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Exhibit
10.11
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Security
Agreement.
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SECURITY
AGREEMENT
THIS SECURITY AGREEMENT (the “ Agreement
”), is entered into
and made effective as of February 6, 2008, by and between
HYPERDYNAMICS
CORPORATION, a Delaware corporation with its principal place
of business located in Sugar Land Texas (the “ Company
”) and the undersigned subsidiaries of the
Company (each a “ Guarantor
,” and collectively together with the Company, the “
Grantors
”), in favor YA GLOBAL INVESTMENTS,
L.P. (the “ Secured Party
”).
WHEREAS, in connection with the Securities Purchase
Agreement by and between the Company and the Secured Party of even
date herewith (the “ Securities Purchase
Agreement ”), the Company has agreed, upon the terms
and subject to the conditions of the Securities Purchase Agreement,
to issue to the Secured Party (i) an aggregate original principal
amount of Three Million Dollars ($3,000,000) of senior notes (the
“ Notes
”), which shall, in certain instances, be convertible into
shares (the “ Conversion
Shares ”)of the Company’s common stock, par
value $0.001 per share (“ Common Stock
”); and (ii) warrants (the “ Warrants
”) to be exercisable to acquire additional shares of Common
Stock (the “ Warrants
Shares ”) initially in that number of shares of Common
Stock set forth in the Securities Purchase Agreement;
WHEREAS , each of the Guarantors has executed and delivered
a Guaranty dated the date hereof (the “ Guaranty
”) in favor of the Secured Party, with respect to the
Company’s obligations under the Securities Purchase
Agreement, the Notes, and the Transaction Documents (as defined
below); and
WHEREAS , the Grantors shall receive a direct benefit from
the Secured Party entering into the Securities Purchase Agreement
and the Transaction Documents and purchasing the Notes and
Warrants; and
WHEREAS, it is a condition precedent to the Secured Party
purchasing the Notes and Warrants pursuant to the Securities
Purchase Agreement that the Grantors shall have executed and
delivered to the Secured Party this Agreement providing for the
grant to the Secured Party of a security interest in certain
personal property of each Guarantor to secure all of the
Company’s obligations under the “Transaction
Documents” (as defined in the Securities Purchase Agreement)
(the “ Transaction
Documents ”) and the Guarantors’ obligations
under the Guaranty;
WHEREAS, a security interest in personal property of the
Company is not being created hereby;
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:
Signature page to Closing Statement
VI. 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.
Definitions
. Reference is hereby made to the
Securities Purchase Agreement and the Notes for a statement of
the terms thereof. All capitalized terms used in
this Agreement and the recitals hereto and not defined herein
shall have the meanings set forth in the Securities Purchase
Agreement, the Notes, or in Articles 8 or 9 of the Uniform
Commercial Code as in effect from time to time in the State of
New Jersey (the “ Code
”).
Section
1.4.
Other
Definitions . As used in this Agreement, the
following terms shall have the respective meanings indicated
below, such meanings to be applicable equally to both the
singular and plural forms of such terms:
“
Event of
Default ” shall be deemed to have occurred under
this Agreement upon an Event of Default under and as defined
in the Notes.
VII. ARTICLE
2.
PLEDGED
PROPERTY
A.
Section
2.1.
Grant of
Security Interest .
(a) (a) As
collateral security for all of the Obligations (as defined in
Section
2.2 hereof), each Guarantor hereby pledges and assigns
to the Secured Party, and grants to the Secured Party for its
benefit, a continuing security interest in and to all personal
property of each Guarantor, wherever located and whether now
or hereinafter existing and whether now owned or hereafter
acquired, of every kind and description, tangible or
intangible, including without limitation, all Goods,
Inventory, Equipment, Fixtures, Instruments (including
promissory notes), Documents, Accounts (including
health-care-insurance receivables, and license fees),
Contracts, Contract Rights, Chattel Paper (whether tangible or
electronic), Deposit Accounts (and in and to any deposits or
other sums at any time credited to each such Deposit Account),
Money, Letters of Credit and Letter-of-Credit Rights (whether
or not the letter of credit is evidenced by a writing),
Commercial Tort Claims, Securities and all other Investment
Property, General Intangibles (including payment intangibles
and software), Farm Products, all books and records relating
to any of the foregoing, and all supporting obligations, and
any and all proceeds and products of any thereof, including
proceeds of insurance covering any or all of the foregoing,
wherever located, whether now owned, or now due, in which a
Grantor has an interest or the power to transfer rights, or
hereafter acquired, arising, or to become due, or in which a
Guarantor obtains an interest, or the power to transfer
rights, and as more particularly described on Exhibit A
attached hereto (collectively, the Pledged Property). The
Pledged Property shall specifically exclude any and all of the
Grantor’s interests in SCS Corporation and SCS Guinea
SARL and nothing herein shall be deemed to encumber any assets
of either SCS Corporation or SCS Guinea SARL or any other
interest, direct or indirect, that the Company may have or
acquire in connection with Guinea.
Signature page to Closing Statement
(b) (b) Simultaneously
with the execution and delivery of this Agreement, each
Grantor shall make, execute, acknowledge, file, record and
deliver to the Secured Party such documents, instruments, and
agreements, 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.
(c) Section
2.2 Security for
Obligations . The security interest created
hereby in the Pledged Property constitutes continuing
collateral security for all of the following obligations,
whether now existing or hereinafter incurred (collectively,
the “ Obligations
”):
(d) (a) (i)
the payment by the Company, as and when due and payable (by
scheduled maturity, acceleration, demand or otherwise), of all
amounts from time to time owing by it in respect of the Notes,
the other Transaction Documents, or any other amounts owing by
it to the Secured Party, whether or not now in existence or
hereinafter incurred, or (ii) in the case of any Guarantor,
the payment by such Guarantor, as and when due and payable of
all “Guaranteed Obligations” under (and as defined
in) the Guaranty; and
(e) (b) the
due performance and observance by the each Grantor of all of
its other obligations from time to time existing in respect of
any of the Transaction Documents, including without
limitation, with respect to any conversion or redemption
rights of the Secured Party under the Notes.
VIII. ARTICLE
3.
ATTORNEY-IN-FACT;
PERFORMANCE
A. Section
3.1.
Secured Party
Appointed Attorney-In-Fact .
The
Grantors hereby appoint the Secured Party as its
attorney-in-fact, with full authority in the place and stead
of the Grantor and in the name of the Grantor or otherwise,
exercisable after and during the continuance of an Event of
Default, 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 (a) receive and collect all instruments made
payable to the Grantor representing any payments in respect of
the Pledged Property or any part thereof and to give full
discharge for the same; (b) demand, collect, receipt for,
settle, compromise, adjust, sue for, foreclose, or realize on
the Pledged Property as and when the Secured Party may
determine, and (c) to facilitate collection, the Secured Party
may notify account debtors and obligors on any Pledged
Property to make payments directly to the Secured
Party. The foregoing power of attorney is a power
coupled with an interest and shall be irrevocable until all
Obligations are paid and performed in full. The
Grantors agree that the powers conferred on the Secured Party
hereunder are solely to protect the Secured Party’s
interests in the Pledged Property and shall not impose any
duty upon the Secured Party to exercise any such
powers.
Signature page to Closing Statement
B. Section
3.2.
Secured Party
May Perform .
If
a Grantor 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 such
Grantor under Section 8.3.
IX. ARTICLE
4.
REPRESENTATIONS AND
WARRANTIES
A. 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.
B. Section
4.2.
Ownership of
Pledged Property .
The
Guarantor represents and warrants 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
(each, a “ Lien
”) except for the security interest created by this
Agreement and other Permitted Liens. For purposes
of this Agreement, “Permitted Liens” means: (1)
the security interest created by this Agreement, (2) existing
Liens which have been disclosed by the Company to the Secured
Party on Schedule 4.2 attached hereto; (3) inchoate Liens for
taxes, assessments or governmental charges or levies not yet
due, as to which the grace period, if any, related thereto has
not yet expired, or being contested in good faith and by
appropriate proceedings for which adequate reserves have been
established in accordance with GAAP; (4) Liens of carriers,
materialmen, warehousemen, mechanics and landlords and other
similar Liens which secure amounts which are not yet overdue
or which are being contested in good faith by appropriate
proceedings for which adequate reserves have been established
in accordance with GAAP; (5) licenses, sublicenses, leases or
subleases granted to other Persons not materially interfering
with the conduct of the business of the Company; (6) Liens
securing capitalized lease obligations and purchase money
indebtedness incurred solely for the purpose of financing an
acquisition or lease; (7) easements, rights-of-way,
restrictions, encroachments, municipal zoning ordinances and
other similar charges or encumbrances, and minor title
deficiencies, in each case not securing debt and not
materially interfering with the conduct of the business of the
Company and not materially detracting from the value of the
property subject thereto; (8) Liens arising out of the
existence of judgments or awards which judgments or awards do
not constitute an Event of Default; (9) Liens incurred in the
ordinary course of business in connection with workers
compensation claims, unemployment insurance, pension
liabilities and social security benefits and Liens securing
the performance of bids, tenders, leases and contracts in the
ordinary course of business, statutory obligations, surety
bonds, performance bonds and other obligations of a like
nature (other than appeal bonds) incurred in the ordinary
course of business (exclusive of obligations in respect of the
payment for borrowed money); (10) Liens in favor of a banking
institution arising by operation of law encumbering deposits
(including the right of set-off) and contractual set-off
rights held by such banking institution and which are within
the general parameters customary in the banking industry and
only burdening deposit accounts or other funds maintained with
a creditor depository institution; (11) usual and customary
set-off rights in leases and other contracts; and (12) escrows
in connection with acquisitions and dispositions.
Signature page to Closing Statement
Section
4.3
Location of
Pledged Property .
The
Pledged Property is or will be kept at the address(es) of each
Grantor set forth on the signature pages hereof, or such other
locations as the Grantors have given the Secured Party written
notice prior to the date hereof, and, unless otherwise
provided herein, the Grantors will not remove any Pledged
Property from such locations without the prior written consent
of the Secured Party which consent shall not be unreasonably
withheld.
Section
4.4
Location, State
of Incorporation and Name of Grantors .
Each
Grantor’s principal place of business, state of
organization, organization identification number, and exact
legal name is as set forth on each such Grantor’s
signature page to this Agreement.
Section
4.5
Priority of
Security Interest .
The
security interest granted to the Secured Party hereunder shall
be a first priority security interest subject to no other
Liens. Except for the Permitted Liens, no financing
statement covering any of the Pledged Property or any proceeds
thereof is on file in any public office.
X. ARTICLE
5.
DEFAULT;
REMEDIES
A. Section
5.1
Method of
Realizing Upon the Pledged Property: Other Remedies
.
If
any Event of Default shall have occurred and be
continuing:
(a) The
Secured Party may exercise in respect of the Pledged Property,
in addition to any other rights and remedies provided for
herein or otherwise available to it, all of the rights and
remedies of a secured party upon default under the Code
(whether or not the Code applies to the affected Pledged
Property), and also may (i) take absolute control of the
Pledged Property, including, without limitation, transfer into
the Secured Party’s name or into the name of its nominee
or nominees (to the extent the Secured Party has not
theretofore done so) and thereafter receive, for the benefit
of the Secured Party, all payments made thereon, give all
consents, waivers and ratifications in respect thereof and
otherwise act with respect thereto as though it were the
outright owner thereof, (ii) require each Grantor to
assemble all or part of the Pledged Property as directed by
the Secured Party and make it available to the Secured Party
at a place or places to be designated by the Secured Party
that is reasonably convenient to both parties, and the Secured
Party may enter into and occupy any premises owned or leased
by a Grantor where the Pledged Property or any part thereof is
located or assembled for a reasonable period in order to
effectuate the Secured Party’s rights and remedies
hereunder or under law, without obligation to the Grantor in
respect of such occupation, and (iii) without notice
except as specified below and without any obligation to
prepare or process the Pledged Property for sale,
(A) sell the Pledged Property or any part thereof in one
or more parcels at public or private sale, at any of the
Secured Party’s offices or elsewhere, for cash, on
credit or for future delivery, and at such price or prices and
upon such other terms as the Secured Party may deem
commercially reasonable and/or (B) lease, license or
dispose of the Pledged Property or any part thereof upon such
terms as the Secured Party may deem commercially
reasonable. Each Grantor agrees that, to the extent
notice of sale or any other disposition of the Pledged
Property shall be required by law, at least ten (10)
days’ notice to the Grantor of the time and place of any
public sale or the time after which any private sale or other
disposition of the Pledged Property is to be made shall
constitute reasonable notification. The Secured
Party shall not be obligated to make any sale or other
disposition of any Pledged Property regardless of notice of
sale having been given. The Secured Party may
adjourn any public or private sale from time to time by
announcement at the time and place fixed therefor, and such
sale may, without further notice, be made at the time and
place to which it was so adjourned. Each Grantor
hereby waives any claims against the Secured Party arising by
reason of the fact that the price at which the Pledged
Property may have been sold at a private sale was less than
the price which might have been obtained at a public sale or
was less than the aggregate amount of the Obligations, even if
the Secured Party accepts the first offer received and does
not offer such Pledged Property to more than one offeree, and
waives all rights that the Grantor may have to require that
all or any part of such Pledged Property be marshaled upon any
sale (public or private) thereof. Each Grantor
hereby acknowledges that (i) any such sale of the Pledged
Property by the Secured Party may be made without warranty,
(ii) the Secured Party may specifically disclaim any
warranties of title, possession, quiet enjoyment or the like,
and (iii) such actions set forth in clauses (i) and
(ii) above shall not adversely affect the commercial
reasonableness of any such sale of Pledged
Property.
Signature page to Closing Statement
(b) Any
cash held by the Secured Party as Pledged Property and all
cash proceeds received by the Secured Party in respect of any
sale of or collection from, or other realization upon, all or
any part of the Pledged Property shall be applied (after
payment of any amounts payable to the Secured Party pursuant
to Section 8.3 hereof) by the Secured Party against, all or
any part of the Obligations in such order as the Secured Party
shall elect, consistent with the provisions of the Securities
Purchase Agreement. Any surplus of such cash or
cash proceeds held by the Secured Party and remaining after
the indefeasible payment in full in cash of all of the
Obligations shall be paid over to whomsoever shall be lawfully
entitled to receive the same or as a court of competent
jurisdiction shall direct.
(c) In
the event that the proceeds of any such sale, collection or
realization are insufficient to pay all amounts to which the
Secured Party is legally entitled, each Grantor shall be
liable for the deficiency, together with interest thereon at
the rate specified in the Notes for interest on overdue
principal thereof or such other rate as shall be fixed by
applicable law, together with the costs of collection and the
reasonable fees, costs, expenses and other client charges of
any attorneys employed by the Secured Party to collect such
deficiency.
(d) Each
Grantor hereby acknowledges that if the Secured Party complies
with any applicable state, provincial, or federal law
requirements in connection with a disposition of the Pledged
Property, such compliance will not adversely affect the
commercial reasonableness of any sale or other disposition of
the Pledged Property.
Signature page to Closing Statement
(e) The
Secured Party shall not be required to marshal any present or
future collateral security (including, but not limited to,
this Agreement and the Pledged Property) for, or other
assurances of payment of, the Obligations or any of them or to
resort to such collateral security or other assurances of
payment in any particular order, and all of the Secured
Party’s rights hereunder and in respect of such
collateral security and other assurances of payment shall be
cumulative and in addition to all other rights, however
existing or arising. To the extent that the Grantor
lawfully may, each Grantor hereby agrees that it will not
invoke any law relating to the marshaling of collateral which
might cause delay in or impede the enforcement of the Secured
Party’s rights under this Agreement or under any other
instrument creating or evidencing any of the Obligations or
under which any of the Obligations is outstanding or by which
any of the Obligations is secured or payment thereof is
otherwise assured, and, to the extent that it lawfully may,
the Company hereby irrevocably waives the benefits of all such
laws.
B. Section
5.2
Duties Regarding
Pledged Property .
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.
XI. ARTICLE
6.
GRANTOR
AFFIRMATIVE COVENANTS
So
long as any of the Obligations shall remain outstanding,
unless the Secured Party shall otherwise consent in
writing:
A. Section
6.1.
Existence,
Properties, Etc.
(a) (a) Each
Grantor 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
Grantor’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) each
Grantor shall not do, or cause to be done, any act impairing
the Grantor’s corporate power or authority (i) to
carry on the Grantor’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 required by the
Secured Party (which other loan instruments collectively
shall be referred to as the “ Loan
Instruments ”) 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 reasonable
discretion, whether individually or in the aggregate, upon
(a) the Grantor’s assets, business, operations,
properties or condition, financial or otherwise; (b) the
Grantor’s ability to make payment as and when due of all
or any part of the Obligations; or (c) the Pledged
Property.
Signature page to Closing Statement
B. Section
6.2.
Financial
Statements and Reports .
Each
Grantor shall furnish to the Secured Party within a reasonable
time such financial data as the Secured Party may reasonably
request.
C. Section
6.3.
Accounts and
Reports .
Each
Grantor shall maintain a standard system of accounting in
accordance with generally accepted accounting principles
consistently applied (“GAAP”) and provide, at its
sole expense, to the Secured Party the following:
(a) (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 Grantor in excess of $500,000
(other than the Obligations), or any demand or other request
for payment under any gua
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