**Exhibit 10.5**

 

**COMMERCIALSECURITY AGREEMENT**

 
| **Grantor:** | Advanced Life Sciences  Holdings, Inc.

1440 Davey Drive

Woodridge, IL 60517 | **Lender:** | THE LEADERS BANK

2001 YORK ROAD,   SUITE 150

OAK BROOK, IL 60523 |
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**THIS COMMERCIAL SECURITYAGREEMENT** dated October 23 2008, is made and executedbetween Advanced Life Sciences Holding, Inc., a Delaware corporation(“Grantor”) and THE LEADERS BANK (“Lender”). This Agreement is entered into pursuant to that certain Amended andRestated Business Loan Agreement, dated as of even date herewith, by andbetween the Advanced Life Sciences, Inc. (“Borrower”) and the Lender(“Loan Agreement”), whereby the Lender has agreed to lend Ten Million and00/100 Dollars ($10,000,000.00) to the Borrower subject to the terms andconditions of the Loan Agreement.

 

**GRANT OF SECURITY INTEREST.**  For valuable consideration, Grantorcollaterally assigns and grants to Lender a security interest in the Collateralto secure the Indebtedness and agrees that Lender shall have the rights statedin this Agreement with respect to the Collateral, in addition to all otherrights which Lender may have by law.

 

**COLLATERAL DESCRIPTION.**  The word “Collateral” as used in thisAgreement means the following described property, whether now owned orhereafter acquired, whether now existing or hereafter arising, and whereverlocated, in which Grantor is giving to Lender a security interest for thepayment of the Indebtedness and performance of all other obligations ofBorrower under the Note and any Related Document:

 

All inventory, equipment,accounts (including but not limited to all health-care-insurance receivables),chattel paper, instruments (including but not limited to all promissory notes),letter-of-credit rights, letters of credit, documents, deposit accounts, investmentproperty, money, other rights to payment and performance, and generalintangibles (including, but not limited to, all software and all paymentintangibles); all attachments, accessions, accessories, fittings, increases,tools, parts, repairs, supplies, and commingled goods relating to the foregoingproperty, and all additions, replacements of and substitutions for all or anypart of the foregoing property:  allinsurance refunds relating to the foregoing property; all good will relating tothe foregoing property; all records and data and embedded software relating tothe foregoing property, and all equipment, inventory and software to utilize,create, maintain and process any such records and data on electronic media; allsupporting obligations relating to the foregoing property, all whether nowexisting or hereafter arising, whether now owned or hereafter acquired orwhether now or hereafter subject to any rights in the foregoing property; andall products and proceeds (including but not limited to “all insurancepayments”) of or relating to the foregoing property.

 

The word “Collateral”also includes all proceeds of the above described collateral, including withoutlimitation, any equipment purchased with proceeds, as well as all accessories,attachments, accessions, replacements and additions, whether added now orlater, together with all insurance proceeds and refunds of insurance premiums,if any, and all sums that may be due from third parties who may cause damage toany of the foregoing, whether due to judgment, settlement or otherprocess.  Further, the word “Collateral”includes any rights that the Lender may have under that certain IntellectualProperty Security Agreement, dated as of even date herewith, by and betweenLender and Grantor.  The word“Collateral” specifically excludes any rights that the Grantor may have as aresult of its License Agreement with Abbott Laboratories for cethromycin.

 

**RIGHT OF SETOFF.**  To the extent permitted by applicable law,Lender reserves a right of setoff in all Grantor’s accounts with Lender(whether checking, savings, or some other account). This includes all accountsGrantor holds jointly with someone else and all accounts Grantor may open inthe future; provided, however, this does not include any IRA or Keoghaccounts, or any trust accounts for which setoff would be prohibited bylaw.  Grantor authorizes Lender, to theextent permitted by applicable law, to charge or setoff all sums owing on theIndebtedness against any 

 

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and all such accounts,and, at Lender’s option, to administratively freeze all such accounts to allowLender to protect Lender’s charge and .setoff rights provided in thisparagraph.

 

**GRANTOR’S REPRESENTATIONS ANDWARRANTIES WITH RESPECT TO THE COLLATERAL.**  With respect to the Collateral, Grantorrepresents and promises to Lender that:

 

**Perfectionof Security Interest.** Grantor agrees to take whatever actions are requested by Lender toperfect and continue Lender’s security interest in the Collateral.  Upon request of Lender, Grantor will deliverto Lender any and all of the documents evidencing or constituting theCollateral, and Grantor will note Lender’s interest upon any and all chattelpaper and instruments, if not delivered to Lender, for possession by Lender.  **This is a continuingSecurity Agreement and will continue in effect even though all or any part ofthe Indebtedness is paid in full and even though, for a period of time, Grantormay not be indebted to Lender.**

 

**Noticesto Lender.**  Grantorwill promptly notify Lender in writing at Lender’s address shown above (or suchother addresses as Lender may designate from time to time) prior to any (1) changein Grantor’s name; (2) change in Grantor’s assumed business name(s); (3) changein the management of the Grantor; (4) change in the authorized signer(s) ofthe Grantor; (5) change in Grantor’s principal office address; (6) changein Grantor’s state of organization; (7) conversion of Grantor to a new ordifferent type of business entity; or (8) change in any other aspect ofGrantor that directly or indirectly relates to any agreements between Grantorand Lender.  No change in Grantor’s nameor state of organization will take effect until after Lender has receivednotice.

 

**NoViolation.**  Theexecution and delivery of this Agreement will not violate any law or agreementgoverning Grantor or to which Grantor is a party, and its certificate orarticles of incorporation and bylaws do not prohibit any term or condition ofthis Agreement.

 

**Enforceabilityof Collateral.**  To theextent the Collateral consists, of accounts, chattel paper, or generalintangibles, as defined by the Uniform Commercial Code of the State of Illinois(“UCC”), the Collateral is enforceable in accordance with its terms, isgenuine, and fully complies with all applicable laws and regulations concerningform, content and manner of preparation and execution, and all personsappearing to be obligated on the Collateral have authority and capacity tocontract and are in fact obligated as may appear to be on the Collateral.  At the time any account becomes subject to asecurity interest in favor of Lender, the account shall be a good and validaccount representing an undisputed, bona fide Indebtedness incurred by theaccount debtor, for merchandise held subject to delivery instructions orpreviously shipped or delivered pursuant to a contract of sale, or for servicespreviously performed by Grantor with or for the account debtor. So long as thisAgreement remains in effect, Grantor shall not, without Lender’s prior writtenconsent, compromise, settle, adjust, or extend payment under or with regard toany such Accounts.  There shall be nosetoffs or counterclaims against any of the Collateral, and no agreement shallhave been made under which any deductions or discounts may be claimedconcerning the Collateral except those disclosed to Lender in writing.

 

**Locationof the Collateral.** Except in the ordinary course of Grantor’s business, Grantor agrees tokeep the Collateral (or to the extent the Collateral consists of intangibleproperty such as accounts or general intangibles, the records concerning theCollateral) at Grantor’s address shown above or at such other locations as areacceptable to Lender.  Upon Lender’srequest, Grantor will deliver to Lender in form satisfactory to Lender aschedule of real properties and Collateral locations relating to Grantor’soperations, including without limitation the following: (1) all realproperty Grantor owns or is purchasing; (2) all real property Grantor isrenting or leasing; (3) all storage facilities Grantor owns, rents,leases, or uses; and (4) all other properties where Collateral is or maybe located.

 

**Removalof the Collateral.** Except in the ordinary course of Grantor’s business, including the salesof inventory, Grantor shall not remove the Collateral from its existinglocation without Lender’s prior written consent. To the extent that theCollateral consists of vehicles or other tilled property, Grantor shall nottake or permit any action which would require application for certificates oftitle for the vehicles outside the State of Illinois without Lender’s priorwritten consent.  Grantor shall, wheneverrequested, advise Lender 

 

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of the exact location ofthe Collateral.

 

**TransactionsInvolving Collateral.** Except for inventory sold or accounts collected in the ordinary courseof Grantor’s business, or as otherwise provided for in this Agreement, Grantorshall not sell, offer to sell, or otherwise transfer or dispose of the Collateral.  While Grantor is not in default under thisAgreement, Grantor may sell inventory, but only in the ordinary course of itsbusiness and only to buyers who qualify as a buyer in the ordinary course ofbusiness.  A sale in the ordinary courseof Grantor’s business does not include a transfer in partial or totalsatisfaction of a debt or any bulk sale. Grantor shall not pledge, mortgage, encumber or otherwise permit theCollateral to be subject to any lien, security interest, encumbrance, orcharge, other than the security interest provided for in this Agreement,without the prior written consent of Lender. This includes security interestsjunior in right to the security interests granted under this Agreement.  Unless waived by Lender, all proceeds fromany disposition of the Collateral (for whatever reason) shall be held in trustfor Lender and shall not be commingled with any other funds; provided, however,this requirement shall not constitute consent by Lender to any sale or otherdisposition.  Upon receipt, Grantor shallimmediately deliver any such proceeds to Lender.

 

**Title.**  Grantor represents and warrants to Lenderthat Grantor holds good and marketable title to the Collateral, free and clearof all liens and encumbrances except for the lien of this Agreement.  No financing statement covering any of theCollateral is on file in any public office other than those which reflect thesecurity interest created by this Agreement or to which Lender has specificallyconsented.  Grantor shall defend Lender’srights in the Collateral against the claims and demands of all other persons.

 

**Repairsand Maintenance.** Grantor agrees to keep and maintain, and to cause others to keep andmaintain, the Collateral in good order, repair and condition at all times whilethis Agreement remains in effect. Grantor further agrees to pay when due all claims for work done on,services rendered or material furnished in connection with the Collateral sothat no lien or encumbrance may ever attach to or be filed against the Collateral.

 

**Inspectionof Collateral.**  Lenderand Lender’s designated representatives and agents shall have the right at allreasonable times to examine and inspect the Collateral wherever located.

 

**Taxes,Assessments and Liens.** Grantor will pay when due all taxes, assessments and liens upon theCollateral from its use or operation pursuant to the terms and conditions ofthis Agreement, the Loan Agreement, the Note, or any of the other RelatedDocuments. Grantor may withhold any such payment or may elect to contest anylien if Grantor is in good faith conducting an appropriate proceeding tocontest the obligation to pay and so long as Lender’s interest in theCollateral is not jeopardized in Lender’s sale opinion.  If the Collateral is subjected to a lienwhich is not discharged within fifteen (15) days, Grantor shall deposit withLender cash, a sufficient corporate surety bond or other security satisfactoryto Lender in an amount adequate to provide for the discharge of the lien plusany interest, costs, attorneys’ fees or other charges that could accrue as aresult of foreclosure or sale of the Collateral.  In any contest, Grantor shall defend itselfand Lender and shall satisfy any final adverse judgment before enforcement againstthe Collateral.  Grantor shall nameLender as an additional obligee under any surety bond furnished in the contestproceedings.  Grantor further agrees tofurnish Lender with evidence that such taxes, assessments, and governmental andother charges have been paid in full and in a timely manner.

 

**Compliancewith Governmental Requirements.**  Grantor shall comply promptly with all laws,ordinances, rules and regulations of all governmental authorities, now orhereafter in effect, applicable to the ownership, production, disposition, oruse of the Collateral, including all laws or regulations relating to the undueerosion of highly-erodible land or relating to the conversion of wetlands forthe production of an agricultural product or commodity.  Grantor may contest in good faith any suchlaw, ordinance or regulation and withhold compliance during any proceeding,including appropriate appeals, so long as Lender’s interest in the Collateral,in Lender’s opinion, is not jeopardized.

 

**HazardousSubstances.**  Grantorrepresents and warrants that the Collateral never has been and never will beused, so long as this Agreement remains a lien on the Collateral, in violationof any Environmental Laws or for the generation, manufacture, storage,transportation, treatment, disposal, release or threatened 

 

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release of any HazardousSubstance.  The representations andwarranties contained herein are based on Grantor’s due diligence ininvestigating the Collateral for Hazardous Substances.  Grantor hereby (1) releases and waivesany future claims against Lender for indemnity or contribution in the eventGrantor becomes liable for cleanup or other costs under any Environmental Laws,and (2) agrees to indemnify and hold harmless Lender against any and allclaims and losses resulting from a breach of this provision of thisAgreement.  This obligation to indemnifyshall survive the payment of the Indebtedness and the satisfaction of thisAgreement.

 

**Maintenanceof Casualty Insurance.** Grantor shall procure and maintain all risk insurance, including withoutlimitation, fire, theft and liability coverage together with such otherinsurance as Lender may require with respect to the Collateral, in form,amounts, coverages and basis reasonably acceptable to Lender and issued by acompany or companies reasonably acceptable to Lender.  Grantor, upon request of Lender, will deliverto Lender from time to time the policies or certificates of insurance in formsatisfactory to Lender, including stipulations that coverages will not becancelled or diminished without at least thirty (30) days prior written noticeto Lender and not including any disclaimer of the insurer’s liability forfailure to give such a notice.  Eachinsurance policy also shall include an endorsement providing that coverage infavor of Lender will not be impaired in any way by any act, omission or defaultof Grantor or any other person.  Inconnection with all policies covering assets in which Lender holds or isoffered a security interest, Grantor will provide Lender with such loss payableor other endorsements as Lender may require. If Grantor at any time fails to obtain or maintain any insurance asrequired under this Agreement, Lender may (but shall not be obligated to) obtainsuch insurance as Lender deems appropriate, including if Lender so chooses“single interest insurance,” which will cover only Lender’s interest in theCollateral.

 

**Applicationof Insurance Proceeds.** Grantor shall promptly notify Lender of any loss or damage to theCollateral, whether or not such casualty or loss is covered by insurance.  Lender may make proof of loss if Grantorfails to do so within fifteen (15) days of the casualty.  All proceeds of any insurance on theCollateral, including accrued proceeds thereon, shall be held by Lender as partof the Collateral.  If Lender consents torepair or replacement of the damaged or destroyed Collateral, Lender shall,upon satisfactory proof of expenditure, pay or reimburse Grantor from theproceeds for the reasonable cost of repair or restoration.  If Lender does not consent to repair orreplacement of the Collateral, Lender shall retain a sufficient amount of theproceeds to pay all of the Indebtedness and shall pay the balance to Grantor.  Any proceeds which have not been disbursedwithin six (6) months after their receipt and which Grantor has notcommitted to the repair or restoration of the Collateral shall be used toprepay the Indebtedness.

 

**InsuranceReserves.**  Lender mayrequire Grantor to maintain with Lender reserves for payment of insurancepremiums, which reserves shall be created by monthly payments from Grantor of asum estimated by Lender to be sufficient to produce at least fifteen (15) daysbefore the premium due date in amounts at least equal to the insurance premiumsto be paid.  If fifteen (15) days beforepayment is due, the reserve funds are insufficient, Grantor shall, upon demand,pay any deficiency to Lender.  Thereserve funds shall be held by Lender as a general deposit and shall constitutea non-interest-bearing account which Lender may satisfy by payment of theinsurance premiums required to be paid by Grantor as they become due.  Lender does not hold the reserve funds intrust for Grantor, and Lender is not the agent of Grantor for payment of theinsurance premiums required to be paid by Grantor.  The responsibility for the payment ofpremiums shall remain Grantor’s sole responsibility.

 

**InsuranceReports.**  Grantor, uponrequest of Lender, shall furnish to Lender reports on each existing policy ofinsurance showing such information as Lender may reasonably request, includingthe following: (1) the name of the insurer; (2) the risks insured; (3) theamount of the policy; (4) the property insured; (5) the then currentvalue on the basis of which insurance has been obtained and the manner ofdetermining that value; and (6) the expiration date of the policy.  In addition, Grantor shall, upon request byLender (however not more often than annually), have an independent appraiserwho is satisfactory to Lender determine, as applicable, the cash value orreplacement cost of the Collateral.

 

**FinancingStatements.**  Grantorauthorizes Lender to file UCC financing statements, any amendments thereto,and/or a copy of this Agreement to perfect Lender’s security interest with anyand all applicable 

 

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governmentalauthorities.  Grantor authorizes Lenderto take any other actions that Lender deems appropriate to perfect the SecurityInterest represented herein.  At Lender’srequest, Grantor additionally agrees to sign all other documents that arenecessary to perfect protect and continue Lender’s security interest in theProperty.  Grantor will pay all filingfees, title transfer fees, and other fees and costs involved unless prohibitedby law or unless Lender is required by law to pay such fees and costs.  Grantor irrevocably appoints Lender toexecute documents necessary to transfer title if there is a default.  Lender may file a copy of this Agreement as afinancing statement.  If Grantor changesGrantor’s name or address, or the name or address of any person granting asecurity interest under this Agreement changes, Grantor will promptly notifythe Lender of such change.

 

**GRANTOR’S RIGHT TO POSSESSION ANDTO COLLECT ACCOUNTS.** Until the occurrence of an Event of Default and except as otherwiseprovided below with respect to accounts, Grantor may have possession of thetangible personal property and beneficial use of all the Collateral and may useit in any lawful manner not consistent with this Agreement or the RelatedDocuments, provided that Grantor’s right to possession and beneficial use shallnot apply to any Collateral where possession of the Collateral by Lender isrequired by law to perfect Lender’s security interest in such Collateral.  Until otherwise notified by Lender, Grantormay collect any of the Collateral consisting of accounts. At any time and eventhough no Event of Default exists, Lender may exercise its rights to collectthe accounts and to notify account debtors to make payments directly to Lenderfor application to the Indebtedness.  IfLender at any time has possession of any Collateral, whether before or after anEvent of Default, Lender shall be deemed to have exercised reasonable care inthe custody and preservation of the Collateral if Lender takes such action forthat purpose as Grantor shall request or as Lender, in its sole discretion,shall deem appropriate under the circumstances; provided, however,failure of the Lender to honor any request by Grantor shall not in and ofitself be deemed to be a failure to exercise reasonable care.  Lender shall not be required to take anysteps necessary to preserve any rights in the Collateral against prior parties,nor to protect, preserve or maintain any security interest given to secure theIndebtedness.

 

**LENDER’S EXPENDITURES.**  If any action or proceeding is commenced thatwould materially affect Lender’s interest in the Collateral or if Grantor fallsto comply with any provision of this Agreement or any Related Documents,including but not limited to Grantor’s failure to discharge or pay when due anyamounts Grantor is required to discharge or pay under this Agreement or anyRelated Documents, Lender, on Grantor’s behalf, may (but shall not be obligatedto) take any action that Lender deems appropriate, including but not limited todischarging or paying all taxes, liens, security interests, encumbrances andother claims, at any time levied or placed on the Collateral, and paying allcosts for insuring, maintaining and preserving the Collateral.  All such expenditures incurred or paid byLender for such purposes will then bear interest at the rate charged to theBorrower under the Note from the date incurred or paid by Lender to the date ofrepayment by Grantor.  All such expenseswill become a part of the Indebtedness and, at Lender’s option, will (1) bepayable on demand; (2) be added to the balance of the Note and beapportioned among and be payable with any installment payments to become dueduring either (A) the term of any applicable insurance policy or (B) theremaining term of the Note; or (3) be treated as a balloon payment whichwill be due and payable at the Note’s maturity. This Agreement also will secure payment of these amounts.  Such right shall be in addition to all otherrights and remedies to which Lender may be entitled upon Default.

 

**REINSTATEMENT OF SECURITYINTEREST.**  If paymentis made by Grantor, whether voluntarily or otherwise, by any guarantor or byany other third party on the Indebtedness and thereafter Lender is forced toremit the amount of that payment (1) to Grantor’s trustee in bankruptcy orto any similar person under any federal or state bankruptcy law or law for therelief of debtors, (2) by reason of any judgment, decree or order of anycourt or administrative body having jurisdiction over Lender or any of Lender’sproperty, or (3) by reason of any settlement or compromise of any claimmade by Lender with any claimant (including without limitation Grantor), theIndebtedness shall be considered unpaid for the purpose of enforcement of thisAgreement and this Agreement shall continue to be effective or shall bereinstated, as the case may be, notwithstanding any cancellation of thisAgreement or of any note or other instrument or agreement evidencing theIndebtedness and the Collateral will continue to secure the amount repaid orrecovered to the same extent as if that amount never had been originallyreceived by Lender, and Grantor shall be bound by any judgment, decree, order,settlement or compromise relating to the Indebtedness or to this Agreement.

 

**DEFAULT.**  Each of the following shall constitute anEvent of Default under this Agreement:

 

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**PaymentDefault.**  Grantor failsto make any payment when due under the Indebtedness.

 

**NoteDefault. **Theoccurrence of an Event of Default under the Note.

 

**LoanAgreement Default. **Theoccurrence of an Event of Default under the Loan Agreement or any of the LoanDocuments (as defined in the Loan Agreement).

 

**OtherDefaults.**  Grantorfails to comply with or to perform any other term, obligation, covenant orcondition contained in this Agreement or in any of the Related Documents, or tocomply with or to perform any term, obligation, covenant or condition containedin any other agreement between Lender and Grantor.

 

**Defaultin Favor of Third Parties.** Should Borrower or any Grantor default under any loan, extension ofcredit, security agreement, purchase or sales agreement, or any otheragreement, in favor of any other creditor or person that may materially affectany of Grantor’s property or Grantor’s ability to repay the Indebtedness orperform its respective obligations under this Agreement or any of the RelatedDocuments.

 

**FalseStatements.**  Anywarranty, representation or statement made or furnished to Lender by Grantor oron Grantor’s behalf under this Agreement or the Related Documents is false ormisleading in any material respect either now or at the time made or furnishedor becomes false or misleading at any time thereafter.

 

**DefectiveCollateralization.** This Agreement or any of the Related Documents ceases to be in fullforce and effect (including failure of any collateral document to create avalid and perfected security interest or lien) at any time and for any reason.

 

**Insolvency.**  The dissolution or termination of Grantor’sexistence as a going business, the insolvency of Grantor, the appointment of areceiver for any part of Grantor’s property, any assignment for the benefit ofcreditors, any type of creditor workout, or the commencement of any proceedingunder any bankruptcy or insolvency laws by or against Grantor.

 

**Creditoror Forfeiture Proceedings.** Commencement of foreclosure or forfeiture proceedings, whether byjudicial proceeding, self-help, repossession or any other method, by anycreditor of Grantor or by any governmental agency against any collateralsecuring the Indebtedness.  This includesa garnishment of any of Grantor’s accounts, including deposit accounts, withLender.  However, this Event of Defaultshall not apply if there is a good faith dispute by Grantor as to the validityor reasonableness of the claim which is the basis of the creditor or forfeitureproceeding and if Grantor gives Lender written notice of the creditor or forfeitureproceeding and deposits with Lender monies or a surety bond for the creditor orforfeiture proceeding in an amount determined by Lender, in its solediscretion, as being an adequate reserve or bond for the dispute.

 

**EventsAffecting Guarantor.** Any of the preceding events occurs with respect to any guarantor,endorser, surety, or accommodation party of any of the Indebtedness orguarantor, endorser, surety, or accommodation party dies or becomes incompetentor revokes or disputes the validity of, or liability under, any Guaranty of theIndebtedness.

 

**AdverseChange.**  A materialadverse change occurs in Grantor’s financial condition, or Lender believes theprospect of payment or performance of the Indebtedness is impaired.

 

**Insecurity.**  Lender in good faith believes itselfinsecure.

 

**RIGHTS AND REMEDIES ON DEFAULT.**  If an Event of Default occurs under thisAgreement, at any time thereafter, Lender shall have all the rights at asecured party under the UCC. In addition and without limitation, Lender mayexercise any one or more of the following rights and remedies:

 

**AccelerateIndebtedness.**  Lendermay declare the entire Indebtedness, including any prepayment penalty whichGrantor would be required to pay, immediately due and payable, without noticeof any kind to Grantor.

 

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**AssembleCollateral.**  Lender mayrequire Grantor to deliver to Lender all or any portion of the Collateral andany and all certificates of title and other documents relating to the Collateral.  Lender may require Grantor to assemble theCollateral and make it available to Lender at a place to be designated byLender.  Lender also shall have fullpower to enter upon the property of Grantor to take possession of and removethe Collateral.  If the Collateralcontains other goods not covered by this Agreement at the time of repossession,Grantor agrees that Lender may take such other goods, provided that Lendermakes reasonable efforts to return them to Grantor after repossession.

 

**Sell the Collateral.**  Lender shall have full power to sell, lease,transfer, or otherwise deal with the Collateral or proceeds thereof in Lender’sown name or that of Grantor.  Lender maysell the Collateral at public auction or private sale.  Unless the Collateral threatens to declinespeedily in value or is of a type customarily sold on a recognized market,Lender will give Grantor, and other persons as required by law, reasonablenotice of the time and place of any public sale, or the time after which anyprivate sale or any other disposition of the Collateral is to be made; provided,however, no notice need be provided to any person who, after Event ofDefault occurs, enters into and authenticates an agreement waiving thatperson’s right to notification of sale.  The requirements of reasonable notice shall bemet if such notice is given at least ten (10) days before the time of thesale or disposition.  All expensesrelating to the disposition of the Collateral, including without limitation theexpenses of retaking, holding, insuring, preparing for sale and selling theCollateral, shall become a part of the Indebtedness secured by this Agreementand shall be payable on demand, with interest at the rate set forth in the Notefrom the date of expenditure until repaid.

 

**Mortgageein Possession.**  Lendershall have the right to be placed as mortgagee in possession or to have areceiver appointed to take possession of all or any part of the Collateral,with the power to protect and preserve the Collateral, to operate the Collateralpreceding foreclosure or sale, and to collect the Rents from the Collateral andapply the proceeds, over and above the cost of the receivership, against theIndebtedness.  The mortgagee inpossession or receiver may serve without bond if permitted by law.  Lender’s right to the appointment of areceiver shall exist whether or not the apparent value of the Collateralexceeds the Indebtedness by a substantial amount.  Employment by Lender shall not disqualify aperson from serving as a receiver.

 

**CollectRevenues, Apply Accounts.** Lender, either itself or through a receiver, may collect the payments,Rents, income, and revenues from the Collateral.  Lender may at any time in Lender’s solediscretion transfer any Collateral into Lender’s own name or that of Lender’snominee and receive the payments, Rents, income, and revenues therefrom, andhold the same as security for the Indebtedness or apply it to payment of theIndebtedness in such order of preference as Lender may determine.  Insofar as the Collateral consists ofaccounts, general intangibles, insurance policies, instruments, chattel paper,choses in action, or similar property, Lender may demand, collect, receipt for,settle, compromise, adjust, sue for, foreclose, or realize on the Collateral asLender may determine, whether or not the Indebtedness or Collateral is thendue.  For these purposes, Lender may, onbehalf of and in the name of Grantor, receive, open and dispose of mailaddressed to Grantor, change any address to which mail and payments are to besent, and endorse notes, checks, drafts, money orders, documents of title,instruments and items pertaining to payment, shipment, or storage of anyCollateral.  To facilitate collection,Lender may notify account debtors and obligors on any Collateral to makepayments directly to Lender.

 

**ObtainDeficiency.**  If Lenderchooses to sell any or all of the Collateral, Lender may obtain a judgmentagainst Grantor for any deficiency remaining on the Indebtedness due to Lenderafter application of all amounts received from the exercise of the rightsprovided in this Agreement.  Grantorshall be liable for a deficiency even if the transaction described in thissubsection is a sale of accounts or chattel paper.

 

**OtherRights and Remedies.** Lender shall have all the rights and remedies of a secured creditorunder the provisions of the UCC.  Inaddition, Lender shall have and may exercise any or all other rights andremedies it may have available at law, in equity, or otherwise.

 

**Electionof Remedies.**  Except asmay be prohibited by applicable law, all of Lender’s rights and remedies,whether evidenced by this Agreement, the Related Documents, or by any otherwriting, shall be cumulative 

 

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and may be exercisedsingularly or concurrently.  Election byLender to pursue any remedy shall not exclude pursuit of any other remedy, andan election to make expenditures or to take action to perform an obligation ofGrantor under this Agreement, after Grantor’s failure to perform, shall notaffect Lender’s right to declare an Event of Default and exercise its remedies.

 

**MISCELLANEOUS PROVISIONS.**  The following miscellaneous provisions are apart of this Agreement:

 

**Amendments.**  This Agreement, together with any Related Documents,constitutes the entire understanding and agreement of the parties as to thematters set forth in this Agreement.  Noalteration of or amendment to this Agreement shall be effective unless given inwriting and signed by the party or parties sought to be charged or bound by thealteration or amendment.

 

**Attorneys’Fees; Expenses.** Grantor agrees to pay upon demand all of Lender’s costs and expenses,including Lender’s attorneys’ fees and Lender’s legal expenses, incurred inconnection with the enforcement of this Agreement upon any Event ofDefault.  Lender may hire or pay someoneelse to help enforce this Agreement, and Grantor shall pay the costs andexpenses of such enforcement.  Costs andexpenses include Lender’s attorneys’ fees and legal expenses whether or notthere is a lawsuit, including attorneys’ fees and legal expenses for bankruptcyproceedings (including efforts to modify or vacate any automatic stay orinjunction), appeals, and any anticipated post-judgment collection services.  Grantor also shall pay all court costs andsuch additional fees as may be directed by the court.

 

**CaptionHeadings.**  Captionheadings in this Agreement are for convenience purposes only and are not to beused to interpret or define the provisions of this Agreement.

 

**GoverningLaw.**  This Agreementwill be governed by federal law applicable to Lender and, to the extent notpreempted by federal law, the laws of the State of Illinois without regard toits conflicts of law provisions.  ThisAgreement has been accepted by Lender in the State of Illinois.

 

**Choice ofVenue.**  If there is alawsuit, Grantor agrees upon Lender’s request to submit to the jurisdiction ofthe courts of DuPage County, State of Illinois.

 

**No Waiverby Lender.**  Lendershall not be deemed to have waived any rights under this Agreement unless suchwaiver is given in writing and signed by Lender.  No delay or omission on the part of Lender inexercising any right shall operate as a waiver of such right or any otherright.  A waiver by Lender of a provisionof this Agreement shall not prejudice or constitute a waiver of Lender’s rightotherwise to demand strict compliance with that provision or any otherprovision of this Agreement.  No priorwaiver by Lender, nor any course of dealing between Lender and Grantor, shallconstitute a waiver of any of Lender’s rights or of any of Grantor’sobligations as to any future transactions. Whenever the consent of Lender is required under this Agreement, thegranting of such consent by Lender in any instance shall not constitutecontinuing consent to subsequent instances where such consent is required andin all cases such consent may be granted or withheld in the sale discretion ofLender.

 

**Notices.**  Any notice required to be given under thisAgreement shall be given in writing, and shall be effective when actuallydelivered, when actually received by facsimile (unless otherwise required bylaw), when deposited with a nationally recognized overnight courier, or, ifmailed, when deposited in the United States mail, as first class, certified orregistered mail postage prepaid, directed to the addresses shown near thebeginning of this Agreement.  Any partymay change its address for notices under this Agreement by giving formal writtennotice to the other parties, specifying that the purpose of the notice is tochange the party’s address.  For noticepurposes, Grantor agrees to keep Lender informed at all times of Grantor’scurrent address.  Unless otherwiseprovided or required by law, if there is more than one Grantor, any noticegiven by Lender to any Grantor is deemed to be notice given to all Grantors.

 

**Power ofAttorney.**  Grantorhereby appoints Lender as Grantor’s irrevocable attorney-in-fact for thepurpose of executing any documents necessary to perfect, amend, or to continuethe security interest granted in this Agreement or to demand termination offilings of other secured parties.  Lendermay at any tine, and without further authorization from Grantor, file a carbon,photographic or other reproduction of 

 

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any financing statementor of this Agreement for use as a financing statement.  Grantor will reimburse Lender for allexpenses for the perfection and the continuation of the perfection of Lender’ssecurity interest in the Collateral.

 

**Severability.**  If a court of competent jurisdiction findsany provision of this Agreement to be illegal, invalid, or unenforceable as toany circumstance, that finding shall not make the offending provision illegal,invalid, or unenforceable as to any other circumstance.  If feasible, the offending provision shall beconsidered modified so that it becomes legal, valid and enforceable.  If the offending provision cannot be somodified, it shall be considered deleted from this Agreement.  Unless otherwise required by law, theillegality, invalidity, or unenforceability of any provision of this Agreementshall not affect the legality, validity, or enforceability of any otherprovision of this Agreement.

 

**Successorsand Assigns.**  Subjectto any limitations stated in this Agreement regarding the transfer of Grantor’sinterest, this Agreement shall be binding upon and inure to the benefit of theparties, their successors and assigns. If ownership of the Collateral becomesvested in a person other than Grantor, Lender, without notice to Grantor, maydeal with Grantor’s successors with reference to this Agreement and theIndebtedness by way of forbearance or extension without releasing Grantor fromthe obligations of this Agreement or liability under the Indebtedness.

 

**Survivalof Representations and Warranties.**  All representations, warranties, andagreements made by Grantor in this Agreement shall survive the execution anddelivery of this Agreement, shall be continuing in nature, and shall remain infull force and effect until such time as Grantor’s Indebtedness shall be paidin full.

 

**Time isof the Essence.**  Timeis of the essence in the performance of this Agreement.

 

**WaiveJury.**  All parties tothis Agreement hereby waive the right to any jury trial in any action,proceeding, or counterclaim brought by any party against any other party.

 

**DEFINITIONS.**  The following capitalized words and termsshall have the following meanings when used in this Agreement.  Unless specifically stated to the contrary,all references to dollar amounts shall mean amounts in lawful money of theUnited States of America.  Words andterms used in the singular shall include the plural, and the plural shallinclude the singular, as the context may require.  Words and terms not otherwise defined in thisAgreement shall have the meanings attributed to such terms in the UCC:

 

**Agreement.**  The word “Agreement” means this CommercialSecurity Agreement, as this Commercial Security Agreement may be amended ormodified from time to tine, together with all exhibits and schedules attachedto this Security Agreement from time to time.

 

**Borrower.**  The word “Borrower” means Advanced LifeSciences, Inc. and includes all co-signers and co-makers signing the Noteand all their successors and assigns.

 

**Collateral.**  The word “Collateral” means all of Grantorsright, title and interest in and to all the Collateral as described in theCOLLATERAL DESCRIPTION section of this Agreement.

 

**Default.**  The word “Default” means the default set forthin this Agreement in the section titled DEFAULT.

 

**EnvironmentalLaws.**  The words“Environmental Laws” mean any and all state, federal and local statutes,regulations and ordinances relating to the protection of human health or theenvironment, including without limitation the Comprehensive EnvironmentalResponse, Compensation, and Liability Act of 1980, as amended, 42 U.S.C. Section 9601,at seq., the Superfund Amendments and Reauthorization Act of 1986, Pub. L. No. 99499,the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, etseq., the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901,et seq., or other applicable state or federal laws, rules, or regulationsadopted pursuant thereto.

 

**Event ofDefault.**  The words“Event of Default” mean any of the events of default set forth in this 

 

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Agreement in the DEFAULTsection of this Agreement.

 

**Grantor.**  The word “Grantor” means Advanced LifeSciences Holdings, Inc.

 

**Guaranty.**  The word “Guaranty” means any guaranty fromany guarantor, endorser, surety, or accommodation party of any of theIndebtedness to Lender, including without limitation a guaranty of all or partof the Note.

 

**HazardousSubstances.** The words“Hazardous Substances” mean materials that, because of their quantity,concentration or physical, chemical or infectious characteristics, may cause orpose a present or potential hazard to human health or the environment whenimproperly used, treated, stored, disposed of, generated, manufactured,transported or otherwise handled.  Thewords “Hazardous Substances” are used in their very broadest sense and includewithout limitation any and all hazardous or toxic substances, materials or wasteas defined by or listed under the Environmental Laws.  The term “Hazardous Substances” alsoincludes, without limitation, petroleum and petroleum by-products or anyfraction thereof and asbestos.

 

**Indebtedness.**  The word “Indebtedness” means theindebtedness evidenced by the Note or Related Documents, including allprincipal and interest together with all other indebtedness and costs andexpenses for which Grantor is responsible under this Agreement or under any ofthe Related Documents.

 

**Lender.**  The word “Lender” means THE LEADERS BANK, itssuccessors and assigns.

 

**Note.**  The word “Note” means the Amended andRestated Promissory Note executed by Borrower in the principal amount of TenMillion and 00/100 Dollars ($10,000,000.00), dated as of even date herewith,together with all renewals of, extensions of, modifications of, refinancingsof, consolidations of, and substitutions for the note.

 

**Property.**  The word “Property” means all of Grantor’sright, title and interest in and to all the Property as described in theCOLLATERAL DESCRIPTION section of this Agreement.

 

**RelatedDocuments.**  The words“Related Documents” mean all promissory notes, credit agreements, Joanagreements, environmental agreements, guaranties, security agreements,mortgages, deeds of trust, security deeds, collateral mortgages, and all otherinstruments, agreements and documents, whether now or hereafter existing,executed in connection with the Indebtedness.

 

**Rents.**  The word “Rents” means all present and futurerents, revenues, income, issues, royalties, profits, and other benefits derivedfrom the Property.

 

**UCC.**  The word “UCC” means the Uniform CommercialCode of the State of Illinois, as amended.

 

**[SignaturePage Follows]**

 

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GRANTOR HAS READ ANDUNDERSTOOD ALL THE PROVISIONS OF THIS COMMERCIAL SECURITY AGREEMENT AND AGREESTO ITS TERMS.

 

IN WITNESS WHEREOF, theParties hereto have caused this Agreement to be executed by their respectiveauthorized officers as of the date first written above.

 

 
| GRANTOR:                               |                                                   |
|----------------------------------------|--------------------------------------------------------|
|                                   |                                                   |
| ADVANCED LIFE SCIENCES  HOLDINGS, INC. |                                                   |
|                                   |                                                   |
|                                   |                                                   |
| By:                                    | /s/  John L. Flavin                                    |   |
|                                   | John  L. Flavin, President and Chief Financial Officer |   |
|                                   |                                                   |
|                                   |                                                   |
| LENDER:                                |                                                   |
|                                   |                                                   |
| THE LEADERS BANK                       |                                                   |
|                                   |                                                   |
|                                   |                                                   |
| By:                                    | /s/  John Prosia                                       |   |
|                                   | John  Prosia, Executive Vice President                 |   |

 

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