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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.
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.
“
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.
“
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.
“
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.
“
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 grant
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