Document:

SECURITY
      AGREEMENT

     

    dated
      as
      of

     

    June
      __,
      2008

     

    between

     

    GPS
      INDUSTRIES, INC.,

     

    (the
      “Borrower”)

     

    and

     

    TULIP
      GROUP INVESTMENTS,
      LIMITED

     

    (“Secured
      Party”)

     

    
      

      

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    SECURITY
      AGREEMENT

     

    THIS
      SECURITY AGREEMENT (this “Agreement”),
      is
      entered into as of June __, 2008, by and between GPS
      INDUSTRIES, INC.,
      a
      Nevada corporation (“Maker”),
      DIRECT
      GOLF SERVICES INC.,
      a
      ______________ corporation (“Direct
      Golf”),
      GOLF
      ACADEMIES LTD. D/B/A GPSI EUROPE,
      a
      ____________ corporation (“GPSI
      Europe”),
      and
GPS
      IT, LLC,
      a
      _________ limited liability company (“GPS
      IT”,
      together with Direct Golf, and GPSI Europe, collectively referred to herein
      as
“Subsidiaries,”
and
      individually as a “Subsidiary”,
      and
      together with the Subsidiaries and Maker, collectively, the “Borrower")
      and
TULIP
      GROUP INVESTMENTS, LIMITED,
      a B.V.I
      company (“Secured
      Party”).

     

    RECITALS

     

    WHEREAS,
      Maker
      has executed and delivered to Secured Party that certain Non-Negotiable
      Convertible Promissory Note of even date herewith, in the original principal
      amount of $5,500,000 (the “Note”) securing a loan (the “Loan”) to
      Maker;

     

    WHEREAS,
      Direct
      Golf, GPSI Europe, and GPSI IT are each wholly owned subsidiaries of Maker,
      will
      receive certain of the proceeds of the Loan, will otherwise be benefited by
      the
      transactions contemplated by the Loan, and accordingly, guarantee the
      obligations of Maker under the Note;

     

    WHEREAS,
      Secured
      Party has required, as a condition to making the Loan that Borrower execute
      and
      deliver this Security Agreement to the Secured Party;

     

    WHEREAS,
      Secured
      Party has agreed that its security interest in Borrower’s personal property and
      Borrower’s obligations under the Note and this Security Agreement are
      subordinate to the liens listed on Exhibit
      D
      of the
      Note (collectively, the “Senior Debt”); and

    

    WHEREAS,
      concurrently herewith, Secured Party is executing that certain Intercreditor
      Agreement (the “Intercreditor Agreement”) with the Estate of Douglas J. Wood, an
      individual (“Wood”), Hansen, Inc., a Pennsylvania corporation (“Hansen”), and
      Great White Shark Enterprises LLC, a Florida limited liability company (“GWSE”),
      wherein: (i) GWSE and Secured Party agree that the GWSE Security Interest (as
      defined in the Intercreditor Agreement) and Secured Party’s security interest
      will rank pari passu with each other; and (ii) the Guarantors agree that their
      existing security interest is subrogated to the rights of Silicon Valley Bank
      (“Bank”) to receive distributions of, or payments of proceeds from, the
      Collateral in respect of the security interest owed by Maker to Bank (the
“Guarantors Security Interest”) shall rank pari passu with the GWSE Security
      Interest and Secured Party’s security interest.

    
      
        
        

      

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

     

    ARTICLE
      I

     

    DEFINITIONS
      AND RULES OF INTERPRETATION

     

    Section
      1.1 Definitions.
      The
      following terms shall have the meanings set forth in this Article l or elsewhere
      in the provisions of this Agreement referred to below:

     

    “Accounts”
means
      all currently existing and hereafter arising accounts, contract rights, and
      all
      other forms of obligations owing to Borrower arising out of the sale or lease
      of
      goods or the rendition of services by Borrower, irrespective of whether earned
      by performance, and any and all credit insurance, guaranties, or security
      therefore.

     

    “Account
      Debtor”
means
      Person who is or who may obligated under, with respect to, or on account of,
      an
      Account, General Intangible or Negotiable Collateral. 

     

    “Affiliate”
means,
      as applied to any Person, any other Person who, directly or indirectly,
      controls, is controlled by, is under common control with, or is a director
      or
      officer of such Person. For purposes of this definition, “control” means the
      possession, directly or indirectly, of the power to vote 5% or more of the
      Stock
      having ordinary voting power for the election of directors (or comparable
      managers) or the direct or indirect power to direct the management and policies
      of a Person.

     

    “Bankruptcy
      Code”
means
      Title 11, U.S.C. Section 101, et
      seq.,
      as
      amended from time to time or any successor statute thereto.

     

    “Borrower’s
      Books”
means
      all of Borrower’s books and records including ledgers; records indicating,
      summarizing, or evidencing Borrower’s properties or assets (including the
      Collateral) or liabilities; all information relating to Borrower’s business
      operations or financial condition; and all computer programs, disk or tape
      files, printouts, runs or other computer prepared information.

     

    “Business
      Day”
means
      any weekday, Monday through Friday, except a legal holiday or a day on which
      banking institutions in New York, New York are authorized by law to be
      closed.

     

    “Code”
means
      the Internal Revenue Code of 1986, as amended.

     

    “Collateral”
means
      all of Borrower’s right, title, and interest in and to each of the following:
      (i) the Accounts, (ii) Borrower’s Books, (iii) the Equipment, (iv) the General
      Intangibles, (v) the Inventory, (vi) the Negotiable Collateral, (vii) any money,
      securities, investment property, or other assets of Borrower that now or
      hereafter come into the possession, custody or control of Secured Party, (viii)
      commercial tort claims, and (ix) the proceeds and products, whether tangible
      or
      intangible, of any of the foregoing, including proceeds of insurance covering
      any or all of the Collateral, and any and all Accounts, Borrower’s Books,
      Equipment, General Intangibles, Inventory, Negotiable Collateral, money, deposit
      accounts, or other tangible or intangible property resulting from the sale,
      exchange, collection, or other disposition of any of the foregoing, or any
      portion thereof or interest therein, and the proceeds thereof. 

     

    
      
        
        

      

      
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    “Dollars”or
      “$”
means
      United States dollars.

     

    “Equipment”
means
      all of Borrower’s present and hereafter acquired machinery, machine tools,
      motors, equipment, furniture, furnishings, fixtures, vehicles (including motor
      vehicles and trailers), tools, parts, goods (other than consumer goods, farm
      products, or Inventory), wherever located, including, (a) any interest of
      Borrower in any of the foregoing, and (b) all attachments, accessories,
      accessions, replacements, substitutions, additions, and improvements to any
      of
      the foregoing.

     

    “Event
      of Default”
has
      the
      meaning set forth in Section 5 of the Note.

     

    “General
      Intangibles”
means
      all of Borrower’s present and future general intangibles and other personal
      property (including contract rights, rights arising under common law, statutes,
      or regulations, choses or things in action, goodwill, patents, trade names,
      trademarks, servicemarks, copyrights, blueprints, drawings, purchase orders,
      customer lists, monies due or recoverable from pension funds, route lists,
      rights to payment and other rights under any royalty or licensing agreements,
      infringement claims, computer programs, information contained on computer disks
      or tapes, literature, reports, catalogs, deposit accounts, insurance premium
      rebates, tax refunds, and tax refund claims), other than goods, Accounts, and
      Negotiable Collateral.

     

    “Indebtedness”
means
      (a) all obligations of Borrower for borrowed money, (b) all obligations of
      Borrower evidenced by bonds, debentures, notes, or other similar instruments
      and
      all reimbursement or other obligations of Borrower in respect of letters of
      credit, bankers acceptances, interest rate swaps, or other financial products,
      (c) all obligations of Borrower under capital leases, (d) all obligations or
      liabilities of others secured by a Lien on any property or asset of Borrower,
      irrespective of whether such obligation or liability is assumed, and (e) any
      obligation of Borrower guaranteeing or intended to guarantee (whether
      guaranteed, endorsed, co-made, discounted, or sold with recourse to Borrower)
      any indebtedness, lease, dividend, letter of credit, or other obligation of
      any
      other Person. 

     

    “Insolvency
      Proceeding”
means
      any proceeding commenced by or against any Person under any provision of the
      Bankruptcy Code or under any other bankruptcy or insolvency law, assignments
      for
      the benefit of creditors, formal or informal moratoria, compositions, extensions
      generally with creditors, or proceedings seeking reorganization, arrangement,
      or
      other similar relief.

     

    
      
        
        

      

      
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    “Inventory”
means
      all present and future inventory in which Borrower has any interest, including
      goods held for sale or lease or to be furnished under a contract of service
      and
      all of Borrower’s present and future raw materials, work in process, finished
      goods, and packing and shipping materials, wherever located. 

     

    “Lien”
means
      any interest in property securing an obligation owed to, or a claim by, any
      Person other than the owner of the property, whether such interest shall be
      based on the common law, statute, or contract, whether such interest shall
      be
      recorded or perfected, and whether such interest shall be contingent upon the
      occurrence of some future event or events or the existence of some future
      circumstance or circumstances, including the lien or security interest arising
      from a mortgage, deed of trust, encumbrance, pledge, hypothecation, assignment,
      deposit arrangement, security agreement, adverse claim or charge, conditional
      sale or trust receipt, or from a lease, consignment, or bailment for security
      purposes and also including reservations, exceptions, encroachments, easements,
      rights-of-way, covenants, conditions, restrictions, leases, and other title
      exceptions and encumbrances affecting Real Property.

     

    “Loan
      Documents”
means
      this Agreement, the Note and all other documents, instruments or agreements
      now
      or hereafter executed or delivered by or on behalf of Borrower in connection
      with the Loan.

     

    “Material
      Adverse Change”
means
      (a) a material adverse change in the business, prospects, operations, results
      of
      operations, assets, liabilities or condition (financial or otherwise) of
      Borrower, (b) the material impairment of Borrower’s ability to perform is
      obligations under the Loan Documents to which it is a party or of Secured Party
      to enforce the Obligations or realize upon the Collateral, (c) a material
      adverse effect on the value of the Collateral or the amount that Secured Party
      would likely receive (after giving consideration to delays in payment and costs
      of enforcement) in the liquidation of such Collateral, or (d) a material
      impairment of the priority of Secured Party’s Liens with respect to the
      Collateral. 

     

    “Negotiable
      Collateral”
means
      all of a Person’s present and future letters of credit, notes, drafts,
      instruments, documents, personal property leases (wherein such Person is the
      lessor), chattel paper, and books relating to any of the foregoing.

     

    “Obligations”
means
      all Loans, debts, principal, interest, premiums, liabilities, obligations,
      fees,
      charges, costs, guaranties, covenants, and duties owing by Borrower to Secured
      Party of any kind and description (whether pursuant to or evidenced by a Note,
      the Loan Documents or pursuant to any other agreement between Secured Party
      and
      Borrower, and irrespective of whether for the payment of money), whether direct
      or indirect, absolute or contingent, due or to become due, now existing or
      hereafter arising, and including any debt, liability, or obligation owing from
      Borrower to others that Secured Party may have obtained by assignment or
      otherwise, and further including all interest not paid when due. Any reference
      in this Agreement or in the Loan Documents to the obligations shall include
      all
      amendments, changes, extensions, modifications, renewals, replacements,
      substitutions, and supplements thereto and thereof, as applicable. 

     

    
      
        
        

      

      
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    “Permitted
      Liens”
means
      (a) Liens held by Secured Party, (b) Liens for unpaid taxes that are not
      yet due and payable, (c) Liens set forth on Schedule
      D
      of the
      Note, (d) the interests of lessors under operating leases, (e) Liens arising
      by
      operation of law in favor of warehousemen, landlords, carriers, mechanics,
      materialmen, laborers, or suppliers, incurred in the ordinary course of business
      of Borrower and not in connection with the borrowing of money, and which
      Liens are for sums not yet due and payable, (f) Liens arising from deposits
      made in connection with obtaining worker’s compensation or other unemployment
      insurance, (g) Liens or deposits to secure performance of bids, tenders, or
      leases (to the extent permitted under this Agreement), incurred in the ordinary
      course of business of Borrower and not in connection with the borrowing of
      money, (h) Liens arising by reason of security for surety or appeal bonds in
      the
      ordinary course of business of Borrower, (i) Liens of or resulting from any
      judgment or award that reasonably could not be expected to result in a Material
      Adverse Change and as to which the time for the appeal or petition for rehearing
      of which has not yet expired, or in respect of which Borrower is in good faith
      prosecuting an appeal or proceeding for a review and in respect of which a
      stay
      of execution pending such appeal or proceeding for review has been secured,
      (j)
      with respect to any Real Property, easements, rights of way, zoning and similar
      covenants and restrictions, and similar encumbrances that customarily exist
      on
      properties of Persons engaged in similar activities and similarly situated
      and
      that in any event do not materially interfere with or impair the use or
      operation of the Collateral by Borrower or the value of Secured Party’s Lien
      thereon or therein, or materially interfere with the ordinary conduct of the
      business of Borrower and (k) Liens held by third parties securing Indebtedness
      incurred prior to the date hereof.

     

    ”Permitted
      Protest”
means
      the right of Borrower to protest any Lien other than any such Lien that secures
      the Obligations, tax (other than payroll taxes or taxes that are the subject
      of
      a United States federal tax lien), royalties, commissions, or other amounts
      due
      under a licensing agreement, or rental payment, provided that (a) a reserve
      with respect to such obligation is established on the books of Borrower in
      an
      amount that is reasonably satisfactory to Secured Party, (b) any such
      protest is instituted and diligently prosecuted by Borrower in good faith,
      and
      (c) Secured Party is satisfied that, while any such protest is pending,
      there will be no impairment of the enforceability, validity, or priority of
      any
      of the Liens of Secured Party in and to the Collateral

     

    “Person”
means
      any individual, corporation, limited liability company, partnership, trust,
      unincorporated association, business, or other legal entity, and any government
      or any governmental agency or political subdivision thereof.

     

    
      
        
        

      

      
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    “Real
      Property”
means
      any estates or interests in real property now owned or hereafter acquired by
      Borrower. 

     

    Section
      1.2 Construction.
      Unless
      the context of this Agreement clearly requires otherwise, references to the
      plural include the singular, references to the singular include the plural,
      the
      term “including” is not limiting, and the term “or” has, except where otherwise
      indicated, the inclusive meaning represented by the phrase “and/or.” The words
“hereof,” “herein,” “hereby,” “hereunder,” and similar terms in this Agreement
      refer to this Agreement as a whole and not to any particular provision of this
      Agreement. An Event of Default shall “continue” or be “continuing” until such
      Event of Default has been waived in writing by Secured Party. Section,
      subsection, clause, schedule, and exhibit references are to this Agreement
      unless otherwise specified. Any reference in this Agreement or in the Loan
      Documents to this Agreement or any of the Loan Documents shall include all
      alterations, amendments, changes, extensions, modifications, renewals,
      replacements, substitutions, and supplements, thereto and thereof, as
      applicable.

     

    Section
      1.3 Schedules
      and Exhibits.
      All of
      the schedules and exhibits attached to this Agreement shall be deemed
      incorporated by reference herein.

     

    Section
      1.4 Incorporation
      of Recitals.
      The
      recitals set forth above are hereby incorporated into and made a part of the
      substance of this Agreement as though fully set forth herein.

     

    ARTICLE
      II

     

    COLLATERAL
      SECURITY

     

    Section
      2.1 Grant
      of Security Interest.
      Borrower hereby grants to Secured Party a continuing security interest in all
      currently existing and hereafter acquired or arising Collateral, subordinate
      only to Borrower’s existing Senior Debt, in order to secure prompt repayment of
      any and all Obligations and in order to secure prompt performance by Borrower
      of
      each of its covenants and duties under the Loan Documents. Secured Party’s
      security interests in the Collateral shall attach to all Collateral without
      further act on the part of Secured Party or Borrower. Anything contained in
      this
      Agreement or any other Loan Document to the contrary notwithstanding, except
      for
      the sale of Inventory to buyers in the ordinary course of business, Borrower
      has
      no authority, express or
      implied, to dispose of any item or portion of the Collateral. 

     

    Section
      2.2 Subordination.
      Notwithstanding anything contain in this Agreement to the contrary, Secured
      Party hereby acknowledges and agrees that all rights and remedies granted to
      Secured Party pursuant to the terms and conditions of this Agreement are
      subordinate to the rights and remedies (a) granted to Bank and (b) Liens set
      forth on Exhibit D of the Note. 

     

    
      
        
        

      

      
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    Section
      2.3 Negotiable
      Collateral.
      In the
      event that any Collateral, including proceeds, is evidenced by or consists
      of
      Negotiable Collateral, Borrower, immediately upon the written request of Secured
      Party, shall endorse and deliver physical possession of such Negotiable
      Collateral to Secured Party.

     

    Section
      2.4 Collection
      of Accounts, General Intangibles and Negotiable
      Collateral.
      At any
      time an Event of Default has occurred and is continuing, Secured Party or
      Secured Party’s designee may (a) notify customers of Borrower that the Accounts,
      General Intangibles or Negotiable Collateral have been assigned to Secured
      Party
      or that Secured Party has a security interest therein, and (b) collect the
      Accounts, General Intangibles and Negotiable Collateral directly and charge
      Borrower the collection costs and expenses. Borrower agrees that it will hold
      in
      trust for Secured Party, as Secured Party’s trustee, any Collections that it
      receives and immediately will deliver said Collections to Secured Party in
      their
      original form as received by Borrower.

     

    Section
      2.5 Delivery
      of Additional Documentation Required.
      At any
      time upon the request of Secured Party, Borrower shall execute and deliver
      to
      Secured Party all financing statements, continuation of financing statements,
      fixture filings, security agreements, pledges, assignments, endorsements of
      certificates of title, applications for title, affidavits, reports, notices,
      schedules of accounts, letters of authority, and all other documents that
      Secured Party reasonably may request, in form satisfactory to Secured Party,
      to
      perfect and continue perfected Secured Party’s security interests in the
      Collateral, and in order to fully consummate all of the transactions
      contemplated hereby and under the other Loan Documents.

     

    Section
      2.6 Power
      of Attorney.
      Borrower hereby irrevocably makes, constitutes, and appoints Secured Party
      (and
      any of Secured Party’s officers, employees, or agents designated by Secured
      Party) as Borrower’s true and lawful attorney, with power to (a) if Borrower
      refuses to, or fails timely to execute and deliver any of the documents
      described in Section
      2.4,
      sign
      the name of Borrower on any of the documents described in Section
      2.4,
      (b) at
      any time that an Event of Default has occurred and is continuing or Secured
      Party deems itself insecure, sign Borrower’s name on any invoice or bill of
      lading relating to any Account, schedules and assignments of Accounts and
      verifications of Accounts, (c) send requests for verification of Accounts,
      (d)
      endorse Borrower’s name on any Collection item that may come into Secured
      Party’s possession, (e) at any time that an Event of Default has occurred and is
      continuing or Secured Party deems itself insecure, notify the post office
      authorities to change the address for delivery of Borrower’s mail to an address
      designated by Secured Party, to receive and open all mail addressed to Borrower,
      and to retain all mail relating to the Collateral and forward all other mail
      to
      Borrower, (f) at any time that an Event of Default has occurred and is
      continuing or Secured Party deems itself insecure, make, settle, and adjust
      all
      claims under Borrower’s policies of insurance and make all determinations and
      decisions with respect to such policies of insurance, and (g) at any time that
      an Event of Default has occurred and is continuing or Secured Party deems itself
      insecure, settle and adjust disputes and claims respecting the Accounts directly
      with any Person obligated under such Account, for amounts and upon terms that
      Secured Party determines to be reasonable, and Secured Party may cause to be
      executed and delivered any documents and releases that Secured Party determines
      to be necessary. The appointment of Secured Party as Borrower’s attorney, and
      each and every one of Secured Party’s rights and powers, being coupled with an
      interest, is irrevocable until all of the Obligations have been fully and
      finally repaid and performed and Secured Party’s obligation to extend credit
      hereunder is terminated.

     

    
      
        
        

      

      
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    Section
      2.7 Right
      to Inspect.
      Secured
      Party (through any of its officers, employees or agents) shall have the right,
      from time to time hereafter, during normal business hours, to inspect Borrower’s
      Books and to check, test, and appraise the Collateral in order to verify
      Borrower’s financial condition or the amount, quality, value, condition of, or
      any other matter relating to, the Collateral.

     

    ARTICLE
      III

     

    REPRESENTATIONS
      AND WARRANTIES

     

    In
      order
      to induce Secured Party to enter into this Agreement, Borrower makes the
      following representations and warranties as of the date hereof:

     

    Section
      3.1 No
      Encumbrances.
      Borrower has good and indefeasible title to the Collateral, free and clear
      of
      Liens except for Permitted Liens.

     

    Section
      3.2 Location
      of Inventory and Equipment.
      The
      Inventory and Equipment are not stored with a bailee, warehouseman, or similar
      party.

     

    Section
      3.3 Due
      Authorization; No Conflict.
      

     

    (a) The
      execution, delivery, and performance by Borrower of this Agreement has been
      duly
      authorized by all necessary corporate action.

     

    (b) The
      execution, delivery, and performance by Borrower of this Agreement does not
      and
      will not (i) violate any provision of federal, state, or local law or
      regulation (including Regulations T, U, and X of the Federal Reserve Board)
      applicable to Borrower, the Governing Documents of Borrower, or any order,
      judgment, or decree of any court or other Governmental Authority binding on
      Borrower, (ii) conflict with, result in a breach of, or constitute (with
      due notice or lapse of time or both) a default under any material contractual
      obligation or material lease of Borrower, (iii) result in or require the
      creation or imposition of any Lien of any nature whatsoever upon any properties
      or assets of Borrower, other than Permitted Liens, or (iv) require any
      approval of stockholders or any approval or consent of any Person under any
      material contractual obligation of Borrower.

     

    
      
        
        

      

      
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    (c) Other
      than the filing of appropriate financing statements, fixture filings, and
      mortgages, the execution, delivery, and performance by Borrower of this
      Agreement does not and will not require any registration with, consent, or
      approval of, or notice to, or other action with or by, any federal, state,
      foreign, or other Governmental Authority or other Person.

     

    (d) This
      Agreement, when executed and delivered by Borrower will be the legally valid
      and
      binding obligations of Borrower, enforceable against Borrower in accordance
      with
      its terms, except as enforcement may be limited by equitable principles or
      by
      bankruptcy, insolvency, reorganization, moratorium, or similar laws relating
      to
      or limiting creditors’ rights generally.

     

    (e) The
      Liens
      granted by Borrower to Secured Party in and to Collateral pursuant to this
      Agreement and the other Loan Documents are validly created Liens, subject only
      to Permitted Liens.

     

    Section
      3.4 Options
      to Purchase.
      None of
      the Collateral is subject to any purchase option, buy-sell right, right of
      first
      refusal, right of first offer or other similar right to acquire any
      thereof.

     

    ARTICLE
      IV

     

    COVENANTS
      OF BORROWER

     

    Borrower
      covenants and agrees that, until full and final payment of the Obligations,
      and
      unless Secured Party shall otherwise consent in writing, Borrower
      shall:

     

    Section
      4.1 Title
      to Equipment.
      Upon
      Secured Party’s written request, Borrower immediately shall deliver to Secured
      Party, properly endorsed, any and all evidences of ownership of, certificates
      of
      title, or applications for title to any items of Equipment. 

     

    Section
      4.2 Maintenance
      of Equipment.
      Maintain the Equipment in good operating condition and repair (ordinary wear
      and
      tear excepted), and make all necessary replacements thereto so that the value
      and operating efficiency thereof shall at all times be maintained and preserved.
      Other than those items of Equipment that constitute fixtures on the date hereof,
      Borrower shall not permit any item of Equipment to become a fixture to real
      estate or an accession to other property, and such Equipment at all times shall
      remain personal property.

     

    
      
        
        

      

      
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    Section
      4.3 Insurance.
      

     

    (a) At
      its
      expense, maintain insurance respecting the Collateral wherever located, covering
      loss or damage by fire, theft, explosion, and all other hazards and risks as
      ordinarily are insured against by other Persons engaged in the same or similar
      businesses. Borrower also shall maintain business interruption, public
      liability, and product liability insurance, as well as insurance against
      larceny, embezzlement, and criminal misappropriation. All such policies of
      insurance shall be in such amounts and with such insurance companies as are
      reasonably satisfactory to Secured Party. Borrower shall deliver the originals
      of all such policies to Secured Party with Secured Party’s loss payable
      endorsements or other satisfactory Secured Party’s loss payable endorsements,
      naming Secured Party as sole loss payee or additional insured, as appropriate.
      Each policy of insurance or endorsement shall contain a clause requiring the
      insurer to give not less than 30 days prior written notice to Secured Party
      in
      the event of cancellation of the policy for any reason whatsoever. If Borrower
      fails to provide and pay for such insurance, Secured Party may, at its option,
      but shall not be required to, procure the same and charge Borrower
      therefor.

     

    (b) Borrower
      shall give Secured Party prompt notice of any material loss covered by such
      insurance and payable to Borrower. Any monies received as payment for any loss
      under any insurance policy mentioned above (other than liability insurance
      policies) or as payment of any award or compensation for condemnation or taking
      by eminent domain, shall be paid over to Secured Party to be applied at the
      option of Secured Party either to the prepayment of the Obligations without
      premium, in such order or manner as Secured Party may elect, or shall be
      disbursed to Borrower under staged payment terms reasonably satisfactory to
      Secured Party for application to the cost of repairs, replacements, or
      restorations.

     

    ARTICLE
      V

     

    NEGATIVE
      COVENANTS

     

    Borrower
      covenants and agrees that, until full and final payment of the Obligations,
      Borrower will not do any of the following without Secured Party’s prior written
      consent: 

     

    Section
      5.1 Liens.
      Create,
      incur, assume, or permit to exist, directly or indirectly, any Lien on or with
      respect to any of its property or assets, of any kind, whether now owned or
      hereafter acquired, or any income or profits therefrom, except for Permitted
      Liens (including Liens that are replacements of Permitted Liens to the extent
      that the original Indebtedness is refinanced and so long as the replacement
      Liens only encumber those assets or property that secured the original
      Indebtedness). This prohibition specifically includes any “priming liens” or the
      creation of any lien that is pari passu to any claims or interests of Secured
      Party (other than Guarantors Security Interest and GWSE’s Security Interest),
      irrespective of whether such claims or interests may be adequately
      protected.

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

     

    Section
      5.2 Waste.
      Commit
      or suffer any waste of the Collateral or do or permit to be done thereon
      anything that may in any way impair the value of the Collateral. 

     

    ARTICLE
      VI

     

    FURTHER
      ASSURANCES

     

    Section
      6.1 Further
      Acts, etc.
      Borrower will, at the cost of Borrower, and without expense to Secured Party,
      do, execute, acknowledge and deliver all and every such further acts, deeds,
      conveyances, pledge, assignments, notices of assignments, transfers and
      assurances as Secured Party shall, from time to time, require, for the better
      assuring, conveying, assigning, transferring, and confirming unto Secured Party
      the Collateral and rights hereby granted, bargained, sold, conveyed, confirmed,
      pledged, assigned, warranted and transferred or intended now or hereafter so
      to
      be, or which Borrower may be or may hereafter become bound to convey or assign
      to Secured Party, or for carrying out the intention or facilitating the
      performance of the terms of this Agreement or for complying with all Applicable
      Laws. Borrower, on demand, will execute and deliver and hereby authorizes
      Secured Party to execute in the name of Borrower or without the signature of
      Borrower to the extent Secured Party may lawfully do so, one or more financing
      statements, chattel mortgages or other instruments, to evidence more effectively
      the security interest of Secured Party in the Collateral. Borrower grants to
      Secured Party an irrevocable power of attorney coupled with an interest for
      the
      purpose of exercising and perfecting any and all rights and remedies available
      to Secured Party at law and in equity, including without limitation such rights
      and remedies available to Secured Party pursuant to this Section
      6.1.

     

    ARTICLE
      VII

     

    RIGHTS
      AND REMEDIES

     

    Section
      7.1 Remedies.
      Upon
      the occurrence, and during the continuation, of an Event of Default, Borrower
      agrees that Secured Party may take such action, without notice or demand, as
      it
      deems advisable to protect and enforce its rights against Borrower and in and
      to
      the Collateral, including, but not limited to, the following actions, each
      of
      which may be pursued concurrently or otherwise, at such time and in such order
      as Secured Party may determine, in its sole discretion, without impairing or
      otherwise affecting the other rights and remedies of Secured Party:

     

    (a) exercise
      any and all rights and remedies granted to a secured party upon default under
      the Uniform Commercial Code, including, without limiting the generality of
      the
      foregoing: (i) the right to take possession of the property secured thereby
      or
      any part thereof, and to take such other measures as Secured Party may deem
      necessary for the care, protection and preservation of such property, and (ii)
      request Borrower at its expense to assemble such property and make it available
      to Secured Party at a convenient place acceptable to Secured Party. Any notice
      of sale, disposition or other intended action by Secured Party with respect
      to
      such property sent to Borrower in accordance with the provisions hereof at
      least
      five (5) days prior to such action, shall constitute commercially reasonable
      notice to Borrower;

     

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

     

    (b) cause
      Borrower to hold all returned Inventory in trust for Secured Party, segregate
      all returned Inventory from all other property of Borrower or in Borrower’s
      possession and conspicuously label said Inventory as the property of Secured
      Party;

     

    (c) without
      notice to or demand upon Borrower, make such payments and do such acts as
      Secured Party considers necessary or reasonable to protect its security
      interests in the Collateral. Borrower agrees to assemble the Collateral if
      Secured Party so requires, and to make the Collateral available to Secured
      Party
      as Secured Party may designate. Borrower authorizes Secured Party to enter
      the
      premises where the Collateral is located, to take and maintain possession of
      the
      Collateral, or any part of it, and to pay, purchase, contest or compromise
      any
      encumbrance, charge or Lien that in Secured Party’s determination appears to
      conflict with its security interest and to pay all expenses incurred in
      connection therewith. With respect to any of Borrower’s owned or leased
      premises, Borrower hereby grants Secured Party a license to enter into
      possession of such premises and to occupy the same, without charge, for up
      to
      120 days in order to exercise any of Secured Party’s rights or remedies provided
      herein, at law, in equity or otherwise;

     

    (d) Ship,
      reclaim, recover, store, finish, maintain, repair, prepare for sale, advertise
      for sale, and sell (in the manner provided for herein) the Collateral. Secured
      Party is hereby granted a license or other right to use, without charge,
      Borrower’s labels, patents, copyrights, rights of use of any name, trade
      secrets, trade names, trademarks, service marks, and advertising matter, or
      any
      property of a similar nature, as it pertains to the Collateral, in completing
      production of, advertising for sale, and selling any Collateral and Borrower’s
      rights under all licenses shall inure to Secured Party’s benefit; 

     

    (e) sell
      the
      Collateral at either a public or private sale, or both, by way of one or more
      contracts or transactions, for cash or on terms, in such manner and at such
      places (including Borrower’s premises) as Secured Party determines is
      commercially reasonable;

     

    (f) pursue
      such other remedies as Secured Party may have under applicable law;
      and

     

    (g) Borrower
      hereby acknowledges that the Obligations arose out of a commercial transaction,
      and agrees that if an Event of Default shall occur Secured Party shall have
      the
      right to an immediate writ of possession without notice of a hearing; provided,
      however, that notwithstanding anything to the contrary contained
      herein.

     

    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

    

     

    ARTICLE
      VIII

     

    WAIVERS

     

    Section
      8.1 Secured
      Party’s Liability for Collateral.
      Secured
      Party shall not in any way or manner be liable or responsible for: (a) the
      safekeeping of the Collateral; (b) any loss or damage thereto occurring or
      arising in any manner or fashion from any cause; (c) any diminution in the
      value
      thereof; or (d) any act or default of any carrier, warehouseman, bailee,
      forwarding agency or other Person. All risk of loss, damage or destruction
      of
      the Collateral shall be borne by Borrower

     

    ARTICLE
      IX

     

    NOTICE

     

    Section
      9.1 Notices.
      All
      notices or other written communications hereunder shall be deemed to have been
      properly given (i) upon delivery or refusal of delivery, if delivered in person,
      (ii) one (1) Business Day (defined below) after having been deposited for
      overnight delivery with any reputable overnight courier service, or (iii) three
      (3) Business Days after having been deposited in any post office or mail
      depository regularly maintained by the U.S. Postal Service and sent by
      registered or certified mail, postage prepaid, return receipt requested,
      addressed as follows:

     

    
      	
              If
                to Borrower:

            	
              GPS
                Industries, Inc.

            
	 	
              5550-152nd
                Street – Suite 214

            
	 	
              Surrey,
                British Columbia V3S 559

            
	 	
              Attention:
                Chief Executive Officer

            
	 	
              Facsimile
                No.: (604) 576-7400

            
	 	 
	
              With
                a copy to:

            	
              David
                Ficksman, Esq.

            
	 	
              Troy
                Gould

            
	 	
              1801
                Century Park East – Suite 1600

            
	 	
              Los
                Angeles, CA 90096

            
	 	
              Telephone
                No.: (310) 553-4441

            
	 	
              Facsimile
                No.: (310) 201-4746

            
	 	 
	
              If
                to Secured Party:

            	
              Tulip
                Group Investments, Limited

            
	 	
              P.O.
                Box 73147

            
	 	
              Dubai,
                UAE

            
	 	
              Atttention:
                Masoud Sangi

            
	 	
              Facsimile
                No.: 04 332 8451

            

    

     

    
      
        
        

      

      
        13

        
          

        

      

      
        
        

      

    

    

    
      	
              With
                a copy to:

            	
              Jeffrey
                A. Hechtman, Esq.

            
	 	
              Horwood
                Marcus & Berk, Chtd.

            
	 	
              180
                North LaSalle Street – Suite 7300

            
	 	
              Chicago,
                IL 60601

            
	 	
              Telephone
                No.: (312) 606-3231

            
	 	
              Facsimile
                No.: (312) 264-2548

            

    

    

    or
      addressed as such party may from time to time designate by written notice to
      the
      other parties.

     

    Either
      party by notice to the other may designate additional or different addresses
      for
      subsequent notices or communications.

     

    ARTICLE
      X

     

    CHOICE
      OF LAW AND VENUE; JURY TRIAL WAIVER

     

    Section
      10.1 THE
      VALIDITY OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS (UNLESS EXPRESSLY
      PROVIDED TO THE CONTRARY IN AN ANOTHER LOAN DOCUMENT), THE CONSTRUCTION,
      INTERPRETATION, AND ENFORCEMENT HEREOF AND THEREOF, AND THE RIGHTS OF THE
      PARTIES HERETO AND THERETO WITH RESPECT TO ALL MATTERS ARISING HEREUNDER OR
      THEREUNDER OR RELATED HERETO OR THERETO SHALL BE DETERMINED UNDER, GOVERNED
      BY,
      AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEVADA. THE PARTIES
      AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH THIS AGREEMENT
      AND THE OTHER LOAN DOCUMENTS SHALL BE TRIED AND LITIGATED ONLY IN THE STATE
      AND
      FEDERAL COURTS LOCATED IN THE COUNTY OF CLARK, STATE OF NEVADA. EACH OF BORROWER
      AND SECURED PARTY WAIVES, TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, ANY
      RIGHT EACH MAY HAVE TO ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT
      TO VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS
ARTICLE
      X.
      BORROWER AND SECURED PARTY HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL
      OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY OF THE LOAN
      DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING CONTRACT
      CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR
      STATUTORY CLAIMS. EACH OF BORROWER AND SECURED PARTY REPRESENTS THAT IT HAS
      REVIEWED THIS WAIVER AND EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL
      RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION,
      A
      COPY OF THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE
      COURT.

     

    
      
        
        

      

      
        14

        
          

        

      

      
        
        

      

    

     

    ARTICLE
      XI

     

    MISCELLANEOUS
      PROVISIONS

     

    Section
      11.1 Effectiveness.
      This
      Agreement shall be binding and deemed effective when executed by Borrower and
      Secured Party.

     

    Section
      11.2 Successors
      and Assigns.
      This
      Agreement shall bind and inure to the benefit of the respective successors
      and
      assigns of each of the parties; provided, however, that Borrower may not assign
      this Agreement or any rights or duties hereunder without Secured Party’s prior
      written consent and any prohibited assignment shall be absolutely
      void.
      No
      consent to an assignment shall release Borrower from its Obligations. Secured
      Party may assign this Agreement and its rights and duties hereunder and no
      consent or approval by Borrower is required in connection with any such
      assignment. Secured Party reserves the right to sell, assign, transfer,
      negotiate, or grant participations in all or any part of, or any interest in
      Secured Party’s rights and benefits hereunder. In connection with any such
      assignment or participation, Secured Party may disclose all documents and
      information which Secured Party now or hereafter may have relating to Borrower
      or Borrower’s business. To the extent that Secured Party assigns its rights and
      obligations to a third Person, Secured Party thereafter shall be released from
      such assigned obligations to Borrower and such assignment shall effect a
      novation between Borrower and such third Person.

     

    Section
      11.3 Section
      Headings.
      Headings and numbers have been set forth herein for convenience
      only.
      Unless
      the contrary is compelled by the context, everything contained in each section
      applies equally to this entire Agreement.

     

    Section
      11.4 Interpretation.
      Neither
      this Agreement nor any uncertainty or ambiguity herein shall be construed
      resolved against Secured Party or Borrower, whether under any rule of
      construction or otherwise.
      On the
      contrary, this Agreement has been reviewed by all parties and shall be construed
      and interpreted according to the ordinary meaning of the words used so as fairly
      accomplish the purposes and intentions of all parties hereto.

     

    Section
      11.5 Severability
      of Provisions.
      Each
      provision of this Agreement shall be severable from every other provision of
      this Agreement for the purpose of determining the legal enforceability of any
      specific provision.

     

    Section
      11.6 Amendments
      in Writing.
      This
      Agreement can only be amended by a writing signed by both Secured Party and
      Borrower.

     

    
      
        
        

      

      
        15

        
          

        

      

      
        
        

      

    

     

    Section
      11.7 Counterparts;
      Facsimile Execution.
      This
      Agreement may be executed in any number of counterparts and by different parties
      on separate counterparts, each of which, when executed and delivered, shall
      be
      deemed to be an original, and all of which, when taken together, shall
      constitute but one and the same Agreement. Delivery of an executed counterpart
      of this Agreement by facsimile shall be equally as effective as delivery of
      an
      original executed counterpart of this Agreement. Any party delivering an
      executed counterpart of this Agreement by facsimile also shall deliver an
      original executed counterpart of this Agreement but the failure to deliver
      an
      original executed counterpart shall not affect the validity, enforceability,
      and
      binding effect of this Agreement.

     

    Section
      11.8 Entire
      Agreement.
      This
      Agreement constitutes the entire understanding and agreement between Borrower
      and Secured Party with respect to the transactions contemplated hereby and
      supersede all prior written or oral understandings and agreements between
      Borrower and Secured Party with respect thereto.

     

    [Remainder
      of Page Intentionally Left Blank, Signatures to Follow]

    
      
        
        

      

      
        16

        
          

        

      

      
        
        

      

    

     

    IN
      WITNESS WHEREOF,
      the
      undersigned have duly executed this Agreement as of the date first set forth
      above.

     

    
      	
              BORROWER:

            	
              GPS
                INDUSTRIES, INC., 

            
	 	
              a
                Nevada corporation

            
	 	 
	 	
              By:

            	 
	 	 	
              Name:

            
	 	 	
              Title:

            
	 	 	 
	 	
              DIRECT
                GOLF SERVICES INC.,

            
	 	
              a
                ____________corporation

            
	 	 
	 	
              By:

            	 
	 	 	
              Name:

            
	 	 	
              Title:

            
	 	 	 
	 	
              GOLF
                ACADEMIES LTD. D/B/A GPSI 

              EUROPE,

            
	 	
              a
                ____________corporation

            
	 	 
	 	
              By:

            	 
	 	 	
              Name:

            
	 	 	
              Title:

            
	 	 	 
	 	
              GPS
                IT, LLC,

            
	 	
              a
                ____________limited liability company

            
	 	 
	 	
              By:

            	 
	 	 	
              Name:

            
	 	 	
              Title:

            
	 	 	 
	
              SECURED
                PARTY: 

            	
              TULIP
                GROUP INVESTMENTS, LIMITED, 

            
	 	
              a
                B.V.I. company 

            
	 	
               

            
	 	
              By:

            	 
	 	 	
              Name:

            
	 	 	
              Title:

            

    

     

    
      
        
        

      

      
        17THE
      SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
      ACT
      OF 1933, AS AMENDED (THE “SECURITIES ACT”) OR ANY STATE SECURITIES LAW AND THUS
      MAY NOT BE SUBSEQUENTLY OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR
      HYPOTHECATED UNTIL (A) REGISTERED UNDER THE SECURITIES ACT AND REGISTERED OR
      QUALIFIED PURSUANT TO ANY APPLICABLE STATE SECURITIES LAW OR, (B) THE MAKER
      IS
      IN RECEIPT OF AN OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO IT,
      THAT SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS EXEMPT FROM THE
      REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND ANY APPLICABLE STATE
      SECURITIES LAW.

    

    NON-NEGOTIABLE

    CONVERTIBLE
      PROMISSORY NOTE

     

    
      
        	
                June
                  12, 2008

              	
                US$
                  5,500,000

              

      

    

    

    For
      value
      received, GPS Industries, Inc. a Nevada corporation, with its principal offices
      located at Suite 214, 5500 152nd Street, Surrey, British Columbia V35 559
      (hereinafter referred to as “Maker”), promises to pay to the order of Tulip
      Group Investments, Limited, a B.V.I. company or its successors and permitted
      assigns (hereinafter referred to as “Purchaser”), the principal sum of FIVE
      MILLION FIVE HUNDRED THOUSAND U.S. DOLLARS (US $5,500,000) (the “Principal
      Amount”). 

     

    1. Payment.
      Unless
      the indebtedness represented by this non-negotiable, convertible promissory
      note
      (this “Note”) shall have been previously converted into equity securities of
      Maker or prepaid in accordance with the provisions hereof, all principal and
      accrued but unpaid interest underlying this Note shall be due and payable in
      full on June 12, 2011 (the “Maturity Date”). No payments of principal or
      interest shall be required hereunder until the Maturity Date except as provided
      in Section 5 (Events of Default) below.

     

    1.1 Interest.
      This
      Note shall bear interest at a per annum rate of seven percent (7%) on the
      Principal Amount on a non-compounded basis, and, unless the Note is previously
      prepaid or converted and except as otherwise provided in Section 5 (Events
      of
      Default) below, shall be due and payable on the Maturity Date.

     

    1.2 Optional
      Prepayment in Cash.
      Maker
      may prepay this Note in whole but not in part (an “Optional Prepayment”) by
      paying to Purchaser a sum of money equal to the Principal Amount outstanding
      at
      such time together with accrued but unpaid interest thereon (the “Prepayment
      Amount”) outstanding on the Prepayment Payment Date (as defined below). Maker
      shall deliver to Purchaser a written notice of prepayment (the “Notice of
      Prepayment”) specifying the date for such Optional Prepayment (the “Prepayment
      Payment Date”), which date shall be at least ten (10) business days after the
      date of the Notice of Prepayment (the “Prepayment Period”). During the
      Prepayment Period, the Purchaser may elect to convert any portion of the
      Prepayment Amount pursuant to Section 2 below, and any such amount elected
      to be
      converted shall be deducted from the Prepayment Amount payable by Maker to
      Purchaser.

     

    
      
        
        

      

      
        1

        
          

        

      

      
        
        

      

    

    2. Conversion.

     

    2.1 Optional
      Conversion.
      Subject
      to the terms set forth in this Section 2, Purchaser shall have the right, but
      not the obligation, to convert all or any portion of the issued and outstanding
      Principal Amount and accrued but unpaid interest into (i) fully paid and
      non-assessable shares of the Maker’s Series C preferred stock, par value
      $10.00 per
      share
      (the “Series C Preferred Stock”) and (ii) fully paid and non-assessable shares
      of the Maker’s common stock, par value $.001 per
      share
      (the “Common Stock”) at the Fixed Preferred Conversion Price and Fixed Common
      Conversion Price, respectively (as such terms are defined below). For the
      avoidance of doubt, each dollar of Principal Amount and accrued but unpaid
      interest shall be converted into both Series C Preferred Stock and Common Stock.
      The shares of Series C Preferred Stock and Common Stock of Maker to be issued
      upon such conversion are herein referred to as the “Conversion Shares.” For
      purposes hereof, subject to Sections 2.4 and 2.5 hereof, the “Fixed Preferred
      Conversion Price” means $10.00 per share of Series C Preferred Stock, and the
“Fixed Common Conversion Price” means $0.031 per share of Common Stock. The
      Certificate of Designation of Series C Preferred Stock shall be substantially
      in
      the form attached as Exhibit
      A
      (the
“Series C Certificate of Designation”).

     

    2.2 Mechanics
      of Purchaser’s Conversion.
      In the
      event that Purchaser elects to convert all or any portion of this Note,
      Purchaser shall give notice of such election by delivering an executed and
      completed notice of conversion in substantially the form of Exhibit
      B
      hereto
      (appropriately completed) (“Notice of Conversion”) to Maker. The date on which a
      Notice of Conversion is delivered to Maker in accordance with the provisions
      hereof shall be deemed the “Conversion Date”. Pursuant to the terms of the
      Notice of Conversion, Maker will issue instructions to the transfer agent and
      shall cause the transfer agent to transmit the certificates representing the
      Conversion Shares to Purchaser.

     

    2.3 Conversion
      Mechanics.
      The
      number of shares of Series C Preferred Stock to be issued upon each conversion
      of this Note shall be determined by dividing that portion of the Principal
      Amount and accrued but unpaid interest to be converted by the Fixed Preferred
      Conversion Price. The number of shares of Common Stock to be issued upon each
      conversion of this Note shall be determined by dividing that portion of the
      Principal Amount and accrued but unpaid interest to be converted by the Fixed
      Common Conversion Price. For example, upon conversion of $5,500,000, with the
      Fixed Preferred Conversion Price and Fixed Common Conversion Price described
      in
      Section 2.1, Purchaser would receive 550,000 newly issued shares of Series
      C
      Preferred Stock and 177,419,355 shares of Common Stock.

     

    2.4 Adjustment
      Provisions.
      The
      Fixed Common Conversion Price, Fixed Preferred Conversion Price, and number
      and
      kind of shares or other securities to be issued upon conversion determined
      pursuant to this Note shall be subject to adjustment from time to time upon
      the
      occurrence of certain events during the period that this conversion right
      remains outstanding, as follows:

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

     

    (a) Reclassification.
      If
      Maker at any time shall, by reclassification or otherwise, change the Common
      Stock or Series C Preferred Stock into the same or a different number of
      securities of any class or classes, this Note, as to the unpaid Principal Amount
      and accrued but unpaid interest thereon which is convertible into Common Stock
      and Series C Preferred Stock, shall thereafter be deemed to evidence the right
      to purchase an adjusted number of such securities and kind of securities as
      would have been issuable as the result of such change with respect to the Common
      Stock or Series C Preferred Stock issuable pursuant to this Note immediately
      prior to such reclassification or other change.

     

    (b) Stock
      Splits, Combinations and Dividends for Common Stock.
      If the
      shares of Common Stock are subdivided or combined into a greater or smaller
      number of shares of Common Stock, or if a dividend is paid on the Common Stock
      or any preferred stock issued by Maker in shares of Common Stock, the Fixed
      Common Conversion Price shall be proportionately reduced in case of subdivision
      of shares or stock dividend or proportionately increased in the case of
      combination of shares, in each such case by the ratio which the total number
      of
      shares of Common Stock outstanding immediately after such event bears to the
      total number of shares of Common Stock outstanding immediately prior to such
      event.

     

    (c) Stock
      Splits, Combinations and Dividends for Preferred Stock.
      If the
      Series C Preferred Stock are subdivided or combined into a greater or smaller
      number of shares of preferred stock, or if a dividend is paid on any Common
      Stock or preferred stock issued by Maker in shares of preferred stock, the
      Fixed
      Preferred Conversion Price shall be proportionately reduced in case of
      subdivision of shares or stock dividend or proportionately increased in the
      case
      of combination of shares, in each such case by the ratio which the total number
      of shares of preferred stock outstanding immediately after such event bears
      to
      the total number of shares of preferred stock outstanding immediately prior
      to
      such event.

     

    2.5 Adjustments
      for Certain Issuances.

     

    (a)(1)
      Except as provided in Section 2.5(c) below, if and whenever Maker
      shall:

     

    (A)
      issue
      or sell any shares of Common Stock for a consideration per share less than
      the
      Fixed Common Conversion Price in effect immediately prior to the time of such
      issue;

     

    (B)
      issue, sell or grant any stock or security convertible into or exchangeable
      for
      Common Stock, (“Common
      Convertible Securities”)
      whether or not the right to convert or exchange such Common Convertible
      Securities is immediately exercisable, and the price per share for which the
      Common Stock is issuable upon the conversion or exchange of such Common
      Convertible Securities (determined by dividing (i) the sum of (x) the total
      amount, if any, received or receivable by the Company as consideration for
      the
      issue or sale of such Common Convertible Securities, plus (y) the aggregate
      amount of additional consideration, if any, payable to Maker upon the conversion
      or exchange of all such Common Convertible Securities, by (ii) the maximum
      number of shares of Common Stock issuable upon the conversion or exchange of
      all
      such Common Convertible Securities) shall be less than the Fixed Common
      Conversion Price in effect immediately prior to the time of the issue or sale
      of
      such Common Convertible Securities; or

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

     

    (C)
      issue, sell or grant any warrants or other rights to subscribe for or to
      purchase, or any options for the purchase of, Common Stock or any Common
      Convertible Securities (such warrants, rights or options being called
      (“Common
      Options”),
      whether or not such Common Options are immediately exercisable, and the price
      per share for which the Common Stock is issuable upon the exercise of such
      Common Options (determined by dividing (i) the sum of (x) the total amount,
      if
      any, received or receivable by the Company as consideration for the issue,
      sale,
      or grant of such Common Options, plus (y) the aggregate amount of additional
      consideration, if any, payable to Maker upon the exercise of all such Common
      Options, plus (z), in the case of such Common Options to purchase Common
      Convertible Securities, the aggregate amount of additional consideration, if
      any, payable upon the conversion or exchange of such Common Convertible
      Securities, by (ii) the maximum number of shares of Common Stock issuable upon
      the exercise of such Common Options, or upon the conversion or exchange of
      all
      such Common Convertible Securities issuable upon the exercise of such Common
      Options)

     

    ,
      then
      and in each such case (a “Common
      Trigger Issuance”),
      effective as of the close of business on the effective date of the Common
      Trigger Issuance, the then-existing Fixed Common Conversion Price shall be
      adjusted immediately thereafter so that it shall equal the price determined
      by
      dividing (i) the sum of (x) the number of shares of Common Stock issued and
      outstanding immediately prior to the issuance of such securities multiplied
      by
      the Fixed Common Conversion Price plus (y) the aggregate consideration received
      for such securities (which, in the case of Common Options or Common Convertible
      Securities shall equal the product of the price per share determined in Section
      2.5(a)(1)(B) or 2.5(a)(1)(C) above and the total number of shares of Common
      Stock issuable upon the conversion or exchange of such Common Convertible
      Securities, or the exercise of such Common Options, or upon the conversion
      or
      exchange of the maximum amount of such Common Convertible Securities issuable
      upon the exercise of such Common Options), by (ii) the number of shares of
      Common Stock issued and outstanding immediately after the issuance of such
      securities. Such adjustment shall be made successively whenever such an issuance
      is made.

     

    (b)(1)
      Except as provided in Section 2.5(c) below, if and whenever Maker
      shall:

     

    (A)
      issue
      or sell any shares of Series
      B
      Preferred Stock or Series
      C
      Preferred Stock for a consideration per share less than the Fixed Preferred
      Conversion Price in effect immediately prior to the time of such
      issue;

     

    (B)
      issue, sell or grant any stock or security convertible into or exchangeable
      for
Series
      B
      Preferred Stock or Series
      C
      Preferred Stock (“Preferred
      Convertible Securities”)
      whether or not the right to convert or exchange such Preferred Convertible
      Securities is immediately exercisable, and the price per share for which the
      Series
      B
      Preferred Stock or Series
      C
      Preferred Stock is issuable upon the conversion or exchange of such Preferred
      Convertible Securities (determined by dividing (i) the sum of (x) the total
      amount, if any, received or receivable by the Company as consideration for
      the
      issue or sale of such Preferred Convertible Securities, plus (y) the aggregate
      amount of additional consideration, if any, payable to Maker upon the conversion
      or exchange of all such Preferred Convertible Securities, by (ii) the maximum
      aggregate number of shares of Series
      B
      Preferred Stock or Series
      C
      Preferred Stock issuable upon the conversion or exchange of all such Preferred
      Convertible Securities) shall be less than the Fixed Preferred Conversion Price
      in effect immediately prior to the time of the issue or sale of such Preferred
      Convertible Securities; or

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

     

    (C)
      issue, sell or grant any warrants or other rights to subscribe for or to
      purchase, or any options for the purchase of, Series
      B
      Preferred Stock, Series
      C
      Preferred Stock or any Preferred Convertible Securities (such warrants, rights
      or options being called (“Preferred
      Options”),
      whether or not such Preferred Options are immediately exercisable, and the
      price
      per share for which the Series
      B
      Preferred Stock or Series
      C
      Preferred Stock is issuable upon the exercise of such Preferred Options
      (determined by dividing (i) the sum of (x) the total amount, if any, received
      or
      receivable by the Company as consideration for the issue, sale, or grant of
      such
      Preferred Options, plus (y) the aggregate amount of additional consideration,
      if
      any, payable to Maker upon the exercise of all such Preferred Options, plus
      (z),
      in the case of such Preferred Options to purchase Preferred Convertible
      Securities, the aggregate amount of additional consideration, if any, payable
      upon the conversion or exchange of such Preferred Convertible Securities, by
      (ii) the maximum aggregate number of shares of Series
      B
      Preferred Stock or Series
      C
      Preferred Stock issuable upon the exercise of such Preferred Options, or upon
      the conversion or exchange of all such Preferred Convertible Securities issuable
      upon the exercise of such Preferred Options)

     

    ,
      then
      and in each such case (a “Preferred
      Trigger Issuance”),
      effective as of the close of business on the effective date of the Preferred
      Trigger Issuance, the then-existing Fixed Preferred Conversion Price shall
      be
      adjusted immediately thereafter so that it shall equal the price determined
      by
      dividing (i) the sum of (x) the aggregate number of shares of Series
      B
      Preferred Stock or Series
      C
      Preferred Stock issued and outstanding immediately prior to the issuance of
      such
      securities multiplied by the Fixed Preferred Conversion Price plus (y) the
      aggregate consideration received for such securities (which, in the case of
      Preferred Options or Preferred Convertible Securities shall equal the product
      of
      the price per share determined in Section 2.5(b)(1)(B) or 2.5(b)(1)(C) above
      and
      the total aggregate number of shares of Series
      B
      Preferred Stock or Series
      C
      Preferred Stock issuable upon the conversion or exchange of such Preferred
      Convertible Securities, or the exercise of such Preferred Options, or upon
      the
      conversion or exchange of the maximum amount of such Preferred Convertible
      Securities issuable upon the exercise of such Preferred Options), by (ii) the
      aggregate number of shares of Series
      B
      Preferred Stock or Series
      C
      Preferred Stock issued and outstanding immediately after the issuance of such
      securities. Such adjustment shall be made successively whenever such an issuance
      is made.

     

    
      
        
        

      

      
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    (b)(2)
      In
      the event the purchase price provided for in any Common Option or Preferred
      Option, the additional consideration, if any, payable upon the conversion or
      exchange of any Common Convertible Securities or Preferred Convertible
      Securities, or the rate at which Common Convertible Securities or Preferred
      Convertible Securities are convertible into or exchangeable for Common
      Stock,
      Series
      B Preferred Stock
      or
      Series C Preferred Stock shall change at any time (including, but not limited
      to, changes under or by reason of provisions designed to protect against
      dilution), the Fixed Common Conversion Price and/or Fixed Preferred Conversion
      Price, as applicable, in effect at the time of such event shall forthwith be
      readjusted to the Fixed Common Conversion Price and/or Fixed Preferred
      Conversion Price which would have been in effect at such time had such Common
      Options, Preferred Options, Common Convertible Securities, or Preferred
      Convertible Securities still outstanding provided for such changed purchase
      price, additional consideration or conversion rate, as the case may be, at
      the
      time initially granted, issued or sold, but only if as a result of such
      adjustment the Fixed Common Conversion Price and/or Fixed Preferred Conversion
      Price then in effect hereunder is thereby reduced. 

    

    (b)(3)
      The
      number of securities outstanding at any given time shall not include shares
      owned or held by or for the account of Maker or any of its subsidiaries, and
      the
      disposition of any such shares (other than the cancellation or retirement
      thereof) shall not be considered an issue or sale of securities for the purpose
      of this Section 2.5. 

    

    (c)
      Anything herein to the contrary notwithstanding, Maker shall not be required
      to
      make any adjustment under Section 2.5(a) and 2.5(b) in the case of the following
      issuances from and after the date hereof: (i) issuances upon the exercise of
      any
      Common Options, Preferred Options, Convertible Securities, or Preferred
      Convertible Securities granted, issued and outstanding on the date hereof unless
      the purchase price provided for in any Common Option or Preferred Option, the
      additional consideration, if any, payable upon the conversion or exchange of
      any
      Convertible Securities or Preferred Convertible Securities, or the rate at
      which
      Convertible Securities or Preferred Convertible Securities are convertible
      into
      or exchangeable for Common Stock,
      Series
      B Preferred Stock
      or
      Series C Preferred Stock shall change at any time, in which case such
      adjustments, if any, shall be governed by Section 2.5(b)(2); (ii) issuances
      upon
      the grant or exercise of any stock or options which may hereafter be granted
      or
      exercised under any employee benefit plan, stock option plan or restricted
      stock
      plan of Maker existing as of the date hereof, so long as the issuance of such
      stock or options is approved by the board of directors of Maker; (iii) issuances
      of securities as consideration for a merger or consolidation with, or purchase
      of assets or capital stock from, a non-affiliated third party or in connection
      with any strategic partnership or joint venture with a non-affiliated third
      party (the primary purpose of any such action is not to raise equity capital);
      (iv) shares of Common Stock or
      Series
      C Preferred Stock issuable upon the conversion of the Principal Amount and
      accrued but unpaid interest hereunder; (v)securities issued or issuable as
      a
      result of any stock split, combination, dividend, distribution,
      reclassification, exchange or substitution for which an equitable adjustment
      is
      provided for in Sections 2.4; (vi) securities issued or issuable with respect
      to
      any price adjustment provisions; (vii) notwithstanding Section 2.5(c)(ii) above,
      issuances upon the grant or exercise of any stock or options which may hereafter
      be granted or exercised by David Chessler in connection with his employment
      agreement with Maker; and (viii) securities issued (or issuable upon exercise,
      exchange or conversion of rights, options or warrants outstanding from time
      to
      time) which the Purchaser expressly elects in writing to treat as an excluded
      issuance hereunder (collectively, “Excluded
      Issuances”).

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

    

    2.6 Effect
      of Adjustments.

     

    (a) (1)
      Upon
      each adjustment of the Fixed Common Conversion Price as a result of the
      calculations made in Sections 2.4 or 2.5, this Note shall thereafter evidence
      the right to receive, at the adjusted Fixed Common Conversion Price, that number
      of shares of Common Stock (calculated to the nearest one hundredth) obtained
      by
      dividing (x) the Principal Amount and accrued but unpaid interest by (y) the
      Fixed Common Conversion Price in effect immediately after such adjustment of
      the
      Fixed Common Conversion Price; and (2) upon each adjustment of the Fixed
      Preferred Conversion Price as a result of the calculations made in Sections
      2.4
      or 2.5, this Note shall thereafter evidence the right to receive, at the
      adjusted Fixed Preferred Conversion Price, that number of shares of Series
      C
      Preferred Stock (calculated to the nearest one hundredth) obtained by dividing
      (x) the Principal Amount and accrued but unpaid interest by (y) the Fixed
      Preferred Conversion Price in effect immediately after such adjustment of the
      Fixed Preferred Conversion Price.

     

    (b) Certificate
      as to Adjustments.
      In each
      case of any adjustment or readjustment in the shares of Common Stock or Series
      C
      Preferred Stock issuable on the conversion of this Note, Maker at its expense
      will promptly cause its Chief Financial Officer or other appropriate designee
      to
      compute such adjustment or readjustment in accordance with the terms of this
      Note and prepare a certificate setting forth such adjustment or readjustment
      and
      showing in detail the facts upon which such adjustment or readjustment is based,
      including a statement of (i) the consideration received or receivable by the
      Company for any additional shares of Common Stock,
      Series
      B Preferred Stock
      or
      Series C Preferred Stock (or other securities) issued or sold or deemed to
      have
      been issued or sold, (ii) the number of shares of Common Stock,
      Series
      B Preferred Stock
      or
      Series C Preferred Stock (or other securities) outstanding or deemed to be
      outstanding immediately prior to and after such adjustment or readjustment,
      and
      (iii) the Fixed Common Conversion Price, Fixed Preferred Conversion Price and
      the number of shares of Common Stock and Series C Preferred Stock to be received
      upon conversion of this Note, in effect immediately prior to such adjustment
      or
      readjustment and as adjusted or readjusted as provided in this Note. Maker
      will
      forthwith mail a copy of each such certificate to Purchaser.

     

    2.7 Purchase
      Rights.
      

     

    (a) If
      at any
      time the Maker grants, issues or sells any Common Stock, preferred shares,
      options or rights to purchase stock, warrants or securities pro rata to the
      record holders of the Maker’s Common Stock (the “Purchase Rights”), then
      Purchaser shall be entitled to acquire, upon the terms applicable in the
      Purchase Rights, the number of securities which Purchaser could have acquired
      if
      Purchaser had held the number of shares of Common Stock acquirable upon
      conversion of the Note immediately prior to the date on which a record is taken
      for the grant, issuance or sale of such Purchase Rights.

     

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

     

    (b) If
      at any
      time the Maker grants, issues or sells any Common Stock, preferred shares,
      options or rights to purchase stock, warrants or other securities pro rata
      to
      the record holders of the Maker’s Series B Preferred Stock or Series C Preferred
      Stock (the “Preferred Purchase Rights”), then Purchaser shall be entitled to
      acquire, upon the terms applicable in the Preferred Purchase Rights, the number
      of securities which Purchaser could have acquired if Purchaser had held: (i)
      in
      the case of securities granted to record holders of the Maker’s Series B
      Preferred Stock, the amount of shares of Series B Preferred Stock equal to
      the
      number of shares of Series C Preferred Stock acquirable upon conversion of
      the
      Note immediately prior to the date on which a record is taken for the grant,
      issuance or sale of such Preferred Purchase Rights (subject to adjustment for
      any splits, combinations, dividends or the like); and (ii) in the case of
      securities granted to record holders of the Maker’s Series C Preferred Stock,
      the number of shares of Series C Preferred Stock acquirable upon conversion
      of
      the Note immediately prior to the date on which a record is taken for the grant,
      issuance or sale of such Preferred Purchase Rights (subject to adjustment for
      any splits, combinations, dividends or the like).

     

    (c) If
      at any
      time the Maker grants, issues or sells any Common Stock, preferred shares,
      options or rights to purchase stock, warrants or other securities other than
      (i)
      pro rata to the record holders of the Maker’s Common Stock, Series B Preferred
      Stock or Series C Preferred Stock or (ii) upon conversion of any preferred
      shares, options or rights to purchase stock, warrants or other securities
      existing as of the date hereof (a “Subsequent Financing”), then Purchaser shall
      have the right to participate in each such Subsequent Financing to the extent
      specified herein. At least 15 calendar days prior to the scheduled closing
      of a
      Subsequent Financing, the Maker shall deliver to Purchaser a written notice
      of
      its intention to effect a Subsequent Financing (a “Subsequent Financing
      Notice”), which Subsequent Financing Notice shall describe in reasonable detail
      the proposed terms of such Subsequent Financing and the amount of proceeds
      intended to be raised thereunder. If, by the closing of business on or before
      the tenth day after Purchaser receives the Subsequent Financing Notice, the
      Maker receives a written notice from Purchaser informing the Maker of
      Purchaser’s desire to participate in the Subsequent Financing, the Purchaser
      shall thereafter have the right to purchase in the Subsequent Financing up
      to
      its “Pro Rata Portion” (as defined below) of the Common Stock, preferred shares,
      options or rights to purchase stock, warrants or other securities sold in the
      Subsequent Financing. In the event that the Maker changes the proposed terms
      of
      the Subsequent Financing after notifying Purchaser, the Maker must notify the
      Purchaser of the changed terms even if the Purchaser failed to respond to the
      earlier Subsequent Financing Notice and the Purchaser shall then have another
      fifteen day period to respond to such notice. The Maker may not close a
      Subsequent Financing without first complying with all of the terms of this
      provision and the Maker may not sell securities in a Subsequent Financing on
      terms and conditions that differ materially from those disclosed to Purchaser
      in
      a Subsequent Financing Notice. “Pro Rata Portion” means the ratio of: (x) the
      number of shares of Common Stock acquirable upon conversion of the Note at
      the
      time that the Subsequent Financing Notice was delivered, and (y) the sum of
      the
      number of shares of Common Stock then outstanding plus the number of shares
      of
      Common Stock issuable upon the exercise or conversion of all outstanding options
      and warrants, plus the number of shares of Common Stock acquirable upon
      conversion of the Note, in each case, at the time that the Subsequent Financing
      Notice was delivered. Notwithstanding the foregoing, Subsequent Financing shall
      not include any securities issued pursuant to an Excluded Issuance.

     

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

     

    2.8 Warrants.
      On the
      date hereof, Maker shall issue a warrant (the “Warrant”) to Purchaser, granting
      the Purchaser the right to purchase up to 22,540,983 Common Shares at $0.122
      per
      share, in the form attached hereto as Exhibit
      C. 

     

    2.9 Non-Negotiable.
      Purchaser shall not have the right to pledge or transfer this Note; provided
      that with the prior written consent of Maker, Purchaser may transfer this Note
      to an affiliate. For purposes of this Section
      2.9,
      an
“affiliate” of Purchaser means any entity which, directly or indirectly,
      controls, is controlled by, or is under common control with
      Purchaser.

     

    2.10 Representations
      and Warranties of Purchaser.
      Purchaser hereby represents and warrants to Maker that: 

     

    (a) Due
      Authorization.
      The
      execution, deliver and performance by Purchaser of this Note and the Security
      Agreement have been duly authorized by all necessary action. 

     

    (b) No
      Conflict.
      The
      execution, delivery, and performance by Purchaser of this Note and the Security
      Agreement do not and will not (i) violate any provision of federal, state,
      or
      local law or regulation (including Regulations T, U, and X of the Federal
      Reserve Board) applicable to Purchaser, the organizational documents of
      Purchaser, or any order, judgment, or decree of any court or other governmental
      authority binding on Purchaser, (ii) conflict with, result in a breach of,
      or
      constitute (with due notice or lapse of time or both) a default under any
      material contractual obligation or material lease of Purchaser, (iii) result
      in
      or require the creation or imposition of any lien of any nature whatsoever
      upon
      any properties or assets of Purchaser, other than permitted liens, (iv) require
      any approval of stockholders or any approval or consent of any person under
      any
      material contractual obligation of Purchaser or (v) require any registration
      with, consent, or approval of, or notice to, or other action with or by, any
      federal, state, foreign or other governmental authority.

     

    (c) Enforceability.
      This
      Note and the Security Agreement, and all other documents contemplated hereby
      and
      thereby, when executed and delivered by Purchaser will be the legally valid
      and
      binding obligations of Purchaser, enforceable against Purchaser in accordance
      with their respective terms, except as enforcement may be limited by equitable
      principles of bankruptcy, insolvency, reorganization, moratorium or similar
      laws
      relating to or limiting creditors’ rights generally.

     

    (d) Securities
      Not Registered.
      Purchaser is acquiring the Note, the Warrant, and upon conversion, the
      Conversion Shares (collectively, the “Securities”) for its own account, not as
      an agent or nominee, and not with a view to, or for sale in connection with,
      any
      distribution thereof in violation of applicable securities laws. By executing
      this Agreement, Purchaser further represents that Purchaser does not have any
      present contract, undertaking, understanding or arrangement with any person
      to
      sell, transfer or grant participations to such persons or any third person,
      with
      respect to the Securities.

     

    (e) Access
      to Information.
      Maker
      has made available to Purchaser the opportunity to ask questions of and to
      receive answers from Maker’s officers, directors and other authorized
      representatives concerning Maker and its business and prospects, and Purchaser
      has been permitted to have access to all information which it has requested
      in
      order to evaluate the merits and risks of the purchase of its Shares pursuant
      to
      this Note.

     

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

     

    (f) Investment
      Experience.
      Purchaser acknowledges that it is able to fend for itself, can bear the economic
      risk of its investment, and has such knowledge and experience in financial
      and
      business matters that it is capable of evaluating the merits and risks of the
      purchase of the Securities.

     

    (g) No
      Brokers or Finders.
      Purchaser has incurred no liability for commissions or other fees to any finder
      or broker in connection with the transactions contemplated by this Note, the
      cost of which is in any part the liability of or payable by Maker.

     

    (h) Regulation
      D.
      Purchaser is an “accredited investor” as defined in Rule 501 under the
      Securities Act. In the normal course of business, Purchaser invests in or
      purchases securities similar to the Securities and has such knowledge and
      experience in financial and business matters as to be capable of evaluating
      the
      merits and risks of purchasing the Securities. Purchaser is not a registered
      broker dealer or an affiliate of any broker or dealer registered under Section
      15(a) of the Exchange Act, or a member of the Financial Industry Regulatory
      Authority or a person engaged in the business of being a broker
      dealer.

     

    (i) Unregistered.
      Purchaser has been advised that (i) the Securities have not been and will not
      be
      registered under the Securities Act of 1933, as amended (the “Securities Act”)
      or other applicable securities laws, (ii) the Securities may need to be held
      indefinitely, and Purchaser must continue to bear the economic risk of the
      investment in the Securities unless the Securities are subsequently registered
      under the Securities Act or an exemption from such registration is available,
      (iii) when and if the Securities may be disposed of without registration in
      reliance on Rule 144 promulgated under the Securities Act, Purchaser must
      deliver an opinion of counsel to Maker reasonably acceptable to the Company
      in
      form, substance and scope to the effect that the Securities may be sold or
      transferred under an exemption from such registration, and (iv) if the Rule
      144
      exemption is not available, disposal without registration will require
      compliance with an exemption under the Securities Act.

     

    (j) No
      Advertisement.
      Purchaser acknowledges that the offer and sale of the Note and the Warrant
      was
      not accomplished by the publication of any advertisement.

     

    (k) No
      Review.
      Purchaser understands that no board or panel, court or governmental department,
      commission, bureau, agency or instrumentality, domestic or foreign, has passed
      upon or made any recommendation or endorsement of the Securities.

     

    (l) Restrictive
      Legend.
      Purchaser understands that the Conversion Shares shall bear a restrictive legend
      in substantially the following form:

     

    THESE
      SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
      (THE “SECURITIES
      ACT”),
      OR
      UNDER APPLICABLE STATE LAW AND MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED
      OR
      PLEDGED UNLESS COVERED BY AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
      SECURITIES ACT, AND ANY APPLICABLE STATE LAW, A TRANSFER MEETING THE
      REQUIREMENTS OF RULE 144 OF THE SECURITIES AND EXCHANGE COMMISSION, OR (IF
      REASONABLY REQUIRED BY THE COMPANY) AN OPINION OF COUNSEL SATISFACTORY TO THE
      COMPANY THAT ANY SUCH TRANSFER IS EXEMPT FROM SUCH REGISTRATION.

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

     

    3. Security.
      As
      security for the prompt and complete payment and performance of Maker’s
      obligations under this Note, Maker hereby pledges and grants to Purchaser a
      senior security interest, subject only the liens listed on Exhibit
      D,
      in all
      of its right, title and interest, whether now existing or hereafter arising
      or
      acquired, in and to any and all of its assets, wherever located, and shall
      cause
      each of its subsidiaries to pledge and grant to Purchaser a senior security
      interest subject only to the liens listed on Exhibit
      D,
      in all
      of its assets.

     

    3.1 Security
      Agreement.
      Maker
      shall execute that certain Security Agreement attached hereto as Exhibit
      E
      (the
“Security Agreement”).

     

    3.2 Intercreditor
      Agreement.
      That
      certain Intercreditor Agreement, dated as of April 30, 2008 (the “Intercreditor
      Agreement”), by and among Valerie Woods, as administrator for the estate of
      Douglas J. Wood, an individual (“Wood”), Hansen, Inc., a Pennsylvania
      corporation (“Hansen”, and together with Wood, the “Guarantors”) and Great White
      Shark Enterprises LLC, a Florida limited liability company (“GWSE”) shall be
      amended as of the date hereof in the form attached hereto as Exhibit
      F
      to add
      Purchaser as a party thereto and shall provide that Purchaser’s security
      interest shall rank pari passu with the security interests of the parties
      thereto.

     

    4. Representations
      and Warranties.
      In
      order to induce Purchaser to enter into this Note, Maker makes the following
      representations and warranties which shall be true, correct and complete in
      all
      respects as of the date hereof:

     

    4.1 Due
      Organization.
      Maker
      is duly organized and existing and in good standing under the laws of the
      jurisdiction of its incorporation and qualified and licensed to do business
      in,
      and in good standing in, any state where the failure to be so licensed or
      qualified reasonably could be expect to have a material adverse change on the
      business of Maker. 

     

    4.2 Due
      Authorization; No Conflict.

     

    (a) The
      execution, delivery, and performance by Maker of this Note and the execution,
      delivery and performance by Maker and each of its subsidiaries of the Security
      Agreement have been duly authorized by all necessary corporate
      action.

     

    (b) The
      execution, delivery, and performance by Maker of this Note and the execution,
      delivery and performance by Maker and each of its subsidiaries of the Security
      Agreement do not and will not (i) violate any provision of federal, state,
      or
      local law or regulation (including Regulations T, U, and X of the Federal
      Reserve Board) applicable to Maker or any of its subsidiaries, the
      organizational documents of Maker or any of its subsidiaries, or any order,
      judgment, or decree of any court or other governmental authority binding on
      Maker or any of its subsidiaries, (ii) conflict with, result in a breach of,
      or
      constitute (with due notice or lapse of time or both) a default under any
      material contractual obligation or material lease of Maker or any of its
      subsidiaries, (iii) result in or require the creation or imposition of any
      lien
      of any nature whatsoever upon any properties or assets of Maker or any of its
      subsidiaries, other than permitted liens, or (iv) require any approval of
      stockholders or any approval or consent of any person under any material
      contractual obligation of Maker or any of its subsidiaries.

     

    
      
        
        

      

      
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    (c) Other
      than the filing of appropriate financing statements, the execution, delivery,
      and performance by Maker of this Note and the execution, delivery and
      performance by Maker and each of its subsidiaries of the Security Agreement
      do
      not and will not require any registration with, consent, or approval of, or
      notice to, or other action with or by, any federal, state, foreign, or other
      governmental authority or other person.

     

    (d) This
      Note
      and Security Agreement, when executed and delivered by Maker or any of its
      subsidiaries will be the legally valid and binding obligations of Maker or
      such
      subsidiary, as applicable, enforceable against Maker or such subsidiary in
      accordance with their respective terms, except as enforcement may be limited
      by
      equitable principles or by bankruptcy, insolvency, reorganization, moratorium,
      or similar laws relating to or limiting creditors’ rights
      generally.

     

    4.3 Litigation.
      Except
      as set forth on Schedule
      4.3
      attached
      hereto, There are no actions or proceedings pending by or against Maker before
      any court or administrative agency and Maker does not have knowledge or belief
      of any pending, threatened, or imminent litigation, governmental investigations,
      or claims, complaints, actions, consent decrees, or prosecutions involving
      Maker, except for matters arising after the date hereof that, if decided
      adversely to Maker, reasonably could not be expected to result in a material
      adverse change on the business of Maker.

     

    4.4 Financial
      Condition.
      No
      bankruptcy, reorganization, insolvency or similar proceeding under any state
      or
      federal law with respect to Maker has been initiated. No transfer of property
      is
      being made by Maker and no obligation is being incurred by Maker in connection
      with the transactions contemplated by this Note or the Security Agreement with
      the intent to hinder, delay or defraud either present or future
      creditors.

     

    4.5 Liens
      and Encumbrances.
      Except
      as set forth on Exhibit
      D
      and
      other than security interests in favor of Purchaser, each of Maker and its
      subsidiaries is lawfully possessed and the sole owner of its assets free and
      clear of any security interest, lien or encumbrance of any kind or character,
      legal or equitable.

     

    4.6 Licenses.
      Each of
      Maker and its subsidiaries has and is current and in good standing with respect
      to all approvals, permits, licenses, certificates, inspections, consents and
      franchises necessary to conduct its business as heretofore conducted by it
      and
      to own or lease and operate the properties now owned or leased by
      it.

     

    
      
        
        

      

      
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    4.7 Taxes.
      Maker
      has duly filed all federal, state, and other tax returns which are required
      by
      law to be filed by it and has paid all taxes and assessments payable by it
      which
      have become due, except for tax returns for which Maker has secured extensions
      to file and those contested in good faith.

     

    4.8 Location
      of Assets.
      All of
      the material assets of Maker and its subsidiaries are located and maintained
      at
      the location(s) set forth on Schedule
      2
      and have
      been located at such location(s) for the 4-month period ending on the date
      hereof, or in the case of collateral acquired by Maker during the 4-month period
      ending as of the date hereof, for the entire time such collateral has been
      in
      the possession of Maker.

     

    4.9 Use
      of
      Proceeds.
      The
      proceeds of the loan from Purchaser to Maker shall be used to finance the
      working capital and general business needs of Maker.

     

    4.10 True
      and Correct Disclosure.
      All
      factual information heretofore or contemporaneously furnished by or on behalf
      of
      Maker or any of its subsidiaries to Purchaser is, and all other such factual
      information hereafter furnished by or on behalf of Maker or any of its
      subsidiaries to Purchaser will be true and accurate in all material respects
      on
      the date as of which such information is provided and not incomplete by omitting
      to state any material fact necessary to make such information not misleading
      at
      such time in light of circumstances under which such information was provided.
      There is no fact known to Maker which could reasonably be expected to have
      a
      material adverse effect, which has not been disclosed herein or in such other
      information furnished to Purchaser.

     

    5. Covenants.
      Maker
      agrees that, so long as any amount remains unpaid on this Note:

     

    5.1 No
      Liens of Encumbrances.
      Other
      than those existing on the date hereof, Maker and each of its subsidiaries
      will
      not pledge, mortgage or otherwise encumber, or permit to exist any lien,
      security interest or charge upon, any assets or property of any kind or
      character at any time owned by Maker or its subsidiaries without the prior
      written consent of Purchaser, which shall not be unreasonably withheld;
      provided, however, that nothing in this Section 5.1 shall operate to prevent
      liens, pledges in connection with workmen’s compensation, taxes, assessments,
      statutory obligations or other similar charges, provided, in each case that
      the
      obligation or liability arises in the ordinary course of business and is not
      overdue, or if overdue, is being contested in good faith by appropriate
      proceedings.

     

    5.2 No
      Other Indebtedness
      Except
      for indebtedness set forth in Exhibit
      D,
      indebtedness less than $1,000,000 in the aggregate incurred after the date
      hereof and indebtedness subordinated in all respects to the rights of Purchaser,
      Maker will not issue, incur, assume, create or have outstanding any indebtedness
      for borrowed money without the consent of Purchaser, which shall not be
      unreasonably withheld; provided, however, that nothing in this Section 5.2
      shall
      restrict or operate to prevent (a) the indebtedness of Maker owing to the
      parties set forth on Exhibit
      D;
      (b)
      trade indebtedness incurred by Maker in the ordinary course of business; or
      (c)
      indebtedness expressly subordinated to Purchaser.

     

    
      
        
        

      

      
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    5.3 Equity
      Repurchase.
      Maker
      shall not: (i) redeem, retire, purchase or otherwise acquire, directly or
      indirectly, any of its Common Stock, Series B Preferred Stock, Series C
      Preferred Stock, or other equity securities; or (ii) establish a new class
      of
      securities senior in priority to the Series C Preferred Stock (other than
      through the Series C Preferred Stock Certificate of Designation).

     

    5.4 Payment
      of Taxes.
      Maker
      shall duly pay and discharge all taxes, rates, assessments, fees and
      governmental charges upon or against it or against its properties, in each
      case
      before the same become delinquent and before penalties accrue thereon, unless
      and to the extent that the same are being contested in good faith and by
      appropriate proceedings.

     

    5.5 Reporting.
      Until
      the Principal Amount and accrued but unpaid interest has been paid in full
      or
      converted into shares of Common Stock and Series C Preferred Stock pursuant
      to
Section
      2
      hereof,
      Maker shall furnish to Purchaser and its duly authorized representatives such
      information respecting the business and financial condition of Maker and its
      subsidiaries as Purchaser may reasonably request from time to time, and shall
      permit Purchaser from time to time during normal business hours to examine,
      inspect, make extracts from books and records of Maker (whether at Maker’s place
      of business or elsewhere) and make such other investigations as Maker may deem
      necessary or appropriate. Maker shall furnish to Purchaser: (i) copies of all
      financial reports and certificates which Maker may deliver to its principal
      financial lender at the same time as such reports or certificates are delivered
      to such lender; (ii) as soon as available and in any event within 30 days
      following the final day of each calendar month, the balance sheet, profit and
      loss statement and statement of cash flows of Maker for such month, all as
      prepared by Maker’s management an certified to Purchaser by Maker’s president or
      chief financial officer; and (iii) as soon as available and in any event within
      180 days following the final day of each fiscal year, the balance sheet, profit
      and loss statement and statement of cash flows of Maker for such fiscal year,
      all as prepared by Maker’s management and certified to Purchaser by Maker’s
      president or chief financial officer.

     

    5.6 Observer.
      In the
      event Purchaser designates an observer to the board of directors, Maker shall
      permit such designee to observe any and all meetings of the board of directors
      of Maker, and shall provide such designee with all notices, materials, and
      information provided to members of the board of directors in connection with
      such meetings. Maker acknowledges that Purchaser make appoint, remove, and
      reappoint such designee in its sole discretion. Purchaser acknowledges that
      the
      board of directors of Maker may exclude Purchaser’s observer from its
      deliberations if it determines in its reasonable judgment that a conflict or
      other similar circumstance exists.

     

    6. Events
      of Default.
      On the
      happening of any of the following events, each of which will constitute an
      event
      of default under this Note, all liabilities of Maker to Purchaser shall become
      immediately due and payable: (i) failure of Maker to cure any payment default
      under this Note within ten (10) days following the due date thereof; (ii)
      failure of Maker or any of its subsidiaries to cure any other material breach
      of
      any agreement or obligation under this Note or the Security Agreement within
      thirty (30) days of notice thereof from Purchaser to Maker; (iii) the issuance
      of any Series C Preferred Shares to any party except Purchaser or its affiliates
      or designees, (iv) the amendment or revocation of the Series C Certificate
      of
      Designation without Purchaser’s prior written consent, which shall not be
      unreasonably withheld, (v) dissolution of Maker; (vi) filing of any petition
      in
      bankruptcy by or against Maker; or (vii) application for appointment of a
      receiver for, or making of a general assignment for the benefit of creditors
      by,
      Maker. Upon the occurrence of any event of default that has not been expressly
      waived by Purchaser, upon written notice from Purchaser, all principal amounts
      shall be then due shall bear interest at the default rate of interest equal
      to
      the lower of twelve percent (12%) per annum and the highest rate then allowed
      under the laws of the State of Nevada, from and including the date of such
      default and until such time as the obligations hereunder shall have been
      satisfied. Purchaser may waive any event of default before or after the event
      of
      default has been declared without impairing its right to declare a subsequent
      event of default under this Note.

     

    
      
        
        

      

      
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    7. Successors
      and Assigns.
      This
      Note applies to, inures to the benefit of, and binds all parties hereto, their
      heirs, legatees, devisees, administrators, executors, successors and assigns.
      In
      this Note, whenever the context so requires, the masculine gender includes
      the
      feminine and/or neuter, and the singular number includes the
      plural.

     

    8. Waiver
      of Presentment.
      Maker
      hereby expressly waives presentment, demand of payment, notice of nonpayment,
      protest and notice of protest of this Note, and all exemptions. Maker shall
      pay
      all costs, fees and expenses (including, without limitation, attorney’s fees)
      incurred by Purchaser in any way in connection with enforcement of this Note,
      including, without limitation, any insolvency, bankruptcy, reorganization,
      arrangement or other similar proceeding involving Maker which in any way affects
      Purchaser’s rights and remedies under this Note. Such costs, fees and expenses
      shall be paid by Maker whether or not any suit or legal proceeding is actually
      commenced.

     

    9. Governing
      Law, Jurisdiction and Venue.
      Maker
      hereby expressly consents to personal jurisdiction in the State of Nevada for
      the purpose of litigating any claims, disputes or other controversies, of any
      nature whatsoever, related to this Note. This Note shall be construed and
      enforced in accordance with the laws of the State of Nevada without regard
      to
      its conflicts of laws principles. The exclusive jurisdiction and venue to hear
      and determine any claim, dispute or other controversy, of any nature whatsoever,
      related to this Note shall be the appropriate federal or state judicial forum
      located in Clark County, State of Nevada.

     

    10. Maximum
      Lawful Interest.
      Notwithstanding any provision contained in this Note, Purchaser shall not be
      entitled to receive, collect or apply as interest on this Note any amount in
      excess of the highest lawful rate permissible under any law which a court of
      competent jurisdiction may deem applicable hereto. If Purchaser ever receives,
      collects or applies as interest any such excess, the amount that would be
      excessive interest shall be deemed to be a partial payment of principal and
      treated hereunder as such, and, if the principal balance of this Note is paid
      in
      full, any remaining excess shall promptly be paid to Maker.

     

    
      
        
        

      

      
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    11. Modification
      and Amendment.
      This
      Note may not be modified or amended except by an amendment, in writing, executed
      by all parties hereto.

     

    12. Time.
      Time is
      of the essence in this Note and each and every provision hereof.

     

    13. Construction.
      This
      Note shall be deemed to have been jointly drafted by the parties hereto. Every
      term and provision of this Note shall be construed simply according to its
      fair
      meaning and not strictly for or against any party hereto.

     

    14. Severability.
      If any
      term, condition or provision of this Note shall be deemed invalid or
      unenforceable by a court of competent jurisdiction, that term, condition or
      provision shall be deemed severed from this Note and the remainder of the terms,
      conditions and provisions of this Note shall remain valid, enforceable and
      in
      full force and effect to the fullest extent permitted by law.

     

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    IN
      WITNESS WHEREOF, Maker and Purchaser have executed this Note to be effective
      as
      of June 12, 2008.

     

    
      	
              “PURCHASER”

               

              TULIP
                GROUP INVESTMENTS, LIMITED

              a
                B.V.I. Company

            	 	
              “MAKER”

               

              GPS
                INDUSTRIES, INC.

              a
                Nevada corporation

               

            
	
              By:

            	 	 	
              By:

            	 
	 	
              Name:

            	 	 	 	
              Name:

            	 
	 	
              Its:

            	 	 	 	
              Its:

            	 

    

     

    
      
        
        

      

      
        17

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