SECURITY AGREEMENT
THIS SECURITY AGREEMENT ("Agreement") is made and entered into this
- ---day of --------, 2006, by and between -------------------------------------
and -----------------------------------are collectively referred to as the
("Secured Party"), ALANCO TECHNOLOGIES, INC., an Arizona corporation ("Debtor"),
and STARTRAK SYSTEMS, LLC, a Delaware limited liability company ("StarTrak").
RECITALS:
Secured Party and Debtor have entered into a transaction pursuant to
which Secured party has loaned monies to Debtor in accordance with the terms of
Promissory Notes, of even date herewith, aggregating $1,300,000 (the "Notes").
The Notes are secured by the security interests granted herein.
StarTrak is Debtor's wholly owned subsidiary and will benefit from the proceeds
of the loans represented by the Notes.
NOW, THEREFORE, in consideration of the loans, the Notes and the mutual
covenants contained herein, the parties agree as follows:
1. Grant of Security Interest. The Debtor and StarTrak hereby grant to the
Secured Party a security interest in the Collateral described below to secure
the payment and performance of the obligations set out in this Agreement.
2. Collateral. The property serving as collateral and subject to the above
security interest is as follows:
All personal property of StarTrak Systems, LLC, a Delaware limited
liability company (StarTrak"), including without limitation each and
all of the following: all of StarTrak's accounts, inventory, general
intangibles, negotiable collateral, books, all deposit accounts; all
investment property (including without limitation securities and
securities entitlements); all goods, instruments, documents, policies
and certificates of insurance, deposits, money or other personal
property of StarTrak, all of StarTrak's equipment and fixtures; all
additions, accessions, attachments, parts, replacements, substitutions,
renewals, interest, dividends, distributions or rights of any kind for
or with respect to any of the foregoing; any supporting obligations for
any of the foregoing; and the products and proceeds of any of the
foregoing Notwithstanding anything to the contrary contained herein,
Collateral shall not include any waste or other materials which have
been or may be designated as toxic or hazardous by Secured Party.
3. Obligations of Debtor. The obligations of the Debtor that are subject to this
Security Agreement are as follows: This Security Agreement secures repayment of
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the Notes in the aggregate amount of $1,300,000.00, together with interest on
the outstanding balance existing from time to time at the rate stated in the
Notes.
4. Warranties and Commitments.
a. Title. The StarTrak is the owner of the Collateral, which is free
and clear of any and all liens, claims, encumbrances, and the like, other than
an existing first priority security interest in favor of Donald E. Anderson and
Rebecca E. Anderson, Trustees of the Anderson Family Trust, dated December 20,
1993, and has all authority to use the same as Collateral.
b. Liens and Encumbrances. The Debtor and StarTrak agree that during
the course of this Agreement, the Debtor will keep the Collateral free from any
and all other liens, encumbrances, and the like.
c. Sale of Collateral. The Debtor and StarTrak will not sell, offer for
sale, transfer, or dispose of the Collateral or any interest in the Collateral,
other than in the ordinary course of Debtor's business, without the prior
written consent of the Secured Party, which shall not be unreasonably withheld.
d. Unlawful Uses of Collateral. The Debtor and StarTrak will not use or
permit any person to use the Collateral in a manner prohibited by law, in
violation of any insurance policy, or in any manner inconsistent with the
Secured Party's security interest.
e. Care of Collateral. The Debtor and StarTrak agree to maintain the
Collateral in good order and repair at all times, reasonable wear and tear
excepted, and will not waste or destroy the Collateral or any part of it.
f. Insurance. The Debtor and StarTrak shall procure insurance insuring
the Collateral against loss through theft, fire, or casualty.
g. Location of Collateral. The Debtor and StarTrak agree not to remove
the Collateral from its business premises located at 106 American Road, Morris
Plains, NJ, or at Ridge Manufacturing, 5 Astro Place, Rockaway, NJ, without the
Secured Party's written permission. Secured Party's consent shall not be
required for the replacement of the Collateral with reasonably equivalent
Collateral of like description.
5. Financing Statements. The Debtor and StarTrak authorize Secured Party to file
one or more financing statements in a form satisfactory to the Secured Party in
any location deemed necessary or advisable to perfect the Secured Party's
security interest in the Collateral or proceeds. The Debtor and StarTrak also
agree to cooperate fully with the Secured Party in executing additional
financing statements, amendments to financing statements, and the like as may be
deemed necessary or advisable by the Secured Party in order to maintain and
continue the security interest created by this Security Agreement.
6. Default. It is agreed that the following events shall constitute a default
under this Agreement:
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a. Nonpayment. Any failure of the Debtor to pay when due any obligation
secured by this Agreement shall constitute a default. This includes, but is not
limited to, any failure to pay principal or interest when due in connection with
the Notes or other document evidencing obligations contained in this Agreement.
b. Nonperformance. Any failure of the Debtor or StarTrak to perform or
observe fully and in a satisfactory manner the material terms of this Agreement
shall constitute a default.
c. Levy and Attachments. Seizure, attachment, or levy on any property
of the Debtor or StarTrak whether or not such property is covered by this
Agreement shall operate as a default under this Agreement.
d. Insolvency and the Like. It shall operate as a default under this
Agreement if for any reason:
(1) The Debtor becomes unable to pay its obligation as they become
due;
(2) The Debtor becomes subject to any proceeding under the
bankruptcy or insolvency laws, including an assignment for the
benefit of creditors; or
(3) The Debtor has his property placed under the custody of a
receiver or trustee.
7. Acceleration on Default. In the event of any default under this Agreement,
the entire indebtedness secured by this Agreement shall become immediately due
and payable.
8. Secured Party's Remedies. On default or acceleration, the Secured Party shall
have the following rights and remedies, which are cumulative in nature and are
immediately available to the Secured Party:
(1) All rights and remedies provided by law, including but not
limited to those provided by the Uniform Commercial Code,
especially those provided in Part 5 of Article 9;
(2) All rights and remedies provided in this Agreement;
(3) All rights and remedies provided in the Notes or other instrument
secured by this Agreement.
9. Waiver of Rights.
a. All rights and remedies of the Secured Party as provided in this
Agreement, or as found in any promissory note or other instrument executed in
connection with this Agreement, or arising by operation of law shall continue in
full force and effect during the full course of this Agreement unless
specifically waived by the Secured Party in a signed writing to that effect.
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b. Forbearance, failure, or delay on the part of the Secured Party in
the exercise of any such right or remedy shall not constitute a waiver of that
right or remedy. Such a waiver may be effected only by a specific written
agreement to that effect which is signed by the Secured Party.
c. The exercise or partial exercise of any right or remedy shall not
preclude the further exercise of such right or remedy.
10. Choice of Law. This Agreement shall be governed by and interpreted in
accordance with the law of the state of Arizona.
11. Severability. In the event that any provision of this Agreement shall be
found to be unenforceable in any legal proceeding, the remaining provisions
shall remain in force and effect.
IN WITNESS WHEREOF, the parties have executed this Agreement the day and year
first above written.
DEBTOR:
ALANCO TECHNOLOGIES, INC.
an Arizona corporation
By:
------------------------------------
Its:
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STARTRAK:
STARTRAK SYSTEMS, LLC
a Delaware limited liability company
By:
------------------------------------
Its:
--------------------------------
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SECURED PARTY:
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PARTIAL SUBORDINATION
- -------------------------------------------------, holders of a first priority
security interest in the StarTrak Collateral described in the foregoing
Security Agreement ("First Lien"), hereby agree to limit the First Lien as
against the StarTrak Collateral to the amount of $500,000 and to subordinate
the remaining portion of the First Lien as against the StarTrak Collateral to
the security interest in favor of the Secured Party granted in the foregoing
Security Agreement.
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