The buyer wants us to carry a large seller note but refuses to give us a security interest in the intellectual property and automated workflows we built. How do we structure the security agreement and default remedies to protect our proprietary systems if they fail to pay?

Question

Tyler Smith · Accepted Answer

Carrying a seller note without securing it against the core assets that drive the business is a recipe for disaster. If the buyer defaults, you do not want to be left holding a worthless piece of paper while they run off with your proprietary automated workflows. You must insist on a comprehensive security agreement that grants you a first priority lien on all intellectual property, software code, and operational systems. If the buyer has a senior bank lender, that lender will demand a first lien on all assets, forcing you into a subordinated position. In this scenario, you must negotiate a carve out in the subordination agreement specifically for your proprietary intellectual property. If the buyer defaults on your note, your remedy should include an immediate non exclusive license to use, modify, and sell the software and automated workflows, along with the right to step back into an advisory role to stabilize operations. You must also tie the security agreement to the operational realities of the business. Use your EOS Accountability Chart to define the critical roles that run these systems. Structure a covenant that triggers an automatic default on the note if the buyer terminates key technical staff who hold the GWC for your automated systems without a approved transition plan. This keeps the buyer from firing your highly paid engineering team to save cash, which would inevitably ruin the software and destroy the collateral securing your loan. Keep the terms objective, transparent, and enforceable without relying on lengthy litigation.