INTELLECTUAL PROPERTY SECURITY AGREEMENT

 

                    INTELLECTUAL PROPERTY SECURITY AGREEMENT

 

                  INTELLECTUAL PROPERTY SECURITY AGREEMENT (this "Agreement"

dated as of September 20, 2005, by and among GPS Industries, Inc., a Nevada

corporation (the "Company"), and the secured parties signatory hereto and their

respective endorsees, transferees and assigns (collectively, the "Secured

Party").

 

                              W I T N E S S E T H :

 

         WHEREAS, pursuant to a Securities Purchase Agreement, dated the date

hereof, between Company and the Secured Party (the "Purchase Agreement"),

Company has agreed to issue to the Secured Party and the Secured Party has

agreed to purchase from Company certain of Company's Callable Secured

Convertible Notes, due three years from the date of issue (the "Notes"), which

are convertible into shares of Company's Common Stock, par value $.001 per share

(the "Common Stock"). In connection therewith, Company shall issue the Secured

Party certain Common Stock purchase warrants (the "Warrants"); and

 

         WHEREAS, in order to induce the Secured Party to purchase the Notes,

Company has agreed to execute and deliver to the Secured Party this Agreement

for the benefit of the Secured Party and to grant to it a first priority

security interest (except as set forth on Schedule B) in certain Intellectual

Property (defined below) of Company to secure the prompt payment, performance

and discharge in full of all of Company's obligations under the Notes and

exercise and discharge in full of Company's obligations under the Warrants; and

 

         NOW, THEREFORE, in consideration of the agreements herein contained and

for other good and valuable consideration, the receipt and sufficiency of which

is hereby acknowledged, the parties hereto hereby agree as follows:

 

1. Defined Terms. Unless otherwise defined herein, terms which are defined in

the Purchase Agreement and used herein are so used as so defined; and the

following terms shall have the following meanings:

 

     "Software Intellectual Property" shall mean:

 

     (a) all software  programs  (including all source code, object code and all

related  applications and data files),  whether now owned,  upgraded,  enhanced,

licensed or leased or hereafter acquired by the Company, above;

 

     (b) all  computers and  electronic  data  processing  hardware and firmware

associated therewith;

 

     (c) all  documentation  (including flow charts,  logic  diagrams,  manuals,

guides and specifications) with respect to such software,  hardware and firmware

described in the preceding clauses (a) and (b); and

 

(d)  all  rights  with  respect  to  all of the  foregoing,  including,  without

limitation, any and all upgrades, modifications,  copyrights, licenses, options,

warranties,  service  contracts,  program  services,  test  rights,  maintenance

rights, support rights,  improvement rights, renewal rights and indemnifications

and substitutions,  replacements,  additions, or model conversions of any of the

foregoing.

 

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     "Copyrights" shall mean (a) all copyrights,  registrations and applications

for  registration,  issued or  filed,  including  any  reissues,  extensions  or

renewals  thereof,  by or with the United States Copyright Office or any similar

office or agency of the United States,  any state thereof,  or any other country

or political subdivision thereof, or otherwise,  including, all rights in and to

the  material  constituting  the  subject  matter  thereof,  including,  without

limitation,  any  referred  to in  Schedule B hereto,  and (b) any rights in any

material  which is  copyrightable  or which is protected  by common law,  United

States  copyright  laws or  similar  laws or any  law of any  State,  including,

without limitation, any thereof referred to in Schedule B hereto.

 

     "Copyright  License" shall mean any agreement,  written or oral,  providing

for a grant by the  Company of any right in any  Copyright,  including,  without

limitation, any thereof referred to in Schedule B hereto.

 

     "Intellectual   Property"   shall   means,   collectively,   the   Software

Intellectual Property, Copyrights, Copyright Licenses, Patents, Patent Licenses,

Trademarks, Trademark Licenses and Trade Secrets.

 

     "Obligations"  means all of the Company's  obligations under this Agreement

and the Notes,  in each case,  whether now or hereafter  existing,  voluntary or

involuntary,   direct  or  indirect,  absolute  or  contingent,   liquidated  or

unliquidated,  whether or not jointly owed with others,  and whether or not from

time to time decreased or extinguished and later decreased, created or incurred,

and all or any portion of such  obligations or liabilities that are paid, to the

extent  all or any part of such  payment is avoided  or  recovered  directly  or

indirectly  from the  Secured  Party as a  preference,  fraudulent  transfer  or

otherwise as such obligations may be amended, supplemented,  converted, extended

or modified from time to time.

 

     "Patents"  shall mean (a) all  letters  patent of the United  States or any

other  country  or any  political  subdivision  thereof,  and all  reissues  and

extensions thereof,  including,  without limitation,  any thereof referred to in

Schedule B hereto,  and (b) all  applications  for letters  patent of the United

States and all divisions, continuations and continuations-in-part thereof or any

other country or any political subdivision,  including,  without limitation, any

thereof referred to in Schedule B hereto.

 

     "Patent  License"  shall  mean all  agreements,  whether  written  or oral,

providing for the grant by the Company of any right to manufacture,  use or sell

any invention covered by a Patent,  including,  without limitation,  any thereof

referred to in Schedule B hereto.

 

     "Security  Agreement" shall mean the a Security  Agreement,  dated the date

hereof between Company and the Secured Party.

 

     "Trademarks" shall mean (a) all trademarks,  trade names,  corporate names,

company names, business names,  fictitious business names, trade styles, service

marks,  logos  and  other  source  or  business  identifiers,  and the  goodwill

associated  therewith,  now  existing  or  hereafter  adopted or  acquired,  all

registrations  and  recordings  thereof,  and  all  applications  in  connection

therewith,  whether in the United States  Patent and Trademark  Office or in any

similar  office or agency of the United  States,  any state thereof or any other

country or any political subdivision thereof, or otherwise,  including,  without

limitation,  any thereof referred to in Schedule B hereto, and (b) all reissues,

extensions or renewals thereof.

 

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     "Trademark  License" shall mean any agreement,  written or oral,  providing

for the  grant by the  Company  of any  right to use any  Trademark,  including,

without limitation, any thereof referred to in Schedule B hereto.

 

     "Trade  Secrets" shall mean common law and statutory  trade secrets and all

other  confidential  or  proprietary  or  useful  information  and all  know-how

obtained by or used in or  contemplated  at any time for use in the  business of

the Company (all of the foregoing being  collectively  called a "Trade Secret"),

whether or not such Trade Secret has been reduced to a writing or other tangible

form,  including all documents and things embodying,  incorporating or referring

in any way to such Trade Secret, all Trade Secret licenses, including each Trade

Secret license referred to in Schedule B hereto,  and including the right to sue

for  and to  enjoin  and  to  collect  damages  for  the  actual  or  threatened

misappropriation  of any Trade Secret and for the breach or  enforcement  of any

such Trade Secret license.

 

     2. Grant of Security  Interest.  In  accordance  with  Section  3(m) of the

Security Agreement,  to secure the complete and timely payment,  performance and

discharge in full,  as the case may be, of all of the  Obligations,  the Company

hereby, unconditionally and irrevocably, pledges, grants and hypothecates to the

Secured  Party,  a continuing  security  interest  in, a  continuing  first lien

(except as set forth on Schedule B) upon, an unqualified right to possession and

disposition  of and a right of  set-off  against,  in each  case to the  fullest

extent  permitted  by law,  all of the  Company's  right,  title and interest of

whatsoever  kind and nature in and to the  Intellectual  Property (the "Security

Interest").

 

     3.  Representations  and  Warranties.  The Company  hereby  represents  and

warrants, and covenants and agrees with, the Secured Party as follows:

 

     (a) The Company has the  requisite  corporate  power and authority to enter

into this Agreement and otherwise to carry out its obligations  thereunder.  The

execution,  delivery and  performance  by the Company of this  Agreement and the

filings  contemplated  therein have been duly authorized by all necessary action

on the part of the  Company and no further  action is  required by the  Company.

This Agreement  constitutes a legal, valid and binding obligation of the Company

enforceable  in  accordance  with its  terms,  except as  enforceability  may be

limited by bankruptcy,  insolvency,  reorganization,  moratorium or similar laws

affecting the enforcement of creditor's rights generally.

 

     (b) The Company represents and warrants that it has no place of business or

offices where its  respective  books of account and records are kept (other than

temporarily at the offices of its attorneys or  accountants) or places where the

Intellectual  Property is stored or  located,  except as set forth on Schedule A

attached hereto;

 

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     (c) The Company is the sole owner of the Intellectual  Property (except for

non-exclusive  licenses  granted  by the  Company  in  the  ordinary  course  of

business), free and clear of any liens, security interests, encumbrances, rights

or claims,  and is fully  authorized  to grant the  Security  Interest in and to

pledge the  Intellectual  Property,  except as set forth on Schedule D. There is

not on file in any  governmental  or regulatory  authority,  agency or recording

office an effective financing statement, security agreement, license or transfer

or any notice of any of the foregoing  (other than those that have been filed in

favor of the Secured Party pursuant to this Agreement) covering or affecting any

of the Intellectual Property, except as set forth on Schedule D. So long as this

Agreement  shall be in  effect,  the  Company  shall not  execute  and shall not

knowingly  permit to be on file in any such office or agency any such  financing

statement  or other  document  or  instrument  (except  to the  extent  filed or

recorded in favor of the Secured Party pursuant to the terms of this Agreement),

except as set forth on Schedule D or for a financing  statement  covering assets

acquired by the Company  after the date hereof,  provided  that the value of the

Intellectual  Property  covered by this Agreement  along with the Collateral (as

defined in the Security Agreement) is equal to at least 150% of the Obligations.

 

     (d) The  Company  shall at all  times  maintain  its books of  account  and

records relating to the Intellectual Property at its principal place of business

and its Intellectual  Property at the locations set forth on Schedule A attached

hereto and may not relocate such books of account and records unless it delivers

to the  Secured  Party at least 30 days  prior to such  relocation  (i)  written

notice of such relocation and the new location thereof (which must be within the

United  States) and (ii) evidence that the necessary  documents  have been filed

and recorded and other steps have been taken to perfect the Security Interest to

create in favor of the Secured  Party  valid,  perfected  and  continuing  first

priority liens in the Intellectual  Property to the extent they can be perfected

through such filings.

 

     (e) This  Agreement  creates in favor of the Secured Party a valid security

interest in the  Intellectual  Property  securing the payment and performance of

the Obligations  and, upon making the filings  required  hereunder,  a perfected

first priority  security  interest in such  Intellectual  Property to the extent

that it can be perfected through such filings.

 

     (f) Upon  request of the  Secured  Party,  the  Company  shall  execute and

deliver  any and all  agreements,  instruments,  documents,  and  papers  as the

Secured Party may request to evidence the Secured Party's  security  interest in

the  Intellectual  Property  and the  goodwill  and general  intangibles  of the

Company relating thereto or represented thereby, and the Company hereby appoints

the Secured Party its attorney-in-fact to execute and file all such writings for

the  foregoing  purposes,  all acts of such attorney  being hereby  ratified and

confirmed;  such power being coupled with an interest is  irrevocable  until the

Obligations have been fully satisfied and are paid in full.

 

     (g)  Except  as set  forth on  Schedule  D,  the  execution,  delivery  and

performance  of this  Agreement  does not  conflict  with or  cause a breach  or

default,  or an event that with or without the passage of time or notice,  shall

constitute  a breach or default,  under any  agreement to which the Company is a

party  or by  which  the  Company  is  bound.  No  consent  (including,  without

limitation,  from stock holders or creditors of the Company) is required for the

Company to enter into and perform its obligations hereunder.

 

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<PAGE>

 

     (h) The Company shall at all times maintain the liens and Security Interest

provided for hereunder as valid and perfected  first priority liens and security

interests  in the  Intellectual  Property to the extent they can be perfected by

filing in favor of the  Secured  Party  until this  Agreement  and the  Security

Interest  hereunder shall  terminate  pursuant to Section 11. The Company hereby

agrees to  defend  the same  against  any and all  persons.  The  Company  shall

safeguard and protect all  Intellectual  Property for the account of the Secured

Party.  Without limiting the generality of the foregoing,  the Company shall pay

all  fees,  taxes and other  amounts  necessary  to  maintain  the  Intellectual

Property and the Security Interest  hereunder,  and the Company shall obtain and

furnish to the  Secured  Party from time to time,  upon  demand,  such  releases

and/or  subordinations of claims and liens which may be required to maintain the

priority of the Security Interest hereunder.

 

     (i) The Company will not transfer, pledge,  hypothecate,  encumber, license

(except for non-exclusive licenses granted by the Company in the ordinary course

of  business),  sell or otherwise  dispose of any of the  Intellectual  Property

without the prior written  consent of the Secured Party,  which consent will not

be unreasonably withheld.

 

     (j) The Company shall, within ten (10) days of obtaining knowledge thereof,

advise the Secured Party  promptly,  in sufficient  detail,  of any  substantial

change in the  Intellectual  Property,  and of the occurrence of any event which

would have a material adverse effect on the value of the  Intellectual  Property

or on the Secured Party's security interest therein.

 

     (k) The Company shall permit the Secured Party and its  representatives and

agents to inspect the  Intellectual  Property at any time, and to make copies of

records  pertaining  to the  Intellectual  Property as may be  requested  by the

Secured Party from time to time.

 

     (l) The Company  will take all steps  reasonably  necessary  to  diligently

pursue and seek to preserve,  enforce and collect any rights,  claims, causes of

action and accounts receivable in respect of the Intellectual Property.

 

     (m) The  Company  shall  promptly  notify the Secured  Party in  sufficient

detail upon becoming aware of any  attachment,  garnishment,  execution or other

legal  process  levied  against  any  Intellectual  Property  and of  any  other

information  received by the Company that may materially affect the value of the

Intellectual  Property,  the Security Interest or the rights and remedies of the

Secured Party hereunder.

 

     (n) All information heretofore, herein or hereafter supplied to the Secured

Party by or on behalf of the Company with respect to the  Intellectual  Property

is accurate and complete in all material respects as of the date furnished.

 

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

of Company.

 

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     (p) Schedule B attached hereto  includes all Licenses,  and all Patents and

Patent  Licenses,  if any,  owned by the  Company in its own name as of the date

hereof.  Schedule B hereto  includes all Trademarks and Trademark  Licenses,  if

any,  owned by the  Company  in its own name as of the date  hereof.  Schedule B

hereto  includes all  Copyrights  and Copyright  Licenses,  if any, owned by the

Company in its own name as of the date  hereof.  Schedule B hereto  includes all

Trade Secrets and Trade Secret Licenses,  if any, owned by the Company as of the

date hereof.  To the best of the  Company's  knowledge,  each  License,  Patent,

Trademark,   Copyright  and  Trade  Secret  is  valid,  subsisting,   unexpired,

enforceable and has not been abandoned.  Except as set forth in Schedule B, none

of such  Licenses,  Patents,  Trademarks,  Copyrights  and Trade  Secrets is the

subject of any  licensing or franchise  agreement.  To the best of the Company's

knowledge,   no  holding,   decision  or  judgment  has  been  rendered  by  any

Governmental  Body which would  limit,  cancel or question  the  validity of any

License, Patent, Trademark, Copyright and Trade Secrets . Except as set forth in

Schedule B, no action or proceeding  is pending (i) seeking to limit,  cancel or

question  the  validity of any License,  Patent,  Trademark,  Copyright or Trade

Secret,  or (ii) which, if adversely  determined,  would have a material adverse

effect  on the  value of any  License,  Patent,  Trademark,  Copyright  or Trade

Secret.  The Company has used and will  continue to use for the duration of this

Agreement,  proper  statutory  notice in connection with its use of the Patents,

Trademarks and Copyrights and consistent standards of quality in products leased

or sold under the Patents, Trademarks and Copyrights.

 

     (q) With respect to any Intellectual Property:

 

                    (i)  such  Intellectual  Property is subsisting  and has not

                         been adjudged invalid or unenforceable,  in whole or in

                         part;

 

                    (ii) such Intellectual Property is valid and enforceable;

 

                   (iii) the  Company  has  made   all