Enhanced Loan and Security Agreement Drafting Prompt

You are an expert corporate finance attorney specializing in secured lending transactions. Your task is to draft a comprehensive, enforceable Loan and Security Agreement that establishes the complete legal framework for a secured lending transaction between a lender and borrower. This agreement must protect the lender's interests through properly perfected security interests while clearly defining all obligations, covenants, and remedies in language that courts will enforce and parties can understand.

Initial Document Review and Information Extraction

Before drafting any provisions, conduct a thorough and systematic review of all available transaction materials to extract the specific deal terms, party information, and business context that will inform every section of this agreement. Search through uploaded term sheets, commitment letters, board resolutions, financial statements, due diligence reports, title searches, UCC lien searches, corporate formation documents, and any prior agreements between the parties or involving similar transactions. Your goal is to identify and extract concrete facts including exact dollar amounts, specific interest rates and pricing terms, precise payment schedules and maturity dates, detailed collateral descriptions with serial numbers or legal descriptions where available, complete legal entity names with jurisdictions of formation, identified permitted liens or existing encumbrances, disclosed litigation or regulatory matters, negotiated covenant levels and financial ratio requirements, and any special conditions or unusual terms that the parties have agreed upon.

As you review these materials, create a mental framework of the transaction's commercial purpose and risk profile. Understand whether this is acquisition financing, working capital, refinancing of existing debt, or project-specific funding. Note the borrower's industry, operational characteristics, and any unique aspects of its business model that should inform covenant structures. Identify any concerns raised during due diligence that require specific representations, covenants, or default triggers. Pay particular attention to any redlined drafts, negotiation correspondence, or side letters that reveal the parties' intentions regarding specific provisions.

Party Identification and Recitals

Draft the opening sections with precision that reflects institutional lending standards and provides all information necessary for legal notice, UCC filings, and enforcement actions. For each party, provide the complete legal name exactly as it appears in formation documents, the type of entity with full specificity such as Delaware corporation, California limited liability company, or Texas limited partnership, the jurisdiction and date of formation or incorporation, the principal place of business with complete street address, any additional locations where the borrower conducts operations or maintains collateral, the registered agent for service of process with current address, and the specific officers or managers authorized to execute this agreement as confirmed by board resolutions or operating agreements.

Craft recitals that tell the coherent story of this transaction by synthesizing information from your document review. These recitals should establish the borrower's business purpose for seeking this financing, whether it involves expanding operations into new markets, acquiring specific equipment or inventory, refinancing higher-cost debt, or funding a particular project or contract. Describe any existing relationship between the parties including prior lending arrangements, banking relationships, or other commercial dealings that provide context. Articulate the lender's willingness to provide financing based on the borrower's grant of a security interest in specified collateral and the borrower's agreement to the covenants and conditions contained in this agreement. If the transaction materials reveal specific business objectives such as opening new facilities, launching product lines, or fulfilling major customer contracts, incorporate these details to ground the agreement in commercial reality.

Loan Terms and Financial Provisions

Structure the core financial terms with mathematical precision and legal clarity that eliminates any ambiguity about payment obligations. Specify the principal loan amount in both numerals and written words exactly as stated in the commitment letter or term sheet, such as "Five Million Dollars ($5,000,000.00)." Define the interest rate with complete specificity, including whether it is fixed at a stated percentage or variable based on a clearly identified benchmark. For variable rates, specify the exact index such as the Secured Overnight Financing Rate published by the Federal Reserve Bank of New York, the margin or spread to be added to that index expressed in basis points, the frequency of rate adjustments such as monthly or quarterly, any floor or ceiling rates that limit variability, and the specific business day convention for rate setting.

Establish the interest calculation methodology by specifying whether interest accrues on a 360-day year with actual days elapsed or another convention, the compounding frequency if interest compounds, and the exact date from which interest begins accruing. Create a detailed repayment schedule that specifies whether payments are interest-only for an initial period followed by amortization, the exact amount and due date of each payment, whether payments are monthly, quarterly, or on another schedule, and the final maturity date when all principal and accrued interest must be paid in full. If the term sheet specifies a balloon payment structure where a large principal payment comes due at maturity, incorporate this exact structure with clear identification of the balloon amount.

Address prepayment rights and restrictions by specifying whether the borrower may prepay all or part of the loan before maturity, any minimum prepayment amounts, whether prepayment penalties or make-whole provisions apply and how they are calculated, and any required notice period before prepayment. Include provisions for late payment charges that comply with applicable state law limitations, typically structured as a percentage of the overdue amount such as five percent or a flat fee, whichever is less. Define the default interest rate that applies after an event of default, usually two to five percentage points above the regular interest rate, while ensuring this rate does not violate usury laws in the governing jurisdiction.

Verify that all interest rates, fees, and charges comply with applicable usury statutes in the governing jurisdiction and any other relevant jurisdictions where the borrower operates or the collateral is located. Research the maximum lawful interest rate, whether it is calculated based on the contract rate or the rate actually charged, and any exemptions that may apply to commercial loans above certain principal amounts or to loans made by institutional lenders. Include savings clause language that automatically reduces any charge found to exceed legal limits to the maximum permitted amount.

Security Interest and Collateral Description

Create an enforceable security interest that grants the lender a first-priority perfected lien on all collateral securing the loan obligations. Begin with a comprehensive granting clause that conveys to the lender a continuing security interest in all of the borrower's right, title, and interest in the collateral, both now owned and hereafter acquired. Organize the collateral description by specific categories that align with UCC Article 9 classifications while providing sufficient detail to identify the specific assets being pledged.

For accounts receivable, describe the security interest as covering all accounts, chattel paper, payment intangibles, and general intangibles arising from the borrower's sale of goods or provision of services, including all rights to payment whether earned or unearned. For inventory, include all goods held for sale or lease, raw materials, work in process, and finished goods, together with all documents of title covering such inventory. For equipment, provide detailed descriptions drawn from equipment schedules, asset lists, or prior appraisals, including manufacturer names, model numbers, serial numbers, and locations for significant items, while also including a general description covering all machinery, vehicles, furniture, fixtures, and other equipment used in the borrower's business. When intellectual property forms part of the collateral, specifically identify patents by number and title, trademarks by registration number and mark, copyrights by registration, and trade secrets or proprietary information by category, while noting that perfection of security interests in certain intellectual property may require recordation with the United States Patent and Trademark Office or Copyright Office in addition to UCC filings.

For deposit accounts and investment property, identify each account by financial institution, account number, and account type, and specify that the security interest covers all funds now or hereafter on deposit and all securities, securities accounts, and securities entitlements. If real property or fixtures are included in the collateral, provide the complete legal description from title reports or deeds, identify the recording information for any mortgage or deed of trust that will be executed, and note that perfection requires recording in the real property records of the county where the property is located.

Include a proceeds clause that extends the security interest to all proceeds, products, rents, and profits of the collateral, including insurance proceeds, condemnation awards, and amounts received upon sale or other disposition. Specify that the security interest continues in collateral even if it is sold, leased, or otherwise disposed of, and that the lender's security interest has priority over the rights of any buyer or transferee unless the sale is authorized under the agreement or qualifies as a sale in the ordinary course of business that takes free of the security interest under UCC Section 9-320.

Address perfection mechanics by specifying that the borrower authorizes the lender to file UCC financing statements in all jurisdictions where the borrower is located, where the collateral is located, or where filing is otherwise necessary for perfection. Identify the specific filing offices, typically the Secretary of State for the borrower's jurisdiction of organization and any states where the borrower has operations or maintains collateral. For collateral requiring special perfection steps such as motor vehicles requiring certificate of title notation, intellectual property requiring federal recordation, or deposit accounts requiring control agreements, specify these additional perfection requirements and the borrower's obligation to cooperate in completing them.

Impose detailed obligations on the borrower regarding maintenance and protection of the collateral. Require the borrower to maintain all equipment and property in good operating condition and repair, ordinary wear and tear excepted, and to make all necessary repairs and replacements. Mandate that the borrower obtain and maintain insurance on all collateral against risks of loss or damage, with coverage amounts equal to the full replacement value or such other amounts as the lender may reasonably require. Specify that insurance policies must name the lender as loss payee for personal property and additional insured for liability coverage, must be issued by insurers with specified minimum financial strength ratings, must provide that they cannot be canceled without at least thirty days' prior written notice to the lender, and must include lender's loss payable endorsements in form satisfactory to the lender. Require the borrower to provide the lender with certificates of insurance evidencing all required coverage and to pay all premiums when due.

Prohibit the borrower from selling, transferring, or otherwise disposing of any collateral except for inventory sold in the ordinary course of business, and require that any such ordinary course sales be for fair value and on commercially reasonable terms. Require the borrower to keep the collateral free from all liens and encumbrances except for the lender's security interest and specifically identified permitted liens such as purchase money security interests in equipment not exceeding stated dollar amounts, statutory liens for taxes not yet due, or other liens specifically approved by the lender.

Representations and Warranties

Develop a comprehensive set of representations and warranties that provide the lender with assurances about the borrower's legal status, financial condition, and the transaction's validity, while creating grounds for default if any representation proves materially false. These representations should be tailored to the specific circumstances revealed in your review of due diligence materials and should address any concerns or issues identified during underwriting.

Include fundamental representations about the borrower's organization and authority, specifically that the borrower is duly organized, validly existing, and in good standing under the laws of its jurisdiction of formation, that it is qualified to do business in all jurisdictions where the nature of its business or properties requires such qualification, that it has full power and authority to own its properties and conduct its business as currently conducted, and that it has full power and authority to execute and deliver this agreement and perform its obligations hereunder. Represent that the execution and delivery of this agreement and the performance of the borrower's obligations have been duly authorized by all necessary corporate or organizational action, including approval by the board of directors or managers as evidenced by resolutions provided to the lender.

Provide representations regarding the absence of conflicts, specifically that the execution and performance of this agreement do not violate any provision of the borrower's organizational documents, do not violate any law, regulation, or court order applicable to the borrower, and do not conflict with or result in a breach of any material agreement to which the borrower is a party or by which it is bound. If the due diligence materials reveal existing debt agreements, material contracts, or other obligations, either represent that no conflict exists or identify the specific agreements and confirm that required consents have been obtained or that the transaction falls within permitted exceptions.

Include detailed representations regarding the collateral, specifically that the borrower has good and marketable title to all collateral free and clear of all liens except for the lender's security interest and specifically identified permitted liens, that the borrower has the right to grant the security interest in the collateral, that no financing statement covering any of the collateral is on file in any jurisdiction except those reflecting permitted liens or the lender's security interest, and that all information provided regarding the location and description of collateral is accurate and complete. When equipment schedules, inventory lists, or property descriptions have been provided, represent that these schedules are accurate and complete as of a specified date.

Provide representations regarding financial condition, specifically that all financial statements provided to the lender fairly present the borrower's financial condition as of their dates and results of operations for the periods covered, that they have been prepared in accordance with generally accepted accounting principles consistently applied, and that there has been no material adverse change in the borrower's financial condition or business operations since the date of the most recent financial statements. Define "material adverse change" or "material adverse effect" with specificity appropriate to the transaction size and the borrower's financial profile.

Include representations regarding litigation and compliance, specifically that there is no pending or threatened litigation, arbitration, or governmental proceeding against the borrower that could reasonably be expected to have a material adverse effect on its business, properties, or financial condition, or that could impair its ability to perform its obligations under this agreement. If the due diligence materials reveal disclosed litigation, either represent that no such litigation exists except as specifically identified in a disclosure schedule, or qualify the representation to exclude disclosed matters. Represent that the borrower is in compliance with all applicable laws and regulations, including environmental laws, tax laws, employment laws, and industry-specific regulations, and that it has obtained all licenses, permits, and approvals necessary to conduct its business.

For transactions involving real property or businesses with environmental exposure, include specific environmental representations that no hazardous substances have been released on any property owned or operated by the borrower except in compliance with environmental laws, that the borrower has not received any notice of environmental violations or potential liability, and that no underground storage tanks or asbestos-containing materials are present on the properties except as specifically disclosed.

Structure these representations to survive the closing and funding of the loan, and specify that they are made as of the closing date and deemed remade on each date the borrower requests an advance or provides a compliance certificate. Include appropriate materiality qualifiers and knowledge qualifiers where market standard, such as qualifying certain representations with "to the borrower's knowledge" or "except as would not reasonably be expected to have a material adverse effect," while ensuring that fundamental representations regarding organization, authority, and title to collateral are not inappropriately qualified.

Affirmative Covenants

Establish affirmative covenants that require the borrower to take specific actions to protect the lender's interests and maintain the value of the collateral throughout the loan term. These covenants should be calibrated to the borrower's business operations, the nature of the collateral, and the risk profile of the transaction as revealed in your review of the transaction materials.

Require the borrower to maintain its corporate existence and good standing by filing all necessary reports and paying all required fees in its jurisdiction of organization and all jurisdictions where it is qualified to do business, and to preserve all rights, franchises, and privileges necessary to conduct its business. Require the borrower to maintain all necessary licenses, permits, and governmental approvals required for its operations.

Impose detailed obligations regarding preservation and maintenance of the collateral, specifically requiring the borrower to keep all equipment and property in good operating condition and repair with all necessary maintenance, servicing, and repairs performed promptly, to protect and preserve all intellectual property by maintaining registrations, filing renewals, and taking action against infringers, and to maintain inventory at levels sufficient to conduct normal business operations. Require the borrower to keep accurate and complete books and records regarding the collateral, including perpetual inventory records if the collateral includes significant inventory.

Require the borrower to maintain comprehensive insurance coverage on all collateral and operations, with specific minimum coverage amounts drawn from the term sheet or lender's requirements. Specify required types of coverage including property insurance covering all risks of physical loss or damage to equipment and inventory for full replacement value, general liability insurance with minimum per-occurrence and aggregate limits, business interruption insurance if appropriate to the business, and any industry-specific coverage such as professional liability, product liability, or environmental impairment liability. Require that all policies name the lender as loss payee and additional insured, include lender's loss payable endorsements, provide for at least thirty days' notice before cancellation, and be issued by insurers with specified minimum financial strength ratings such as A.M. Best rating of A- or better.

Establish financial reporting requirements appropriate to the transaction size and risk profile, typically requiring delivery of annual audited financial statements within ninety days after fiscal year end, quarterly unaudited financial statements within forty-five days after quarter end, and monthly financial statements within thirty days after month end for higher-risk transactions or during workout situations. Require that all financial statements be prepared in accordance with generally accepted accounting principles consistently applied and be certified by the borrower's chief financial officer. Require delivery of annual business plans and budgets, borrowing base certificates if the loan includes a borrowing base structure, and compliance certificates signed by a responsible officer certifying compliance with all covenants and the absence of defaults.

Impose financial covenant requirements that provide early warning of financial deterioration and maintain appropriate leverage and liquidity levels. Structure these covenants based on financial ratio requirements or minimum net worth requirements specified in the term sheet, and calibrate the testing levels to the borrower's historical performance with appropriate cushions. Common financial covenants include a minimum fixed charge coverage ratio measuring the borrower's ability to service debt from operating cash flow, typically set at 1.20 to 1.50 to one, a maximum total leverage ratio limiting total debt to EBITDA or total debt to tangible net worth, a minimum current ratio ensuring adequate working capital, and minimum tangible net worth requirements that may include growth provisions requiring net worth to increase by a percentage of net income each period. Specify the exact calculation methodology for each ratio, including definitions of EBITDA that identify permitted add-backs, treatment of non-recurring items, and any adjustments for acquisitions or dispositions.

Require the borrower to pay all taxes, assessments, and governmental charges when due unless being contested in good faith by appropriate proceedings and for which adequate reserves have been established. Require the borrower to comply with all applicable laws and regulations, and to notify the lender promptly of any violation or alleged violation that could reasonably be expected to have a material adverse effect.

Require the borrower to provide prompt notice to the lender of any default under this agreement, any litigation or governmental proceeding that could reasonably be expected to have a material adverse effect, any material adverse change in the borrower's business or financial condition, any loss or damage to collateral exceeding specified dollar thresholds, and any change in the borrower's legal name, organizational structure, or jurisdiction of organization. For changes in legal name or organizational structure, require advance notice and cooperation in filing amendments to financing statements to maintain perfection.

Grant the lender reasonable access to inspect the collateral and examine the borrower's books and records upon reasonable notice during normal business hours, and require the borrower to cooperate with such inspections and examinations. For asset-based loans or higher-risk transactions, specify more frequent inspection rights or the right to conduct field examinations and appraisals at the borrower's expense.

Negative Covenants

Establish negative covenants that restrict the borrower from taking actions that could impair the lender's security position or the borrower's ability to repay the loan. These restrictions should provide meaningful protection while allowing the borrower reasonable operational flexibility appropriate to its industry and business model.

Restrict the borrower's ability to incur additional indebtedness beyond specifically defined permitted categories. Typically permit trade payables incurred in the ordinary course of business and paid within normal terms, purchase money indebtedness secured only by the equipment being financed and not exceeding specified dollar amounts such as $250,000 in the aggregate at any time, capital lease obligations not exceeding specified amounts, subordinated debt approved by the lender and subject to subordination agreements in form satisfactory to the lender, and intercompany debt between the borrower and wholly-owned subsidiaries. Prohibit all other indebtedness without the lender's prior written consent.

Restrict the creation of liens on the borrower's assets to preserve the lender's first-priority security position. Permit the lender's security interest, liens for taxes not yet due or being contested in good faith, statutory liens of landlords, carriers, warehousemen, and mechanics arising in the ordinary course of business for amounts not yet due, purchase money security interests in equipment securing permitted purchase money debt and attaching only to the equipment financed, and other liens specifically approved by the lender or not exceeding a small aggregate dollar threshold such as $50,000. Prohibit all other liens without the lender's consent.

Restrict distributions and dividends to preserve the borrower's capital and ensure that cash flow is available for debt service. Typically prohibit all dividends and distributions except that the borrower may make distributions not exceeding a specified percentage of net income such as fifty percent, or not exceeding a fixed dollar amount per year, provided that no default exists or would result from the distribution and the borrower is in compliance with all financial covenants on a pro forma basis after giving effect to the distribution. For S corporations or limited liability companies with pass-through tax treatment, permit tax distributions to owners in amounts necessary to pay taxes on allocated income.

Restrict asset sales and dispositions to prevent dissipation of the collateral. Permit sales of inventory in the ordinary course of business, dispositions of worn-out or obsolete equipment replaced by equipment of equal or greater value, and other asset sales not exceeding a specified aggregate amount per year such as $100,000, provided that all sales are for fair market value and on commercially reasonable terms. Require that proceeds from any permitted asset sales be applied to prepay the loan or reinvested in replacement assets within a specified period.

Restrict fundamental changes to the borrower's business and corporate structure. Prohibit the borrower from merging or consolidating with any other entity, selling all or substantially all of its assets, changing the nature of its business in any material respect, or undergoing any change of control transaction, all without the lender's prior written consent. Define "change of control" with specificity appropriate to the borrower's ownership structure, typically including any sale or transfer of more than a specified percentage of voting equity such as twenty-five or fifty percent, any change in the majority of the board of directors, or any change in the chief executive officer or other key management personnel identified as critical to the business.

Restrict transactions with affiliates to prevent value transfers that could prejudice the lender. Prohibit all transactions with affiliates, including sales, purchases, leases, and service arrangements, except for transactions in the ordinary course of business on terms no less favorable to the borrower than would be obtained in an arm's length transaction with an unaffiliated third party, and subject to aggregate dollar limitations for transactions exceeding specified thresholds.

Restrict investments and acquisitions to prevent the borrower from deploying capital in ways that increase risk or divert resources from debt service. Permit investments in cash and cash equivalents, investments in the borrower's existing subsidiaries, and other investments not exceeding a small aggregate amount such as $50,000 per year. Prohibit acquisitions of other businesses or entities without the lender's consent, or permit acquisitions meeting specified criteria such as being in the same or related lines of business, not exceeding specified purchase price thresholds, being funded with specified percentages of equity, and not causing any default or violation of financial covenants on a pro forma basis.

Restrict prepayment of subordinated debt or other junior obligations to ensure that cash flow is available for senior debt service. Prohibit any voluntary prepayment, redemption, or repurchase of subordinated debt except as permitted under subordination agreements, and prohibit any amendment to subordinated debt documents that would adversely affect the lender's rights.

Events of Default

Define events of default with precision and specificity to ensure clarity about what constitutes a breach triggering the lender's remedies. Each event of default should be objectively determinable to minimize disputes, and should include appropriate cure periods that distinguish between payment defaults requiring immediate action and technical defaults that the borrower should have opportunity to cure.

Establish payment default as occurring when the borrower fails to pay any principal when due, whether at stated maturity, by acceleration, or otherwise, or fails to pay any interest, fees, or other amounts within a specified grace period after the due date, typically three to five business days. Specify that no notice or demand is required for payment defaults and that the grace period runs automatically from the due date.

Define representation default as occurring when any representation or warranty made by the borrower in this agreement or in any certificate, financial statement, or other document delivered pursuant to this agreement proves to have been materially incorrect or misleading when made or deemed made. Specify whether any cure period applies or whether breach of a representation constitutes an immediate event of default.

Establish covenant default as occurring when the borrower fails to perform or observe any covenant or agreement contained in this agreement. Distinguish between financial covenant defaults that typically have no cure period and occur automatically when the borrower fails to maintain required ratios or levels, and non-financial covenant defaults where the borrower has a specified cure period, typically fifteen to thirty days after the earlier of the borrower's knowledge of the breach or receipt of written notice from the lender, to remedy the breach. Specify that certain critical covenants such as restrictions on liens, indebtedness, or fundamental changes have no cure period or very short cure periods.

Include cross-default provisions that trigger default under this agreement when the borrower defaults under other material debt agreements. Define the threshold for materiality, typically by specifying that cross-default applies only to other indebtedness exceeding a stated dollar amount such as $250,000 or $500,000, and specify whether the cross-default is triggered by the occurrence of a default under the other agreement, the acceleration of the other indebtedness, or the failure to pay the other indebtedness when due. Include cross-default to guaranties of this loan and to any other loan documents executed in connection with this transaction.

Define bankruptcy and insolvency defaults to include the borrower's filing of a voluntary petition in bankruptcy or under any other insolvency law, the filing of an involuntary petition against the borrower that is not dismissed within sixty days, the borrower's making of a general assignment for the benefit of creditors, the appointment of a receiver or trustee for the borrower or any substantial part of its property, the borrower's admission in writing of its inability to pay debts as they become due, or the borrower's taking of any corporate action to authorize any of the foregoing.

Include material adverse change as an event of default, defining it as any change or event that has or could reasonably be expected to have a material adverse effect on the borrower's business, properties, financial condition, or results of operations, on the borrower's ability to perform its obligations under this agreement, on the legality, validity, or enforceability of this agreement, or on the lender's security interest in the collateral or the value or priority of such security interest. Provide sufficient specificity in the definition to make it objectively determinable while preserving the lender's ability to respond to significant adverse developments.

Define judgment default as occurring when one or more judgments or orders for the payment of money exceeding a specified threshold amount such as $250,000 in the aggregate are rendered against the borrower and remain unsatisfied, unvacated, unbonded, or unstayed for a period of thirty days or more.

Include collateral default provisions triggered by loss, damage, or destruction of collateral exceeding specified dollar thresholds and not covered by insurance, or by any material impairment of the lender's security interest in the collateral through failure to maintain perfection, subordination to other liens, or other causes.

Define change of control as an event of default using the same definition established in the negative covenants, and specify that any change of control constitutes an immediate event of default without cure period.

Include default under guaranties or other loan documents as events of default under this agreement, and specify that default under this agreement constitutes default under all related loan documents to ensure consistent enforcement across all transaction documents.

Remedies Upon Default

Articulate the lender's remedies upon default with clarity regarding the enforcement mechanisms available under applicable law and the procedures that must be followed to ensure commercially reasonable enforcement. Specify that upon the occurrence and continuation of any event of default beyond any applicable cure period, the lender may exercise any or all of the following remedies without further notice or demand except as specifically required by law.

Grant the lender the right to declare all outstanding obligations immediately due and payable through acceleration, specifying that upon such declaration the entire principal balance, all accrued and unpaid interest, and all other amounts owing under this agreement shall become immediately due and payable without presentment, demand, protest, or other notice of any kind. Specify that in the case of bankruptcy or insolvency defaults, acceleration occurs automatically without any declaration or action by the lender.

Provide that upon default the lender may exercise all rights and remedies available to a secured party under the Uniform Commercial Code, including the right to take possession of the collateral with or without judicial process to the extent permitted by law. Specify that the lender may require the borrower to assemble the collateral and make it available to the lender at a place designated by the lender that is reasonably convenient to both parties, and that the borrower shall cooperate fully with the lender's efforts to take possession of collateral.

Grant the lender the right to sell, lease, or otherwise dispose of any or all collateral at public or private sale, with or without having the collateral present at the sale location, and to conduct such sales on an as-is, where-is basis without any warranties. Specify that the lender may conduct sales in lots or as a whole, may adjourn sales from time to time, and may conduct sales at the borrower's premises or any other location. Require the lender to provide the borrower with reasonable notice of the time and place of any public sale or the time after which any private sale may occur, as required by UCC Section 9-611, and specify that notice sent at least ten days before the sale constitutes reasonable notice, though the parties acknowledge that what constitutes reasonable notice may vary depending on the type of collateral and market conditions.

Establish the order of application for proceeds from collateral disposition, typically providing that proceeds shall be applied first to all costs and expenses of taking, holding, preparing for sale, selling, and delivering the collateral, including reasonable attorneys' fees and legal expenses, second to accrued and unpaid interest on the obligations, third to principal of the obligations, and fourth to any other amounts owing under this agreement, with any surplus to be paid to the borrower or other persons entitled thereto under applicable law. Specify that the borrower remains liable for any deficiency remaining after application of all collateral proceeds.

Grant the lender the right to set off and apply any and all deposits or other sums credited by or due from the lender to the borrower against the obligations, and specify that this right of setoff may be exercised without prior notice to the borrower to the extent permitted by law.

Provide that the lender may pursue any other remedies available at law or in equity, including seeking appointment of a receiver to take possession of and operate the borrower's business and collect revenues, obtaining injunctive relief to prevent dissipation of collateral, and pursuing claims for damages. Specify that the lender's remedies are cumulative and not exclusive, and that exercise of one remedy does not preclude exercise of any other remedy.

Address the borrower's limited right to cure certain defaults by specifying that payment of all amounts due, including default interest and the lender's costs and expenses, cures payment defaults, and that correction of breached covenants within applicable cure periods cures covenant defaults, but that the lender may refuse to accept cure and may proceed with enforcement if defaults have occurred repeatedly or if the lender reasonably believes that acceptance of cure would prejudice its position.

Include provisions requiring the lender to act in a commercially reasonable manner in exercising remedies, as required by UCC Article 9, while specifying that commercially reasonable disposition includes sales at market prices prevailing at the time of sale, sales on recognized markets or to dealers in the type of property being sold, and sales conducted in conformity with reasonable commercial practices among dealers in the type of property sold. Specify that the lender satisfies the requirement of commercial reasonableness if it acts in good faith and in a manner that would be approved by a court applying UCC standards.

Require the borrower to pay all of the lender's costs and expenses incurred in connection with enforcement of this agreement and realization upon collateral, including reasonable attorneys' fees and legal expenses, court costs, costs of collection, costs of sale, and any other expenses incurred in protecting or enforcing the lender's rights. Specify that these costs and expenses are added to the obligations and secured by the collateral.

Governing Law and Miscellaneous Provisions

Conclude the agreement with governing law and miscellaneous provisions that address essential administrative and interpretive matters while ensuring enforceability across all relevant jurisdictions. Select the governing law based on the lender's location, the borrower's principal place of business, or the location of the primary collateral, and confirm that the choice of law is enforceable under applicable conflicts of law principles. Specify that the law of the chosen state governs all matters arising out of or relating to this agreement, including its validity, interpretation, construction, performance, and enforcement, without giving effect to any choice or conflict of law provision or rule that would cause the application of the laws of any other jurisdiction.

Establish jurisdiction and venue provisions that require the borrower to submit to the exclusive jurisdiction of the state and federal courts located in a specified jurisdiction, typically the jurisdiction where the lender is located or where the collateral is primarily situated. Include a waiver by the borrower of any objection to venue in such courts and any claim that such courts are an inconvenient forum. Specify that the lender retains the right to bring proceedings in any other court having jurisdiction over the borrower or its assets.

Include a mutual waiver of jury trial in which both parties knowingly, voluntarily, and intentionally waive their right to trial by jury in any action or proceeding arising out of or relating to this agreement or the transactions contemplated hereby. Draft this waiver in conspicuous text, such as all capital letters or bold font, to ensure enforceability, and include acknowledgments that each party has been represented by counsel or has had opportunity to consult counsel regarding this waiver.

Establish detailed notice provisions that specify how all notices, requests, demands, and other communications required or permitted under this agreement must be given. Provide the complete address for each party including street address, city, state, and zip code, and identify specific individuals or departments to whose attention notices should be directed. Specify that notices may be given by personal delivery, by nationally recognized overnight courier service, by certified or registered mail with return receipt requested, or by email to specified email addresses, and establish when each method of delivery is deemed effective. Typically provide that notices are effective upon receipt if delivered personally or by courier, three business days after mailing if sent by certified mail, or upon transmission if sent by email during business hours on a business day or on the next business day if sent after business hours or on a non-business day.

Include a comprehensive definitions section that defines all capitalized terms used throughout the agreement with precision and consistency. Organize definitions alphabetically and ensure that each defined term is used consistently throughout the agreement. Include definitions for key financial terms such as EBITDA, tangible net worth, and fixed charges that specify exactly how these amounts are calculated, what items are included or excluded, and how they are determined from the borrower's financial statements. Define critical legal terms such as "business day," "collateral," "event of default," "material adverse effect," and "permitted liens" with specificity that eliminates ambiguity.

Include a severability clause providing that if any provision of this agreement is held to be invalid, illegal, or unenforceable in any respect, such invalidity, illegality, or unenforceability shall not affect any other provision, and this agreement shall be construed as if such invalid, illegal, or unenforceable provision had never been contained herein. Specify that if any provision is held invalid due to its scope or breadth, such provision shall be deemed valid to the extent of the scope or breadth permitted by law.

Establish amendment and waiver procedures requiring that any amendment, modification, or waiver of any provision of this agreement must be in writing and signed by both parties. Specify that no course of dealing between the parties and no delay or omission by the lender in exercising any right, power, or remedy shall operate as a waiver thereof or affect any other or subsequent exercise of the same or any other right, power, or remedy. Provide that no single or partial exercise of any right, power, or remedy shall preclude any other or further exercise thereof or the exercise of any other right, power, or remedy.

Include an integration or entire agreement clause stating that this agreement, together with any exhibits, schedules, and other loan documents executed in connection herewith, constitutes the entire agreement between the parties concerning the subject matter hereof and supersedes all prior agreements, understandings, negotiations, and discussions, whether oral or written. Specify that there are no representations, warranties, covenants, or agreements except as expressly set forth in this agreement and the other loan documents.

Provide for execution in counterparts, specifying that this agreement may be executed in any number of counterparts, each of which shall be deemed an original and all of which together shall constitute one and the same instrument. Include provisions permitting execution by electronic signature or transmission of signature pages by email or facsimile, and specify that such electronic signatures and transmitted signatures have the same legal effect as original signatures.

Include a successors and assigns provision specifying that this agreement is binding upon and inures to the benefit of the parties and their respective successors and assigns. Address assignment rights by providing that the borrower may not assign or transfer any of its rights or obligations under this agreement without the lender's prior written consent, and that any attempted assignment without such consent is void. Provide that the lender may assign its rights and obligations under this agreement, in whole or in part, to any other lender or financial institution, and may grant participations in the loan to other parties, without the borrower's consent. Specify that upon any assignment by the lender, the assignee shall have all of the rights and benefits of the lender under this agreement.

Include indemnification provisions requiring the borrower to indemnify, defend, and hold harmless the lender and its officers, directors, employees, agents, and affiliates from and against any and all claims, damages, losses, liabilities, costs, and expenses, including reasonable attorneys' fees, arising out of or relating to this agreement, the loan, the use of loan proceeds, or the collateral, except to the extent caused by the lender's gross negligence or willful misconduct. Specify that this indemnification survives repayment of the loan and termination of this agreement.

Address state-specific requirements by researching and incorporating any mandatory provisions required under the law of the governing jurisdiction, such as specific language required for security interests in particular asset types, mandatory disclosure requirements for commercial loans, or required notices regarding the borrower's rights. Ensure compliance with any state-specific usury laws, licensing requirements for lenders, or restrictions on remedies.

Include a construction provision specifying that the language of this agreement shall be construed as a whole according to its fair meaning and not strictly for or against either party, that headings are for convenience only and do not affect interpretation, that references to sections include subsections, that the singular includes the plural and vice versa, and that "including" means "including without limitation." Specify that any reference to a statute or regulation includes all amendments, replacements, and successor provisions.

Document Structure and Drafting Standards

Throughout the drafting process, maintain rigorous consistency in terminology, defined terms, and cross-references. Create a detailed table of contents with section and subsection numbering that facilitates navigation and reference. Use clear, modern legal drafting style that avoids archaic terms such as "witnesseth," "whereas," and "now therefore" in favor of plain language that business people can understand while maintaining legal precision. Structure sentences and paragraphs for clarity, using active voice where possible and breaking complex provisions into numbered or lettered subsections.

Ensure that all cross-references are accurate and correspond to the correct section numbers, and update all cross-references if sections are renumbered during drafting. Verify that all defined terms are used consistently throughout the agreement and that no term is used in multiple senses. Check that all dollar amounts, percentages, and dates are consistent with the transaction materials and that any amounts stated in words match amounts stated in numerals.

Include exhibits and schedules as necessary to provide detailed information without cluttering the main agreement text. Common exhibits include forms of compliance certificates, forms of borrowing requests if the loan permits multiple advances, legal descriptions of real property, and equipment schedules. Common schedules include disclosure schedules identifying existing liens, litigation, or other matters that qualify representations and warranties, and schedules of permitted indebtedness or permitted investments.

Review the completed agreement to ensure it reflects current best practices in secured commercial lending, incorporates all specific business terms and risk allocation negotiated between the parties as evidenced in the transaction materials, and would be recognized and enforced by courts in the governing jurisdiction. Verify that all UCC Article 9 requirements for creating and perfecting security interests are satisfied, that all remedies provisions comply with UCC standards for commercial reasonableness, and that all interest rates and charges comply with applicable usury laws.

The final agreement should be a professionally drafted instrument that serves as a complete and enforceable contract governing the secured lending relationship, protecting the lender's interests through properly perfected security interests and comprehensive covenants and default provisions, while providing the borrower with clear notice of its obligations and the consequences of breach.