Exhibit 10.1

LOAN AND SECURITY AGREEMENT
 
THIS LOAN AND SECURITY AGREEMENT (this “Agreement”) dated as of the Effective
Date between SILICON VALLEY BANK, a California corporation (“Bank”), and GPS
INDUSTRIES, INC., a Nevada corporation (“Borrower”), provides the terms on which
Bank shall lend to Borrower and Borrower shall repay Bank. The parties agree as
follows:
 
1.
ACCOUNTING AND OTHER TERMS

 
Accounting terms not defined in this Agreement shall be construed following
GAAP. Calculations and determinations must be made following GAAP. Capitalized
terms not otherwise defined in this Agreement shall have the meanings set forth
in Section 13. All other terms contained in this Agreement, unless otherwise
indicated, shall have the meaning provided by the Code to the extent such terms
are defined therein.
 
2.
LOAN AND TERMS OF PAYMENT

 
2.1 Promise to Pay. Borrower hereby unconditionally promises to pay Bank the
outstanding principal amount of all Credit Extensions and accrued and unpaid
interest thereon as and when due in accordance with this Agreement.
 
2.1.1 Revolving Advances.
 
(a) Availability. Subject to the terms and conditions of this Agreement, Bank
shall make Advances not exceeding the Availability Amount. Amounts borrowed
hereunder may be repaid and, prior to the Revolving Line Maturity Date,
reborrowed, subject to the applicable terms and conditions precedent herein.
 
(b) Termination: Repayment. The Revolving Line terminates on die Revolving Line
Maturity Date, when the principal amount of all Advances, the unpaid interest
thereon, and all other Obligations relating to the Revolving Line shall be
immediately due and payable.
 
2.2 Overadvances. If, at any time, the outstanding principal amount of any
Advances exceeds the lesser of either the Revolving Line or the Borrowing Base,
Borrower shall immediately pay to Bank in cash such excess.
 
2.3 Payment of Interest on the Credit Extensions.
 
(a) Interest Rate. Subject to Section 2.3(b), the principal amount outstanding
under the Revolving Line shall accrue interest at a floating per annum rate
equal to greater of (a) one percent (1.0%) above the Prime Rate, or (b) six
percent (6.0%), which interest shall be payable monthly in accordance with
Section 2.3(f) below.
 

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(b) Default Rate. After an Event of Default, Obligations accrue interest at the
Default Rate, The Default Rate is, at the Bank’s option, (i) the Maximum Lawful
Rate, if the Maximum Lawful rate is established by applicable law, (ii) the
interest rate applicable immediately prior to the occurrence of the Event of
Default plus five percent (5.00%), if no Maximum Lawful Rate law has been
established by applicable law; (iii) eighteen percent (18.00%) per annum; or
(iv) such lesser rate of interest as Bank in its sole discretion may choose to
charge; but in no event more than the Maximum Lawful Rate. Bank will not compute
the interest in a manner that would cause Bank to contract for, charge or
receive interest that would exceed the Maximum Lawful Rate or the Maximum Lawful
Amount. As used herein, “Maximum Lawful Rate” is the maximum rate of interest,
and the term “Maximum Lawful Amount” means die maximum amount of interest that
is permissible under applicable state of federal laws for the type of loan
evidenced by the Loan Documents. If the Maximum Lawful Rate is increased by
statute of other governmental action after the Effective Date, then the new
Maximum Lawful Rate will be applicable to the payments from the date of the
effective date of the rate change, unless otherwise prohibited by law.
 
(i) Spreading of Interest. Due to irregular periodic balances of principal, (he
variable nature of the interest rate, or prepayment, the total interest that
will accrue under this Agreement cannot be determined in advance. Bank does not
intend to contract for, charge or receive more than the Maximum Lawful Rate or
Maximum Lawful Amount permitted by applicable state or federal law, and to
prevent such an occurrence Bank and Borrower agree that all amounts of interest,
whenever contracted for, charged or received by Bank, with respect to the
Obligations, will be spread, prorated or allocated over the full period of time
the Obligations are unpaid, including the period of any renewal or extension
thereof. If the maturity of the Obligations is accelerated for any reason
whether as a result of an Event of Default or otherwise prior to the full stated
term, the total amount of interest contracted for, charged or received to the
time of such demand shall be spread, prorated or allocated along with any
interest thereafter accruing over the full period of time that the Obligations
thereafter remain unpaid for the purpose of determining if such interest exceeds
the Maximum Lawful Amount.
 
(ii) Excess Interest. At maturity (whether by acceleration or otherwise) or on
earlier final payment of the Obligations, Bank shall compute the total amount of
interest that has been contracted for, charged or received by Bank or payable by
Borrower hereunder and compare such amount to the Maximum Lawful Amount that
could have been contracted for, charged or received by Bank. If such computation
reflects that the total amount of interest that has been contracted for,
charged, received by Bank, or payable by Borrower exceeds the Maximum Lawful
Amount, then Bank shall apply such excess to the reduction of the principal
balance, and any such excess remaining thereafter shall be refunded to Borrower.
This provision concerning the crediting or refund of excess interest shall
control and take precedence over all other agreements between Borrower and Bank
so that under no circumstances shall the total interest contracted for, charged
or received by Bank exceed the Maximum Lawful Amount.
 
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(c) Adjustment to Interest Rate. Changes to the interest rate of any Credit
Extension based on changes to the Prime Rate shall be effective on the effective
date of any change to the Prime Rate and to the extent of any such change.
 
(d) 360-Day Year. Interest shall be computed on the basis of a 360’day year for
the actual number of days elapsed.
 
(e) Debit of Accounts. Bank may debit any of Borrower’s deposit accounts,
including the Designated Deposit Account, for principal and interest payments or
any other amounts Borrower owes Bank when due. These debits shall not constitute
a set-off.
 
(f) Payments. Unless otherwise provided, interest is payable monthly on the
first calendar day of each month. Payments of principal and/or interest received
after 12:00 p. m. Pacific time are considered received at the opening of
business on the next Business Day. When a payment is due on a day that is not a
Business Day, the payment is due me next Business Day and additional fees or
interest, as applicable, shall continue to accrue.
 
2.4 Fees. Borrower shall pay to Bank:
 
2.4.1 Commitment Fee. A fully earned, non-refundable commitment fee of $7,500,
on the Effective Date and on each anniversary of the Effective Date; and
 
2.4.2 Bank Expenses. All Bank Expenses (including reasonable attorneys’ fees and
expenses, plus expenses, for documentation and negotiation of this Agreement not
to exceed $7,500) incurred through and after the Effective Date, when due.
 
2.5 Interest on Pledged CD; Payment of Interest on Pledged CD. Each Pledged CD
shall bear interest at the Pledged CD Rate. Hansen shall specify the initial CD
Interest Period applicable to the Pledged CDs in connection with the notice of
delivery of Pledged CD in the form of Schedule A attached hereto. Thereafter,
Hansen shall notify Bank not less than five (5) Business Days prior to the end
of each CD Interest Period of the duration of the subsequent CD Interest Period
with respect to such Pledged CD.
 
3.
CONDITIONS OF LOANS

 
3.1 Conditions Precedent to Initial Credit Extension. Bank’s obligation to make
the initial Credit Extension is subject to the condition precedent that Borrower
shall consent to or shall have delivered, in form and substance satisfactory to
Bank, such documents, and completion of such other matters, as Bank may
reasonably deem necessary or appropriate, including, without limitation:
 
(a) duly executed original signatures to the Loan Documents to which it is a
party;
 
(b) the Pledged CD(s) whose aggregate Value shall be equal to or greater than
the Minimum Collateral Value
 
(c) its Operating Documents and a Certificate of Existence and Good Standing
certified by the Secretary of State of the State of Nevada as of a date no
earlier than thirty (30) days prior to the Effective Date;
 
(d) Hansen’s Operating Documents and a Certificate of Existence and Good
Standing certified by the Secretary of State of the State of Pennsylvania as of
a date no earlier than thirty (30) days prior to the Effective Date;
 
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(e) duly executed original signatures to the completed Borrowing Resolutions for
Borrower;
 
(f) duly executed original signatures to the completed Borrowing Resolutions for
Hansen;
 
(g) certified copies, dated as of a recent date, of financing statement
searches, as Bank shall request, accompanied by written evidence (including any
UCC termination statements) that the Liens indicated in any such financing
statements either constitute Permitted Liens or have been or, in connection with
the initial Credit Extension, will be terminated or released;
 
(h) the Perfection Certificate executed by Borrower;
 
(i) the duly executed original signatures to the Guaranty;
 
(j) the insurance policies and/or endorsements required pursuant to Section 6.5
hereof; and
 
(k) payment of the fees and Bank Expenses then due as specified in Section 2.4
hereof.
 
3.2 Conditions Precedent to all Credit Extensions. Bank’s obligations to make
each Credit Extension, including the initial Credit Extension, is subject to the
following:
 
(a) except as otherwise provided in Section 3.4(a), timely receipt of an
executed Payment/Advance Form;
 
(b) the representations and warranties in Section 5 shall be true in all
material respects on the date of the Payment/Advance Form and on the Funding
Date of each Credit Extension; provided, however, that such materiality
qualifier shall not be applicable to any representations and warranties that
already are qualified or modified by materiality in the text thereof; and
provided, further that those representations and warranties expressly referring
to a specific date shall be true, accurate and complete in all material respects
as of such date, and no Event of Default shall have occurred and be continuing
or result from the Credit Extension. Each Credit Extension is Borrower’s
representation and warranty on that date that the representations and warranties
in Section 5 remain true in all material respects; provided, however, that such
materiality qualifier shall not be applicable to any representations and
warranties that already are qualified or modified by materiality in the text
thereof; and provided, further that those representations and warranties
expressly referring to a specific date shall be true, accurate and complete in
all material respects as of such date; and
 
(c) in Bank’s sole discretion, there has not been any material impairment in the
general affairs, management, results of operation, financial condition or the
prospect of repayment of the Obligations, or there has not been any material
adverse deviation by Borrower from the most recent business plan of Borrower
presented to and accepted by Bank.
 
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3.3 Covenant to Deliver.
 
(a) Borrower agrees to deliver to Bank each item required to be delivered to
Bank under this Agreement as a condition to any Credit Extension. Borrower
expressly agrees that a Credit Extension made prior to the receipt by Bank of
any such item shall not constitute a waiver by Bank of Borrower’s obligation to
deliver such item, and any such Credit Extension in die absence of a required
item shall be made in Bank’s sole discretion.
 
(b) As soon as possible and in any event within thirty (30) days of the
Effective Date, Borrower shall deliver to Bank (i) Borrower’s financial
projections, as approved by Borrower’s board of directors, for calendar year
2008, and (ii) a Certificate of Existence and Authorization to Transact Business
in Texas, each certified by the Secretary of State of the State of Texas, and a
Certificate of Good Standing, certified by the Comptroller of the State of
Texas.
 
3.4 Procedures for Borrowing. Subject to the prior satisfaction of all other
applicable conditions to the making of an Advance set forth in this Agreement,
to obtain an Advance, Borrower shall notify Bank (which notice shall be
irrevocable) by electronic mail, facsimile, or telephone by 12:00 p.m. Pacific
time on the Funding Date of the Advance. Together with any such electronic or
facsimile notification, Borrower shall deliver to Bank by electronic mail or
facsimile a completed Payment/Advance Form executed by a Responsible Officer or
his or her designee. Bank may rely on any telephone notice given by a person
whom Bank believes is a Responsible Officer or designee. Bank shall credit
Advances to the Designated Deposit Account. Bank may make Advances under this
Agreement based on instructions from a Responsible Officer or his or her
designee or without instructions if the Advances are necessary to meet
Obligations which have become due.
 
4.
CREATION OF SECURITY INTEREST

 
4.1 Grant of Security Interest. Borrower hereby grants Bank, to secure the
payment and performance in foil of all of the Obligations, a continuing security
interest in, and pledges to Bank, the Collateral, wherever located, whether now
owned or hereafter acquired or arising, and all proceeds and products thereof.
Borrower represents, warrants, and covenants that the security interest granted
herein is and shall at all times continue to be a first priority perfected
security interest in the Collateral (subject only to Permitted Liens that may
have superior priority to Bank’s Lien under this Agreement). If Borrower shall
acquire a commercial tort claim, Borrower shall promptly notify Bank in a
writing signed by Borrower of the general details thereof and grant to Bank in
such writing a security interest therein and in the proceeds thereof, all upon
the terms of this Agreement, with such writing to be in form and substance
reasonably satisfactory to Bank.
 
If this Agreement is terminated. Bank’s Lien in the Collateral shall continue
until the Obligations (other man inchoate indemnity obligations) are repaid in
full in cash. Upon payment in full in cash of the Obligations and at such time
as Bank’s obligation to make Credit Extensions has terminated. Bank shall, at
Borrower’s sole cost and expense, promptly release its Liens in the Collateral
and all rights therein shall revert to Borrower.
 
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4.2 Authorization to File Financing Statements. Borrower hereby authorizes Bank
to file financing statements, without notice to Borrower, with all appropriate
jurisdictions to perfect or protect Bank’s interest or rights hereunder,
including a notice that any disposition of the Collateral (other than pursuant
to the terms hereof), by either Borrower or any other Person, shall be deemed to
violate the rights of Bank under the Code. Such financing statements may
indicate the Collateral as “all assets of the Debtor” or words of similar
effect, or as being of an equal or lesser scope, or with greater detail, all in
Bank’s discretion.
 
5.
REPRESENTATIONS AND WARRANTIES

 
Borrower represents and warrants as follows:
 
5.1 Due Organization, Authorization; Power and Authority. Borrower is duly
existing and in good standing in its jurisdiction of formation and is qualified
and licensed to do business and is in good standing in any jurisdiction (or has
promptly applied for qualification when and where required) in which the conduct
of its business or its ownership of property requires that it be qualified
except where the failure to do so could not reasonably be expected to have a
material adverse effect on Borrower’s business. In connection with this
Agreement, Borrower has delivered to Bank a completed certificate signed by
Borrower, entitled “Perfection Certificate”. Borrower represents and warrants to
Bank that (a) Borrower’s exact legal name is that indicated on the Perfection
Certificate and on the signature page hereof, (b) Borrower is an organization of
the type and is organized in the jurisdiction set forth in the Perfection
Certificate; (c) the Perfection Certificate accurately sets forth Borrower’s
organizational identification number or accurately states that Borrower has
none; (d) the Perfection Certificate accurately sets forth Borrower’s place of
business, or, if more than one, its chief executive office as well as Borrower’s
mailing address (if different . than its chief executive office); (e) Borrower
(and each of its predecessors) has not, in the past five (5) years, changed its
jurisdiction of formation, organizational structure or type, or any
organizational number assigned by its jurisdiction; and (f) all other
information set forth on the Perfection Certificate pertaining to Borrower and
each of its Subsidiaries is accurate and complete (it being understood and
agreed that Borrower may from time to time update certain information in the
Perfection Certificate after me Effective Date to the extent permitted by one or
more specific provisions in this Agreement). If Borrower is not now a Registered
Organization but later becomes one, Borrower shall promptly notify Bank of such
occurrence and provide Bank with Borrower’s organizational identification
number.
 
The execution, delivery and performance by Borrower of the Loan Documents to
which it is a party have been duly authorized, and do not (i) conflict with any
of Borrower’s organizational documents, (ii) contravene, conflict with,
constitute a default under or violate any material Requirement of Law,
(iii) contravene, conflict or violate any applicable order, writ, judgment,
injunction, decree, determination or award of any Governmental Authority by
which Borrower or any its Subsidiaries or any of their property or assets may be
bound or affected, (iv) require any action by, filing, registration, or
qualification with, or Governmental Approval from, any Governmental Authority
(except such Governmental Approvals which have already been obtained and are in
fall force and effect or (v) constitute an event of default under any material
agreement by which Borrower is bound. Borrower is not in default under any
agreement to which it is a party or by which it is bound in which the default
could have a material adverse effect on Borrower’s business,
 
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5.2 Collateral. Borrower has good title to, has rights in, and the power to
transfer each item of the Collateral upon which it purports to grant a Lien
hereunder, free and clear of any and all Liens except Permitted Liens. Borrower
has no deposit accounts other than the deposit accounts with Bank, the deposit
accounts, if any, described in the Perfection Certificate delivered to Bank in
connection herewith, or of which Borrower has given Bank notice and taken such
actions as are necessary to give Bank a perfected security interest therein, The
Accounts are bona fide, existing obligations of the Account Debtors.
 
The Collateral is not in the possession of any third party bailee (such as a
warehouse) except as otherwise provided in the Perfection Certificate. None of
the components of the Collateral shall be maintained at locations other than as
provided in the Perfection Certificate or as permitted pursuant to Section 7.2.
In the event that Borrower, after the date hereof, intends to store or otherwise
deliver any portion of me Collateral to a bailee, then Borrower will first
receive the written consent of Bank and such bailee must execute and deliver a
bailee agreement in form and substance satisfactory to Bank in its sole
discretion,
 
All Inventory is in all material respects of good and marketable quality, free
from material defects other than that Inventory that is held for refurbishment
or repair.
 
Borrower is the sole owner of its intellectual property, except for
non-exclusive licenses granted to its customers in the ordinary course of
business. Each patent is valid and enforceable, and no part of the intellectual
property has been judged invalid or unenforceable, in whole or in part, and to
the best of Borrower’s knowledge, no claim has been made (other than as
disclosed in the Perfection Certificate) that any part of the intellectual
property violates the rights of any third party except to the extent such claim
could not reasonably be expected to have a material adverse effect on Borrower’s
business. Except as noted on the Perfection Certificate, Borrower is not a party
to, nor is bound by, any material license or other agreement with respect to
which Borrower is the licensee (a) that prohibits or otherwise restricts
Borrower from granting a security interest in Borrower’s interest in such
license or agreement or any other property, or (b) for which a default under or
termination of could interfere with the Bank’s right to sell any Collateral.
Borrower shall provide written notice to Bank within ten (10) days of entering
or becoming bound by any such license or agreement (other than over-the-counter
software that is commercially available to the public). Borrower shall take such
steps as Bank requests to obtain the consent of, or waiver by, any person whose
consent or waiver is necessary for (x) all such licenses or agreements to be
deemed “Collateral” and for Bank to have a security interest in it that might
otherwise be restricted or prohibited by law or by the terms of any such license
or agreement, whether now existing or entered into in the future, and (y) Bank
to have the ability in the event of a liquidation of any Collateral to dispose
of such Collateral in accordance with Bank’s rights and remedies under this
Agreement and the other Loan Documents.
 
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5.3 Accounts Receivable; Inventory. For any Eligible Account in any Borrowing
Base Certificate, all statements made and all unpaid balances appearing in all
invoices, instruments and other documents evidencing such Eligible Accounts are
and shall be true and correct and all such invoices, instruments and other
documents, and all of Borrower’s Books are genuine and in all respects what they
purport to be. Whether or not an Event of Default has occurred and is
continuing. Bank may notify any Account Debtor owing Borrower money of Bank’s
security interest in such funds and verify the amount of such Eligible Account.
All sales and other transactions underlying or giving rise to each Eligible
Account shall comply in all material respects with all applicable laws and
governmental rules and regulations. Borrower has no knowledge of any actual or
imminent Insolvency Proceeding of any Account Debtor whose accounts are Eligible
Accounts in any Borrowing Base Certificate. To the best of Borrower’s knowledge,
all signatures and endorsements on all documents, instruments, and agreements
relating to all Eligible Accounts are genuine, and all such documents,
instruments and agreements are legally enforceable in accordance with their
terms.
 
5.4 Litigation. Other than as disclosed in the perfection Certificate, there are
no actions or proceedings pending or, to the knowledge of the Responsible
Officers, threatened in writing by or against Borrower or any of its
Subsidiaries involving more than Fifty Thousand Dollars ($50,000).
 
5.5 No Material Deviation in Financial Statements. All consolidated financial
statements for Borrower and any of its Subsidiaries delivered to Bank fairly
present in all material respects Borrower’s consolidated financial condition and
Borrower’s consolidated results of operations. There has not been any material
deterioration in Borrower’s consolidated financial condition since the date of
the most recent financial statements submitted to Bank.
 
5.6 Solvency. The fair salable value of Borrower’s assets (including goodwill
minus disposition costs) exceeds the fair value of its liabilities; Borrower is
not left with unreasonably small capital after the transactions in this
Agreement; and Borrower is able to pay its debts (including trade debts) as they
mature.
 
5.7 Regulatory Compliance. Borrower is not an “investment company” or a company
“controlled” by an “investment company” under the Investment Company Act of
1940, as amended. Borrower is not engaged as one of its important activities in
extending credit for margin stock (under Regulations X, T and U of the Federal
Reserve Board of Governors). Borrower has complied in all material respects with
the Federal Fair Labor Standards Act. Neither Borrower nor any of its
Subsidiaries is a “holding company” or an “affiliate” of a “holding company” or
a “subsidiary company” of a “holding company” as each term is defined and used
in the Public Utility Holding Company Act of 2005. Borrower has not violated any
laws, ordinances or rules, the violation of which could reasonably be expected
to have a material adverse effect on its business. None of Borrower’s or any of
its Subsidiaries’ properties or assets has been used by Borrower or any
Subsidiary or, to the best of Borrower’s knowledge, by previous Persons, in
disposing, producing, storing, treating, or transporting any hazardous substance
other than legally. Borrower and each of its Subsidiaries have obtained all
consents, approvals and authorizations of, made all declarations or filings
with, and given all notices to, all Government Authorities that are necessary to
continue their respective businesses as currently conducted.
 
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5.8 Subsidiaries; Investments. Borrower does not own any stock, partnership
interest or other equity securities except for Permitted Investments.
 
5.9 Tax Returns and Payments; Pension Contributions. Borrower has timely filed
all required tax returns and reports, and Borrower has timely paid all foreign,
federal, state and local taxes, assessments, deposits and contributions owed by
Borrower. Borrower may defer payment of any contested taxes, provided that
Borrower (a) in good faith contests its obligation to pay the taxes by
appropriate proceedings promptly and diligently instituted and conducted,
(b) notifies Bank in writing of the commencement of, and any material
development in, me proceedings, (c) posts bonds or takes any other steps
required to prevent the governmental authority levying such contested taxes from
obtaining a Lien upon any of the Collateral that is other than a “Permitted
Lien”, Borrower is unaware of any claims or adjustments proposed for any of
Borrower’s prior tax years which could result in additional taxes becoming due
and payable by Borrower. Borrower has paid all amounts necessary to fund all
present pension, profit sharing and deferred compensation plans in accordance
with their terms, and Borrower has not withdrawn from participation in, and has
not permitted partial or complete termination of, or permitted me occurrence of
any other event with respect to, any such plan which could reasonably be
expected to result in any liability of Borrower, including any liability to the
Pension Benefit Guaranty Corporation or its successors or any other governmental
agency.
 
5.10 Use of Proceeds. Borrower shall use the proceeds of the Credit Extensions
solely as working capital, and to fund its general business requirements and not
for personal, family, household or agricultural purposes.
 
5.11 Full Disclosure. No written representation, warranty or Other statement of
Borrower in any certificate or written statement given to Bank, as of the date
such representation, warranty, or other statement was made, taken together with
all such written certificates and written statements given to Bank, contains any
untrue statement of a material fact or omits to state a material fact necessary
to make the statements contained in the certificates or statements not
misleading (it being recognized by Bank that the projections and forecasts
provided by Borrower in good faith and based upon reasonable assumptions are not
viewed as facts and that actual results during the period or periods covered by
such projections and forecasts may differ from the projected or forecasted
results).
 
6.
AFFIRMATIVE COVENANTS

 
Borrower shall do all of the following:
 
6.1 Government Compliance.
 
(a) Maintain its and all its Subsidiaries’ legal existence and good standing in
their respective jurisdictions of formation and maintain qualification in each
jurisdiction in which the failure to so qualify would reasonably be expected to
have a material adverse effect on Borrower’s business or operations. Borrower
shall comply, and have each Subsidiary comply, with all laws, ordinances and
regulations to which it is subject, noncompliance with which could have a
material adverse effect on Borrower’s business.
 
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(b) Obtain all of the Governmental Approvals necessary for the performance by
Borrower of its obligations under the Loan Documents to which it is a party and
the grant of a security interest to Bank in all of its property. Borrower shall
promptly provide copies of any such obtained Governmental Approvals to Bank.
 
6.2 Financial Statements, Reports, Certificates.
 
(a) Deliver to Bank: (i) as soon as available, but no later than thirty (30)
days after the last day of each month, a company prepared consolidated and
consolidating balance sheet and income statement covering Borrower’s and each of
its Subsidiary’s operations for such month certified by a Responsible Officer
and in a form acceptable to Bank; (ii) as soon as available, but no later than
one hundred eighty (180) days after the last day of Borrower’s fiscal year,
audited consolidated financial statements prepared under GAAP, consistently
applied, together with an unqualified opinion on the financial statements from
an independent certified public accounting firm acceptable to Bank in its
reasonable discretion; (iii) within five (5) days of delivery, copies of all
statements, reports and notices made available to Borrower’s security holders or
to any holders of Subordinated Debt; (iv) in the event that Borrower becomes
subject to the reporting requirements under the Securities Exchange Act of 1934,
as amended, within five (5) days of filing, all reports on Form 10-K, 10-Q and
8-K filed with the Securities and Exchange Commission or a link thereto on
Borrower’s or another website on the Internet; (v) a prompt report of any legal
actions pending or threatened against Borrower or any of its Subsidiaries that
could result in damages or costs to Borrower or any of its Subsidiaries of Fifty
Thousand Dollars ($50,000) or more; (vi) prompt notice of an event that
materially and adversely affects the value of the intellectual property; (vii) a
prompt report of any complaints filed with the Texas Workforce Commission
(“TWC”) against Borrower in die aggregate of Twenty-Five Thousand Dollars
($25,000) or more; and (viii) budgets, sales projections, operating plans and
other financial information reasonably requested by Bank.
 
(b) Within thirty (30) days after the last day of each month, deliver to Bank an
aged listings of accounts receivable and accounts payable (by invoice date).
 
(c) Allow Bank to audit Borrower’s Collateral at Borrower’s expense.
 
6.3 Inventory; Returns. Keep all Inventory in good and marketable condition,
free from material defects other than that Inventory held for refurbishment or
repair. Returns and allowances between Borrower and its Account Debtors shall
follow Borrower’s customary practices as they exist at the Effective Date.
Borrower must promptly notify Bank of all returns, recoveries, disputes and
claims that involve more than Fifty Thousand Dollars ($50,000).
 
6.4 Taxes; Pensions. Timely file, and require each of its Subsidiaries to timely
file, all required tax returns and reports and timely pay, and require each of
its Subsidiaries to timely file, all foreign, federal, state and local taxes,
assessments, deposits and contributions owed by Borrower and each of its
Subsidiaries, except for deferred payment of any taxes contested pursuant to the
terms of Section 5.9 hereof, and shall deliver to Bank, on demand, appropriate
certificates attesting to such payments, and pay all amounts necessary to fund
all present pension, profit sharing and deferred compensation plans in
accordance with their terms.
 
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6.5 Insurance. Keep its business and the Collateral insured for risks and in
amounts standard for companies in Borrower’s industry and location and as Bank
may reasonably request. Insurance policies shall be in a form, with companies,
and in amounts that are satisfactory to Bank. All property policies shall have a
lender’s loss payable endorsement showing Bank as lender loss payee and waive
subrogation against Bank, and all liability policies shall show, or have
endorsements showing, Bank as an additional insured. All policies (or the loss
payable and additional insured endorsements) shall provide that the insurer
shall endeavor to give Bank at least twenty (20) days notice before canceling,
amending, or declining to renew its policy. At Bank’s request. Borrower shall
deliver certified copies of policies and evidence of all premium payments. If
Borrower fails to obtain insurance as required under this Section 6.5 or to pay
any amount or famish any required proof of payment to third persons and Bank,
Bank may make all or part of such payment or obtain such insurance policies
required in this Section 6.5, and take any action under the policies Bank deems
prudent
 
6.6 Operating Accounts.
 
(a) Maintain all of its and all of its Subsidiaries’ primary operating and other
deposit accounts and securities accounts for operations in the United States
with Bank and Bank’s Affiliates.
 
(b) For each Collateral Account that Borrower at any time maintains, Borrower
shall cause the applicable bank or financial institution (other than Bank) at or
with which any Collateral Account is maintained to execute and deliver a Control
Agreement or other appropriate instrument with respect to such Collateral
Account to perfect Bank’s Lien in such Collateral Account in accordance with the
terms hereunder. The provisions of the previous sentence shall not apply to
deposit accounts exclusively used for payroll, payroll taxes and other employee
wage and benefit payments to or for the benefit of Borrower’s employees and
identified to Bank by Borrower as such.
 
6.7 Intentionally Omitted.
 
6.8 Protection and Registration of Intellectual Property Rights. Borrower shall:
(a) protect, defend and maintain the validity and enforceability of its
intellectual property; (b) promptly advise Bank in writing of material
infringements of its intellectual property; and (c) not allow any intellectual
property material to Borrower’s business to be abandoned, forfeited or dedicated
to the public without Bank’s written consent. If Borrower (i) obtains any
patent, registered trademark or servicemark, registered copyright, registered
mask work, or any pending application for any of the foregoing, whether as
owner, licensee or otherwise, or (ii) applies for any patent or the registration
of any trademark or servicemark, then Borrower shall immediately provide written
notice thereof to Bank and shall execute such intellectual property security
agreements and other documents and take such other actions as Bank shall request
in its good faith business judgment to perfect and maintain a first priority
perfected security interest in favor of Bank in such property. If Borrower
decides to register any copyrights or mask works in the United States Copyright
Office, Borrower shall: (x) provide Bank with at least fifteen (15) days prior
written notice of Borrower’s intent to register such copyrights or mask works
together with a copy of the application it intends to file with the United
States Copyright Office (excluding exhibits thereto); (y) execute an
intellectual property security agreement and such other documents and take such
other actions as Bank may request in its good faith business judgment to perfect
and maintain a first priority perfected security interest in favor of Bank in
the copyrights or mask works intended to be registered with the United States
Copyright Office; and (z) record such intellectual property security agreement
with the United States Copyright Office contemporaneously with filing the
copyright or mask work applications) with the United States Copyright Office.
Borrower shall promptly provide to Bank copies of all applications that it files
for patents or for the registration of trademarks, servicemarks, copyrights or
mask works, together with evidence of the recording of the intellectual property
security agreement necessary for Bank to perfect and maintain a first priority
perfected security interest in such property.
 
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6.9 Litigation Cooperation. From the date hereof and continuing through the
termination of this Agreement, make available to Bank, without expense to Bank,
Borrower and its officers, employees and agents and Borrower’s books and
records, to the extent that Bank may deem them reasonably necessary to prosecute
or defend any third-party suit or proceeding instituted by or against Bank with
respect to any Collateral or relating to Borrower.
 
6.10 Further Assurances. Execute any further instruments and take farther action
as Bank reasonably requests to perfect or continue Bank’s Lien in the Collateral
or to effect the purposes of this Agreement, Deliver to Bank, within five (5)
days after the same are sent or received, copies of all correspondence, reports,
documents and oilier filings with any Governmental Authority regarding
compliance with or maintenance of Governmental Approvals or Requirements of Law
or that could reasonably be expected to have a material effect on any of the
Governmental Approvals or otherwise on the operations of Borrower or any of its
Subsidiaries.
 
7.
NEGATIVE COVENANTS

 
Borrower shall not do any of the following without Bank’s prior written consent:
 
7.1 Dispositions. Convey, sell, lease, transfer or otherwise dispose of
(collectively, “Transfer”), or permit any of its Subsidiaries to Transfer, all
or any part of its business or property, except for Transfers (a) of Inventory
in the ordinary course of business; (b) of worn-out or obsolete Equipment that
does not constitute Financed Equipment; and (c) in connection with Permitted
Liens and Permitted Investments.
 
7.2 Changes in Business, Management, Ownership, or Business Locations.
(a) Engage in or permit any of its Subsidiaries to engage in any business other
than the businesses currently engaged in by Borrower and such Subsidiary, as
applicable, or reasonably related thereto; (b) liquidate or dissolve; or (c) (i)
have a change in management or (ii) enter into any transaction or series of
related transactions in which the stockholders of Borrower who were not
stockholders immediately prior to the first such transaction own more than 10%
of the voting stock of Borrower immediately after giving effect to such
transaction or related series of such transactions (other than by the sale of
Borrower’s equity securities in a public offering or to venture capital
investors so long as Borrower identifies to Bank the venture capital investors
prior to the closing of the transaction). Borrower shall not, without at least
thirty (30) days prior written notice to Bank: (1) add any new offices or
business locations, including warehouses (unless such new offices or business
locations contain less than Ten Thousand Dollars ($10,000) in Borrower’s assets
or property), (2) change its jurisdiction of organization, (3) change its
organizational structure or type, (4) change its legal name, or (5) change any
organizational number (if any) assigned by its jurisdiction of organization.
 
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7.3 Mergers or Acquisitions. Merge or consolidate, or permit any of its
Subsidiaries to merge or consolidate, with any other Person, or acquire, or
permit any of its Subsidiaries to acquire, a]! or substantially all of the
capital stock or property of another Person. A Subsidiary may merge or
consolidate into another Subsidiary or into Borrower.
 
7.4 Indebtedness. Create, incur, assume, or be liable for any Indebtedness, or
permit any Subsidiary to do so, other than Permitted Indebtedness.
 
7.5 Encumbrance. Create, incur, allow, or suffer any Lien on any of its
property, or assign or convey any right to receive income, including the sale of
any Accounts, or permit any of its Subsidiaries to do so, except for Permitted
Liens, permit any Collateral not to be subject to the first priority security
interest granted herein.
 
7.6 Maintenance of Collateral Accounts. Maintain any Collateral Account except
pursuant to the terms of Section 6.6.(b) hereof.
 
7.7 Distributions; Investments. (a) Pay any dividends or make any distribution
or payment or redeem, retire or purchase any capital stock; or (b) directly or
indirectly make any Investment other than Permitted Investments, or permit any
of its Subsidiaries to do so.
 
7.8 Transactions with Affiliates. Directly or indirectly enter into or permit to
exist any material transaction with any Affiliate of Borrower, except for
transactions that are in the ordinary course of Borrower’s business, upon fair
and reasonable terms that are no less favorable to Borrower than would be
obtained in an arm’s length transaction with a non-affiliated Person.
 
7.9 Subordinated Debt. (a) Make or permit any payment on any Subordinated Debt,
except under the terms of the subordination, intercreditor, or other similar
agreement to which such Subordinated Debt is subject, or (b) amend any provision
in any document relating to the Subordinated Debt which would increase the
amount thereof or adversely affect the subordination thereof to Obligations owed
to Bank.
 
7.10 Compliance. Become an “investment company” or a company controlled by an
“investment company”, under the Investment Company Act of 1940, as amended, or
undertake as one of its important activities extending credit to purchase or
carry margin stock (as defined in Regulation U of the Board of Governors of the
Federal Reserve System), or use the proceeds of any Credit Extension for that
purpose; fail to meet the minimum funding requirements of ERISA, permit a
Reportable Event or Prohibited Transaction, as defined in ERISA, to occur; fail
to comply with the Federal Fair Labor Standards Act or violate any other law or
regulation, if the violation could reasonably be expected to have a material
adverse effect on Borrower’s business, or permit any of its Subsidiaries to do
so; withdraw or permit any Subsidiary to withdraw from participation in, permit
partial or complete termination of, or permit the occurrence of any other event
with respect to, any present pension, profit sharing and deferred compensation
plan which could reasonably be expected to result in any liability of Borrower,
including any liability to the Pension Benefit Guaranty Corporation or its
successors or any other governmental agency.
 
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8.
EVENTS OF DEFAULT

 
Any one of the following shall constitute an event of default (an “Event of
Default”) under this Agreement:
 
8.1 Payment Default. Borrower fails to (a) make any payment of principal or
interest on any Credit Extension on its due date, or (b) pay any other
Obligations within three (3) Business Days after such Obligations are due and
payable (which three (3) day grace period shall not apply to payments due on the
Revolving Line Maturity Date. During the cure period, the failure to cure the
payment default is not an Event of Default (but no Credit Extension will be made
during the cure period);
 
8.2 Covenant Default.
 
(a) Borrower fails or neglects to perform any obligation in Sections 6.2, 6.4,
6.5, 6.6, 6.10, or violates any covenant in Section 7; or
 
(b) Borrower fails or neglects to perform, keep, or observe any other term,
provision, condition, covenant or agreement contained in this Agreement or any
Loan Documents, and as to any default (other than those specified in this
Section 8) under such other term, provision, condition, covenant or agreement
that can be cured, has failed to cure the default within ten (10) days after the
occurrence thereof; provided, however, that if the default cannot by its nature
be cured within the ten (10) day period or cannot after diligent attempts by
Borrower be cured within such ten (10) day period, and such default is likely to
be cured within a reasonable time, then Borrower shall have an additional period
(which shall not in any case exceed thirty (30) days) to attempt to cure such
default, and within such reasonable time period the failure to cure the default
shall not be deemed an Event of Default (but no Credit Extensions shall be made
during such cure period). Grace periods provided under this section shall not
apply, among other things, to financial covenants or any other covenants set
forth in subsection (a) above;
 
8.3 Material Adverse Change. A Material Adverse Change occurs;
 
8.4 Attachment; Levy; Restraint on Business.
 
(a) The service of process seeking to attach, by trustee or similar process, any
funds of Borrower or of any entity under control of Borrower (including a
Subsidiary) on deposit with Bank or any Bank Affiliate, or (ii) a notice of
lien, levy, or assessment is filed against any of Borrower’s assets by any
government agency, and the same under subclauses (i) and (ii) hereof are not,
within ten (10) days after the occurrence thereof, discharged or stayed (whether
through the posting of a bond or otherwise); provided, however, no Credit
Extensions shall be made during any ten (10) day cure period; and
 
(b) any material portion of Borrower’s assets is attached, seized, levied on, or
comes into possession of a trustee or receiver, or (ii) any court order enjoins,
restrains, or prevents Borrower from conducting any part of its business;
 
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8.5 Insolvency.  (a) Borrower is unable to pay its debts (including trade debts)
as they mature or otherwise becomes insolvent; (b) Borrower begins an Insolvency
Proceeding; or (c) an Insolvency Proceeding is begun against Borrower and not
dismissed or stayed within thirty (30) days (but no Credit Extensions shall be
made while of any of the conditions described in clause (a) exist and/or until
any Insolvency Proceeding is dismissed);
 
8.6 Other Agreements. There is a default in any agreement to which Borrower or
any Guarantor is a party with a third party or parties resulting in a right by
such third party or parties, whether or not exercised, to accelerate the
maturity of any Indebtedness in an amount in excess of Fifty Thousand Dollars
($50,000) or that could have a material adverse effect on Borrower’s or any
Guarantor’s business;
 
8.7 Judgments. One or more judgments, orders, or decrees for die payment of
money in an amount, individually or in the aggregate, of at least Fifty Thousand
Dollars ($50,000) (not covered by independent third-party insurance as to which
liability has been accepted by such insurance carrier) shall be rendered against
Borrower and shall remain unsatisfied, unvacated, or unstayed for a period of
ten (10) days after the entry thereof (provided that no Credit Extensions will
be made prior to the satisfaction, vacation, or stay of such judgment, order, or
decree);
 
8.8 Misrepresentations. Borrower or any Person acting for Borrower makes any
representation, warranty, or other statement now or later in this Agreement, any
Loan Document or in any writing delivered to Bank or to induce Bank to enter
this Agreement or any Loan Document, and such representation, warranty, or other
statement is incorrect in any material respect when made;
 
8.9 Subordinated Debt. A default or breach occurs under any agreement between
Borrower and any creditor of Borrower that signed a subordination,
intercreditor, or other similar agreement with Bank, or any creditor that has
signed such an agreement with Bank breaches any terms of such agreement; or
 
8.10 Guaranty. (a) Any guaranty of any Obligations terminates or ceases for any
reason to be in full force and effect; (b) any Guarantor does not perform any
obligation or covenant under any guaranty of the Obligations; (c) any
circumstance described in Sections 8.3, 8,4, 8.5, 8.7, or 8.8 occurs with
respect to any Guarantor, or (d) the death of any Guarantor.
 
8.11 Governmental Approvals. Any Governmental Approval shall have been
(a) revoked, rescinded, suspended, modified in an adverse manner or not renewed
in the ordinary course for a full term or (b) subject to any decision by a
Governmental Authority that designates a hearing with respect to any
applications for renewal of any of such Governmental Approval or that could
result in the Governmental Authority taking any of the actions described in
clause (a) above, and such decision or such revocation, rescission, suspension,
modification or non-renewal (i) has, or could reasonably be expected to have, a
Material Adverse Change, or (ii) adversely affects the legal qualifications of
Borrower or any of its Subsidiaries to hold such Governmental Approval in any
applicable jurisdiction and such revocation, rescission, suspension,
modification or non-renewal could reasonably be expected to affect the status of
or legal qualifications of Borrower or any of its Subsidiaries to hold any
Governmental Approval in any other jurisdiction.
 
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9.
BANK’S RIGHTS AND REMEDIES

 
9.1 Rights and Remedies. While an Event of Default occurs and continues Bank
may, without notice or demand, do any or all of the following:
 
(a) declare all Obligations immediately due and payable (but if an Event of
Default described in Section 8.5 occurs all Obligations are immediately due and
payable without any action by Bank);
 
(b) stop advancing money or extending credit for Borrower’s benefit under this
Agreement or under any other agreement between Borrower and Bank;
 
(c) demand that Borrower (i) deposits cash with Bank in an amount equal to the
aggregate amount of any Letters of Credit remaining undrawn, as collateral
security for the repayment of any future drawings under such Letters of Credit,
and Borrower shall forthwith deposit and pay such amounts, and (ii) pay in
advance all Letter of Credit fees scheduled to be paid or payable over the
remaining term of any Letters of Credit;
 
(d) settle or adjust disputes and claims directly with Account Debtors for
amounts on terms and in any order that Bank considers advisable, notify any
Person owing Borrower money of Bank’s security interest in such funds, and
verify the amount of such account;
 
(e) make any payments and do any acts it considers necessary or reasonable to
protect the Collateral and/or its security interest in the Collateral. Borrower
shall assemble the Collateral if Bank requests and make it available as Bank
designates. Bank may enter premises where the Collateral is located, take and
maintain possession of any part of the Collateral, and pay, purchase, contest,
or compromise any Lien which appears to be prior or superior to its security
interest and pay all expenses incurred. Borrower grants Bank a license to enter
and occupy any of its premises, without charge, to exercise any of Bank’s rights
or remedies;
 
(f) apply to the Obligations any (i) balances and deposits of Borrower it holds,
or (ii) any amount held by Bank owing to or for the credit or the account of
Borrower;
 
(g) ship, reclaim, recover, store, finish, maintain, repair, prepare for sale,
advertise for sale, and sell the Collateral. Bank is hereby granted a
non-exclusive, royalty-free license or other right to use, without charge.
Borrower’s labels, patents, copyrights, mask works, rights of use of any name,
trade secrets, trade names, trademarks, service marks, and advertising matter,
or any similar property as it pertains to the Collateral, in completing
production of, advertising for sale, and selling any Collateral and, in
connection with Bank’s exercise of its rights under this Section, Borrower’s
rights under all licenses and all franchise agreements inure to Bank’s benefit;
 
(h) place a “hold” on any account maintained with Bank and/or deliver a notice
of exclusive control, any entitlement order, or other directions or instructions
pursuant to any Control Agreement or similar agreements providing control of any
Collateral;
 
(i) demand and receive possession of Borrower’s Books; and
 
(j) exercise all rights and remedies available to Bank under the Loan Documents
or at law or equity, including all remedies provided under the Code (including
disposal of the Collateral pursuant to the terms thereof).
 
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9.2 Power of Attorney. Borrower hereby irrevocably appoints Bank as its lawful
attorney-in-fact, exercisable upon the occurrence and during the continuance of
an Event of Default, to: (a) endorse Borrower’s name on any checks or other
forms of payment or security; (b) sign Borrower’s name on any invoice or bill of
lading for any Account or drafts against Account Debtors; (c) settle and adjust
disputes and claims about the Accounts directly with Account Debtors, for
amounts and on terms Bank determines reasonable; (d) make, settle, and adjust
all claims under Borrower’s insurance policies; (e) pay, contest or settle any
Lien, charge, encumbrance, security interest, and adverse claim in or to the
Collateral, or any judgment based thereon, or otherwise take any action to
terminate or discharge the same; and (f) transfer the Collateral into the name
of Bank or a third party as the Code permits. Borrower hereby appoints Bank as
its lawful attorney-in-fact to sign Borrower’s name on any documents necessary
to perfect or continue the perfection of Bank’s security interest in the
Collateral regardless of whether an Event of Default has occurred until all
Obligations have been satisfied in full and Bank is under no further obligation
to make Credit Extensions hereunder. Bank’s foregoing appointment as Borrower’s
attorney in fact, and all of Bank’s rights and powers, coupled with an interest,
are irrevocable until all Obligations have been fully repaid and performed and
Bank’s obligation to provide Credit Extensions terminates.
 
9.3 Protective Payments. If Borrower fails to obtain the insurance called for by
Section 6.5 or fails to pay any premium thereon or fails to pay any other amount
which Borrower is obligated to pay under this Agreement or any other Loan
Document, Bank may obtain such insurance or make such payment, and all amounts
so paid by Bank are Bank Expenses and immediately due and payable, bearing
interest at the then highest applicable rate, and secured by the Collateral.
Bank will make reasonable efforts to provide Borrower with notice of Bank
obtaining such insurance at the time it is obtained or within a reasonable time
thereafter. No payments by Bank are deemed an agreement to make similar payments
in the future or Bank’s waiver of any Event of Default.
 
9.4 Application of Payments and Proceeds. Borrower shall have no right to
specify the order or the accounts to which Bank shall allocate or apply any
payments required to be made by Borrower to Bank or otherwise received by Bank
under this Agreement when any such allocation or application is not specified
elsewhere in this Agreement. If an Event of Default has occurred and is
continuing. Bank may apply any funds in its possession, whether from Borrower
account balances, payments, proceeds realized as the result of any collection of
Accounts or other disposition of the Collateral, or otherwise, to the
Obligations in such order as Bank shall determine in its sole discretion. Any
surplus shall be paid to Borrower or other Persons legally entitled thereto;
Borrower shall remain liable to Bank for any deficiency. If Bank, in its good
faith business judgment, directly or indirectly enters into a deferred payment
or other credit transaction with any purchaser at any sale of Collateral, Bank
shall have the option, exercisable at any time, of either reducing the
Obligations by the principal amount of the purchase price or deferring the
reduction of the Obligations until the actual receipt by Bank of cash therefor.
 
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9.5 Bank’s Liability for Collateral. So long as Bank complies with reasonable
banking practices regarding the safekeeping of the Collateral in the possession
or under the control of Bank, Bank shall not be liable or responsible for:
(a) the safekeeping of the Collateral; (b) any loss or damage to the Collateral;
(c) any diminution in the value of the Collateral; or (d) any act or default of
any carrier, warehouseman, bailee, or other Person. Borrower bears all risk of
loss, damage or destruction of the Collateral.
 
9.6 No Waiver; Remedies Cumulative. Bank’s failure, at any time or times, to
require strict performance by Borrower of any provision of this Agreement or any
other Loan Document shall not waive, affect, or diminish any right of Bank
thereafter to demand, strict performance and compliance herewith or therewith.
No waiver hereunder shall be effective unless signed by Bank and then is only
effective for the specific instance and purpose for which it is given. Bank’s
rights and remedies under this Agreement and the other Loan Documents are
cumulative. Bank has all rights and remedies provided under the Code, by law, or
in equity. Bank’s exercise of one right or remedy is not an election, and Bank’s
waiver of any Event of Default is not a continuing waiver. Bank’s delay in
exercising any remedy is not a waiver, election, or acquiescence.
 
9.7 Demand Waiver. Borrower waives demand, notice of default or dishonor, notice
of payment and nonpayment, notice of any default, nonpayment at maturity,
release, compromise, settlement, extension, or renewal of accounts, documents,
instruments, chattel paper, and guarantees held by Bank on which Borrower is
liable.
 
10.
NOTICES

 
All notices, consents, requests, approvals, demands, or other communication by
any party to this Agreement or any other Loan Document must be in writing and
shall be deemed to have been validly served, given, or delivered: (a) upon the
earlier of actual receipt and three (3) Business Days after deposit in the U.S.
mail, first class, registered or certified mail return receipt requested, with
proper postage prepaid; (b) upon transmission, when sent by electronic mail or
facsimile transmission; (c) one (1) Business Day after deposit with a reputable
overnight courier with all charges prepaid; or (d) when delivered, if
hand-delivered by messenger, all of which shall be addressed to the party to be
notified and sent to the address, facsimile number, or email address indicated
below. Bank or Borrower may change its mailing or electronic mail address or
facsimile number by giving the other party written notice thereof in accordance
with the terms of this Section 10.
 
If to Borrower:
GPS Industries, Inc.
5500 - 152nd
Street Suite 214
Surrey, BC, Canada V3S 5J9
Attn: Chief Executive Officer
Fax: 604-576-7460
Email: c/o joe.miller@gpsindustries.com
   
If to Bank:
Silicon Valley Bank
7000 N. MoPac Expressway, Suite 360
Austin, TX 78731
Attn: Phillip Wright
Fax: 512-794-0855
Email: pwright@svbank.com

 
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11.
CHOICE OF LAW, VENUE, JURY TRIAL WAIVER AND JUDICIAL REFERENCE

 
Texas law governs the Loan Documents without regard to principles of conflicts
of law. Borrower and Bank each submit to die exclusive jurisdiction of the State
and Federal courts in Texas; provided, however, that nothing in this Agreement
shall be deemed to operate to preclude Bank from bringing suit or taking other
legal action in any other jurisdiction to realize on the Collateral or any other
security for the Obligations, or to enforce a judgment or other court order in
favor of Bank. Borrower expressly submits and consents in advance to such
jurisdiction in any action or suit commenced in any such court, and Borrower
hereby waives any objection that it may have based upon lack of personal
jurisdiction, improper venue, or forum non conveniens and hereby consents to the
granting of such legal or equitable relief as is deemed appropriate by such
court. Borrower hereby waives personal service of the summons, complaints, and
other process issued in such action or suit and agrees that service of such
summons, complaints, and other process may be made by registered or certified
mail addressed to Borrower at the address set forth in Section 10 of this
Agreement and that service so made shall be deemed completed upon the earlier to
occur of Borrower’s actual receipt thereof or three (3) days after deposit in
the U. S. mails, proper postage prepaid.
 
TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, BORROWER AND BANK EACH WAIVE
THEIR RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION ARISING OUT OF OR
BASED UPON THIS AGREEMENT, THE LOAN DOCUMENTS OR ANY CONTEMPLATED TRANSACTION,
INCLUDING CONTRACT, TORT, BREACH OF DUTY AND ALL OTHER CLAIMS. THIS WAIVER IS A
MATERIAL INDUCEMENT FOR BOTH PARTIES TO ENTER INTO THIS AGREEMENT. EACH PARTY
HAS REVIEWED THIS WAIVER WITH ITS COUNSEL.
 
12.
GENERAL PROVISIONS

 
12.1 Successors and Assigns. This Agreement binds and is for the benefit of the
successors and permitted assigns of each party, Borrower may not assign this
Agreement or any rights or obligations under it without Bank’s prior written
consent (which may be granted or withheld in Bank’s discretion). Bank has the
right, without the consent of or notice to Borrower, to sell, transfer,
negotiate, or grant participation in all or any part of, or any interest in.
Bank’s obligations, rights, and benefits under this Agreement and the other Loan
Documents,
 
12.2 INDEMNIFICATION. BORROWER AGREES TO INDEMNIFY, DEFEND AND HOLD BANK AND ITS
DIRECTORS, OFFICERS, EMPLOYEES, AGENTS. ATTORNEYS, OR ANY OTHER PERSON
AFFILIATED WITH OR REPRESENTING BANK (EACH, AN “INDEMNIFIED PERSON”) HARMLESS
AGAINST: (A) ALL OBLIGATIONS, DEMANDS, CLAIMS, AND LIABILITIES (COLLECTIVELY,
“CLAIMS”) ASSERTED BY ANY OTHER PARTY IN CONNECTION WITH THE TRANSACTIONS
CONTEMPLATED BY THE LOAN DOCUMENTS; AND (B) ALL LOSSES OR BANK EXPENSES
INCURRED, OR PAID BY SUCH INDEMNIFIED PERSON FROM, FOLLOWING, OR ARISING FROM
TRANSACTIONS BETWEEN BANK AND BORROWER (INCLUDING REASONABLE ATTORNEYS’ FEES AND
EXPENSES), EXCEPT FOR CLAIMS AND/OR LOSSES DIRECTLY CAUSED BY SUCH INDEMNIFIED
PERSON’S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT.
 
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12.3 Time of Essence. Time is of the essence for the performance of all
Obligations in this Agreement.
 
12.4 Severability of Provisions. Each provision of this Agreement is severable
from every other provision in determining the enforceability of any provision.
 
12.5 Correction of Loan Documents. Bank may correct patent errors and fill in
any blanks in this Agreement and the other Loan Documents consistent with the
agreement of the parties.
 
12.6 Amendments in Writing; Integration. All amendments to this Agreement must
be in writing and signed by both Bank and Borrower. This Agreement and the Loan
Documents represent the entire agreement about this subject matter and supersede
prior negotiations or agreements. AH prior agreements, understandings,
representations, warranties, and negotiations between the parties about the
subject matter of this Agreement and the Loan Documents merge into this
Agreement and the Loan Documents.
 
12.7 Counterparts. This Agreement may be executed in any number of counterparts
and by different parties on separate counterparts, each of which, when executed
and delivered, are an original, and all taken together, constitute one
Agreement.
 
12.8 Survival. All covenants, representations and warranties made in this
Agreement continue in full force until this Agreement has terminated pursuant to
its terms and all Obligations (other than indicate indemnity obligations and any
other obligations which, by their terms, are to survive the termination of this
Agreement) have been satisfied. The obligation of Borrower in Section 12.2 to
indemnify Bank shall survive until me statute of limitations with respect to
such claim or cause of action shall have run.
 
12.9 Confidentiality. In handling any confidential information. Bank shall
exercise the same degree of care that it exercises for its own proprietary
information, but disclosure of information may be made: (a) to Bank’s
Subsidiaries or Affiliates; (b) to prospective transferees or purchasers of any
interest in the Credit Extensions (provided, however. Bank shall use
commercially reasonable efforts to obtain such prospective transferee’s or
purchaser’s agreement to the terms of this provision); (c) as required by law,
regulation, subpoena, or other order; (d) to Bank’s regulators or as otherwise
required in connection with Bank’s examination or audit; (e) as Bank considers
appropriate in exercising remedies under the Loan Documents; and (f) to
third-party service providers of Bank so long as such service providers have
executed a confidentiality agreement with Bank with terms no less restrictive
than those contained herein. Confidential information does not include
information that either; (i) is in the public domain or in Bank’s possession
when disclosed to Bank, or becomes part of the public domain after disclosure to
Bank; or (ii) is disclosed to Bank by a third party, if Bank does not know that
the third party is prohibited from disclosing the information. Notwithstanding
anything contained herein to me contrary, the term “confidential information”
shall not include, and Bank may disclose without limitation of any kind, any
information with respect to the “tax treatment” and “tax structure” (in each
case within the meaning of Treasury Regulation Section 1.6011-4) of the
transactions contemplated hereby and all materials of any kind (including
opinions or other tax analysis) that are provided to Bank relating to such tax
treatment or tax structure.
 
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Bank may use confidential information for any purpose, including, without
limitation, for the development of client databases, reporting purposes, and
market analysis, so long as Bank does not disclose Borrower’s identity or the
identity of any person associated with Borrower unless otherwise expressly
permitted by this Agreement The provisions of the immediately preceding sentence
shall survive me termination of this Agreement.
 
12.10 Attorneys’ Fees, Costs and Expenses. In any action or proceeding between
Borrower and Bank arising out of or relating to the Loan Documents, the
prevailing party shall be entitled to recover its reasonable attorneys’ fees and
other costs and expenses incurred, in addition to any other relief to which it
may be entitled.
 
12.11 Right of Setoff. Borrower hereby grants to Bank a Lien and a right of
setoff as security for all Obligations to Bank, whether now existing or
hereafter arising upon and against all deposits, credits, collateral and
property, now or hereafter in the possession, custody, safekeeping or control of
Bank or any entity under the control of Bank (including a subsidiary of Bank) or
in transit to any of them. At any time after the occurrence and during the
continuance of an Event of Default, without demand or notice, Bank may setoff
the same or any part thereof and apply the same to any liability or Obligation
of Borrower even though unmatured and regardless of the adequacy of any oilier
collateral securing me Obligations. ANY AND ALL RIGHTS TO REQUIRE BANK TO
EXERCISE ITS RIGHTS OR REMEDIES WITH RESPECT TO ANY OTHER COLLATERAL WHICH
SECURES THE OBLIGATIONS, PRIOR TO EXERCISING ITS RIGHT OF SETOFF WITH RESPECT TO
SUCH DEPOSITS, CREDITS OR OTHER PROPERTY OF BORROWER, ARE HEREBY KNOWINGLY,
VOLUNTARILY AND IRREVOCABLY WAIVED.
 
13.
DEFINITIONS

 
13.1 Definitions. As used in this Agreement, the following terms have the
following meanings:
 
“Account” is any “account” as defined in the Code with such additions to such
term as may hereafter be made, and includes, without limitation, all accounts
receivable and other sums owing to Borrower.
 
“Account Debtor” is any “account debtor” as defined in the Code with such
additions to such term as may hereafter be made.
 
“Advance” or “Advances” means an advance (or advances) under the Revolving Line.
 
“Affiliate” of any Person is a Person that owns or controls directly or
indirectly the Person, any Person that controls or is controlled by or is under
common control with the Person, and each of that Person’s senior executive
officers, directors, partners and, for any Person that is a limited liability
company, that Person’s managers and members.
 
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“Agreement” is defined m the preamble hereof.
 
“Availability Amount” is (a) the lesser of (i) the Revolving Line or (ii) the
amount available under the Borrowing Base minus (b) the outstanding principal
balance of any Advances.
 
“Bank” is defined in the preamble hereof.
 
“Bank Expenses” are all audit fees and expenses, costs, and expenses (including
reasonable attorneys’ fees and expenses) for preparing, amending, negotiating,
administering, defending and enforcing the Loan Documents (including, without
limitation, those incurred in connection with appeals or Insolvency Proceedings)
or otherwise incurred with respect to Borrower.
 
“Borrower” is defined in the preamble hereof.
 
“Borrower’s Books” are all Borrower’s books and records including ledgers,
federal and state tax returns, records regarding Borrower’s assets or
liabilities, the Collateral, business operations or financial condition, and all
computer programs or storage or any equipment containing such information.
 
“Borrowing Base” is the lesser of (a) the maximum principal amount guaranteed by
Guarantor pursuant to the Guaranty, plus the amount of the Pledged CD, or
(b) $3,000,000.
 
“Borrowing Resolutions” are, with respect to any Person, those resolutions
substantially in the form attached hereto as Exhibit C.
 
“Business Day” is any day that is not a Saturday, Sunday or a day on which Bank
is closed.
 
“Cash Equivalents” means (a) marketable direct obligations issued or
unconditionally guaranteed by the United States or any agency or any State
thereof having maturities of not more than one (1) year from the date of
acquisition; (b) commercial paper maturing no more than one (1) year after its
creation and having the highest rating from either Standard & Poor’s Ratings
Group or Moody’s Investors Service, Inc. ; and (c) Bank’s certificates of
deposit issued maturing no more than one (1) year after issue.
 
“CD Interest Determination Date” shall mean the date of delivery of a Pledged CD
and the date of the commencement of each CD Interest Period.
 
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“CD Interest Period” shall mean the period commencing initially on the date of
delivery of a Pledged CD and thereafter on the date immediately following the
end of any such initial period or subsequent period, and ending on the last
Business Day of the month ending approximately 7,30,60,90,180,270 or 360 days
thereafter.
 
“Code” is the Uniform Commercial Code, as me same may, from time to time, be
enacted and in effect in the State of Texas; provided, that, to the extent that
the Code is used to define any term herein or in any Loan Document and such term
is defined differently in different Articles or Divisions of the Code, the
definition of such term contained in Article or Division 9 shall govern;
provided farther, that in the event that, by reason of mandatory provisions of
law, any or all of the attachment, perfection, or priority of, or remedies with
respect to, Bank’s Lien on any Collateral is governed by the Uniform Commercial
Code in effect in a jurisdiction other than the State of Texas, the term “Code”
shall mean the Uniform Commercial Code as enacted and in effect in such other
jurisdiction solely for purposes on the provisions thereof relating to such
attachment, perfection, priority, or remedies and for purposes of definitions
relating to such provisions.
 
“Collateral” is any and all properties, rights and assets of Borrower described
on Exhibit A. “Collateral Account” is any Deposit Account, Securities Account,
or Commodity Account.
 
“Commodity Account” is any “commodity account” as defined in the Code with such
additions to such term as may hereafter be made.
 
“Compliance Certificate” is that certain certificate in the form attached hereto
as Exhibit D.
 
“Contingent Obligation” is, for any Person, any direct or indirect liability,
contingent or not, of that Person for (a) any indebtedness, lease, dividend,
letter of credit or other obligation of another such as an obligation directly
or indirectly guaranteed, endorsed, co-made, discounted or sold with recourse by
that Person, or for which that Person is directly or indirectly liable; (b) any
obligations for undrawn letters of credit for the account of that Person; and
(c) all obligations from any interest rate, currency or commodity swap
agreement, interest rate cap or collar agreement, or other agreement or
arrangement designated to protect a Person against fluctuation in interest
rates, currency exchange rates or commodity prices; but “Contingent Obligation”
does not include endorsements in the ordinary course of business. The amount of
a Contingent Obligation is the stated or determined amount of the primary
obligation for which the Contingent Obligation is made or, if not determinable,
me maximum reasonably anticipated liability for it determined by the Person in
good faith; but the amount may not exceed the maximum of the obligations under
any guarantee or other support arrangement
 
“Control Agreement” is any control agreement entered into among the depository
institution at which Borrower maintains a Deposit Account or the securities
intermediary or commodity intermediary at which Borrower maintains a Securities
Account or a Commodity Account, Borrower, and Bank pursuant to which Bank
obtains control (within the meaning of the Code) over such Deposit Account,
Securities Account, or Commodity Account.
 
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“Credit Extension” is any Advance or any other extension of credit by Bank for
Borrower’s benefit. “Default Rate” is defined in Section 2.3(b).
 
“Deposit Account” is any “deposit account” as defined in me Code with such
additions to such term as may hereafter be made.
 
“Designated Deposit Account” is Borrower’s deposit account, account number
________, maintained with Bank.
 
“Dollars,” “dollars” and “$” each mean lawful money of the United States.
 
“Effective Date” is the date Bank executes this Agreement as indicated on the
signature page hereof.
 
“Equipment” is all “equipment” as defined in the Code with such additions to
such term as may hereafter be made, and includes without limitation all
machinery, fixtures, goods, vehicles (including motor vehicles and trailers),
and any interest in any of the foregoing.
 
“ERISA” is the Employee Retirement Income Security Act of 1974, and its
regulations.
 
“Event of Default” is defined in Section 8.
 
“Funding Date” is any date on which a Credit Extension is made to or on account
of Borrower which shall be a Business Day.
 
“GAAP” is generally accepted accounting principles set forth in die opinions and
pronouncements of the Accounting Principles Board of the American Institute of
Certified Public Accountants and statements and pronouncements of the Financial
Accounting Standards Board or in such other statements by such other Person as
may be approved by a significant segment of the accounting profession, which are
applicable to the circumstances as of the date of determination.
 
“General Intangibles” is all “general intangibles” as defined in the Code in
effect on the date hereof with such additions to such term as may hereafter be
made, and includes without limitation, all copyright rights, copyright
applications, copyright registrations and like protections in each work of
authorship and derivative work, whether published or unpublished, any patents,
trademarks, service marks and, to the extent permitted under applicable law, any
applications therefor, whether registered or not, any trade secret rights,
including any rights to unpatented inventions, payment intangibles, royalties,
contract rights, goodwill, franchise agreements, purchase orders, customer
lists, route lists, telephone numbers, domain names, claims, income and other
tax refunds, security and other deposits, options to purchase or sell real or
personal property, rights in all litigation presently or hereafter pending
(whether in contract, tort or otherwise), insurance policies (including without
limitation key man, property damage, and business interruption insurance),
payments of insurance and rights to payment of any kind.
 
“Governmental Approval” is any consent, authorization, approval, order, license,
franchise, permit, certificate, accreditation, registration, filing or notice,
of, issued by, from or to, or other act by or in respect of, any Governmental
Authority.
 
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“Governmental Authority” is any nation or government, any state or other
political subdivision thereof, any agency, authority, instrumentality,
regulatory body, court, central bank or other entity exercising executive,
legislative, judicial, taxing, regulatory or administrative functions of or
pertaining to government, any securities exchange and any self-regulatory
organization.
 
“Guarantor” is any present or future guarantor of the Obligations, including
Douglas J. Wood.
 
“Guaranty” is that certain Guaranty Agreement dated of even date herewith by
Guarantor to and for me benefit of Bank.
 
“Hansen” is Hansen, Inc., a Pennsylvania corporation.
 
“Indebtedness” is (a) indebtedness for borrowed money or the deferred price of
property or services, such as reimbursement and other obligations for surety
bonds and letters of credit, (b) obligations evidenced by notes, bonds,
debentures or similar instruments, (c) capital lease obligations, and
(d) Contingent Obligations.
 
“Indemnified Person” is defined in Section 12.2.
 
“Insolvency Proceeding” is any proceeding by or against any Person under the
United States Bankruptcy Code, or any other bankruptcy or insolvency law,
including assignments for the benefit of creditors, compositions, extensions
generally with its creditors, or proceedings seeking reorganization,
arrangement, or other relief.
 
“Interest Expense” means for any fiscal period, interest expense (whether cash
or non-cash) determined in accordance with GAAP for the relevant period ending
on such date, including, in any event, interest expense with respect to any
Credit Extension and other Indebtedness of Borrower, including, without
limitation or duplication, all commissions, discounts, or related amortization
and other fees and charges with respect to letters of credit and bankers’
acceptance financing and the net costs associated with interest rate swap, cap,
and similar arrangements, and the interest portion of any deferred payment
obligation (including leases of all types).
 
“Inventory” is all “inventory” as defined in the Code in effect on the date
hereof with such additions to such term as may hereafter be made, and includes
without limitation all merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products, including without
limitation such inventory as is temporarily out of Borrower’s custody or
possession or in transit and including any returned goods and any documents of
title representing any of the above.
 
“Investment” is any beneficial ownership interest in any Person (including
stock, partnership interest or other securities), and any loan, advance or
capital contribution to any Person.
 
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“Investor Support” means it is the clear intention of Borrower’s investors to
continue to fund the Borrower in the amounts and timeframe necessary to enable
Borrower to satisfy the Obligations as they become due and payable.
 
“IP Agreement” is that certain Intellectual Property Security Agreement executed
and delivered by Borrower to Baric dated of even date herewith
 
“Lien” is a claim, mortgage, deed of trust, levy, charge, pledge, security
interest or other encumbrance of any land, whether voluntarily incurred or
arising by operation of law or otherwise against any property,
 
“Loan Documents” are, collectively, this Agreement, the Perfection Certificate,
the IP Agreement, any note, or notes or guaranties executed by Borrower or any
Guarantor, and any other present or future agreement between Borrower any
Guarantor and/or for the benefit of Bank in connection with this Agreement, all
as amended, restated, or otherwise modified.
 
“Material Adverse Change” is (a) a material impairment in the perfection or
priority of Bank’s Lien in the Collateral or in the value of such Collateral;
(b) a material adverse change in the business, operations, or condition
(financial or otherwise) of Borrower; (c) a material impairment of the prospect
of repayment of any portion of the Obligations; or (d) Bank determines, based
upon information available to it and in its reasonable judgment, that there is a
reasonable likelihood that Borrower shall fail to comply with one or more of the
financial covenants in Section 6 during the next succeeding financial reporting
period,
 
“Minimum Collateral Value” means an aggregate principal amount equal to
$1,500,000.
 
“Obligations” are Borrower’s obligation to pay when due any debts, principal,
interest, Bank Expenses and other amounts Borrower owes Bank now or later,
whether under this Agreement, the Loan Documents, or otherwise, including,
without limitation, all obligations relating to letters of credit (including
reimbursement obligations for drawn and undrawn letters of credit), cash
management services, and foreign exchange contracts, if any, and including
interest accruing after Insolvency Proceedings begin and debts, liabilities, or
obligations of Borrower assigned to Bank, and the performance of Borrower’s
duties under the Loan Documents.
 
“Operating Documents” are, for any Person, such Person’s formation documents, as
certified with the Secretary of State of such Person’s state of formation on a
date that is no earlier than 30 days prior to the Effective Date, and, (a) if
such Person is a corporation, its bylaws in current form, (b) if such Person is
a limited liability company, its limited liability company agreement (or similar
agreement), and (c) if such Person is a partnership, its partnership agreement
(or similar agreement), each of the foregoing with all current amendments or
modifications thereto.
 
“Payment/Advance Form” is that certain form attached hereto as Exhibit B.
 
“Perfection Certificate” is defined in Section 5.1.
 
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“Permitted Indebtedness” is:
 
(a) Borrower’s Indebtedness to Bank under this Agreement and the other Loan
Documents;
 
(b) Indebtedness existing on the Effective Date and shown on the Perfection
Certificate;
 
(c) Subordinated Debt;
 
(d) unsecured Indebtedness to trade creditors incurred in the ordinary course of
business;
 
(e) Indebtedness incurred as a result of endorsing negotiable instruments
received in the ordinary course of business;
 
(f) Indebtedness secured by Permitted Liens; and
 
(g) extensions, refinancings, modifications, amendments and restatements of any
items of Permitted Indebtedness (a) through (f) above, provided that the
principal amount thereof is not increased or the terms thereof are not modified
to impose more burdensome terms upon Borrower or its Subsidiary, as the case may
be.
 
“Permitted Investments” are:
 
(a) Investments shown on the Perfection Certificate and existing on die
Effective Date;
 
(b) Cash Equivalents;
 
(c) Investments consisting of the endorsement of negotiable instruments for
deposit or collection or similar transactions in the ordinary course of
Borrower;
 
(d) Investments consisting of deposit accounts in which Bank has a perfected
security interest;
 
(e) Investments accepted in connection with Transfers permitted by Section 7.1;
 
(f) Investments of Subsidiaries in or to other Subsidiaries or Borrower and
Investments by Borrower in Subsidiaries not to exceed $50,000 in the aggregate
in any fiscal year;
 
(g) Investments consisting of (i) travel advances and employee relocation loans
and other employee loans and advances in the ordinary course of business, and
(ii) loans to employees, officers or directors relating to the purchase of
equity securities of Borrower or its Subsidiaries pursuant to employee stock
purchase plans or agreements approved by Borrower’s Board of Directors;
 
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(h) investments (including debt obligations) received in connection with the
bankruptcy or reorganization of customers or suppliers and in settlement of
delinquent obligations of, and other disputes with, customers or suppliers
arising in the ordinary course of business;
 
(i) Investments consisting of notes receivable of, or prepaid royalties and
other credit extensions, to customers and suppliers who are not Affiliates, in
the ordinary course of business; provided that this paragraph (i) shall not
apply to Investments of Borrower in any Subsidiary;
 
“Permitted Liens” are:
 
(a) Liens existing on the Effective Date and shown on the Perfection Certificate
or arising under this Agreement and the other Loan Documents;
 
(b) Liens for taxes, fees, assessments or other government charges or levies,
either not delinquent or being contested in good faith and for which Borrower
maintains adequate reserves on its Books, provided that no notice of any such
Lien has been filed or recorded under the Internal Revenue Code of 1986, as
amended, and the Treasury Regulations adopted thereunder;
 
(c) purchase money Liens (i) on Equipment (other than Financed Equipment)
acquired or held by Borrower incurred for financing the acquisition of the
Equipment securing no more than $50,000 in the aggregate amount outstanding, or
(ii) existing on Equipment (other than Financed Equipment) when acquired, if the
Lien is confined to the property and improvements and the proceeds of the
Equipment;
 
(d) Liens of carriers, warehousemen, suppliers, or other Persons that are
possessory in nature arising in the ordinary course of business so long as such
Liens attach only to Inventory and which are not delinquent or remain payable
without penalty or which are being contested in good faith and by appropriate
proceedings which proceedings have the effect of preventing the forfeiture or
sale of the property subject thereto;
 
(e) Liens to secure payment of workers’ compensation, employment insurance,
old-age pensions, social security and other like obligations incurred in the
ordinary course of business (other than Liens imposed by ERISA);
 
(f) Liens incurred in the extension, renewal or refinancing of the indebtedness
secured by Liens described in (a) through (c), but any extension, renewal or
replacement Lien must be limited to the property encumbered by the existing Lien
and the principal amount of the indebtedness may not increase;
 
(g) leases or subleases of real property granted in the ordinary course of
business, and leases, subleases, non-exclusive licenses or sublicenses of
property (other than real property or intellectual property) granted in the
ordinary course of Borrower’s business, if the leases, subleases, licenses and
sublicenses do not prohibit granting Bank a security interest;
 
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(h) non-exclusive license of intellectual property granted to third parties in
the ordinary course of business;
 
(i) Liens arising from attachments or judgments, orders, or decrees in
circumstances not constituting an Event of Default under Sections 8.4 and 8.7;
and
 
(j) Liens in favor of other financial institutions arising in connection with
Borrower’s deposit and/or securities accounts held at such institutions,
provided that Bank has a perfected security interest in the amounts held in such
deposit and/or securities accounts.
 
“Person” is any individual, sole proprietorship, partnership, limited liability
company, joint venture, company, trust, unincorporated organization,
association, corporation, institution, public benefit corporation, firm, joint
stock company, estate, entity or government agency.
 
“Pledged CD” shall mean any and all certificates of deposit issued to Borrower
by Bank.
 
“Pledged CD Rate” shall mean, for any CD Interest Determination Date, Bank’s
prevailing commercial rate in effect on such date
 
“Prime Rate” is Bank’s most recently announced “prime rate,” even if it is not
Bank’s lowest rate.
 
“Requirement of Law” is as to any Person, the organizational or governing
documents of such Person, and any law (statutory or common), treaty, rule or
regulation or determination of an arbitrator or a court or other Governmental
Authority, in each case applicable to or binding upon such Person or any of its
property or to which such Person or any of its property is subject.
 
“Responsible Officer” is any of the Chief Executive Officer, President, Chief
Financial Officer and Controller of Borrower.
 
“Revolving Line” is an Advance or Advances in an amount equal to Three Million
Dollars ($3,000,000).
 
“Revolving Line Maturity Date” is February __, 2010.
 
“Securities Account” is any “securities account” as defined in the Code with
such additions to such term as may hereafter be made.
 
“Subordinated Debt” is indebtedness incurred by Borrower subordinated to all of
Borrower’s now or hereafter indebtedness to Bank (pursuant to a subordination,
intercreditor, or other similar agreement in form and substance satisfactory to
Bank entered into between Bank and the other creditor), on terms acceptable to
Bank.
 
“Subsidiary” means, with respect to any Person, any Person of which more than
50.0% of the voting stock or other equity interests (in the case of Persons
other than corporations) is owned or controlled directly or indirectly by such
Person or one or more of Affiliates of such Person.
 
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“Transfer” is defined in Section 7.1.
 
“Value” shall mean with respect to any Pledged CD on any date, a dollar value at
the face amount thereof.
 
THE WRITTEN LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND
MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES.
 
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
 
[Signature page follows.]
 
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
as of the Effective Date.
 

  BORROWER:        
GPS INDUSTRIES, INC.,
a Nevada corporation
 
   
   
    By:       Name:    Title:

 
 

  BANK:        
SILICON VALLEY BANK
 
   
   
    By:       Name:    Title:   Effective Date:

 
 
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