Unassociated Document


    

      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.

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      (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.

       

      
        
          
          

        

        
          -
            17
            -

          
            

          

        

        
          
          

        

      

       

      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

              


      

       

      
        
          
          

        

        
          -
            18
            -

          
            

          

        

        
          
          

        

      

      
 

      
        	
                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.

       

      
        
          
          

        

        
          -
            19
            -

          
            

          

        

        
          
          

        

      

       

      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.

       

      
        
          
          

        

        
          -
            20
            -

          
            

          

        

        
          
          

        

      

       

      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.

       

      
        
          
          

        

        
          -
            21
            -

          
            

          

        

        
          
          

        

      

       

      “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.

       

      
        
          
          

        

        
          -
            22
            -

          
            

          

        

        
          
          

        

      

       

      “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.

       

      
        
          
          

        

        
          -
            23
            -

          
            

          

        

        
          
          

        

      

       

      “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.

       

      
        
          
          

        

        
          -
            24
            -

          
            

          

        

        
          
          

        

      

       

      “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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            26
            -

          
            

          

        

        
          
          

        

      

       

      “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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            27
            -

          
            

          

        

        
          
          

        

      

       

      (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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            28
            -

          
            

          

        

        
          
          

        

      

       

      (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.

       

      
        
          
          

        

        
          -
            29
            -

          
            

          

        

        
          
          

        

      

       

      “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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            30
            -

          
            

          

        

        
          
          

        

      

      


      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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