This Inventory Security Agreement is made between a debtor and a bank. The debtor
has borrowed certain funds from the bank and the debtor has as security for the
borrowing of such funds, issued a security agreement to the bank in respect to the
debtor's inventory. This document in its draft form contains numerous of the standard
clauses commonly used in these types of agreements, as well as optional language to
allow for customization to ensure the specific terms of the parties’ agreement are
INVENTORY SECURITY AGREEMENT
THIS INVENTORY SECURITY AGREEMENT (the “Agreement”), is made this ___
day of _____________, 2____, [Instruction: Insert date.] by and between
_______________________ [Instruction: Insert debtor’s name.] (the “Debtor”) and
___________________ [Instruction: Insert bank’s name.] (the “Bank”).
THE DEBTOR HEREBY acknowledges and agrees as follows:
1. The Debtor is a _____ [Instruction: Insert debtor’s type of business entity.] duly
organized and authorized to do business in the State of _____. [Instruction: Insert state.]
Debtor’s principal place of business is _________________________________
[Instruction: Insert debtor’s principal business address.] and shall notify the Bank
forthwith in the event debtor is no longer duly organized and authorized to do business as set
forth herein or in the event the principal place of business of the Debtor changes.
2. The following terms shall have the definitions ascribed to them:
(a) “Liabilities” shall mean all of the indebtedness of the Debtor now and in the
future to the Bank; and
(b) “Inventory” shall mean the inventory of the Debtor used by the Debtor in
association with the Debtor’s business and more particularly set out on
SCHEDULE “A” annexed hereto.
3. The Debtor hereby grants a security interest in and to all of the Inventory set forth on
SCHEDULE “A” as security for the Debtor’s indebtedness to the Bank. The Debtor hereby
further agrees that any and all proceeds from the Inventory including any and all accounts
arising from the sale of any or part of the Inventory shall form part of the security now
granted by the Debtor to the Bank.
4. The Debtor shall hold any and all Inventory in trust for the Bank. The Debtor shall be at
liberty to sell the Inventory with the prior written consent of the Bank.
5. The Debtor agrees that it shall at all times keep the Inventory free and clear of any and all
liens or encumbrances and shall not directly encumber the Inventory, except as set forth in
this Agreement. Debtor further agrees it shall defend the Inventory against all claims or
demands of any person claiming the same interest as Bank or an interest contrary to that of
6. The Inventory which is granted as security to the Bank by the Debtor shall be kept in good
condition by the Debtor. The Debtor agrees that it shall deliver the Inventory to the Bank
upon written request to do so and the Bank shall have the right to enter the premises of the
Debtor for the purposes of inspecting and examining the Inventory.
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7. The Inventory shall be kept at __________________________. [Instruction: Insert
inventory location.] In the event the Debtor wishes to move the Inventory, the Debtor shall
provide _______ (___) [Instruction: Insert number of days’ notice to be provided.] days’
written notice to the Bank of its intention to move the Inventory and information as to the
new location of the Inventory.
8. The Debtor agrees that it shall at all times keep the Inventory insured with a reputable
insurance company, with an insurance amount of not less than _______________
($________)[Instruction: Insert minimum insurance amount.] United States Dollars and
shall ensure that any such insurance policy covering the Inventory names the Bank as loss
payee. The Debtor shall provide a copy of all insurance policies in place covering the
Inventory to the Bank upon execution of this Agreement. The Debtor agrees that it shall
assign to the Bank any return or unearned premium due upon cancellation of any such
insurance and shall direct the insurer to pay to the Bank any and all amounts which may be
due and payable. Any and all sums which are received by the Bank in payment of insurance
losses or return or unearned premium shall be applied to the indebtedness of the Debtor. In
the event the Debtor fails to maintain satisfactory insurance, the Bank shall have the option
so to do and the Debtor agrees to repay with interest all amounts so expended by the Bank.
9. All taxes, assessments, and governmental charges on the Inventory are to be paid by Debtor
as they come due, unless they are being contested in good faith by appropriate proceedings.
In such instance, Debtor shall notify Bank of such proceedings within thirty (30) days of the
commencement of such proceedings. In the event the Debtor fails to pay any such taxes,
assessments and governmental charges, the Bank shall have the option so to do and the
Debtor agrees to repay with interest all amounts so expended by the Bank.
10. The Debtor shall prepare and deliver to the Bank a Balance Sheet and a Statement of Profit
and Loss as and when requested by the Bank. Any and all statements shall be prepared by a
certified accountant. The Debtor shall ensure that the Debtor’s books and records are true,
accurate and kept up-to-date and available for inspection by the Bank upon the Bank’s
11. The Debtor represents and warrants to the Bank that all financial statements and credit
applications furnished to the Bank by the Debtor have and will accurately reflect the financial
condition and operations of the Debtor.
12. If any Inventory or any party of the Inventory is sold by the Debtor, the Debtor shall keep
any and all proceeds from such sale in an account for the Bank and shall pay to the Bank the
proceeds from any and all sales of the Inventory forthwith or as soon as possible.
13. The Debtor agrees that it shall not at any time lease any of the Inventory without prior
written consent of the Bank and in the event the Bank grants the Debtor the right to lease any
Inventory, the Debtor shall grant the Bank a security interest in any such lease.
14. In the event the Bank has to enforce the security granted to it by the Debtor herein, the
Debtor agrees that it shall pay any and all expenses and costs associated therewith, including
all attorney fees.
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15. The Debtor acknowledges that the Bank shall not be deemed to have waived any of its rights
in the Inventory unless such waiver is in writing and no delay or omission by the Bank in
exercising any of its rights shall operate as a waiver of such rights or of any other right.
16. The Bank shall take any and all steps necessary to perfect its security interest in the Inventory
by filing a financing statement under the Uniform Commercial Code as enacted in the State
of ______________. [Instruction: Insert state.]
17. The Debtor shall be deemed to be in default of this Agreement upon the event of any of the
(a) in the event the Debtor fails to pay any liabilities which may become due;
(b) in the event the Debtor breaches any of the terms, conditions or provisions of this
(c) in the event any of the information supplied by the Debtor to the Bank is
knowingly false or untrue;
(d) in the event of the death, insolvency or dissolution of the Debtor; and
(e) in the event the Debtor sells the Inventory or any part thereof without the
necessary consents as set forth in this Agreement or in the event the Debtor sells
all or substantially all of the assets and property of the Debtor. [Comment:
Parties may wish to add other events of default, including but not limited to a
bankruptcy filing by Debtor which is not withdrawn within a specified
number of days and/or the adjudication of Debtor a bankrupt.]
In the event any of the events of default referenced herein occurs the Bank shall have the
option to declare that the total indebtedness owing by the Debtor to the Bank is
immediately due and payable without demand or notice to the Debtor. The Bank upon
declaring that the total indebtedness is due and owing may exercise any one or more of the
rights and remedies granted herein and any rights and remedies granted to a secured party
under the Uniform Commercial Code as enacted by the State of ______________.
[Instruction: Insert state.]
18. This Agreement shall be governed under the laws of the State of _________ [Instruction:
Insert state.] applicable therein and as amended from time to time.
19. This Agreement shall inure to the benefit of and be binding upon the Debtor and its heirs,
executors, administrators, successors (including any successor by reason of amalgamation)
and permitted assigns.
20. The Debtor may not assign this Agreement or any part thereof to any third party without the
prior written consent of the Bank.
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21. Each provision of this Agreement is intended to be severable. If any provision hereof is
adjudged to be illegal or invalid, such illegality or invalidity shall not affect the validity of
the remainder hereof.
22. Any notice, direction or other instrument required or permitted to be given by either party
under this Agreement shall be in writing and shall be sufficiently given if delivered
personally, sent by prepaid first class mail or transmitted by telecopier or other form of
electronic communication during the transmission of which no indication of failure of receipt
is communicated to the sender:
a) in the case of a notice to the Debtor at:
b) in the case of a notice to the Bank at:
with a copy to the Bank’s Attorney:
Any such notice, direction or other instrument, if delivered personally, shall be deemed
to have been given and received on the date on which it was received at such address,
or, if sent by mail, shall be deemed to have been given and received on the date which is
five (5) days after which it was mailed, provided that if either such day is not a business
day, then the notice shall be deemed to have been given and received on the next
business day. Any notice transmitted by telecopier or other form of electronic
communication shall be deemed to have been given and received on the date of its
transmission provided that if such day is not a business day or if it is received after the
end of normal business hours on the date of its transmission at the place of receipt, then
it shall be deemed to have been given and received at the opening of business in the
office of the recipient on the next business day following the transmission thereof. If
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normal mail service, telex, telecopier or other form of electronic communication is
interrupted by strike, slowdown, force majeure or other cause, a notice, direction or
other instrument sent by the impaired means of communication will not be deemed to be
received until actually received, and the party sending the notice shall utilize any other
such service which has not been so interrupted to deliver such notice.
23. This Agreement and the security interest in the Inventory created by this Agreement shall
terminate when the liabilities have been paid in full. Prior to such termination, this shall be a
24. This Agreement constitutes the entire agreement between the debtor and the Bank and
supersede all prior agreements, representations, warranties, statements, promises,
information, arrangements and understandings, whether oral or written, express or implied,
with respect to the subject matter hereof and the Agreement may not be changed without the
written authorization of both parties.
25. This document or any subsequent amendment hereto may be executed by facsimile and/or in
one or more counterparts, each of which when so executed and delivered shall be deemed an
original, but all of which taken together shall constitute but one and the same original. Each
party shall accept any such signed faxed counterpart as full execution of this document or
any subsequent amendment thereto.
26. The pronouns used herein shall include, where appropriate, either gender or both, singular
IN WITNESS WHEREOF the Debtor has duly executed this Agreement as of the day and
year first written above.
I have authority to bind the Company.
or if Debtor is an individual
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