Borrower-Friendly Security Agreement Template

In this Agreement, unless the context otherwise requires, the capitalized terms defined in this Section shall have the meanings set out below.

"Business Day" means any day other than a Saturday, a Sunday or a day on which commercial banks are authorized or required to be closed in [city/jurisdiction].

"Collateral" means the Equipment and the Inventory described in Section 3 of this Agreement, together with all Proceeds thereof, but excluding any Excluded Assets and any item released from the security interest in accordance with this Agreement.

"Cure Period" means the period of 30 days commencing on the date on which the Borrower receives a Default Notice that complies with Section 12 of this Agreement.

"Default Notice" means a written notice delivered by the Lender to the Borrower in accordance with Section 12 of this Agreement, which identifies with reasonable particularity the Event of Default alleged to have occurred, the action required to remedy it and, where applicable, the amount required to cure it.

"Equipment" means the items of machinery, equipment, tools, vehicles and other tangible movable property of the Borrower specifically listed and described in Section 3 of this Agreement, together with all accessions, attachments, replacements and substitutions thereto that are accepted by the Lender in writing.

"Event of Default" means any of the events or circumstances specified in Section 11 of this Agreement, which has not been cured or waived within any applicable grace period.

"Excluded Assets" means any asset of the Borrower that is not expressly described in Section 3, and any asset the grant of a security interest in which would, by operation of law or under a binding agreement existing on the Effective Date and disclosed to the Lender, be prohibited or give any third party a right of termination.

"Inventory" means the goods of the Borrower held for sale or lease in the ordinary course of its business, or raw materials, work in process and finished goods, in each case of the categories and at the locations specifically described in Section 3 of this Agreement.

"Ordinary Course of Business" means the ordinary course of the Borrower's business as conducted in good faith, consistent with the Borrower's past practice and with the practices of prudent businesses in the Borrower's industry.

"Permitted Encumbrance" means any lien, charge or encumbrance (a) securing taxes, assessments or governmental charges not yet due or being contested in good faith by appropriate proceedings, (b) arising by operation of law in the Ordinary Course of Business in favor of suppliers, carriers, warehousemen or repairers for amounts not overdue, or (c) otherwise consented to in writing by the Lender.

"Proceeds" means whatever is acquired upon the sale, lease, license, exchange, collection or other disposition of the Collateral, including cash proceeds, accounts and payment rights arising from the sale of Inventory, and insurance proceeds payable in respect of loss of or damage to the Collateral.

"Secured Obligations" has the meaning given in Section 4 of this Agreement.

"Security Interest" means the security interest, lien and charge granted by the Borrower to the Lender under Section 2 of this Agreement.

Headings are for convenience only and do not affect interpretation. The singular includes the plural and vice versa. The words "including" and "include" mean "including without limitation". References to Sections are to sections of this Agreement. References to any agreement are to that agreement as amended, supplemented or replaced from time to time in accordance with its terms.

In the event of any conflict between this Agreement and the Loan Agreement regarding the Collateral or the rights of the Lender over it, this Agreement shall prevail; in all other respects the Loan Agreement shall prevail.

As continuing security for the due and punctual payment and performance of the Secured Obligations, the Borrower hereby grants to the Lender a security interest in, and a lien upon, all of the Borrower's right, title and interest, now owned or hereafter acquired, in and to the Collateral.

The Security Interest is granted as a security interest only. The Lender does not by virtue of this Agreement assume any obligation or liability of the Borrower in respect of the Collateral, and the Borrower shall remain solely responsible for the performance of its obligations relating to the Collateral, except as expressly provided herein.

The Security Interest shall attach to each item of Collateral upon the later of the Effective Date and the date on which the Borrower acquires rights in such item, and shall continue in full force and effect until released or terminated in accordance with Section 15.

The Security Interest shall extend only to the Collateral. Nothing in this Agreement shall be construed as granting to the Lender any interest in any Excluded Asset or in any other asset of the Borrower not described in Section 3.

The Security Interest shall rank in priority behind Permitted Encumbrances to the extent such Permitted Encumbrances have priority by operation of law or by written agreement of the Parties, and otherwise as first-ranking security over the Collateral.

The Lender shall not be entitled to exercise any right or remedy in respect of the Collateral except in accordance with the terms and conditions of this Agreement, including the notice and Cure Period requirements of Section 12.

The Equipment subject to the Security Interest consists solely of the following items, each as further identified by make, model, serial number, location and estimated value in the following description: [description of Equipment, including make, model, serial number, location and value of each item].

The Inventory subject to the Security Interest consists solely of the following categories of goods, held at the following locations: [description of Inventory categories, quantities (if applicable), and storage locations].

The Collateral shall include all Proceeds of the Equipment and Inventory, provided that the Lender's interest in Proceeds arising from the sale of Inventory in the Ordinary Course of Business shall be subject to the Borrower's rights under Section 6.

Replacement Inventory acquired by the Borrower in the Ordinary Course of Business of the same categories as those described above shall be deemed to be Collateral, in substitution for Inventory sold or consumed, such that the Collateral shall comprise Inventory of the described categories from time to time held by the Borrower at the described locations.

The Borrower may, by written notice to the Lender, propose the addition or substitution of items of Equipment; any such addition or substitution shall take effect only upon the Lender's written acceptance, which shall not be unreasonably withheld, conditioned or delayed.

The description of the Collateral set out in this Section shall be conclusive as to the extent of the Collateral, and the Parties agree that any ambiguity in such description shall be resolved in favor of the narrower interpretation.

The Security Interest secures the due and punctual payment and performance of (a) the principal amount of the Loan, (b) interest accruing thereon at the rate provided in the Loan Agreement, and (c) fees, costs and expenses expressly payable by the Borrower under the Loan Agreement or this Agreement (collectively, the "Secured Obligations").

The Secured Obligations shall not include any obligation of the Borrower arising under any agreement, instrument or transaction other than the Loan Agreement and this Agreement, unless the Borrower has expressly agreed in writing that such obligation shall be secured hereby.

The maximum aggregate amount secured by the Security Interest shall not exceed [maximum secured amount and currency], plus costs of enforcement that are reasonable and properly documented.

The Secured Obligations shall be reduced by each payment made by the Borrower in respect thereof, and the amount secured by the Security Interest shall be reduced correspondingly without any need for further action by the Parties.

Any increase in the Secured Obligations resulting from an amendment, extension or refinancing of the Loan Agreement shall be secured hereby only if the Borrower has consented to such amendment, extension or refinancing in writing.

The Lender shall provide the Borrower, within 10 Business Days after written request (but not more than [number] times in any 12-month period), with a statement of the outstanding balance of the Secured Obligations.

The Borrower represents and warrants to the Lender, as of the Effective Date, that it is duly organized, validly existing and in good standing under the laws of its jurisdiction of organization and has full power and authority to enter into and perform this Agreement.

The execution, delivery and performance of this Agreement by the Borrower have been duly authorized by all necessary corporate or other action and do not violate the Borrower's constitutional documents or, to the Borrower's knowledge, any law or binding agreement applicable to it in any material respect.

The Borrower has good title to, or valid rights of possession in, the Collateral, free of any lien, charge or encumbrance other than the Security Interest and Permitted Encumbrances.

To the Borrower's knowledge, the description of the Collateral contained in Section 3 is accurate in all material respects as of the Effective Date.

The Collateral is located at the locations specified in Section 3, and the Borrower's chief executive office is located at the address stated in this Agreement.

To the Borrower's knowledge, there is no pending or threatened litigation or proceeding against the Borrower that would reasonably be expected to have a material adverse effect on the Collateral or on the Borrower's ability to perform this Agreement.

The representations and warranties in this Section are made solely as of the Effective Date and shall not be deemed repeated, except as the Loan Agreement may expressly provide. The Lender acknowledges that it has not relied on any representation or warranty not expressly set out in this Agreement.

Unless and until an Event of Default has occurred, has not been cured within the Cure Period and the Lender has exercised its rights in accordance with Section 13, the Borrower shall be entitled to retain possession of, and to use and operate, the Collateral in the conduct of its business.

The Borrower may, without the consent of the Lender, use, consume, process, and sell or otherwise dispose of Inventory in the Ordinary Course of Business, and any buyer of such Inventory shall acquire it free of the Security Interest. The Lender shall, upon request, promptly confirm such release in writing at the Borrower's request.

The Borrower may, without the consent of the Lender, replace any item of Equipment that is worn out, obsolete, damaged or destroyed with an item of equivalent or better quality and value, and the replacement shall become Collateral.

Except as permitted by this Section, the Borrower shall not sell, lease, transfer or otherwise dispose of any item of Equipment, or create any lien on the Collateral other than Permitted Encumbrances, without the prior written consent of the Lender, which shall not be unreasonably withheld, conditioned or delayed.

The Borrower may relocate Collateral within [permitted area or jurisdiction] upon [number] days' prior written notice to the Lender, and may move Inventory between its business locations in the Ordinary Course of Business.

The Borrower shall be entitled to receive, retain and use all Proceeds of Inventory sold in the Ordinary Course of Business, free of the Security Interest, and shall not be required to segregate or remit such Proceeds to the Lender unless the Lender is entitled to require such remittance under Section 13.

The Borrower shall maintain the Equipment in good working order and condition, ordinary wear and tear excepted, and shall carry out repairs and maintenance in accordance with the manufacturer's recommendations or, in their absence, prudent industry practice.

The Borrower shall maintain the Inventory in reasonable condition and shall store it in a manner appropriate to its nature, having regard to the Borrower's Ordinary Course of Business.

The Borrower shall pay when due all taxes, charges and assessments levied upon the Collateral, except those being contested in good faith by appropriate proceedings and for which adequate reserves have been established.

The Borrower shall use the Collateral in compliance, in all material respects, with applicable law and the requirements of any insurance policy maintained under Section 8.

The Borrower shall promptly notify the Lender in writing of any material loss of, damage to, or adverse claim against, the Collateral of which the Borrower becomes aware and which exceeds [threshold amount and currency] in value.

The Borrower shall take reasonable steps, at its own cost, to defend the Collateral against claims of third parties that would reasonably be expected to impair the Security Interest in any material respect.

The Lender shall have no duty to preserve, protect, maintain or insure the Collateral while it is in the possession of the Borrower, and the Lender shall not be responsible for any decline in the value of the Collateral.

The Borrower shall maintain, with financially sound and reputable insurers, insurance on the Equipment and the Inventory against loss or damage by fire, theft and other risks customarily insured by businesses of similar size in the Borrower's industry, in amounts that are reasonable having regard to the value of the Collateral.

The Borrower may satisfy the requirements of this Section through blanket or general policies covering other assets of the Borrower, provided the coverage in respect of the Collateral is not thereby reduced below what is reasonable.

Upon written request, and not more than once in any 12-month period, the Borrower shall furnish the Lender with a certificate evidencing the insurance required by this Section.

The Borrower shall cause the Lender to be named as loss payee, to the extent of its interest in the Collateral, under the policies insuring the Equipment, to the extent such designation is available on commercially reasonable terms.

Insurance proceeds in respect of loss or damage to the Collateral that are less than [threshold amount and currency] shall be paid to the Borrower, and the Borrower shall apply such proceeds to the repair or replacement of the Collateral or to the conduct of its business.

Insurance proceeds equal to or exceeding the threshold in the preceding clause shall be paid to the Lender and held for application, at the Borrower's election, either toward the repair or replacement of the affected Collateral or, if no Event of Default is continuing, toward prepayment of the Secured Obligations.

The Lender shall not be liable for any failure of the Borrower to maintain insurance, and the Borrower's obligations to the Lender shall not be reduced by reason of any insurer's failure to pay a claim.

The Borrower shall execute and deliver, at the Lender's reasonable written request and at the Lender's cost unless otherwise provided herein, such registrations, filings and other documents as are reasonably necessary to perfect and maintain the Security Interest under the laws of [jurisdiction].

The Borrower hereby authorizes the Lender to file or register such notices, filings and other documents in [registry or filing office] as are reasonably necessary to perfect the Security Interest, provided that the collateral description therein shall not be broader than the description of the Collateral in Section 3.

The Lender shall, within 10 Business Days after written request by the Borrower, provide such cooperation, and shall execute such amendments or terminations of any filings, as are reasonably necessary to reflect the exclusion of any Excluded Asset or the release of any Collateral permitted by this Agreement.

The Borrower shall give the Lender not less than 30 days' prior written notice of any change in its legal name, its jurisdiction of organization or the location of its chief executive office.

The Borrower shall, upon the reasonable written request of the Lender, take such further actions as are reasonably necessary to give effect to the purposes of this Agreement, provided that no such action shall impose upon the Borrower any material cost or obligation beyond those contemplated by this Agreement.

The Lender shall bear the costs of any filing or registration made to perfect the Security Interest, unless the Loan Agreement provides otherwise.

The Lender may, upon not less than 5 Business Days' prior written notice, and during normal business hours, inspect the Collateral at the locations where it is held, not more than [number] times in any 12-month period, unless an Event of Default has occurred and is continuing.

Any inspection shall be carried out in a manner that does not unreasonably interfere with the Borrower's business, and the Lender and its representatives shall comply with the Borrower's reasonable safety and security procedures.

The cost of any inspection shall be borne by the Lender, except that the Borrower shall bear the reasonable cost of inspections following the occurrence and during the continuance of an Event of Default.

The Borrower shall provide to the Lender, within [number] days after written request, a summary report of the Collateral then held by it, including a general description of the Inventory by category and quantity.

The Lender shall treat all information obtained pursuant to this Section as confidential and shall use it solely for the purpose of monitoring and enforcing the Security Interest, and shall not disclose it to any person other than its professional advisers, auditors and regulators bound by duties of confidentiality, or as required by law.

The Borrower shall not be required to disclose any information that is subject to legal privilege or that it is prohibited from disclosing under a binding confidentiality obligation owed to a third party.

Each of the following shall constitute an Event of Default, subject in each case to Section 12: (a) the Borrower fails to pay any amount of principal or interest of the Secured Obligations on the date it falls due under the Loan Agreement.

The Borrower fails to perform or observe any material covenant or obligation under this Agreement, other than one referred to in the preceding clause.

Any representation or warranty made by the Borrower in this Agreement proves to have been incorrect in any material respect when made, and the circumstances giving rise to the inaccuracy are materially adverse to the Lender and are not remedied.

The Borrower sells, transfers or encumbers any material part of the Collateral in breach of Section 6, other than as permitted by this Agreement.

The Borrower becomes insolvent, makes a general assignment for the benefit of its creditors, or a court of competent jurisdiction enters an order for the liquidation or winding-up of the Borrower, or an insolvency proceeding is commenced against the Borrower and is not dismissed within [number] days.

For the avoidance of doubt, an Event of Default under the Loan Agreement that is not also described in this Section shall not constitute an Event of Default hereunder unless it has resulted in acceleration of the Secured Obligations in accordance with the Loan Agreement.

No event shall constitute an Event of Default if it has been cured or waived in accordance with this Agreement, or if it results from the Lender's own act or omission.

Upon the occurrence of an Event of Default, the Lender shall, before exercising any right or remedy under Section 13, deliver a Default Notice to the Borrower in writing in accordance with Section 18.

The Default Notice shall specify (a) the Event of Default alleged, (b) the provisions of this Agreement or the Loan Agreement alleged to have been breached, (c) the steps required to remedy the Event of Default, and (d) the amount, if any, required to be paid to cure it.

The Borrower shall have the Cure Period of 30 days after receipt of the Default Notice within which to cure the Event of Default, or to dispute it in good faith by written notice to the Lender.

If the Event of Default is cured within the Cure Period, the Default Notice shall be deemed withdrawn, the Event of Default shall be deemed not to have occurred, and the Lender shall have no right to exercise any remedy in respect thereof.

If the Event of Default is of a nature that cannot reasonably be cured within the Cure Period, and the Borrower has commenced and is diligently pursuing a cure, the Cure Period shall be extended by [number] additional days.

If the Borrower disputes the alleged Event of Default in good faith, the Lender shall not exercise any remedy in respect thereof until the dispute has been resolved in accordance with Section 17 or the Parties have otherwise agreed in writing.

A Default Notice that does not comply with this Section shall be of no effect and shall not commence the Cure Period. The Lender shall not be entitled to enforce the Security Interest during the Cure Period.

Following the expiry of the Cure Period without cure of the relevant Event of Default and without a good faith dispute pending under Section 12, the Lender may, by written notice to the Borrower, exercise the rights and remedies set out in this Section, in addition to the rights and remedies available under the Loan Agreement.

The Lender may take possession of the Collateral, or require the Borrower to assemble it at a place reasonably convenient to both Parties, provided that the Lender shall do so peacefully and without breach of the peace and in compliance with applicable law.

The Lender may sell, lease or otherwise dispose of the Collateral, at public or private sale, in a commercially reasonable manner, and shall give the Borrower not less than 15 Business Days' prior written notice of the time and place of any public sale, or of the time after which any private sale will be made.

The Lender shall be obliged to act in good faith and to take reasonable steps to obtain fair market value for the Collateral, and shall account to the Borrower for any surplus.

The Lender shall not exercise remedies in respect of any portion of the Collateral with a value greater than is reasonably necessary to satisfy the outstanding Secured Obligations.

The Borrower shall have the right, at any time before the Lender has disposed of the Collateral, to redeem the Collateral by paying in full the then-outstanding Secured Obligations and the Lender's reasonable and documented costs of enforcement.

The Lender shall not be liable for any loss of or damage to the Collateral, or any decline in its value, in the course of enforcement, except to the extent caused by the Lender's gross negligence, willful misconduct or breach of this Agreement.

All proceeds received by the Lender from the enforcement of the Security Interest shall be applied in the following order: first, to the reasonable and documented costs and expenses of enforcement actually incurred by the Lender; second, to accrued and unpaid interest on the Secured Obligations; third, to the outstanding principal of the Secured Obligations; and fourth, to any other Secured Obligations then due.

Any surplus remaining after the full and final payment of the Secured Obligations shall be paid promptly to the Borrower or to such other person as may be lawfully entitled to it, and in any event within 10 Business Days after receipt by the Lender.

The Lender shall provide the Borrower with a written accounting of the application of proceeds within 15 Business Days after each disposition of the Collateral.

If the proceeds are insufficient to satisfy the Secured Obligations in full, the Borrower shall remain liable for the deficiency, but only to the extent provided in the Loan Agreement and only for amounts properly due thereunder.

Proceeds received in a currency other than the currency of the Secured Obligations shall be converted at a rate reasonably determined by the Lender, which shall act in good faith and in a commercially reasonable manner.

The Lender shall not apply any proceeds to obligations that are not Secured Obligations.

The Security Interest shall automatically terminate, and all rights of the Lender in the Collateral shall cease, upon the full and final payment and performance of all Secured Obligations.

Within 10 Business Days after the Borrower's written request following such payment and performance, the Lender shall, at the Lender's cost, execute and deliver all documents and take all steps reasonably necessary to evidence the release and termination of the Security Interest, including the discharge or termination of any registrations or filings.

If the Lender fails to provide such documents within the period stated above, the Borrower is hereby irrevocably authorized to prepare, execute, file and register such discharge or termination on the Lender's behalf.

The Lender shall promptly return to the Borrower any Collateral and any insurance proceeds in its possession or control, and shall release any lien or interest held by it in them.

The Lender shall release the Security Interest in any item of Collateral that is sold or disposed of as permitted by Section 6, and upon the written request of the Borrower, shall release any item of Collateral to the extent the value of the remaining Collateral is, in the Lender's reasonable determination, sufficient to secure the then-outstanding Secured Obligations.

The termination of the Security Interest shall not affect any right of the Borrower against the Lender that arose before termination, nor any provision of this Agreement that is expressed to survive termination.

The Lender shall indemnify and hold harmless the Borrower and its officers, directors and employees from and against any loss, liability, claim or reasonable cost arising from the Lender's gross negligence, willful misconduct or breach of this Agreement, including any wrongful enforcement of the Security Interest.

The Borrower shall reimburse the Lender for reasonable and documented out-of-pocket costs incurred by the Lender in the enforcement of the Security Interest following the expiry of the Cure Period, provided that such costs are properly incurred and are not attributable to the Lender's own breach.

The Borrower's liability under this Section shall be limited to the proceeds of the Collateral and to the maximum amount specified in Section 4, except to the extent the Loan Agreement provides otherwise.

The Borrower shall not be liable for any cost, loss or expense of the Lender to the extent arising from the gross negligence or willful misconduct of the Lender, or from any dispute between the Lender and a third party that is not attributable to the Borrower.

The Lender shall bear its own costs of the negotiation, preparation, execution and perfection of this Agreement, except as the Loan Agreement may expressly provide.

A party seeking indemnification shall give prompt written notice of the claim, allow the indemnifying party to control the defense, and cooperate reasonably in the defense. Failure to give prompt notice shall relieve the indemnifying party only to the extent it is prejudiced.

Neither Party shall be liable to the other for any indirect, consequential, special or punitive damages arising under this Agreement, except to the extent such damages are payable to a third party under a claim for which indemnification is available.

This Agreement and any non-contractual obligations arising out of or in connection with it shall be governed by and construed in accordance with the laws of [governing law jurisdiction], without giving effect to any conflict of laws rules that would require the application of the law of another jurisdiction.

The Parties shall first attempt in good faith to resolve any dispute, controversy or claim arising out of or relating to this Agreement by negotiation between senior representatives of each Party for a period of 30 days after written notice of the dispute.

If the dispute is not resolved by negotiation, the Parties shall refer it to mediation conducted by [mediator or mediation institution] for a period of [number] days before commencing any formal proceedings, unless urgent interim relief is required.

Any dispute not resolved by negotiation or mediation shall be finally resolved by [arbitration under the rules of [arbitral institution] / the courts of [jurisdiction]], with the seat or venue in [city], and the language of proceedings shall be [language].

If arbitration is chosen, the tribunal shall consist of [number] arbitrator(s) appointed in accordance with the applicable rules, and the award shall be final and binding on the Parties.

Pending final resolution of any dispute, the Lender shall not exercise any remedy in respect of the Collateral that is the subject of the dispute, except to the extent necessary to preserve the Collateral from imminent loss or destruction.

The prevailing Party in any dispute resolution proceeding shall be entitled to recover its reasonable legal fees and costs from the other Party, as determined by the tribunal or court.

All notices under this Agreement shall be in writing, in the English language, and shall be delivered by hand, by recognized courier or by registered mail, with a copy by email, to the addresses set out in the signature section of this Agreement, or to such other address as a Party may notify in writing.

A notice shall be deemed received on the date of delivery if delivered by hand or courier, on the [number] Business Day after posting if sent by registered mail, and on the date of transmission if sent by email, provided that email notice alone shall not be sufficient for a Default Notice.

This Agreement, together with the Loan Agreement, constitutes the entire agreement between the Parties relating to its subject matter and supersedes all prior negotiations, understandings and agreements relating thereto.

No amendment or waiver of any provision of this Agreement shall be effective unless in writing and signed by both Parties (or, in the case of a waiver, by the Party granting it). No failure or delay in exercising any right shall operate as a waiver of it.

Neither Party may assign or transfer its rights or obligations under this Agreement without the prior written consent of the other Party, except that the Lender may assign its rights to a successor to the Loan, provided that the assignee agrees in writing to be bound by this Agreement, including the notice and Cure Period provisions, and the Borrower is given prior written notice.

If any provision of this Agreement is held to be invalid or unenforceable, the remaining provisions shall continue in full force and effect, and the Parties shall negotiate in good faith a valid replacement provision that most closely reflects the original intent.

This Agreement may be executed in counterparts, each of which shall be deemed an original, and all of which together shall constitute one instrument. Signatures delivered electronically shall be effective as originals.

Sections that by their nature are intended to survive termination, including Sections 15, 16 and 17, shall survive termination of this Agreement.