700
      Bissonnet, Suite 1700

    Houston,
      Texas 77036

    Telephone:
      (713) 353-9400

    Facsimile:
      (713) 353-9421

    

    

    

    

    

    or
      (ii)
      if to the Holder, to the Holder at the address or facsimile number appearing
      on
      the Warrant Register or such other address or facsimile number as the Holder
      may
      provide to the Company in accordance with this Section 11.

    

    12. Warrant
      Agent.
      The
      Company shall serve as warrant agent under this Warrant. Upon thirty (30) days'
      notice to the Holder, the Company may appoint a new warrant agent. Any
      corporation into which the Company or any new warrant agent may be merged or
      any
      corporation resulting from any consolidation to which the Company or any new
      warrant agent shall be a party or any corporation to which the Company or any
      new warrant agent transfers substantially all of its corporate trust or
      shareholders services business shall be a successor warrant agent under this
      Warrant without any further act. Any such successor warrant agent shall promptly
      cause notice of its succession as warrant agent to be mailed (by first class
      mail, postage prepaid) to the Holder at the Holder's last address as shown
      on
      the Warrant Register.

    

    13. Miscellaneous.

    

    (a) This
      Warrant shall be binding on and inure to the benefit of the parties hereto.
      This
      Warrant may be amended only in writing signed by the Company and the
      Holder.

    

    (b) Subject
      to Section 13(a), above, nothing in this Warrant shall be construed to give
      to
      any person or corporation other than the Company and the Holder any legal or
      equitable right, remedy or cause under this Warrant. This Warrant shall inure
      to
      the sole and exclusive benefit of the Company and the Holder.

    

    (c) This
      Warrant shall be governed by and construed and enforced in accordance with
      the
      laws of the Commonwealth of Massachusetts without regard to the principles
      of
      conflicts of law thereof. The Company and the Holder hereby irrevocably submit
      to the exclusive jurisdiction of the state and federal courts sitting in the
      City of Boston, County of Suffolk, for the adjudication of any dispute hereunder
      or in connection herewith or with any transaction contemplated hereby or
      discussed herein, and hereby irrevocably waives, and agrees not to assert in
      any
      suit, action or proceeding, any claim that it is not personally subject to
      the
      jurisdiction of any such court, or that such suit, action or proceeding is
      improper. Each of the Company and the Holder hereby irrevocably waives personal
      service of process and consents to process being served in any such suit, action
      or proceeding by receiving a copy thereof sent to the Company at the address
      in
      effect for notices to it under this instrument and agrees that such service
      shall constitute good and sufficient service of process and notice thereof.
      Nothing contained herein shall be deemed to limit in any way any right to serve
      process in any manner permitted by law.

    

    (d) The
      headings herein are for convenience only, do not constitute a part of this
      Warrant and shall not be deemed to limit or affect any of the provisions
      hereof.

    

    (e) In
      case
      any one or more of the provisions of this Warrant shall be invalid or
      unenforceable in any respect, the validity and enforceability of the remaining
      terms and provisions of this Warrant shall not in any way be affected or
      impaired thereby and the parties will attempt in good faith to agree upon a
      valid and enforceable provision which shall be a commercially reasonable
      substitute therefor, and upon so agreeing, shall incorporate such substitute
      provision in this Warrant.

    

    14.
      Litigation

    

    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. 

    

    15.
      Waiver of Jury Trial. 

    

    AS
      A
      MATERIAL INDUCEMENT FOR EACH PARTY HERETO TO ENTER INTO THIS WARRANT, THE
      PARTIES HERETO HEREBY WAIVE ANY RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
      RELATED IN ANY WAY TO THIS WARRANT AND/OR ANY AND ALL OF THE OTHER DOCUMENTS
      ASSOCIATED WITH THIS TRANSACTION. 

    

    IN
      WITNESS WHEREOF, the Company has caused this Warrant to be duly executed by
      its
      authorized officer as of the date first indicated above.

    

    

     Hyperdynamics
      Corp., Inc.

     

    

    By:                 
      /s/Kent Watts

    Kent
      Watts, Chief Executive Officer/Director

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    

    EXHIBIT
      A
      FORM OF ELECTION TO PURCHASE

    

    (To
      be
      executed by the Holder to exercise the right to purchase shares of Common Stock
      under the foregoing Warrant)

    

    To:
      Hyperdynamics
      Corp., Inc.

    

    In
      accordance with the Warrant enclosed with this Form of Election to Purchase,
      the
      undersigned hereby irrevocably elects to purchase _____________ shares of Common
      Stock ("Common Stock"), $.001 par value per share, of Hyperdynamics
      Corp., Inc. and,
      if
      such Holder is not utilizing the cashless exercise provisions set forth in
      this
      Warrant, encloses herewith $________ in cash, certified or official bank check
      or checks, which sum represents the aggregate Exercise Price (as defined in
      the
      Warrant) for the number of shares of Common Stock to which this Form of Election
      to Purchase relates, together with any applicable taxes payable by the
      undersigned pursuant to the Warrant.

    

    The
      undersigned requests that certificates for the shares of Common Stock issuable
      upon this exercise be issued in the name of

    

    

    PLEASE
      INSERT SOCIAL SECURITY OR

    TAX
      IDENTIFICATION NUMBER

    

    

    (Please
      print name and address)

    

    If
      the
      number of shares of Common Stock issuable upon this exercise shall not be all
      of
      the shares of Common Stock which the undersigned is entitled to purchase in
      accordance with the enclosed Warrant, the undersigned requests that a New
      Warrant (as defined in the Warrant) evidencing the right to purchase the shares
      of Common Stock not issuable pursuant to the exercise evidenced hereby be issued
      in the name of and delivered to:

    

    (Please
      print name and address)

    

    

    

    Dated:
      _____________, _____   Name
      of
      Holder:

    

    (Print)

    

    (By:)

    (Name:)

    (Title:)

    (Signature
      must conform in all respects to name of holder as specified on the face of
      the
      Warrant)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.

    

    /s/Kent
      Watts

    Kent
      Watts, CEO

    

    SECURED
      PARTY: 

    Dutchess
      Private Equities Fund, II, LP

    

    /s/Douglas
      H. Leighton

    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)

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