Document:

INTELLECTUAL PROPERTY SECURITY AGREEMENT

                  INTELLECTUAL PROPERTY SECURITY AGREEMENT (this "Agreement"
dated as of September 20, 2005, by and among GPS Industries, Inc., a Nevada
corporation (the "Company"), and the secured parties signatory hereto and their
respective endorsees, transferees and assigns (collectively, the "Secured
Party").

                              W I T N E S S E T H :

         WHEREAS, pursuant to a Securities Purchase Agreement, dated the date
hereof, between Company and the Secured Party (the "Purchase Agreement"),
Company has agreed to issue to the Secured Party and the Secured Party has
agreed to purchase from Company certain of Company's Callable Secured
Convertible Notes, due three years from the date of issue (the "Notes"), which
are convertible into shares of Company's Common Stock, par value $.001 per share
(the "Common Stock"). In connection therewith, Company shall issue the Secured
Party certain Common Stock purchase warrants (the "Warrants"); and

         WHEREAS, in order to induce the Secured Party to purchase the Notes,
Company has agreed to execute and deliver to the Secured Party this Agreement
for the benefit of the Secured Party and to grant to it a first priority
security interest (except as set forth on Schedule B) in certain Intellectual
Property (defined below) of Company to secure the prompt payment, performance
and discharge in full of all of Company's obligations under the Notes and
exercise and discharge in full of Company's obligations under the Warrants; and

         NOW, THEREFORE, in consideration of the agreements herein contained and
for other good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, the parties hereto hereby agree as follows:

1. Defined Terms. Unless otherwise defined herein, terms which are defined in
the Purchase Agreement and used herein are so used as so defined; and the
following terms shall have the following meanings:

     "Software Intellectual Property" shall mean:

     (a) all software  programs  (including all source code, object code and all
related  applications and data files),  whether now owned,  upgraded,  enhanced,
licensed or leased or hereafter acquired by the Company, above;

     (b) all  computers and  electronic  data  processing  hardware and firmware
associated therewith;

     (c) all  documentation  (including flow charts,  logic  diagrams,  manuals,
guides and specifications) with respect to such software,  hardware and firmware
described in the preceding clauses (a) and (b); and

(d)  all  rights  with  respect  to  all of the  foregoing,  including,  without
limitation, any and all upgrades, modifications,  copyrights, licenses, options,
warranties,  service  contracts,  program  services,  test  rights,  maintenance
rights, support rights,  improvement rights, renewal rights and indemnifications
and substitutions,  replacements,  additions, or model conversions of any of the
foregoing.

<PAGE>

     "Copyrights" shall mean (a) all copyrights,  registrations and applications
for  registration,  issued or  filed,  including  any  reissues,  extensions  or
renewals  thereof,  by or with the United States Copyright Office or any similar
office or agency of the United States,  any state thereof,  or any other country
or political subdivision thereof, or otherwise,  including, all rights in and to
the  material  constituting  the  subject  matter  thereof,  including,  without
limitation,  any  referred  to in  Schedule B hereto,  and (b) any rights in any
material  which is  copyrightable  or which is protected  by common law,  United
States  copyright  laws or  similar  laws or any  law of any  State,  including,
without limitation, any thereof referred to in Schedule B hereto.

     "Copyright  License" shall mean any agreement,  written or oral,  providing
for a grant by the  Company of any right in any  Copyright,  including,  without
limitation, any thereof referred to in Schedule B hereto.

     "Intellectual   Property"   shall   means,   collectively,   the   Software
Intellectual Property, Copyrights, Copyright Licenses, Patents, Patent Licenses,
Trademarks, Trademark Licenses and Trade Secrets.

     "Obligations"  means all of the Company's  obligations under this Agreement
and the Notes,  in each case,  whether now or hereafter  existing,  voluntary or
involuntary,   direct  or  indirect,  absolute  or  contingent,   liquidated  or
unliquidated,  whether or not jointly owed with others,  and whether or not from
time to time decreased or extinguished and later decreased, created or incurred,
and all or any portion of such  obligations or liabilities that are paid, to the
extent  all or any part of such  payment is avoided  or  recovered  directly  or
indirectly  from the  Secured  Party as a  preference,  fraudulent  transfer  or
otherwise as such obligations may be amended, supplemented,  converted, extended
or modified from time to time.

     "Patents"  shall mean (a) all  letters  patent of the United  States or any
other  country  or any  political  subdivision  thereof,  and all  reissues  and
extensions thereof,  including,  without limitation,  any thereof referred to in
Schedule B hereto,  and (b) all  applications  for letters  patent of the United
States and all divisions, continuations and continuations-in-part thereof or any
other country or any political subdivision,  including,  without limitation, any
thereof referred to in Schedule B hereto.

     "Patent  License"  shall  mean all  agreements,  whether  written  or oral,
providing for the grant by the Company of any right to manufacture,  use or sell
any invention covered by a Patent,  including,  without limitation,  any thereof
referred to in Schedule B hereto.

     "Security  Agreement" shall mean the a Security  Agreement,  dated the date
hereof between Company and the Secured Party.

     "Trademarks" shall mean (a) all trademarks,  trade names,  corporate names,
company names, business names,  fictitious business names, trade styles, service
marks,  logos  and  other  source  or  business  identifiers,  and the  goodwill
associated  therewith,  now  existing  or  hereafter  adopted or  acquired,  all
registrations  and  recordings  thereof,  and  all  applications  in  connection
therewith,  whether in the United States  Patent and Trademark  Office or in any
similar  office or agency of the United  States,  any state thereof or any other
country or any political subdivision thereof, or otherwise,  including,  without
limitation,  any thereof referred to in Schedule B hereto, and (b) all reissues,
extensions or renewals thereof.

                                       2

<PAGE>

     "Trademark  License" shall mean any agreement,  written or oral,  providing
for the  grant by the  Company  of any  right to use any  Trademark,  including,
without limitation, any thereof referred to in Schedule B hereto.

     "Trade  Secrets" shall mean common law and statutory  trade secrets and all
other  confidential  or  proprietary  or  useful  information  and all  know-how
obtained by or used in or  contemplated  at any time for use in the  business of
the Company (all of the foregoing being  collectively  called a "Trade Secret"),
whether or not such Trade Secret has been reduced to a writing or other tangible
form,  including all documents and things embodying,  incorporating or referring
in any way to such Trade Secret, all Trade Secret licenses, including each Trade
Secret license referred to in Schedule B hereto,  and including the right to sue
for  and to  enjoin  and  to  collect  damages  for  the  actual  or  threatened
misappropriation  of any Trade Secret and for the breach or  enforcement  of any
such Trade Secret license.

     2. Grant of Security  Interest.  In  accordance  with  Section  3(m) of the
Security Agreement,  to secure the complete and timely payment,  performance and
discharge in full,  as the case may be, of all of the  Obligations,  the Company
hereby, unconditionally and irrevocably, pledges, grants and hypothecates to the
Secured  Party,  a continuing  security  interest  in, a  continuing  first lien
(except as set forth on Schedule B) upon, an unqualified right to possession and
disposition  of and a right of  set-off  against,  in each  case to the  fullest
extent  permitted  by law,  all of the  Company's  right,  title and interest of
whatsoever  kind and nature in and to the  Intellectual  Property (the "Security
Interest").

     3.  Representations  and  Warranties.  The Company  hereby  represents  and
warrants, and covenants and agrees with, the Secured Party as follows:

     (a) The Company has the  requisite  corporate  power and authority to enter
into this Agreement and otherwise to carry out its obligations  thereunder.  The
execution,  delivery and  performance  by the Company of this  Agreement and the
filings  contemplated  therein have been duly authorized by all necessary action
on the part of the  Company and no further  action is  required by the  Company.
This Agreement  constitutes a legal, valid and binding obligation of the Company
enforceable  in  accordance  with its  terms,  except as  enforceability  may be
limited by bankruptcy,  insolvency,  reorganization,  moratorium or similar laws
affecting the enforcement of creditor's rights generally.

     (b) The Company represents and warrants that it has no place of business or
offices where its  respective  books of account and records are kept (other than
temporarily at the offices of its attorneys or  accountants) or places where the
Intellectual  Property is stored or  located,  except as set forth on Schedule A
attached hereto;

                                       3

<PAGE>

     (c) The Company is the sole owner of the Intellectual  Property (except for
non-exclusive  licenses  granted  by the  Company  in  the  ordinary  course  of
business), free and clear of any liens, security interests, encumbrances, rights
or claims,  and is fully  authorized  to grant the  Security  Interest in and to
pledge the  Intellectual  Property,  except as set forth on Schedule D. There is
not on file in any  governmental  or regulatory  authority,  agency or recording
office an effective financing statement, security agreement, license or transfer
or any notice of any of the foregoing  (other than those that have been filed in
favor of the Secured Party pursuant to this Agreement) covering or affecting any
of the Intellectual Property, except as set forth on Schedule D. So long as this
Agreement  shall be in  effect,  the  Company  shall not  execute  and shall not
knowingly  permit to be on file in any such office or agency any such  financing
statement  or other  document  or  instrument  (except  to the  extent  filed or
recorded in favor of the Secured Party pursuant to the terms of this Agreement),
except as set forth on Schedule D or for a financing  statement  covering assets
acquired by the Company  after the date hereof,  provided  that the value of the
Intellectual  Property  covered by this Agreement  along with the Collateral (as
defined in the Security Agreement) is equal to at least 150% of the Obligations.

     (d) The  Company  shall at all  times  maintain  its books of  account  and
records relating to the Intellectual Property at its principal place of business
and its Intellectual  Property at the locations set forth on Schedule A attached
hereto and may not relocate such books of account and records unless it delivers
to the  Secured  Party at least 30 days  prior to such  relocation  (i)  written
notice of such relocation and the new location thereof (which must be within the
United  States) and (ii) evidence that the necessary  documents  have been filed
and recorded and other steps have been taken to perfect the Security Interest to
create in favor of the Secured  Party  valid,  perfected  and  continuing  first
priority liens in the Intellectual  Property to the extent they can be perfected
through such filings.

     (e) This  Agreement  creates in favor of the Secured Party a valid security
interest in the  Intellectual  Property  securing the payment and performance of
the Obligations  and, upon making the filings  required  hereunder,  a perfected
first priority  security  interest in such  Intellectual  Property to the extent
that it can be perfected through such filings.

     (f) Upon  request of the  Secured  Party,  the  Company  shall  execute and
deliver  any and all  agreements,  instruments,  documents,  and  papers  as the
Secured Party may request to evidence the Secured Party's  security  interest in
the  Intellectual  Property  and the  goodwill  and general  intangibles  of the
Company relating thereto or represented thereby, and the Company hereby appoints
the Secured Party its attorney-in-fact to execute and file all such writings for
the  foregoing  purposes,  all acts of such attorney  being hereby  ratified and
confirmed;  such power being coupled with an interest is  irrevocable  until the
Obligations have been fully satisfied and are paid in full.

     (g)  Except  as set  forth on  Schedule  D,  the  execution,  delivery  and
performance  of this  Agreement  does not  conflict  with or  cause a breach  or
default,  or an event that with or without the passage of time or notice,  shall
constitute  a breach or default,  under any  agreement to which the Company is a
party  or by  which  the  Company  is  bound.  No  consent  (including,  without
limitation,  from stock holders or creditors of the Company) is required for the
Company to enter into and perform its obligations hereunder.

                                       4

<PAGE>

     (h) The Company shall at all times maintain the liens and Security Interest
provided for hereunder as valid and perfected  first priority liens and security
interests  in the  Intellectual  Property to the extent they can be perfected by
filing in favor of the  Secured  Party  until this  Agreement  and the  Security
Interest  hereunder shall  terminate  pursuant to Section 11. The Company hereby
agrees to  defend  the same  against  any and all  persons.  The  Company  shall
safeguard and protect all  Intellectual  Property for the account of the Secured
Party.  Without limiting the generality of the foregoing,  the Company shall pay
all  fees,  taxes and other  amounts  necessary  to  maintain  the  Intellectual
Property and the Security Interest  hereunder,  and the Company shall obtain and
furnish to the  Secured  Party from time to time,  upon  demand,  such  releases
and/or  subordinations of claims and liens which may be required to maintain the
priority of the Security Interest hereunder.

     (i) The Company will not transfer, pledge,  hypothecate,  encumber, license
(except for non-exclusive licenses granted by the Company in the ordinary course
of  business),  sell or otherwise  dispose of any of the  Intellectual  Property
without the prior written  consent of the Secured Party,  which consent will not
be unreasonably withheld.

     (j) The Company shall, within ten (10) days of obtaining knowledge thereof,
advise the Secured Party  promptly,  in sufficient  detail,  of any  substantial
change in the  Intellectual  Property,  and of the occurrence of any event which
would have a material adverse effect on the value of the  Intellectual  Property
or on the Secured Party's security interest therein.

     (k) The Company shall permit the Secured Party and its  representatives and
agents to inspect the  Intellectual  Property at any time, and to make copies of
records  pertaining  to the  Intellectual  Property as may be  requested  by the
Secured Party from time to time.

     (l) The Company  will take all steps  reasonably  necessary  to  diligently
pursue and seek to preserve,  enforce and collect any rights,  claims, causes of
action and accounts receivable in respect of the Intellectual Property.

     (m) The  Company  shall  promptly  notify the Secured  Party in  sufficient
detail upon becoming aware of any  attachment,  garnishment,  execution or other
legal  process  levied  against  any  Intellectual  Property  and of  any  other
information  received by the Company that may materially affect the value of the
Intellectual  Property,  the Security Interest or the rights and remedies of the
Secured Party hereunder.

     (n) All information heretofore, herein or hereafter supplied to the Secured
Party by or on behalf of the Company with respect to the  Intellectual  Property
is accurate and complete in all material respects as of the date furnished.

     (o) Schedule A attached hereto  contains a list of all of the  subsidiaries
of Company.

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<PAGE>

     (p) Schedule B attached hereto  includes all Licenses,  and all Patents and
Patent  Licenses,  if any,  owned by the  Company in its own name as of the date
hereof.  Schedule B hereto  includes all Trademarks and Trademark  Licenses,  if
any,  owned by the  Company  in its own name as of the date  hereof.  Schedule B
hereto  includes all  Copyrights  and Copyright  Licenses,  if any, owned by the
Company in its own name as of the date  hereof.  Schedule B hereto  includes all
Trade Secrets and Trade Secret Licenses,  if any, owned by the Company as of the
date hereof.  To the best of the  Company's  knowledge,  each  License,  Patent,
Trademark,   Copyright  and  Trade  Secret  is  valid,  subsisting,   unexpired,
enforceable and has not been abandoned.  Except as set forth in Schedule B, none
of such  Licenses,  Patents,  Trademarks,  Copyrights  and Trade  Secrets is the
subject of any  licensing or franchise  agreement.  To the best of the Company's
knowledge,   no  holding,   decision  or  judgment  has  been  rendered  by  any
Governmental  Body which would  limit,  cancel or question  the  validity of any
License, Patent, Trademark, Copyright and Trade Secrets . Except as set forth in
Schedule B, no action or proceeding  is pending (i) seeking to limit,  cancel or
question  the  validity of any License,  Patent,  Trademark,  Copyright or Trade
Secret,  or (ii) which, if adversely  determined,  would have a material adverse
effect  on the  value of any  License,  Patent,  Trademark,  Copyright  or Trade
Secret.  The Company has used and will  continue to use for the duration of this
Agreement,  proper  statutory  notice in connection with its use of the Patents,
Trademarks and Copyrights and consistent standards of quality in products leased
or sold under the Patents, Trademarks and Copyrights.

     (q) With respect to any Intellectual Property:

                    (i)  such  Intellectual  Property is subsisting  and has not
                         been adjudged invalid or unenforceable,  in whole or in
                         part;

                    (ii) such Intellectual Property is valid and enforceable;

                   (iii) the  Company  has  made   all  necessary   filings  and
                         recordations   to   protect   its   interest   in  such
                         Intellectual Property,  including,  without limitation,
                         recordations  of all of its  interests  in the Patents,
                         Patent Licenses,  Trademarks and Trademark  Licenses in
                         the United States  Patent and  Trademark  Office and in
                         corresponding  offices  throughout  the  world  and its
                         claims to the Copyrights and Copyright  Licenses in the
                         United  States  Copyright  Office and in  corresponding
                         offices throughout the world;

                    (iv) other than as set forth in  Schedule  B, the Company is
                         the  exclusive  owner of the  entire  and  unencumbered
                         right,  title and interest in and to such  Intellectual
                         Property  and no claim  has been  made  that the use of
                         such  Intellectual  Property  infringes on the asserted
                         rights of any third party; and

                    (v)  the Company has  performed and will continue to perform
                         all acts and has paid all  required  fees and  taxes to
                         maintain each and every item of  Intellectual  Property
                         in full  force and  effect  throughout  the  world,  as
                         applicable.

                                       6

<PAGE>

     (r) Except with  respect to any  Trademark  or  Copyright  that the Company
shall reasonably  determine is of negligible economic value to the Company,  the
Company shall:

     (i) maintain each Trademark and Copyright in full force free from any claim
of abandonment for non-use,  maintain as in the past the quality of products and
services  offered under such  Trademark or Copyright;  employ such  Trademark or
Copyright with the appropriate notice of registration; not adopt or use any mark
which is  confusingly  similar or a colorable  imitation  of such  Trademark  or
Copyright unless the Secured Party shall obtain a perfected security interest in
such mark  pursuant to this  Agreement;  and not (and not permit any licensee or
sublicensee  thereof to) do any act or knowingly  omit to do any act whereby any
Trademark or Copyright may become invalidated;

     (ii) not,  except  with  respect  to any  Patent  that it shall  reasonably
determine is of negligible  economic  value to it, do any act, or omit to do any
act, whereby any Patent may become abandoned or dedicated; and

     (iii) notify the Secured Party  immediately  if it knows,  or has reason to
know, that any application or registration relating to any Patent,  Trademark or
Copyright may become abandoned or dedicated,  or of any adverse determination or
development  (including,  without  limitation,  the  institution of, or any such
determination  or development in, any proceeding in the United States Patent and
Trademark Office, United States Copyright Office or any court or tribunal in any
country)  regarding its  ownership of any Patent,  Trademark or Copyright or its
right to register the same or to keep and maintain the same.

     (s) Whenever the Company,  either by itself or through any agent, employee,
licensee or designee,  shall file an  application  for the  registration  of any
Patent,  Trademark  or Copyright  with the United  States  Patent and  Trademark
Office,  United States  Copyright  Office or any similar office or agency in any
other country or any political  subdivision thereof or acquire rights to any new
Patent, Trademark or Copyright whether or not registered,  report such filing to
the Secured  Party  within five  business  days after the last day of the fiscal
quarter in which such filing occurs.

     (t) The Company shall take all reasonable and necessary  steps,  including,
without  limitation,  in any  proceeding  before  the United  States  Patent and
Trademark Office, United States Copyright Office or any similar office or agency
in any other  country or any  political  subdivision  thereof,  to maintain  and
pursue  each  application  (and to  obtain  the  relevant  registration)  and to
maintain each registration of the Patents, Trademarks and Copyrights, including,
without  limitation,  filing of applications for renewal,  affidavits of use and
affidavits of incontestability.

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<PAGE>

     (u) In the event that any Patent,  Trademark or  Copyright  included in the
Intellectual Property is infringed, misappropriated or diluted by a third party,
promptly  notify the Secured Party after it learns thereof and shall,  unless it
shall  reasonably  determine  that such  Patent,  Trademark  or  Copyright is of
negligible economic value to it, which determination it shall promptly report to
the Secured Party, promptly sue for infringement,  misappropriation or dilution,
to seek injunctive  relief where  appropriate and to recover any and all damages
for such infringement,  misappropriation or dilution, or take such other actions
as it shall reasonably deem appropriate  under the circumstances to protect such
Patent,  Trademark or Copyright. If the Company lacks the financial resources to
comply with this Section 3(t), the Company shall so notify the Secured Party and
shall  cooperate  fully with any  enforcement  action  undertaken by the Secured
Party on behalf of the Company.

     4. Defaults. The following events shall be "Events of Default":

     (a) The  occurrence  of an Event of Default (as defined in the Notes) under
the Notes;

     (b) Any  representation  or warranty of the Company in this Agreement or in
the  Security  Agreement  shall  prove to have been  incorrect  in any  material
respect when made;

     (c) The failure by the Company to observe or perform any of its obligations
hereunder or in the Security  Agreement  for ten (10) days after  receipt by the
Company of notice of such failure from the Secured Party; and

     (d) Any breach of, or default under, the Warrants.

     5. Duty To Hold In Trust.  Upon the  occurrence of any Event of Default and
at any time  thereafter,  the Company shall,  upon receipt by it of any revenue,
income or other sums subject to the Security Interest,  whether payable pursuant
to the Notes or otherwise,  or of any check,  draft,  note,  trade acceptance or
other instrument  evidencing an obligation to pay any such sum, hold the same in
trust for the Secured  Party and shall  forthwith  endorse and transfer any such
sums or  instruments,  or both,  to the  Secured  Party for  application  to the
satisfaction of the Obligations.

     6.  Rights and  Remedies  Upon  Default.  Upon  occurrence  of any Event of
Default and at any time  thereafter,  the Secured  Party shall have the right to
exercise all of the remedies  conferred  hereunder and under the Notes,  and the
Secured  Party shall have all the rights and  remedies of a secured  party under
the UCC and/or any other  applicable law (including the Uniform  Commercial Code
of any jurisdiction in which any Intellectual Property is then located). Without
limitation, the Secured Party shall have the following rights and powers:

     (a) The  Secured  Party  shall  have the  right to take  possession  of the
Intellectual Property and, for that purpose,  enter, with the aid and assistance
of any  person,  any  premises  where  the  Intellectual  Property,  or any part
thereof, is or may be placed and remove the same, and the Company shall assemble
the  Intellectual  Property and make it available to the Secured Party at places
which the  Secured  Party  shall  reasonably  select,  whether at the  Company's
premises or elsewhere,  and make available to the Secured  Party,  without rent,
all of the Company's  respective  premises and facilities for the purpose of the
Secured  Party  taking  possession  of,  removing  or putting  the  Intellectual
Property in saleable or disposable form.

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<PAGE>

     (b) The Secured  Party shall have the right to operate the  business of the
Company  using the  Intellectual  Property  and shall  have the right to assign,
sell,  lease  or  otherwise  dispose  of and  deliver  all or  any  part  of the
Intellectual  Property,  at public or private sale or otherwise,  either with or
without special conditions or stipulations,  for cash or on credit or for future
delivery,  in such parcel or parcels and at such time or times and at such place
or places,  and upon such terms and  conditions  as the  Secured  Party may deem
commercially reasonable,  all without (except as shall be required by applicable
statute  and cannot be  waived)  advertisement  or demand  upon or notice to the
Company  or right of  redemption  of the  Company,  which are  hereby  expressly
waived. Upon each such sale, lease, assignment or other transfer of Intellectual
Property,  the Secured Party may,  unless  prohibited  by  applicable  law which
cannot be waived,  purchase all or any part of the  Intellectual  Property being
sold,  free from and discharged of all trusts,  claims,  right of redemption and
equities of the Company, which are hereby waived and released.

     7. Applications of Proceeds.  The proceeds of any such sale, lease or other
disposition of the  Intellectual  Property  hereunder shall be applied first, to
the expenses of retaking,  holding, storing,  processing and preparing for sale,
selling, and the like (including,  without limitation, any taxes, fees and other
costs incurred in connection  therewith) of the  Intellectual  Property,  to the
reasonable  attorneys'  fees  and  expenses  incurred  by the  Secured  Party in
enforcing its rights  hereunder and in connection with  collecting,  storing and
disposing  of  the  Intellectual  Property,  and  then  to  satisfaction  of the
Obligations, and to the payment of any other amounts required by applicable law,
after which the Secured Party shall pay to the Company any surplus proceeds. If,
upon the sale,  license or other disposition of the Intellectual  Property,  the
proceeds  thereof are insufficient to pay all amounts to which the Secured Party
is legally  entitled,  the Company will be liable for the  deficiency,  together
with interest  thereon,  at the rate of 15% per annum (the "Default Rate"),  and
the  reasonable  fees of any attorneys  employed by the Secured Party to collect
such  deficiency.  To the extent permitted by applicable law, the Company waives
all claims,  damages and demands  against the Secured  Party  arising out of the
repossession,  removal,  retention or sale of the Intellectual Property,  unless
due to the gross negligence or willful misconduct of the Secured Party.

     8. Costs and Expenses.  The Company agrees to pay all  out-of-pocket  fees,
costs and expenses  incurred in connection with any filing  required  hereunder,
including without limitation, any financing statements, continuation statements,
partial releases and/or  termination  statements related thereto or any expenses
of any searches reasonably required by the Secured Party. The Company shall also
pay all other claims and charges which in the reasonable  opinion of the Secured
Party might prejudice,  imperil or otherwise affect the Intellectual Property or
the Security  Interest therein.  The Company will also, upon demand,  pay to the
Secured  Party the  amount of any and all  reasonable  expenses,  including  the
reasonable fees and expenses of its counsel and of any experts and agents, which
the  Secured  Party may incur in  connection  with (i) the  enforcement  of this
Agreement, (ii) the custody or preservation of, or the sale of, collection from,
or other  realization  upon,  any of the  Intellectual  Property,  or (iii)  the
exercise  or  enforcement  of any of the rights of the  Secured  Party under the
Notes. Until so paid, any fees payable hereunder shall be added to the principal
amount of the Notes and shall bear interest at the Default Rate.

                                       9

<PAGE>

     9.  Responsibility  for  Intellectual  Property.  The  Company  assumes all
liabilities and responsibility in connection with all Intellectual Property, and
the  obligations  of the Company  hereunder  or under the Notes and the Warrants
shall in no way be affected or  diminished  by reason of the loss,  destruction,
damage or theft of any of the Intellectual  Property or its  unavailability  for
any reason.

     10.  Security  Interest  Absolute.  All rights of the Secured Party and all
Obligations  of the  Company  hereunder,  shall be absolute  and  unconditional,
irrespective of: (a) any lack of validity or  enforceability  of this Agreement,
the Notes,  the Warrants or any agreement  entered into in  connection  with the
foregoing,  or any portion hereof or thereof; (b) any change in the time, manner
or place of  payment or  performance  of, or in any other term of, all or any of
the  Obligations,  or any other  amendment  or waiver of or any  consent  to any
departure from the Notes,  the Warrants or any other  agreement  entered into in
connection with the foregoing; (c) any exchange, release or nonperfection of any
of the  Intellectual  Property,  or any  release  or  amendment  or waiver of or
consent to departure from any other Intellectual  Property for, or any guaranty,
or any other security, for all or any of the Obligations;  (d) any action by the
Secured Party to obtain,  adjust,  settle and cancel in its sole  discretion any
insurance  claims or matters made or arising in connection with the Intellectual
Property;  or (e) any other  circumstance  which might otherwise  constitute any
legal or equitable  defense  available to the Company,  or a discharge of all or
any part of the Security  Interest granted hereby.  Until the Obligations  shall
have been paid and  performed  in full,  the rights of the  Secured  Party shall
continue even if the Obligations are barred for any reason,  including,  without
limitation, the running of the statute of limitations or bankruptcy. The Company
expressly waives  presentment,  protest,  notice of protest,  demand,  notice of
nonpayment  and  demand  for  performance.  In the  event  that at any  time any
transfer of any  Intellectual  Property  or any payment  received by the Secured
Party  hereunder  shall  be  deemed  by  final  order  of a court  of  competent
jurisdiction to have been a voidable  preference or fraudulent  conveyance under
the bankruptcy or insolvency laws of the United States, or shall be deemed to be
otherwise  due to any party  other than the  Secured  Party,  then,  in any such
event, the Company's  obligations  hereunder shall survive  cancellation of this
Agreement, and shall not be discharged or satisfied by any prior payment thereof
and/or  cancellation  of this  Agreement,  but shall  remain a valid and binding
obligation  enforceable in accordance with the terms and provisions  hereof. The
Company  waives all right to require  the Secured  Party to proceed  against any
other person or to apply any  Intellectual  Property which the Secured Party may
hold at any time,  or to  marshal  assets,  or to pursue any other  remedy.  The
Company waives any defense  arising by reason of the  application of the statute
of limitations to any obligation secured hereby.

     11. Term of  Agreement.  This  Agreement  and the Security  Interest  shall
terminate  on the date on which all  payments  under the Notes have been made in
full  and all  other  Obligations  have  been  paid  or  discharged.  Upon  such
termination,  the  Secured  Party,  at the  request  and at the  expense  of the
Company,  will join in executing any  termination  statement with respect to any
financing statement executed and filed pursuant to this Agreement.

                                       10

<PAGE>

     12. Power of Attorney; Further Assurances.

     (a) The  Company  authorizes  the  Secured  Party,  and does  hereby  make,
constitute and appoint it, and its respective  officers,  agents,  successors or
assigns  with full  power of  substitution,  as the  Company's  true and  lawful
attorney-in-fact, with power, in its own name or in the name of the Company, to,
after the  occurrence  and during the  continuance  of an Event of Default,  (i)
endorse any notes, checks, drafts, money orders, or other instruments of payment
(including  payments  payable under or in respect of any policy of insurance) in
respect  of the  Intellectual  Property  that may come  into  possession  of the
Secured  Party;  (ii) to sign and endorse  any UCC  financing  statement  or any
invoice, freight or express bill, bill of lading, storage or warehouse receipts,
drafts against  debtors,  assignments,  verifications  and notices in connection
with accounts, and other documents relating to the Intellectual Property;  (iii)
to pay or discharge taxes,  liens,  security  interests or other encumbrances at
any time levied or placed on or threatened  against the  Intellectual  Property;
(iv) to demand, collect, receipt for, compromise,  settle and sue for monies due
in respect of the Intellectual Property; and (v) generally, to do, at the option
of the Secured Party, and at the Company's expense, at any time, or from time to
time,  all acts and things which the Secured  Party deems  necessary to protect,
preserve and realize upon the  Intellectual  Property and the Security  Interest
granted therein in order to effect the intent of this  Agreement,  the Notes and
the Warrants, all as fully and effectually as the Company might or could do; and
the Company hereby ratifies all that said attorney shall lawfully do or cause to
be done by virtue hereof. This power of attorney is coupled with an interest and
shall be  irrevocable  for the term of this  Agreement and thereafter as long as
any of the Obligations shall be outstanding.

     (b) On a continuing  basis,  the Company will make,  execute,  acknowledge,
deliver, file and record, as the case may be, in the proper filing and recording
places in any jurisdiction,  including,  without  limitation,  the jurisdictions
indicated on Schedule C, attached  hereto,  all such  instruments,  and take all
such action as may reasonably be deemed necessary or advisable, or as reasonably
requested  by the  Secured  Party,  to perfect  the  Security  Interest  granted
hereunder and otherwise to carry out the intent and purposes of this  Agreement,
or for assuring and confirming to the Secured Party the grant or perfection of a
security interest in all the Intellectual Property.

     (c) The  Company  hereby  irrevocably  appoints  the  Secured  Party as the
Company's  attorney-in-fact,  with full  authority in the place and stead of the
Company and in the name of the Company, from time to time in the Secured Party's
discretion,  to take any action and to execute any instrument  which the Secured
Party may deem  necessary  or  advisable  to  accomplish  the  purposes  of this
Agreement,  including  the  filing,  in its  sole  discretion,  of  one or  more
financing or continuation statements and amendments thereto,  relative to any of
the  Intellectual  Property without the signature of the Company where permitted
by law.

                                       11

<PAGE>

     13.  Notices.  All  notices,  requests,  demands  and other  communications
hereunder shall be in writing,  with copies to all the other parties hereto, and
shall be deemed to have been duly  given  when (i) if  delivered  by hand,  upon
receipt,  (ii) if sent by facsimile,  upon receipt of proof of sending  thereof,
(iii) if sent by  nationally  recognized  overnight  delivery  service  (receipt
requested), the next business day or (iv) if mailed by first-class registered or
certified  mail,  return receipt  requested,  postage  prepaid,  four days after
posting in the U.S. mails, in each case if delivered to the following addresses:

If to the Company:                      GPS Industries, Inc.
                                        Suite 214, 5500- 152nd Street
                                        Surrey, British Columbia V3S-5J9
                                        Attention: Chief Executive Officer
                                        Telephone:  (604) 576-7442
                                        Facsimile: (604) 576-7460

With a copy to:                         Troy & Gould
                                        1801 Century Park East
                                        Los Angeles, CA 90067
                                        Attention:   David Ficksman, Esq.
                                        Telephone:  (310) 789-1290
                                        Facsimile:   (310) 789-1490

If to the Secured Party:                AJW Partners, LLC
                                        AJW Offshore, Ltd.
                                        AJW Qualified Partners, LLC
                                        New Millennium Capital Partners, II, LLC
                                        1044 Northern Boulevard
                                        Suite 302
                                        Roslyn, New York  11576
                                        Attention:  Corey Ribotsky
                                        Facsimile:  516-739-7115

With copies to:                         Ballard Spahr Andrews & Ingersoll, LLP
                                        1735 Market Street, 51st Floor
                                        Philadelphia, Pennsylvania 19103
                                        Attention: Gerald J. Guarcini, Esquire
                                        Facsimile:  215-864-8999

     14. Other Security. To the extent that the Obligations are now or hereafter
secured by property  other than the  Intellectual  Property or by the guarantee,
endorsement or property of any other person, firm,  corporation or other entity,
then the Secured Party shall have the right, in its sole discretion,  to pursue,
relinquish,  subordinate,  modify or take any other action with respect thereto,
without in any way modifying or affecting any of the Secured  Party's rights and
remedies hereunder.

                                       12

<PAGE>

     15. Miscellaneous.

     (a) No course of dealing between the Company and the Secured Party, nor any
failure to  exercise,  nor any delay in  exercising,  on the part of the Secured
Party, any right, power or privilege  hereunder or under the Notes shall operate
as a waiver  thereof;  nor shall any  single or partial  exercise  of any right,
power or  privilege  hereunder  or  thereunder  preclude  any  other or  further
exercise thereof or the exercise of any other right, power or privilege.

     (b) All of the rights and remedies of the Secured Party with respect to the
Intellectual  Property,  whether  established  hereby  or by the Notes or by any
other agreements, instruments or documents or by law shall be cumulative and may
be exercised singly or concurrently.

     (c)  This  Agreement  and the  Security  Agreement  constitute  the  entire
agreement  of the  parties  with  respect to the  subject  matter  hereof and is
intended to supersede all prior negotiations, understandings and agreements with
respect  thereto.  Except  as  specifically  set  forth  in this  Agreement,  no
provision  of this  Agreement  may be  modified  or amended  except by a written
agreement  specifically  referring to this  Agreement  and signed by the parties
hereto.

     (d) In the  event  that  any  provision  of  this  Agreement  is held to be
invalid,  prohibited or unenforceable in any jurisdiction for any reason, unless
such provision is narrowed by judicial construction, this Agreement shall, as to
such jurisdiction,  be construed as if such invalid, prohibited or unenforceable
provision  had been more narrowly  drawn so as not to be invalid,  prohibited or
unenforceable.   If,  notwithstanding  the  foregoing,  any  provision  of  this
Agreement  is  held  to  be  invalid,   prohibited  or   unenforceable   in  any
jurisdiction,  such provision, as to such jurisdiction,  shall be ineffective to
the  extent  of  such  invalidity,   prohibition  or  unenforceability   without
invalidating the remaining  portion of such provision or the other provisions of
this  Agreement  and without  affecting the validity or  enforceability  of such
provision or the other provisions of this Agreement in any other jurisdiction.

     (e) No waiver of any breach or default  or any right  under this  Agreement
shall be considered  valid unless in writing and signed by the party giving such
waiver,  and no such waiver shall be deemed a waiver of any subsequent breach or
default or right, whether of the same or similar nature or otherwise.

     (f) This  Agreement  shall be binding upon and inure to the benefit of each
party hereto and its successors and assigns.

     (g) Each party shall take such further  action and execute and deliver such
further  documents as may be necessary or  appropriate in order to carry out the
provisions and purposes of this Agreement.

                                       13

<PAGE>

     (h) This  Agreement  shall be construed in accordance  with the laws of the
State of New York, except to the extent the validity,  perfection or enforcement
of a security  interest  hereunder  in respect  of any  particular  Intellectual
Property which are governed by a  jurisdiction  other than the State of New York
in which case such law shall  govern.  Each of the  parties  hereto  irrevocably
submit to the  exclusive  jurisdiction  of any New York  State or United  States
Federal court sitting in Manhattan county over any action or proceeding  arising
out of or relating to this Agreement,  and the parties hereto hereby irrevocably
agree that all claims in respect of such action or  proceeding  may be heard and
determined  in such New York State or Federal  court.  The parties  hereto agree
that a final  judgment in any such action or proceeding  shall be conclusive and
may be enforced in other  jurisdictions  by suit on the judgment or in any other
manner  provided by law. The parties hereto further waive any objection to venue
in the State of New York and any  objection  to an action or  proceeding  in the
State of New York on the basis of forum non conveniens.

     (i) EACH PARTY HERETO  HEREBY  AGREES TO WAIVE ITS  RESPECTIVE  RIGHTS TO A
JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION  BASED  UPON OR  ARISING  OUT OF THIS
AGREEMENT.  THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL  ENCOMPASSING  OF ANY
DISPUTES  THAT MAY BE FILED IN ANY COURT AND THAT RELATE TO THE SUBJECT MATER OF
THIS AGREEMENT,  INCLUDING  WITHOUT  LIMITATION  CONTRACT  CLAIMS,  TORT CLAIMS,
BREACH OF DUTY CLAIMS AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS.  EACH PARTY
HERETO  ACKNOWLEDGES THAT THIS WAIVER IS A MATERIAL INDUCEMENT FOR EACH PARTY TO
ENTER INTO A BUSINESS  RELATIONSHIP,  THAT EACH PARTY HAS ALREADY RELIED ON THIS
WAIVER IN ENTERING INTO THIS AGREEMENT AND THAT EACH PARTY WILL CONTINUE TO RELY
ON THIS WAIVER IN THEIR RELATED FUTURE DEALINGS. EACH PARTY FURTHER WARRANTS AND
REPRESENTS  THAT IT HAS REVIEWED  THIS WAIVER WITH ITS LEGAL  COUNSEL,  AND THAT
SUCH  PARTY HAS  KNOWINGLY  AND  VOLUNTARILY  WAIVES  ITS RIGHTS TO A JURY TRIAL
FOLLOWING  SUCH  CONSULTATION.   THIS  WAIVER  IS  IRREVOCABLE,   MEANING  THAT,
NOTWITHSTANDING  ANYTHING HEREIN TO THE CONTRARY,  IT MAY NOT BE MODIFIED EITHER
ORALLY OR IN WRITING, AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT  AMENDMENTS,
RENEWALS AND SUPPLEMENTS OR MODIFICATIONS  TO THIS AGREEMENT.  IN THE EVENT OF A
LITIGATION,  THIS AGREEMENT MAY BE FILED AS A WRITTEN  CONSENT TO A TRIAL BY THE
COURT.

     (j) This Agreement may be executed in any number of  counterparts,  each of
which when so executed shall be deemed to be an original and, all of which taken
together  shall  constitute  one and the same  Agreement.  In the event that any
signature is delivered by facsimile transmission,  such signature shall create a
valid  binding  obligation  of the  party  executing  (or on whose  behalf  such
signature  is  executed)  the same  with the same  force  and  effect as if such
facsimile signature were the original thereof.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

                                       14

<PAGE>

         IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed on the day and year first above written.

                                         GPS INDUSTRIES, INC.

                                         By:  _______________________________
                                               Robert Silzer
                                               Chief Executive Officer

                                         AJW PARTNERS, LLC
                                         By: SMS Group, LLC

                                         By:  _______________________________
                                               Corey S. Ribotsky
                                               Manager

                                         AJW OFFSHORE, LTD.
                                         By: First Street Manager II, LLC

                                         By:  _______________________________
                                               Corey S. Ribotsky
                                               Manager

                                         AJW QUALIFIED PARTNERS, LLC
                                         By:  AJW Manager, LLC

                                         By:  _______________________________
                                               Corey S. Ribotsky
                                               Manager

                                         NEW MILLENNIUM CAPITAL PARTNERS II, LLC
                                         By: First Street Manager II, LLC

                                         By:  __________________________________
                                               Corey S. Ribotsky
                                               Manager

                                       15THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
         UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THE
         SECURITIES MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF
         AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER SAID ACT,
         OR AN OPINION OF COUNSEL IN FORM, SUBSTANCE AND SCOPE CUSTOMARY FOR
         OPINIONS OF COUNSEL IN COMPARABLE TRANSACTIONS THAT REGISTRATION IS NOT
         REQUIRED UNDER SAID ACT OR UNLESS SOLD PURSUANT TO RULE 144 OR
         REGULATION S UNDER SAID ACT.

                        CALLABLE SECURED CONVERTIBLE NOTE

Surrey, British Columbia
September 20, 2005                                                     $226,920

                  FOR VALUE RECEIVED, GPS Industries, Inc., a Nevada corporation
(hereinafter called the "Borrower"), hereby promises to pay to the order of AJW
PARTNERS, LLC or registered assigns (the "Holder") the sum of $226,920, on
September 20, 2008 (the "Maturity Date"). Any amount of principal on this Note
which is not paid when due shall bear interest at the rate of fifteen percent
(15%) per annum from the due date thereof until the same is paid ("Default
Interest"). All payments due hereunder (to the extent not converted into common
stock, $.001 par value per share (the "Common Stock") in accordance with the
terms hereof) shall be made in lawful money of the United States of America. All
payments shall be made at such address as the Holder shall hereafter give to the
Borrower by written notice made in accordance with the provisions of this Note.
Whenever any amount expressed to be due by the terms of this Note is due on any
day which is not a business day, the same shall instead be due on the next
succeeding day which is a business day. As used in this Note, the term "business
day" shall mean any day other than a Saturday, Sunday or a day on which
commercial banks in the city of New York, New York are authorized or required by
law or executive order to remain closed. Each capitalized term used herein, and
not otherwise defined, shall have the meaning ascribed thereto in that certain
Securities Purchase Agreement, dated September 20, 2005, pursuant to which this
Note was originally issued (the "Purchase Agreement").

         This Note is free from all taxes, liens, claims and encumbrances with
respect to the issue thereof and shall not be subject to preemptive rights or
other similar rights of shareholders of the Borrower and will not impose
personal liability upon the holder thereof. The obligations of the Borrower
under this Note shall be secured by that certain Security Agreement and
Intellectual Property Security Agreement, each dated September 20, 2005 by and
between the Borrower and the Holder.

<PAGE>

         The following terms shall apply to this Note:

ARTICLE I.                                                CONVERSION RIGHTS

     1.1  Conversion  Right.  The Holder shall have the right from time to time,
and at any time on or prior to the earlier of (i) the Maturity Date and (ii) the
date of payment of the Default  Amount (as defined in Article  III)  pursuant to
Section  1.6(a) or Article III, the  Optional  Prepayment  Amount (as defined in
Section  5.1 or any  payments  pursuant to Section  1.7,  each in respect of the
remaining  outstanding  principal amount of this Note to convert all or any part
of the outstanding and unpaid  principal amount of this Note into fully paid and
non-assessable  shares of Common Stock, as such Common Stock exists on the Issue
Date,  or any shares of capital  stock or other  securities of the Borrower into
which such  Common  Stock  shall  hereafter  be changed or  reclassified  at the
conversion  price (the  "Conversion  Price")  determined  as provided  herein (a
"Conversion");  provided, however, that in no event shall the Holder be entitled
to convert any portion of this Note in excess of that  portion of this Note upon
conversion  of  which  the sum of (1) the  number  of  shares  of  Common  Stock
beneficially owned by the Holder and its affiliates (other than shares of Common
Stock  which may be deemed  beneficially  owned  through  the  ownership  of the
unconverted  portion of the Notes or the  unexercised or unconverted  portion of
any other security of the Borrower (including,  without limitation, the warrants
issued  by  the  Borrower  pursuant  to the  Purchase  Agreement)  subject  to a
limitation  on  conversion or exercise  analogous to the  limitations  contained
herein)  and (2) the  number  of  shares  of  Common  Stock  issuable  upon  the
conversion  of the portion of this Note with respect to which the  determination
of this  proviso is being made,  would  result in  beneficial  ownership  by the
Holder and its affiliates of more than 4.99% of the outstanding shares of Common
Stock and provided  further that the Holder shall not be entitled to convert any
portion of this Note during any month  immediately  succeeding  a  Determination
Date on which the Borrower  exercises its prepayment  option pursuant to Section
5.2 of this Note.  For  purposes  of the  proviso to the  immediately  preceding
sentence,  beneficial  ownership  shall be determined in accordance with Section
13(d) of the Securities Exchange Act of 1934, as amended,  and Regulations 13D-G
thereunder,  except as  otherwise  provided in clause (1) of such  proviso.  The
number of shares of Common Stock to be issued upon each  conversion of this Note
shall be determined by dividing the Conversion  Amount (as defined below) by the
applicable  Conversion  Price then in effect on the date specified in the notice
of  conversion,  in the form  attached  hereto  as  Exhibit  A (the  "Notice  of
Conversion"), delivered to the Borrower by the Holder in accordance with Section
1.4 below;  provided that the Notice of Conversion is submitted by facsimile (or
by other means resulting in, or reasonably expected to result in, notice) to the
Borrower  before 6:00 p.m., New York, New York time on such conversion date (the
"Conversion  Date").  The term  "Conversion  Amount" means,  with respect to any
conversion of this Note, the sum of (1) the principal  amount of this Note to be
converted in such conversion plus (2) Default  Interest,  if any, on the amounts
referred to in the  immediately  preceding  clause (1) plus (3) at the  Holder's
option,  any amounts  owed to the Holder  pursuant  to  Sections  1.3 and 1.4(g)
hereof  or  pursuant  to  Section  2(c)  of  that  certain  Registration  Rights
Agreement,  dated as of September  20,  2005,  executed in  connection  with the
initial  issuance of this Note and the other Notes issued on the Issue Date (the
"Registration  Rights Agreement").  The term "Determination Date" means the last
business day of each month after the Issue Date.

                                       2

<PAGE>

     1.2 Conversion Price.

     (a)  Calculation of Conversion  Price.  The  Conversion  Price shall be the
lesser of (i) the  Variable  Conversion  Price (as defined  herein) and (ii) the
Fixed Conversion Price (as defined herein) (subject,  in each case, to equitable
adjustments  for  stock  splits,  stock  dividends  or rights  offerings  by the
Borrower  relating  to  the  Borrower's  securities  or  the  securities  of any
subsidiary of the Borrower, combinations,  recapitalization,  reclassifications,
extraordinary distributions and similar events). The "Variable Conversion Price"
shall mean the  Applicable  Percentage  (as defined  herein)  multiplied  by the
Market Price (as defined herein). "Market Price" means the average of the lowest
three (3) Trading  Prices (as  defined  below) for the Common  Stock  during the
twenty  (20)  Trading  Day period  ending one  Trading Day prior to the date the
Conversion  Notice is sent by the  Holder to the  Borrower  via  facsimile  (the
"Conversion Date").  "Trading Price" means, for any security as of any date, the
intraday trading price on the  Over-the-Counter  Bulletin Board (the "OTCBB") as
reported  by  a  reliable  reporting  service  ("Reporting   Service")  mutually
acceptable  to  Borrower  and Holder and  hereafter  designated  by Holders of a
majority in interest of the Notes and the  Borrower  or, if the OTCBB is not the
principal  trading market for such security,  the intraday trading price of such
security  on the  principal  securities  exchange or trading  market  where such
security is listed or traded or, if no intraday  trading  price of such security
is  available  in any of the  foregoing  manners,  the  average of the  intraday
trading  prices of any market  makers for such  security  that are listed in the
"pink sheets" by the National Quotation Bureau, Inc. If the Trading Price cannot
be calculated for such security on such date in the manner provided  above,  the
Trading  Price shall be the fair  market  value as  mutually  determined  by the
Borrower and the holders of a majority in interest of the Notes being  converted
for which the calculation of the Trading Price is required in order to determine
the  Conversion  Price of such Notes.  "Trading Day" shall mean any day on which
the Common  Stock is traded for any  period on the  OTCBB,  or on the  principal
securities exchange or other securities market on which the Common Stock is then
being traded.  "Applicable  Percentage"  shall mean 60.0%. The "Fixed Conversion
Price" shall mean $.10.

     (b) Conversion Price During Major Announcements.  Notwithstanding  anything
contained in Section 1.2(a) to the contrary, in the event the Borrower (i) makes
a public  announcement  that it intends to  consolidate  or merge with any other
corporation  (other  than a merger in which the  Borrower  is the  surviving  or
continuing  corporation  and its capital stock is unchanged) or sell or transfer
all or substantially all of the assets of the Borrower or (ii) any person, group
or entity (including the Borrower) publicly announces a tender offer to purchase
50% or more of the Borrower's  Common Stock (or any other takeover  scheme) (the
date of the  announcement  referred  to in  clause  (i) or  (ii) is  hereinafter
referred  to as the  "Announcement  Date"),  then the  Conversion  Price  shall,
effective  upon  the  Announcement  Date and  continuing  through  the  Adjusted
Conversion Price  Termination Date (as defined below),  be equal to the lower of
(x) the  Conversion  Price which  would have been  applicable  for a  Conversion
occurring  on the  Announcement  Date and (y) the  Conversion  Price  that would
otherwise be in effect. From and after the Adjusted Conversion Price Termination
Date,  the  Conversion  Price shall be  determined  as set forth in this Section
1.2(a). For purposes hereof,  "Adjusted Conversion Price Termination Date" shall
mean,  with  respect to any  proposed  transaction  or tender offer (or takeover
scheme) for which a public  announcement  as contemplated by this Section 1.2(b)
has been  made,  the date upon  which the  Borrower  (in the case of clause  (i)
above)  or the  person,  group or  entity  (in the case of  clause  (ii)  above)
consummates or publicly announces the termination or abandonment of the proposed
transaction  or tender  offer (or  takeover  scheme)  which  caused this Section
1.2(b) to become operative.

                                       3

<PAGE>

     1.3 Authorized  Shares.  The Borrower  covenants that during the period the
conversion  right  exists,  the Borrower  will reserve from its  authorized  and
unissued  Common  Stock a  sufficient  number of  shares,  free from  preemptive
rights,  to provide for the issuance of Common Stock upon the full conversion of
this Note and the other Notes  issued  pursuant to the Purchase  Agreement.  The
Borrower is required at all times to have  authorized and reserved two times the
number of shares that is actually  issuable  upon full  conversion  of the Notes
(based  on the  Conversion  Price  of the  Notes  or the  Exercise  Price of the
Warrants  in  effect  from  time to time)  (the  "Reserved  Amount"),  provided,
however,  that  Borrower  shall have forty  (40) days from the  Closing  Date to
increase  the  authorized  shares  or effect a  reverse  split so as to  satisfy
Borrower's  obligations  hereunder.  The Reserved Amount shall be increased from
time to time in accordance with the Borrower's  obligations  pursuant to Section
4(h) of the Purchase Agreement. The Borrower represents that upon issuance, such
shares  will be duly and  validly  issued,  fully  paid and  non-assessable.  In
addition,  if the Borrower  shall issue any securities or make any change to its
capital  structure  which would change the number of shares of Common Stock into
which the Notes shall be convertible at the then current  Conversion  Price, the
Borrower shall at the same time make proper  provision so that thereafter  there
shall be a sufficient  number of shares of Common Stock authorized and reserved,
free from  preemptive  rights,  for  conversion of the  outstanding  Notes.  The
Borrower (i) acknowledges that it has irrevocably  instructed its transfer agent
to issue  certificates  for the Common Stock  issuable  upon  conversion of this
Note,  and (ii) agrees  that its  issuance  of this Note shall  constitute  full
authority  to its officers and agents who are charged with the duty of executing
stock certificates to execute and issue the necessary certificates for shares of
Common Stock in accordance with the terms and conditions of this Note.

     If, at any time a Holder of this Note submits a Notice of  Conversion,  and
the Borrower does not have  sufficient  authorized but unissued shares of Common
Stock  available to effect such  conversion in accordance with the provisions of
this Article I (a  "Conversion  Default"),  subject to Section 4.8, the Borrower
shall  issue to the  Holder  all of the  shares of Common  Stock  which are then
available to effect such  conversion.  The portion of this Note which the Holder
included in its  Conversion  Notice and which  exceeds the amount  which is then
convertible  into available  shares of Common Stock (the "Excess Amount") shall,
notwithstanding  anything to the contrary  contained herein,  not be convertible
into Common Stock in accordance with the terms hereof until (and at the Holder's
option  at any time  after)  the date  additional  shares  of  Common  Stock are
authorized  by the  Borrower  to  permit  such  conversion,  at  which  time the
Conversion  Price in respect  thereof shall be the lesser of (i) the  Conversion
Price on the Conversion  Default Date (as defined below) and (ii) the Conversion
Price on the  Conversion  Date  thereafter  elected  by the  Holder  in  respect
thereof. In addition, the Borrower shall pay to the Holder payments ("Conversion
Default  Payments") for a Conversion Default in the amount of (x) the sum of (1)
the then outstanding principal amount of this Note plus (2) Default Interest, if
any, on the amounts referred to in clause (1), multiplied by (y) .24, multiplied
by (z) (N/365),  where N = the number of days from the day the holder  submits a
Notice of  Conversion  giving  rise to a  Conversion  Default  (the  "Conversion
Default  Date")  to the  date  (the  "Authorization  Date")  that  the  Borrower

                                       4

<PAGE>

authorizes a sufficient number of shares of Common Stock to effect conversion of
the full outstanding  principal balance of this Note. The Borrower shall use its
best efforts to authorize a sufficient  number of shares of Common Stock as soon
as practicable  following the earlier of (i) such time that the Holder  notifies
the  Borrower or that the  Borrower  otherwise  becomes  aware that there are or
likely  will be  insufficient  authorized  and  unissued  shares  to allow  full
conversion thereof and (ii) a Conversion Default. The Borrower shall send notice
to the Holder of the  authorization  of additional  shares of Common Stock,  the
Authorization  Date  and the  amount  of  Holder's  accrued  Conversion  Default
Payments.  The accrued Conversion Default Payments for each calendar month shall
be paid in cash or shall be convertible into Common Stock (at such time as there
are sufficient  authorized shares of Common Stock) at the applicable  Conversion
Price, at the Borrower's option, as follows:

     (a) In the event Holder  elects to take such payment in cash,  cash payment
shall be made to Holder by the fifth (5th) day of the month  following the month
in which it has accrued; and

     (b) In the event Holder  elects to take such payment in Common  Stock,  the
Holder may convert such payment amount into Common Stock at the Conversion Price
(as in effect at the time of  conversion) at any time after the fifth day of the
month  following the month in which it has accrued in accordance  with the terms
of this  Article I (so long as there is then a sufficient  number of  authorized
shares of Common Stock).

     The Holder's  election shall be made in writing to the Borrower at any time
prior to 6:00  p.m.,  New  York,  New York  time,  on the third day of the month
following the month in which  Conversion  Default  payments have accrued.  If no
election is made,  the Holder shall be deemed to have  elected to receive  cash.
Nothing  herein shall limit the Holder's  right to pursue actual damages (to the
extent in excess of the Conversion  Default Payments) for the Borrower's failure
to maintain a sufficient  number of authorized  shares of Common Stock, and each
holder shall have the right to pursue all remedies available at law or in equity
(including degree of specific performance and/or injunctive relief).

     1.4 Method of Conversion.

     (a)  Mechanics  of  Conversion.  Subject to Section  1.1,  this Note may be
converted  by the Holder in whole or in part at any time from time to time after
the Issue Date, by (A)  submitting  to the Borrower a Notice of  Conversion  (by
facsimile  or  other  reasonable  means  of  communication   dispatched  on  the
Conversion  Date prior to 6:00 p.m., New York, New York time) and (B) subject to
Section 1.4(b), surrendering this Note at the principal office of the Borrower.

     (b)  Surrender  of Note Upon  Conversion.  Notwithstanding  anything to the
contrary set forth herein,  upon  conversion of this Note in accordance with the
terms hereof, the Holder shall not be required to physically surrender this Note
to the Borrower  unless the entire  unpaid  principal  amount of this Note is so
converted.  The Holder and the  Borrower  shall  maintain  records  showing  the
principal  amount so converted  and the dates of such  conversions  or shall use
such other method, reasonably satisfactory to the Holder and the Borrower, so as
not to require physical surrender of this Note upon each such conversion. In the
event of any  dispute or  discrepancy,  such  records of the  Borrower  shall be
controlling and determinative in the absence of manifest error.  Notwithstanding
the foregoing, if any portion of this Note is converted as aforesaid, the Holder
may not transfer this Note unless the Holder first  physically  surrenders  this
Note to the Borrower,  whereupon the Borrower will  forthwith  issue and deliver
upon the order of the Holder a new Note of like tenor,  registered as the Holder
(upon  payment  by the Holder of any  applicable  transfer  taxes) may  request,
representing  in the  aggregate the remaining  unpaid  principal  amount of this
Note. The Holder and any assignee,  by acceptance of this Note,  acknowledge and
agree that, by reason of the provisions of this paragraph,  following conversion
of a portion of this Note, the unpaid and unconverted  principal  amount of this
Note  represented  by this Note may be less than the  amount  stated on the face
hereof.

                                       5

<PAGE>

     (c)  Payment of Taxes.  The  Borrower  shall not be required to pay any tax
which may be  payable  in  respect  of any  transfer  involved  in the issue and
delivery of shares of Common Stock or other securities or property on conversion
of this Note in a name other than that of the  Holder (or in street  name),  and
the Borrower  shall not be required to issue or deliver any such shares or other
securities  or property  unless and until the person or persons  (other than the
Holder or the  custodian in whose street name such shares are to be held for the
Holder's  account)  requesting  the  issuance  thereof  shall  have  paid to the
Borrower  the  amount  of  any  such  tax  or  shall  have  established  to  the
satisfaction of the Borrower that such tax has been paid.

     (d) Delivery of Common Stock Upon Conversion.  Upon receipt by the Borrower
from the  Holder  of a  facsimile  transmission  (or other  reasonable  means of
communication) of a Notice of Conversion meeting the requirements for conversion
as provided in this Section  1.4, the Borrower  shall issue and deliver or cause
to be issued and delivered to or upon the order of the Holder  certificates  for
the Common Stock  issuable  upon such  conversion  within two (2) business  days
after such receipt  (and,  solely in the case of conversion of the entire unpaid
principal amount hereof, surrender of this Note) (such second business day being
hereinafter  referred to as the  "Deadline") in accordance with the terms hereof
and the Purchase Agreement  (including,  without limitation,  in accordance with
the requirements of Section 2(g) of the Purchase Agreement that certificates for
shares of Common Stock issued on or after the effective date of the Registration
Statement upon conversion of this Note shall not bear any restrictive legend).

     (e)  Obligation of Borrower to Deliver  Common  Stock.  Upon receipt by the
Borrower of a Notice of Conversion,  the Holder shall be deemed to be the holder
of record of the Common Stock  issuable upon such  conversion,  the  outstanding
principal  amount  and the amount of accrued  and unpaid  interest  on this Note
shall be reduced to reflect such conversion,  and, unless the Borrower  defaults
on its obligations  under this Article I, all rights with respect to the portion
of this Note being so converted  shall forthwith  terminate  except the right to
receive the Common Stock or other  securities,  cash or other assets,  as herein
provided,  on such  conversion.  If the  Holder  shall  have  given a Notice  of
Conversion as provided  herein,  the Borrower's  obligation to issue and deliver
the  certificates  for  Common  Stock  shall  be  absolute  and   unconditional,
irrespective of the absence of any action by the Holder to enforce the same, any
waiver or consent with  respect to any  provision  thereof,  the recovery of any
judgment  against any person or any action to enforce  the same,  any failure or
delay in the  enforcement of any other  obligation of the Borrower to the holder
of record, or any setoff, counterclaim,  recoupment,  limitation or termination,
or any breach or alleged breach by the Holder of any obligation to the Borrower,
and  irrespective  of any other  circumstance  which might  otherwise limit such
obligation of the Borrower to the Holder in connection with such conversion. The
Conversion  Date  specified in the Notice of Conversion  shall be the Conversion
Date so long as the Notice of Conversion is received by the Borrower before 6:00
p.m., New York, New York time, on such date.

                                       6

<PAGE>

     (f) Delivery of Common Stock by Electronic Transfer.  In lieu of delivering
physical  certificates  representing  the Common Stock issuable upon conversion,
provided the Borrower's  transfer agent is participating in the Depository Trust
Company  ("DTC") Fast  Automated  Securities  Transfer  ("FAST")  program,  upon
request  of the Holder  and its  compliance  with the  provisions  contained  in
Section 1.1 and in this Section 1.4, the Borrower  shall use its best efforts to
cause its transfer  agent to  electronically  transmit the Common Stock issuable
upon  conversion to the Holder by crediting the account of Holder's Prime Broker
with DTC through its Deposit Withdrawal Agent Commission ("DWAC") system.

     (g) Failure to Deliver  Common Stock Prior to Deadline.  Without in any way
limiting the Holder's right to pursue other remedies,  including  actual damages
and/or equitable relief,  the parties agree that if delivery of the Common Stock
issuable  upon  conversion of this Note is more than two (2) business days after
the Deadline (other than a failure due to the circumstances described in Section
1.3 above,  which failure shall be governed by such Section) the Borrower  shall
pay to the Holder $2,000 per day in cash,  for each day beyond the Deadline that
the Borrower fails to deliver such Common Stock.  Such cash amount shall be paid
to Holder by the  fifth  day of the  month  following  the month in which it has
accrued  or, at the option of the Holder (by written  notice to the  Borrower by
the first day of the month  following the month in which it has accrued),  shall
be added to the  principal  amount of this Note, in which event  interest  shall
accrue  thereon in  accordance  with the terms of this Note and such  additional
principal  amount shall be convertible  into Common Stock in accordance with the
terms of this Note.

     1.5  Concerning  the  Shares.  The  shares of Common  Stock  issuable  upon
conversion  of this Note may not be sold or  transferred  unless (i) such shares
are sold pursuant to an effective  registration  statement under the Act or (ii)
the Borrower or its transfer  agent shall have been furnished with an opinion of
counsel  (which  opinion  shall be in form,  substance  and scope  customary for
opinions of counsel in comparable transactions) to the effect that the shares to
be sold or transferred may be sold or transferred  pursuant to an exemption from
such registration or (iii) such shares are sold or transferred  pursuant to Rule
144 under the Act (or a  successor  rule)  ("Rule  144") or (iv) such shares are
transferred  to an  "affiliate"  (as  defined in Rule 144) of the  Borrower  who
agrees to sell or  otherwise  transfer the shares only in  accordance  with this
Section  1.5 and who is an  Accredited  Investor  (as  defined  in the  Purchase
Agreement).  Except as otherwise provided in the Purchase Agreement (and subject
to the removal  provisions  set forth  below),  until such time as the shares of
Common Stock issuable upon  conversion of this Note have been  registered  under
the Act as contemplated by the Registration Rights Agreement or otherwise may be
sold pursuant to Rule 144 without any restriction as to the number of securities
as of a particular date that can then be immediately  sold, each certificate for
shares of Common Stock  issuable upon  conversion of this Note that has not been
so included in an  effective  registration  statement  or that has not been sold
pursuant to an effective  registration  statement  or an exemption  that permits
removal of the legend,  shall bear a legend substantially in the following form,
as appropriate:

          "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
          REGISTERED UNDER THE  SECURITIES ACT OF 1933, AS AMENDED. THE
          SECURITIES  MAY NOT  BE SOLD, TRANSFERRED  OR ASSIGNED IN THE
          ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES
          UNDER SAID ACT, OR AN OPINION OF COUNSEL IN FORM, SUBSTANCE AND
          SCOPE CUSTOMARY FOR OPINIONS OF COUNSEL IN COMPARABLE
          TRANSACTIONS, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT
          UNLESS SOLD PURSUANT TO RULE 144 OR REGULATION S UNDER SAID ACT."

     The legend set forth above shall be removed and the Borrower shall issue to
the Holder a new  certificate  therefor  free of any transfer  legend if (i) the
Borrower or its  transfer  agent shall have  received an opinion of counsel,  in
form,  substance  and scope  customary  for  opinions  of counsel in  comparable
transactions,  to the effect that a public sale or transfer of such Common Stock
may be made  without  registration  under the Act and the  shares are so sold or
transferred,  (ii) such Holder  provides the Borrower or its transfer agent with
reasonable  assurances  that the Common Stock  issuable upon  conversion of this
Note (to the extent such securities are deemed to have been acquired on the same
date) can be sold  pursuant to Rule 144 or (iii) in the case of the Common Stock
issuable upon  conversion of this Note,  such security is registered for sale by
the Holder  under an  effective  registration  statement  filed under the Act or
otherwise  may be sold  pursuant to Rule 144 without any  restriction  as to the
number of securities as of a particular date that can then be immediately  sold.
Nothing  in this  Note  shall  (i) limit  the  Borrower's  obligation  under the
Registration Rights Agreement or (ii) affect in any way the Holder's obligations
to comply with applicable  prospectus  delivery  requirements upon the resale of
the securities referred to herein.

     1.6 Effect of Certain Events.

     (a) Effect of Merger, Consolidation,  Etc. At the option of the Holder, the
sale, conveyance or disposition of all or substantially all of the assets of the
Borrower, the effectuation by the Borrower of a transaction or series of related
transactions  in which  more than 50% of the  voting  power of the  Borrower  is
disposed of, or the consolidation,  merger or other business  combination of the
Borrower  with or into any other  Person (as defined  below) or Persons when the
Borrower  is not the  survivor  shall  either:  (i) be  deemed to be an Event of
Default (as defined in Article  III)  pursuant  to which the  Borrower  shall be
required to pay to the Holder  upon the  consummation  of and as a condition  to
such  transaction  an amount equal to the Default  Amount (as defined in Article
III) or (ii) be treated  pursuant to Section 1.6(b) hereof.  "Person" shall mean
any   individual,   corporation,   limited   liability   company,   partnership,
association, trust or other entity or organization.

                                       8

<PAGE>

     (b) Adjustment Due to Merger, Consolidation, Etc. If, at any time when this
Note is issued  and  outstanding  and prior to  conversion  of all of the Notes,
there shall be any merger, consolidation,  exchange of shares, recapitalization,
reorganization,  or other similar  event,  as a result of which shares of Common
Stock of the Borrower  shall be changed  into the same or a different  number of
shares of another  class or classes of stock or  securities  of the  Borrower or
another entity, or in case of any sale or conveyance of all or substantially all
of the assets of the Borrower  other than in connection  with a plan of complete
liquidation of the Borrower,  then the Holder of this Note shall thereafter have
the right to receive upon  conversion of this Note,  upon the basis and upon the
terms and conditions  specified herein and in lieu of the shares of Common Stock
immediately  theretofore  issuable upon  conversion,  such stock,  securities or
assets which the Holder would have been entitled to receive in such  transaction
had this Note  been  converted  in full  immediately  prior to such  transaction
(without regard to any  limitations on conversion set forth herein),  and in any
such case  appropriate  provisions  shall be made with respect to the rights and
interests  of the  Holder  of this  Note to the end that the  provisions  hereof
(including,  without  limitation,  provisions  for  adjustment of the Conversion
Price and of the number of shares  issuable  upon  conversion of the Note) shall
thereafter be  applicable,  as nearly as may be  practicable  in relation to any
securities or assets  thereafter  deliverable  upon the conversion  hereof.  The
Borrower  shall not effect any  transaction  described  in this  Section  1.6(b)
unless (a) it first  gives,  to the extent  practicable,  thirty (30) days prior
written  notice  (but in any  event at least  fifteen  (15) days  prior  written
notice) of the record date of the special meeting of shareholders to approve, or
if  there  is  no  such  record  date,   the   consummation   of,  such  merger,
consolidation,  exchange of shares,  recapitalization,  reorganization  or other
similar event or sale of assets  (during which time the Holder shall be entitled
to convert this Note) and (b) the  resulting  successor or acquiring  entity (if
not the Borrower) assumes by written  instrument the obligations of this Section
1.6(b). The above provisions shall similarly apply to successive consolidations,
mergers, sales, transfers or share exchanges.

     (c) Adjustment Due to  Distribution.  If the Borrower shall declare or make
any  distribution  of its assets (or rights to acquire its assets) to holders of
Common  Stock as a dividend,  stock  repurchase,  by way of return of capital or
otherwise (including any dividend or distribution to the Borrower's shareholders
in cash or shares (or rights to acquire shares) of capital stock of a subsidiary
(i.e.,  a spin-off)) (a  "Distribution"),  then the Holder of this Note shall be
entitled,  upon  any  conversion  of this  Note  after  the date of  record  for
determining shareholders entitled to such Distribution, to receive the amount of
such  assets  which would have been  payable to the Holder  with  respect to the
shares of Common Stock  issuable upon such  conversion  had such Holder been the
holder of such shares of Common  Stock on the record date for the  determination
of shareholders entitled to such Distribution.

     (d) Adjustment Due to Dilutive Issuance. If, at any time when any Notes are
issued and outstanding, the Borrower issues or sells, or in accordance with this
Section  1.6(d)  hereof is deemed to have  issued or sold,  any shares of Common
Stock for no consideration or for a consideration per share (before deduction of
reasonable  expenses or commissions or  underwriting  discounts or allowances in
connection therewith) less than the Fixed Conversion Price in effect on the date
of such  issuance  (or  deemed  issuance)  of such  shares  of  Common  Stock (a
"Dilutive  Issuance"),  then immediately upon the Dilutive  Issuance,  the Fixed
Conversion  Price will be reduced to the amount of the  consideration  per share
received  by the  Borrower in such  Dilutive  Issuance;  provided  that only one
adjustment will be made for each Dilutive Issuance.

                                       9

<PAGE>

     The Borrower  shall be deemed to have issued or sold shares of Common Stock
if the Borrower in any manner issues or grants any  warrants,  rights or options
(not  including  employee  stock  option  plans),  whether  or  not  immediately
exercisable,  to subscribe for or to purchase  Common Stock or other  securities
convertible  into or exchangeable  for Common Stock  ("Convertible  Securities")
(such  warrants,  rights and options to  purchase  Common  Stock or  Convertible
Securities are hereinafter referred to as "Options") and the price per share for
which  Common  Stock is issuable  upon the exercise of such Options is less than
the Fixed Conversion Price then in effect, then the Fixed Conversion Price shall
be equal to such price per share.  For purposes of the preceding  sentence,  the
"price per share for which  Common  Stock is issuable  upon the exercise of such
Options" is  determined by dividing (i) the total  amount,  if any,  received or
receivable by the Borrower as consideration  for the issuance or granting of all
such Options, plus the minimum aggregate amount of additional consideration,  if
any, payable to the Borrower upon the exercise of all such Options, plus, in the
case of Convertible  Securities issuable upon the exercise of such Options,  the
minimum aggregate amount of additional consideration payable upon the conversion
or  exchange  thereof  at the time  such  Convertible  Securities  first  become
convertible  or  exchangeable,  by (ii) the  maximum  total  number of shares of
Common  Stock  issuable  upon the exercise of all such  Options  (assuming  full
conversion of Convertible Securities,  if applicable).  No further adjustment to
the Conversion  Price will be made upon the actual issuance of such Common Stock
upon  the  exercise  of such  Options  or upon the  conversion  or  exchange  of
Convertible Securities issuable upon exercise of such Options.

     Additionally, the Borrower shall be deemed to have issued or sold shares of
Common  Stock if the  Borrower  in any  manner  issues or sells any  Convertible
Securities,  whether or not immediately  convertible  (other than where the same
are issuable  upon the  exercise of Options),  and the price per share for which
Common Stock is issuable upon such conversion or exchange is less than the Fixed
Conversion Price then in effect,  then the Fixed Conversion Price shall be equal
to such price per share. For the purposes of the preceding sentence,  the "price
per share for which Common Stock is issuable  upon such  conversion or exchange"
is determined by dividing (i) the total amount,  if any,  received or receivable
by the  Borrower  as  consideration  for  the  issuance  or  sale  of  all  such
Convertible  Securities,   plus  the  minimum  aggregate  amount  of  additional
consideration,  if any,  payable to the Borrower upon the conversion or exchange
thereof at the time such  Convertible  Securities  first become  convertible  or
exchangeable,  by (ii) the  maximum  total  number of  shares  of  Common  Stock
issuable upon the conversion or exchange of all such Convertible Securities.  No
further  adjustment to the Fixed  Conversion  Price will be made upon the actual
issuance of such Common Stock upon  conversion  or exchange of such  Convertible
Securities.

     (e)  Purchase  Rights.  If,  at any time  when any  Notes  are  issued  and
outstanding,  the  Borrower  issues  any  convertible  securities  or  rights to
purchase stock,  warrants,  securities or other property (the "Purchase Rights")
pro rata to the record holders of any class of Common Stock,  then the Holder of
this  Note will be  entitled  to  acquire,  upon the  terms  applicable  to such
Purchase  Rights,  the  aggregate  Purchase  Rights which such Holder could have
acquired if such Holder had held the number of shares of Common Stock acquirable
upon  complete  conversion of this Note (without  regard to any  limitations  on
conversion  contained herein)  immediately  before the date on which a record is
taken for the grant,  issuance  or sale of such  Purchase  Rights or, if no such
record is taken,  the date as of which the record holders of Common Stock are to
be determined for the grant,  issue or sale of such Purchase Rights.

     (f)  Notice of  Adjustments.  Upon the  occurrence  of each  adjustment  or
readjustment of the Conversion Price as a result of the events described in this
Section  1.6,  the  Borrower,  at  its  expense,  shall  promptly  compute  such
adjustment  or  readjustment  and  prepare  and  furnish  to  the  Holder  of  a
certificate  setting forth such adjustment or readjustment and showing in detail
the facts upon which such  adjustment  or  readjustment  is based.  The Borrower
shall,  upon the  written  request  at any time of the  Holder,  furnish to such
Holder a like  certificate  setting forth (i) such  adjustment or  readjustment,
(ii) the  Conversion  Price at the time in effect and (iii) the number of shares
of Common Stock and the amount, if any, of other securities or property which at
the time would be received upon conversion of the Note.

     1.7 Trading Market  Limitations.  Unless  permitted by the applicable rules
and regulations of the principal  securities market on which the Common Stock is
then listed or traded,  in no event shall the Borrower issue upon  conversion of
or otherwise  pursuant to this Note and the other Notes  issued  pursuant to the
Purchase  Agreement  more than the maximum number of shares of Common Stock that
the  Borrower  can issue  pursuant to any rule of the  principal  United  States
securities  market on which the Common Stock is then traded (the "Maximum  Share
Amount"),  which shall be 19.99% of the total shares  outstanding on the Closing
Date (as defined in the Purchase  Agreement),  subject to  equitable  adjustment
from time to time for  stock  splits,  stock  dividends,  combinations,  capital
reorganizations  and similar events relating to the Common Stock occurring after
the date  hereof.  Once the  Maximum  Share  Amount has been issued (the date of
which is  hereinafter  referred to as the  "Maximum  Conversion  Date"),  if the
Borrower fails to eliminate any  prohibitions  under applicable law or the rules
or  regulations of any stock  exchange,  interdealer  quotation  system or other
self-regulatory  organization  with jurisdiction over the Borrower or any of its
securities on the  Borrower's  ability to issue shares of Common Stock in excess
of the Maximum Share Amount (a "Trading Market  Prepayment  Event"),  in lieu of
any  further  right  to  convert  this  Note,  and in full  satisfaction  of the
Borrower's  obligations  under this Note,  the Borrower shall pay to the Holder,
within fifteen (15) business days of the Maximum  Conversion  Date (the "Trading
Market Prepayment  Date"), an amount equal to 130% times the sum of (a) the then
outstanding  principal  amount of this Note  immediately  following  the Maximum
Conversion  Date, plus (b) accrued and unpaid  interest on the unpaid  principal
amount of this Note to the  Trading  Market  Prepayment  Date,  plus (c) Default
Interest,  if any,  on the  amounts  referred to in clause (a) and/or (b) above,
plus  (d)  any  optional  amounts  that  may be  added  thereto  at the  Maximum
Conversion  Date by the Holder in  accordance  with the terms  hereof  (the then
outstanding  principal  amount of this Note  immediately  following  the Maximum
Conversion  Date, plus the amounts referred to in clauses (b), (c) and (d) above
shall collectively be referred to as the "Remaining  Convertible Amount").  With
respect to each Holder of Notes,  the Maximum  Share  Amount shall refer to such
Holder's pro rata share thereof determined in accordance with Section 4.8 below.
In the event that the sum of (x) the aggregate  number of shares of Common Stock
issued upon  conversion of this Note and the other Notes issued  pursuant to the
Purchase  Agreement plus (y) the aggregate number of shares of Common Stock that
remain issuable upon conversion of this Note and the other Notes issued pursuant
to the Purchase Agreement, represents at least one hundred percent (100%) of the
Maximum Share Amount (the  "Triggering  Event"),  the Borrower will use its best
efforts to seek and obtain Shareholder  Approval (or obtain such other relief as
will allow conversions  hereunder in excess of the Maximum Share Amount) as soon
as practicable  following the Triggering Event and before the Maximum Conversion
Date. As used herein,  "Shareholder Approval" means approval by the shareholders
of the Borrower to authorize the issuance of the full number of shares of Common
Stock which would be issuable upon full conversion of the then outstanding Notes
but for the Maximum Share Amount.

                                       11

<PAGE>

     1.8 Status as  Shareholder.  Upon submission of a Notice of Conversion by a
Holder,  (i) the shares covered  thereby  (other than the shares,  if any, which
cannot be issued  because their  issuance  would exceed such Holder's  allocated
portion  of the  Reserved  Amount  or  Maximum  Share  Amount)  shall be  deemed
converted  into shares of Common Stock and (ii) the Holder's  rights as a Holder
of such converted portion of this Note shall cease and terminate, excepting only
the right to receive  certificates  for such  shares of Common  Stock and to any
remedies  provided  herein or  otherwise  available  at law or in equity to such
Holder  because of a failure by the  Borrower  to comply  with the terms of this
Note.  Notwithstanding the foregoing,  if a Holder has not received certificates
for all shares of Common Stock prior to the tenth (10th)  business day after the
expiration  of the Deadline  with respect to a conversion of any portion of this
Note for any  reason,  then  (unless the Holder  otherwise  elects to retain its
status as a holder of Common  Stock by so  notifying  the  Borrower)  the Holder
shall  regain  the  rights  of a  Holder  of  this  Note  with  respect  to such
unconverted   portions  of  this  Note  and  the  Borrower  shall,  as  soon  as
practicable,  return such unconverted Note to the Holder or, if the Note has not
been  surrendered,  adjust its records to reflect that such portion of this Note
has not been converted.  In all cases, the Holder shall retain all of its rights
and remedies (including, without limitation, (i) the right to receive Conversion
Default Payments pursuant to Section 1.3 to the extent required thereby for such
Conversion  Default and any subsequent  Conversion Default and (ii) the right to
have the Conversion Price with respect to subsequent  conversions  determined in
accordance with Section 1.3) for the Borrower's failure to convert this Note.

                         ARTICLE II. CERTAIN COVENANTS

     2.1  Distributions on Capital Stock. So long as the Borrower shall have any
obligation  under this Note, the Borrower shall not without the Holder's written
consent (a) pay,  declare or set apart for such  payment,  any dividend or other
distribution  (whether  in cash,  property  or other  securities)  on  shares of
capital stock other than  dividends on shares of Common Stock solely in the form
of  additional  shares of Common Stock or (b) directly or  indirectly or through
any subsidiary  make any other payment or distribution in respect of its capital
stock except for distributions  pursuant to any shareholders'  rights plan which
is approved by a majority of the Borrower's disinterested directors.

     2.2  Restriction on Stock  Repurchases.  So long as the Borrower shall have
any  obligation  under this Note,  the  Borrower  shall not without the Holder's
written consent redeem,  repurchase or otherwise acquire (whether for cash or in
exchange for property or other  securities or otherwise) in any one  transaction
or series of related transactions any shares of capital stock of the Borrower or
any warrants, rights or options to purchase or acquire any such shares.

     2.3  Borrowings.  So long as the Borrower shall have any  obligation  under
this Note, the Borrower shall not, without the Holder's written consent, create,
incur,  assume or suffer to exist any liability for borrowed  money,  except (a)
borrowings  in  existence  or  committed  on the date  hereof  and of which  the
Borrower  has  informed  Holder  in  writing  prior  to  the  date  hereof,  (b)
indebtedness  to trade  creditors  or  financial  institutions  incurred  in the
ordinary  course of business or (c)  borrowings,  the proceeds of which shall be
used to repay this Note.

                                       12

<PAGE>

     2.4 Sale of Assets. So long as the Borrower shall have any obligation under
this Note, the Borrower shall not, without the Holder's  written consent,  sell,
lease or otherwise dispose of any significant  portion of its assets outside the
ordinary course of business. Any consent to the disposition of any assets may be
conditioned on a specified use of the proceeds of disposition.

     2.5 Advances and Loans.  So long as the Borrower  shall have any obligation
under this Note, the Borrower shall not,  without the Holder's  written consent,
lend money,  give credit or make advances to any person,  firm, joint venture or
corporation,  including,  without limitation,  officers,  directors,  employees,
subsidiaries and affiliates of the Borrower,  except loans,  credits or advances
(a) in  existence  or  committed  on the date hereof and which the  Borrower has
informed  Holder in writing  prior to the date hereof,  (b) made in the ordinary
course of business or (c) not in excess of $50,000.

     2.6  Contingent  Liabilities.  So  long  as the  Borrower  shall  have  any
obligation under this Note, the Borrower shall not, without the Holder's written
consent, which shall not be unreasonably withheld,  assume, guarantee,  endorse,
contingently agree to purchase or otherwise become liable upon the obligation of
any person,  firm,  partnership,  joint  venture or  corporation,  except by the
endorsement  of  negotiable  instruments  for deposit or  collection  and except
assumptions,  guarantees,  endorsements  and  contingencies  (a) in existence or
committed  on the date  hereof and which the  Borrower  has  informed  Holder in
writing prior to the date hereof,  and (b) similar  transactions in the ordinary
course of business.

                         ARTICLE III. EVENTS OF DEFAULT

     If any of the  following  events of default  (each,  an "Event of Default")
shall occur:

     3.1  Failure to Pay  Principal.  The  Borrower  fails to pay the  principal
hereof  when due on this  Note,  whether  at  maturity,  upon a  Trading  Market
Prepayment Event pursuant to Section 1.7, upon acceleration or otherwise;

     3.2 Conversion and the Shares. The Borrower fails to issue shares of Common
Stock to the  Holder  (or  announces  or  threatens  that it will not  honor its
obligation to do so) upon exercise by the Holder of the conversion rights of the
Holder in accordance with the terms of this Note (for a period of at least sixty
(60) days, if such failure is solely as a result of the  circumstances  governed
by  Section  1.3 and the  Borrower  is using its best  efforts  to  authorize  a
sufficient  number of shares of Common Stock as soon as  practicable),  fails to
transfer  or  cause  its  transfer  agent  to  transfer  (electronically  or  in
certificated  form) any  certificate  for shares of Common  Stock  issued to the
Holder  upon  conversion  of or  otherwise  pursuant  to this  Note as and  when
required by this Note or the Registration  Rights Agreement,  or fails to remove
any restrictive legend (or to withdraw any stop transfer instructions in respect
thereof) on any  certificate for any shares of Common Stock issued to the Holder
upon  conversion  of or otherwise  pursuant to this Note as and when required by
this Note or the  Registration  Rights  Agreement  (or  makes any  announcement,
statement or threat that it does not intend to honor the  obligations  described
in  this  paragraph)  and  any  such  failure  shall  continue  uncured  (or any
announcement,  statement  or threat  not to honor its  obligations  shall not be
rescinded  in  writing)  for ten (10) days  after the  Borrower  shall have been
notified thereof in writing by the Holder;

                                       13

<PAGE>

     3.3  Failure  to  Timely  File  Registration  or Effect  Registration.  The
Borrower fails to file the Registration  Statement  within  forty-five (45) days
following  the Closing  Date (as defined in the  Purchase  Agreement)  or obtain
effectiveness  with the Securities and Exchange  Commission of the  Registration
Statement  within one hundred and five (105) days following the Closing Date (as
defined in the Purchase  Agreement)  or such  Registration  Statement  lapses in
effect (or sales  cannot  otherwise  be made  thereunder  effective,  whether by
reason of the Borrower's failure to amend or supplement the prospectus  included
therein in accordance with the  Registration  Rights Agreement or otherwise) for
more than ten (10)  consecutive  days or twenty  (20) days in any  twelve  month
period after the Registration Statement becomes effective;

     3.4 Breach of  Covenants.  The Borrower  breaches any material  covenant or
other  material term or condition  contained in Sections 1.3, 1.6 or 1.7 of this
Note, or Sections 4(c), 4(e),  4(h),  4(i), 4(j) or 5 of the Purchase  Agreement
and such breach  continues  for a period of ten (10) days after  written  notice
thereof to the Borrower from the Holder;

     3.5  Breach  of  Representations  and  Warranties.  Any  representation  or
warranty  of  the  Borrower  made  herein  or in  any  agreement,  statement  or
certificate  given  in  writing  pursuant  hereto  or  in  connection   herewith
(including,  without  limitation,  the Purchase  Agreement and the  Registration
Rights  Agreement),  shall be false or misleading  in any material  respect when
made and the  breach of which  has (or with the  passage  of time  will  have) a
material  adverse  effect on the rights of the Holder with respect to this Note,
the Purchase Agreement or the Registration Rights Agreement;

     3.6  Receiver or Trustee.  The Borrower or any  subsidiary  of the Borrower
shall make an assignment  for the benefit of creditors,  or apply for or consent
to the appointment of a receiver or trustee for it or for a substantial  part of
its  property or  business,  or such a receiver or trustee  shall  otherwise  be
appointed;

     3.7 Judgments. Any money judgment, writ or similar process shall be entered
or filed  against the Borrower or any  subsidiary  of the Borrower or any of its
property or other assets for more than  $150,000,  and shall  remain  unvacated,
unbonded or unstayed for a period of twenty (20) days unless otherwise consented
to by the Holder, which consent will not be unreasonably withheld;

     3.8  Bankruptcy.  Bankruptcy,  insolvency,  reorganization  or  liquidation
proceedings or other  proceedings for relief under any bankruptcy law or any law
for the relief of debtors  shall be instituted by or against the Borrower or any
subsidiary of the Borrower;

     3.9  Delisting of Common  Stock.  The  Borrower  shall fail to maintain the
listing  of the  Common  Stock on at  least  one of the  OTCBB or an  equivalent
replacement  exchange,  the Nasdaq National Market,  the Nasdaq SmallCap Market,
the New York Stock Exchange, or the American Stock Exchange;

                                       14

<PAGE>

     3.10  Default  Under Other  Notes.  An Event of Default has occurred and is
continuing  under  any  of the  other  Notes  issued  pursuant  to the  Purchase
Agreement;

     3.11 Failure to Obtain Intercreditors Agreement. The Borrower shall fail to
obtain  within  thirty (30) days of Closing an agreement  from Great White Shark
Enterprises ("GWSE") to share ratably in GWSE's interest in the 093 US patent.

     Then,  upon the  occurrence  and  during the  continuation  of any Event of
Default  specified in Section 3.1, 3.2, 3.3, 3.4, 3.5, 3.7, 3.9, or 3.10, at the
option of the Holders of a majority  of the  aggregate  principal  amount of the
outstanding Notes issued pursuant to the Purchase Agreement  exercisable through
the delivery of 10 business days written  notice to the Borrower by such Holders
(the "Default Notice"), and upon the occurrence of an Event of Default specified
in Section  3.6 or 3.8,  the Notes  shall  become  immediately  due and  payable
(except in the case of an Event of Default under  Section  3.11,  which shall be
120 days from the Closing  Date) and the  Borrower  shall pay to the Holder,  in
full satisfaction of its obligations  hereunder,  an amount equal to the greater
of (i) 130%  times  the then  outstanding  principal  amount  of this  Note (the
"Mandatory  Prepayment Date") plus (y) Default Interest,  if any, on the amounts
referred to in clauses  (w) and/or (x) plus (z) any  amounts  owed to the Holder
pursuant to Sections  1.3 and 1.4(g)  hereof or pursuant to Section  2(c) of the
Registration  Rights  Agreement (the then  outstanding  principal amount of this
Note to the date of payment plus the amounts referred to in clauses (x), (y) and
(z) shall collectively be known as the "Default Sum") or (ii) the "parity value"
of the  Default  Sum to be  prepaid,  where  parity  value means (a) the highest
number of shares  of Common  Stock  issuable  upon  conversion  of or  otherwise
pursuant to such Default Sum in accordance  with Article I, treating the Trading
Day immediately preceding the Mandatory Prepayment Date as the "Conversion Date"
for purposes of determining the lowest applicable  Conversion Price,  unless the
Default Event arises as a result of a breach in respect of a specific Conversion
Date  in  which  case  such  Conversion  Date  shall  be the  Conversion  Date),
multiplied  by (b) the highest  Closing  Price for the Common  Stock  during the
period  beginning  on the date of first  occurrence  of the Event of Default and
ending one day prior to the Mandatory Prepayment Date (the "Default Amount") and
all other amounts payable  hereunder shall  immediately  become due and payable,
all without  demand,  presentment  or notice,  all of which hereby are expressly
waived, together with all costs, including,  without limitation,  legal fees and
expenses, of collection,  and the Holder shall be entitled to exercise all other
rights and remedies  available at law or in equity. If the Borrower fails to pay
the Default  Amount  within five (5) business  days of written  notice that such
amount is due and payable,  then the Holder shall have the right at any time, so
long as the  Borrower  remains  in default  (and so long and to the extent  that
there are sufficient  authorized shares), to require the Borrower,  upon written
notice,  to  immediately  issue,  in lieu of the Default  Amount,  the number of
shares of Common Stock of the Borrower  equal to the Default  Amount  divided by
the Conversion Price then in effect.

                                       15

<PAGE>

                           ARTICLE IV. MISCELLANEOUS

     4.1 Failure or  Indulgence  Not Waiver.  No failure or delay on the part of
the Holder in the  exercise of any power,  right or  privilege  hereunder  shall
operate as a waiver  thereof,  nor shall any single or partial  exercise  of any
such power,  right or privilege preclude other or further exercise thereof or of
any other right, power or privileges. All rights and remedies existing hereunder
are  cumulative  to, and not  exclusive  of, any  rights or  remedies  otherwise
available.

     4.2 Notices.  Any notice herein  required or permitted to be given shall be
in  writing  and may be  personally  served or  delivered  by courier or sent by
United  States  mail and  shall be deemed to have been  given  upon  receipt  if
personally served (which shall include telephone line facsimile transmission) or
sent by courier or three (3) days after  being  deposited  in the United  States
mail, certified,  with postage pre-paid and properly addressed, if sent by mail.
For the  purposes  hereof,  the  address of the Holder  shall be as shown on the
records of the  Borrower;  and the address of the  Borrower  shall be Suite 214,
5500- 152nd Street,  Surrey,  British Columbia V3S-5J9,  facsimile number: (604)
576-7460. Both the Holder and the Borrower may change the address for service by
service of written notice to the other as herein provided.

     4.3 Amendments.  This Note and any provision  hereof may only be amended by
an instrument in writing signed by the Borrower and the Holder.  The term "Note"
and all reference thereto,  as used throughout this instrument,  shall mean this
instrument  (and the other Notes issued  pursuant to the Purchase  Agreement) as
originally executed, or if later amended or supplemented,  then as so amended or
supplemented.

     4.4  Assignability.  This Note shall be binding  upon the  Borrower and its
successors and assigns,  and shall inure to be the benefit of the Holder and its
successors  and assigns.  Each  transferee  of this Note must be an  "accredited
investor" (as defined in Rule 501(a) of the 1933 Act).  Notwithstanding anything
in this  Note to the  contrary,  this  Note  may be  pledged  as  collateral  in
connection with a bona fide margin account or other lending arrangement.

     4.5 Cost of Collection. If default is made in the payment of this Note, the
Borrower shall pay the Holder hereof costs of collection,  including  reasonable
attorneys' fees.

     4.6 Governing  Law. THIS NOTE SHALL BE ENFORCED,  GOVERNED BY AND CONSTRUED
IN  ACCORDANCE  WITH THE LAWS OF THE STATE OF NEW YORK  APPLICABLE TO AGREEMENTS
MADE AND TO BE  PERFORMED  ENTIRELY  WITHIN  SUCH STATE,  WITHOUT  REGARD TO THE
PRINCIPLES  OF CONFLICT OF LAWS.  THE BORROWER  HEREBY  SUBMITS TO THE EXCLUSIVE
JURISDICTION  OF THE UNITED STATES  FEDERAL COURTS LOCATED IN NEW YORK, NEW YORK
WITH RESPECT TO ANY DISPUTE ARISING UNDER THIS NOTE, THE AGREEMENTS ENTERED INTO
IN CONNECTION HEREWITH OR THE TRANSACTIONS  CONTEMPLATED HEREBY OR THEREBY. BOTH
PARTIES   IRREVOCABLY  WAIVE  THE  DEFENSE  OF  AN  INCONVENIENT  FORUM  TO  THE
MAINTENANCE OF SUCH SUIT OR PROCEEDING.  BOTH PARTIES FURTHER AGREE THAT SERVICE
OF  PROCESS  UPON A PARTY  MAILED BY FIRST  CLASS  MAIL SHALL BE DEEMED IN EVERY
RESPECT  EFFECTIVE  SERVICE  OF  PROCESS  UPON THE  PARTY  IN ANY  SUCH  SUIT OR
PROCEEDING. NOTHING HEREIN SHALL AFFECT EITHER PARTY'S RIGHT TO SERVE PROCESS IN
ANY  OTHER  MANNER   PERMITTED  BY  LAW.   BOTH  PARTIES   AGREE  THAT  A  FINAL
NON-APPEALABLE  JUDGMENT IN ANY SUCH SUIT OR PROCEEDING  SHALL BE CONCLUSIVE AND
MAY BE ENFORCED IN OTHER  JURISDICTIONS BY SUIT ON SUCH JUDGMENT OR IN ANY OTHER
LAWFUL  MANNER.  THE PARTY WHICH DOES NOT PREVAIL IN ANY DISPUTE  ARISING  UNDER
THIS NOTE SHALL BE RESPONSIBLE FOR ALL FEES AND EXPENSES,  INCLUDING  ATTORNEYS'
FEES, INCURRED BY THE PREVAILING PARTY IN CONNECTION WITH SUCH DISPUTE.

                                       16

<PAGE>

     4.7  Certain  Amounts.  Whenever  pursuant  to this  Note the  Borrower  is
required to pay an amount in excess of the outstanding  principal amount (or the
portion thereof  required to be paid at that time),  the Borrower and the Holder
agree that the actual  damages to the Holder from the receipt of cash payment on
this Note may be  difficult  to  determine  and the  amount to be so paid by the
Borrower  represents  stipulated  damages  and not a penalty  and is intended to
compensate  the Holder in part for loss of the  opportunity to convert this Note
and to earn a return  from the sale of  shares  of Common  Stock  acquired  upon
conversion  of this Note at a price in excess of the price paid for such  shares
pursuant to this Note. The Borrower and the Holder hereby agree that such amount
of stipulated  damages is not plainly  disproportionate  to the possible loss to
the Holder from the receipt of a cash payment without the opportunity to convert
this Note into shares of Common Stock.

     4.8  Allocations of Maximum Share Amount and Reserved  Amount.  The Maximum
Share Amount and Reserved  Amount shall be allocated  pro rata among the Holders
of Notes based on the principal amount of such Notes issued to each Holder. Each
increase to the Maximum Share Amount and Reserved  Amount shall be allocated pro
rata among the Holders of Notes based on the principal amount of such Notes held
by each  Holder  at the time of the  increase  in the  Maximum  Share  Amount or
Reserved Amount.  In the event a Holder shall sell or otherwise  transfer any of
such Holder's Notes,  each  transferee  shall be allocated a pro rata portion of
such transferor's  Maximum Share Amount and Reserved Amount.  Any portion of the
Maximum Share Amount or Reserved Amount which remains allocated to any person or
entity which does not hold any Notes shall be allocated to the remaining Holders
of Notes, pro rata based on the principal amount of such Notes then held by such
Holders.

     4.9 Damages Shares.  The shares of Common Stock that may be issuable to the
Holder  pursuant to Sections 1.3 and 1.4(g)  hereof and pursuant to Section 2(c)
of the  Registration  Rights  Agreement  ("Damages  Shares") shall be treated as
Common Stock issuable upon  conversion of this Note for all purposes  hereof and
shall be subject to all of the limitations and afforded all of the rights of the
other shares of Common Stock issuable  hereunder,  including without limitation,
the right to be included in the  Registration  Statement  filed  pursuant to the
Registration Rights Agreement.

     4.10  Denominations.  At the request of the Holder,  upon surrender of this
Note, the Borrower  shall promptly issue new Notes in the aggregate  outstanding
principal amount hereof, in the form hereof,  in such  denominations of at least
$50,000 as the Holder shall request.

                                       17

<PAGE>

     4.11 Purchase Agreement. By its acceptance of this Note, each Holder agrees
to be bound by the applicable terms of the Purchase Agreement.

     4.12 Notice of Corporate  Events.  Except as otherwise  provided below, the
Holder of this Note shall have no rights as a Holder of Common  Stock unless and
only to the extent that it converts  this Note into Common  Stock.  The Borrower
shall  provide  the  Holder  with  prior  notification  of  any  meeting  of the
Borrower's  shareholders  (and copies of proxy  materials and other  information
sent to shareholders). In the event of any taking by the Borrower of a record of
its shareholders for the purpose of determining shareholders who are entitled to
receive  payment of any dividend or other  distribution,  any right to subscribe
for, purchase or otherwise acquire  (including by way of merger,  consolidation,
reclassification  or  recapitalization)  any  share of any  class  or any  other
securities  or property,  or to receive any other  right,  or for the purpose of
determining  shareholders  who  are  entitled  to vote in  connection  with  any
proposed sale, lease or conveyance of all or substantially  all of the assets of
the  Borrower  or any  proposed  liquidation,  dissolution  or winding up of the
Borrower,  the Borrower shall mail a notice to the Holder,  at least twenty (20)
days prior to the record  date  specified  therein (or thirty (30) days prior to
the consummation of the transaction or event, whichever is earlier), of the date
on which  any such  record  is to be taken  for the  purpose  of such  dividend,
distribution,  right or other event, and a brief statement  regarding the amount
and character of such dividend, distribution, right or other event to the extent
known at such time. The Borrower shall make a public  announcement  of any event
requiring notification to the Holder hereunder substantially simultaneously with
the  notification  to the Holder in  accordance  with the terms of this  Section
4.12.

     4.13  Remedies.  The  Borrower  acknowledges  that  a  breach  by it of its
obligations  hereunder will cause  irreparable harm to the Holder,  by vitiating
the intent and purpose of the transaction contemplated hereby. Accordingly,  the
Borrower  acknowledges  that the  remedy at law for a breach of its  obligations
under  this  Note will be  inadequate  and  agrees,  in the event of a breach or
threatened  breach by the  Borrower  of the  provisions  of this Note,  that the
Holder shall be entitled,  in addition to all other available remedies at law or
in equity, and in addition to the penalties  assessable herein, to an injunction
or injunctions restraining,  preventing or curing any breach of this Note and to
enforce specifically the terms and provisions thereof,  without the necessity of
showing economic loss and without any bond or other security being required.

                             ARTICLE V. CALL OPTION

     5.1 Call Option. Notwithstanding anything to the contrary contained in this
Article V, so long as (i) no Event of Default or Trading Market Prepayment Event
shall have occurred and be continuing, (ii) the Borrower has a sufficient number
of authorized  shares of Common Stock reserved for issuance upon full conversion
of the Notes,  then at any time after the Issue Date, and (iii) the Common Stock
is trading at or below $.15 per share,  as such price may be adjusted  for stock
splits,  recapitalizations and similar events (the "Maximum Price") the Borrower
shall have the right,  exercisable  on not less than ten (10) Trading Days prior
written  notice to the Holders of the Notes (which notice may not be sent to the
Holders  of the Notes  until  the  Borrower  is  permitted  to prepay  the Notes
pursuant  to this  Section  5.1),  to  prepay  all of the  outstanding  Notes in
accordance  with this  Section  5.1.  Any  notice of  prepayment  hereunder  (an
"Optional  Prepayment")  shall be delivered to the Holders of the Notes at their
registered  addresses  appearing  on the books and records of the  Borrower  and
shall state (1) that the Borrower is  exercising  its right to prepay all of the
Notes  issued on the Issue Date and (2) the date of  prepayment  (the  "Optional
Prepayment Notice").  On the date fixed for prepayment (the "Optional Prepayment

                                       18

<PAGE>

Date"),  the Borrower shall make payment of the Optional  Prepayment  Amount (as
defined  below) to or upon the order of the Holders as  specified by the Holders
in writing to the  Borrower at least one (1)  business day prior to the Optional
Prepayment  Date. If the Borrower  exercises its right to prepay the Notes,  the
Borrower  shall make payment to the holders of an amount in cash (the  "Optional
Prepayment  Amount") equal to either (i) 125% (for prepayments  occurring within
thirty (30) days of the Issue Date), (ii) 130% for prepayments occurring between
thirty-one  (31) and  sixty  (60)  days of the Issue  Date,  or (iii)  135% (for
prepayments  occurring  after the sixtieth (60th) day following the Issue Date),
multiplied by the sum of (w) the then outstanding  principal amount of this Note
plus (y) Default Interest, if any, on the amounts referred to in clause (w) plus
(z) any amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof or
pursuant  to  Section  2(c)  of the  Registration  Rights  Agreement  (the  then
outstanding  principal  amount  of this  Note to the  date of  payment  plus the
amounts  referred to in clauses (x), (y) and (z) shall  collectively be known as
the  "Optional   Prepayment  Sum").   Notwithstanding   notice  of  an  Optional
Prepayment, the Holders shall at all times prior to the Optional Prepayment Date
maintain the right to convert all or any portion of the Notes in accordance with
Article I and any  portion of Notes so  converted  after  receipt of an Optional
Prepayment  Notice and prior to the Optional  Prepayment  Date set forth in such
notice and payment of the aggregate Optional Prepayment Amount shall be deducted
from the  principal  amount of Notes which are  otherwise  subject to prepayment
pursuant to such notice. If the Borrower delivers an Optional  Prepayment Notice
and fails to pay the Optional  Prepayment Amount due to the Holders of the Notes
within two (2)  business  days  following  the  Optional  Prepayment  Date,  the
Borrower  shall forever  forfeit its right to redeem the Notes  pursuant to this
Section 5.1.  Notwithstanding  anything herein to the contrary,  if the stock is
trading above the Maximum  Price,  the Borrower may exercise its right to prepay
the Note by  paying to the  Holders,  in  addition  to the  Optional  Prepayment
Amount,  an amount  equal to the  aggregate  number of shares that such  Holders
would have  received  upon  conversion  of the amount of the Note being  prepaid
multiplied by the difference  between the closing price of the Company's  Common
Stock on the Optional Prepayment Date less the Conversion Price then in effect.

     5.2 Partial Call Option. Notwithstanding anything to the contrary contained
in this  Article  V, in the event  that the  Average  Daily  Price of the Common
Stock, as reported by the Reporting Service, for each day of the month ending on
any  Determination  Date is below the Initial Market Price, the Borrower may, at
its option,  prepay a portion of the outstanding  principal  amount of the Notes
equal to 104% of the principal amount hereof divided by thirty-six (36) plus one
month's  interest.  The term "Initial  Market Price" means shall mean the volume
weighted  average  price of the  Common  Stock  for the five  (5)  Trading  Days
immediately preceding the Closing which is $.08.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

                                       19

<PAGE>

                  IN WITNESS WHEREOF, Borrower has caused this Note to be signed
in its name by its duly authorized officer this 20th day of September, 2005.

                                         GPS INDUSTRIES, INC.

                                         By:      ______________________________
                                                   Robert Silzer
                                                   Chief Executive Officer

                                       20

<PAGE>

                                    EXHIBIT A

                              NOTICE OF CONVERSION
                    (To be Executed by the Registered Holder
                         in order to Convert the Notes)

                  The undersigned hereby irrevocably elects to convert
$__________ principal amount of the Note (defined below) into shares of common
stock, par value $.001 per share ("Common Stock"), of GPS Industries, Inc., a
Nevada corporation (the "Borrower") according to the conditions of the
convertible Notes of the Borrower dated as of September 20, 2005 (the "Notes"),
as of the date written below. If securities are to be issued in the name of a
person other than the undersigned, the undersigned will pay all transfer taxes
payable with respect thereto and is delivering herewith such certificates. No
fee will be charged to the Holder for any conversion, except for transfer taxes,
if any. A copy of each Note is attached hereto (or evidence of loss, theft or
destruction thereof).

                  The Borrower shall electronically transmit the Common Stock
issuable pursuant to this Notice of Conversion to the account of the undersigned
or its nominee with DTC through its Deposit Withdrawal Agent Commission system
("DWAC Transfer").

         Name of DTC Prime Broker: _____________________________________________

         Account Number:________________________________________________________

                  In lieu of receiving shares of Common Stock issuable pursuant
to this Notice of Conversion by way of a DWAC Transfer, the undersigned hereby
requests that the Borrower issue a certificate or certificates for the number of
shares of Common Stock set forth below (which numbers are based on the Holder's
calculation attached hereto) in the name(s) specified immediately below or, if
additional space is necessary, on an attachment hereto:

         Name: _________________________________________________________________

         Address: ______________________________________________________________

                  The undersigned represents and warrants that all offers and
sales by the undersigned of the securities issuable to the undersigned upon
conversion of the Notes shall be made pursuant to registration of the securities
under the Securities Act of 1933, as amended (the "Act"), or pursuant to an
exemption from registration under the Act.

                  Date of Conversion:___________________________
                  Applicable Conversion Price:____________________
                  Number of Shares of Common Stock to be Issued Pursuant to
                  Conversion of the Notes:______________
                  Signature:___________________________________
                  Name:______________________________________
                  Address:____________________________________

                                       21

<PAGE>

The Borrower shall issue and deliver shares of Common Stock to an overnight
courier not later than three business days following receipt of the original
Note(s) to be converted, and shall make payments pursuant to the Notes for the
number of business days such issuance and delivery is late.

                                       22

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