Security Agreement Inventory



1. Parties and Grant of Security Interest. [Name], a [state] corporation with its place of business at [address] (Debtor), for consideration, the receipt of which is acknowledged by the signing of this Agreement, grants a security interest in the Collateral described in Paragraph 2 to [name], located at [address] (Secured Party).

2. Collateral. Secured Party is hereby granted a security interest in:

a. Inventory. Inventory [specific item(s)] and other goods now owned or after-acquired by Debtor, which are (i) held for sale or lease; (ii) to be furnished under service contracts; (iii) raw materials; (iv) work in process; or (v) materials used or consumed in debtor's business (collectively, inventory). [If desired, a provision may be included excluding items from inventory.]

b. Documents of Title. Documents of title evidencing or representing inventory now owned or after-acquired by Debtor.

c. Proceeds. All proceeds and products of the inventory.

3. Obligations Secured. The Collateral is security for the payment of principal and interest on all loans made by Secured Party to Debtor, now existing or made hereafter, as well as any other obligations of Debtor to Secured Party, whether several, joint, or joint and several, however they may have come about (collectively, liabilities).

4. Warranty of No Other Liens. Debtor owns the Collateral, and will own any collateral acquired after the date of this Agreement, free of any liens, encumbrances, or other right, title, or interest of any party named in this Agreement.

5. Defense Against Third-Party Claims. Debtor will defend the Collateral against all claims or demands of any person claiming the same interest as Secured Party or an interest contrary to that of Secured Party.

6. Financing Statements.

a. Warranty. There is no financing statement covering the Collateral on file with a public office except that of Secured Party. As long as any of the liabilities of Debtor to Secured Party are outstanding, Debtor will not execute any such financing statement in favor of a third party.





b. Further Instruments. Debtor will execute and deliver any financing statements, amendments, and supplements thereof or other instruments that Secured Party requires to comply with the Uniform Commercial Code (UCC), and any other law applicable to the Collateral or to the liabilities, in order to preserve its security interest in the Collateral.

7. Location of Collateral. The inventory will be kept at [address]. If its location is changed, Debtor will promptly notify Secured Party. Regardless of where the inventory and other collateral is located, Secured Party shall nevertheless retain a secured interest in it.

8. Terms of and Limits on Loans. The amount, interest rate, and maturity dates of all loans and other extensions of credit by Secured Party to Debtor will be determined by Secured Party in Secured Party's sole discretion. Except as Secured Party may hereafter agree to, in writing, all such loans and extensions of credit will not, at any time, exceed (a) ...... percent (......%) of the loan value of Debtor's raw material inventory, evidenced by warehouse receipts, which is part of the Collateral, plus (b) ...... percent (......%) of the loan value of Debtor's finished products inventory, evidenced by warehouse receipts, which is part of the Collateral. The loan value of raw material inventory will be computed at cost to Debtor. The loan value of finished products inventory will be computed as follows: [method of computation].

9. Warehousing of Inventory. Debtor, at Debtor's own expense, will keep in force and comply with a field warehouse arrangement to warehouse such portion of Debtor's inventory that is Collateral as Secured Party stipulates. This arrangement must continue in force as long as credit is being extended by Secured Party to Debtor. Such arrangement must be with an independent field warehouse company satisfactory to Secured Party and by agreement satisfactory in form and substance to Secured Party. In addition, this independent field warehouse company must issue nonnegotiable warehouse receipts for the warehoused inventory in the name of Secured Party.

10. Control of Inventory.

a. Warehoused Inventory. The warehouse receipts for the warehoused inventory are to be delivered to Secured Party. Debtor has no right to the possession or use of such receipts or of such inventory, unless Secured Party decides to release a portion of it to Debtor in return for payment of Debtor's indebtedness to Secured Party.

b. Lists of Other Inventory. Secured Party may require Debtor to deliver to Secured Party lists, descriptions, and designations of Debtor's inventory not encompassed by the warehouse receipts, so that Secured Party may determine the nature, extent, and location of the Collateral.

c. Sale of Inventory. Any inventory released to Debtor or not represented by warehouse receipts may be used, consumed, or sold by Debtor in Debtor's ordinary course of business; however, this does not include or permit any sale or transfer of inventory in complete or partial satisfaction of a debt owed by Debtor to a third party.

11. Insurance. At Debtor's own expense, Debtor will keep the Collateral fully insured, with insurance companies satisfactory to Secured Party, against loss due to fire, and with extended coverage. All policies must contain a loss payable clause to Secured Party, to the extent of Secured Party's interest in the Collateral.

12. Notes. Every loan by Secured Party will be evidenced by a promissory note of Debtor at such interest rate and with such maturity as Secured Party may require. The notes must also bear the inscription "this Note evidences a loan pursuant to and is entitled to the benefits of the Security Agreement of [date], executed by the undersigned in favor of [name] (Secured Party)."

13. Payment of Taxes. All taxes, assessments, and governmental charges on the Collateral are to be paid by Debtor as they come due, unless they are being contested in good faith by appropriate proceedings.

14. Additional Debts Secured Upon Default.

a. Payments by Secured Party for Debtor. If Debtor fails to pay taxes or other assessments and costs and expenses, maintain insurance, or keep the Collateral free from other liens, encumbrances, or security interests, as is required by this Agreement, Secured Party may make expenditures for such items. Whatever sums are expended by Secured Party, plus interest at the rate of ...... percent (......%) per year, will become immediately due and payable by Debtor to Secured Party. This debt is to be secured under this Agreement by the Collateral.

b. Costs of Realizing on Collateral. Any costs incurred by Secured Party in the event of default by Debtor on the liabilities, including costs of retaking, holding, and selling the Collateral, and including court costs, attorney fees, and legal expenses, will become additional debts of Debtor to Secured Party, payable on demand and secured by the Collateral.

15. Events of Default. The following are events of default under this Agreement:

a. Failure to Pay Obligations to Secured Party. Failure by Debtor to pay, when due, any installment of principal or the principal, plus interest thereon, of any of the liabilities or other debts of Debtor to Secured Party.

b. Default Under Other Loans. Existence of default under the terms of any loan or similar instrument of indebtedness between Debtor and any third party that permits such third party to accelerate maturity of such indebtedness.

c. Misrepresentations. If Debtor, or Debtor's representative, make any representation of warranty to Secured Party in this Agreement or in connection with any of the liabilities that is untrue in any material respect.

d. Bankruptcy, Insolvency, or Other Business Failure. If there is a dissolution, termination of existence, insolvency, or business failure of Debtor, or an application for appointment of a receiver of any property of Debtor, or the commencement of any proceeding under any bankruptcy law or similar law for relief of debtors by or against Debtor or any guarantor or surety for Debtor, or the service of any warrant, attachment, levy, or similar process against Debtor or the Collateral.

e. Other Agreements and Obligations. Default by Debtor in observing or performing any provision of this Agreement or any note, assignment, or other instrument executed pursuant to the liabilities or this Agreement.

16. Remedies on Default. Upon any event of default:

a. Acceleration of Maturity. All liabilities become immediately due and payable, at the option of Secured Party. Secured Party will send written notice of the demand to Debtor, by registered mail.

b. Other Rights and Remedies. In addition to all other rights and remedies granted to Secured Party, it also has all the rights and remedies available to Secured Party under the UCC.

Secured Party may require Debtor upon default to assemble the Collateral and make it available to Secured Party at a reasonably convenient place designated by Secured Party.

17. Notice to Debtor. Any notice of resale of the Collateral by Secured Party to Debtor will be deemed reasonably and properly given if mailed at least [number] days before the disposition of the Collateral. This notice must be addressed to Debtor at the address noted in this Agreement, or at such other address designated in writing by Debtor.

18. Setoff. Any debt of Secured Party to Debtor may be set off against the indebtedness of Debtor to Secured Party, without demand upon or notice to anyone.

19. Supervision of Loans. Debtor will pay Secured Party a fee, in an amount mutually agreed upon from time to time, for supervising and servicing the liabilities and the Collateral.

20. Governing Law. This Agreement, and all rights and obligations under it, shall be construed according to the laws of [state]. If, for any reason, the law of another jurisdiction applies, Debtor will execute and deliver any necessary instruments to keep the security interest of Secured Party in force.

21. Termination. This Agreement may be terminated by [number] days' written notice of termination given by either Debtor or Secured Party to the other. Such termination will not affect the rights, duties, obligations, or liabilities of the parties in regard to all transactions prior to termination.

22. Miscellaneous.

a. Definitions. Terms used in this Agreement that are defined in the UCC of [state] have the same meaning in this Agreement.

b. Successors and Assigns. This Agreement, and all rights and liabilities hereunder, shall inure to the benefit of Secured Party and Secured Party's successors and assigns and be binding on Debtor and Debtor's successors and assigns.

c. Effectiveness of Agreement. This Agreement will be effective upon its execution by Debtor and its delivery to Secured Party. Secured Party does not have to execute an acceptance.

[dated] [signature]

Debtor