Document:

Exhibit 10.17

 

AMENDED AND RESTATED GUARANTY

 

This
GUARANTY dated as of September 9, 2010 (the “Guaranty”), is executed by the
undersigned (“Guarantor”), to and for the benefit of THE LEADERS BANK (the “Lender”),
whose address is 2001 York Road, Suite 150, Oak Brook, Illinois 60523.

 

WHEREAS,
Lender has agreed to continue to extend credit to Advanced Life Sciences, Inc.
(the “Borrower”) in the original principal amount of $8,500,000 (the “Loan”)
pursuant to the terms of that certain Second Amended and Restated Business Loan
Agreement (the “Loan Agreement”);

 

WHEREAS,
Borrower has executed that certain Second Amended and Restated Promissory Note
in the original principal amount of $8,500,000 in favor of Lender (the “Note”);

 

WHEREAS,
on October 23, 2009, Guarantor executed that certain Commercial Guaranty in
favor of Lender (the “Original Guaranty”);

 

WHEREAS,
as a condition precedent to the Lender’s execution of the Loan Agreement and
continued extension of credit to the Borrower, the Lender requires the Guarantor
to execute and deliver this Guaranty that amends and restates the Original
Guaranty;

 

WHEREAS,
continued extension of credit by the Lender to the Borrower is necessary and
desirable to the finance the Borrower’s operations and will inure to the financial
benefit of the Guarantor;

 

NOW,
THEREFORE, in consideration of the premises and the agreements herein and in
order to induce the Lender to continue to make and maintain the Loan pursuant
to the Note, the Guarantor hereby agrees with Lender as follows:

 

1.                                       It is agreed
that the preceding provisions and preambles are an integral part hereof and
that this Guaranty shall be construed in light thereof, and in consideration of
advances, credit or other financial accommodation heretofore afforded,
concurrently herewith being afforded or hereafter to be afforded to the
Borrower by the Lender, the Guarantor hereby unconditionally and absolutely
guarantees to the Lender, irrespective of the validity, regularity or
enforceability of any instrument, writing, arrangement or credit agreement
relating to or the subject of any such financial accommodation, (i) the payment
in full to the Lender at maturity, whether by acceleration or otherwise, and at
all times thereafter, of the Guaranteed Debt (as hereinafter defined), promptly
upon demand of the Lender or other person paying or incurring the same, and (ii)
the prompt, full and faithful performance and discharge by the Borrower of each
of the terms, conditions, agreements, representations and warranties on the
part of the Borrower contained in any agreement, or in any modification or
addenda thereto or substitution thereof, entered into in connection with the
Guaranteed Obligation (as hereinafter defined).

 

2.                                       As used herein,
“Guaranteed Debt” shall mean and include (i) the principal amount of the
Guaranteed Obligation, plus (ii) all reasonable costs, legal expenses
and attorneys’ and paralegals’ fees of every kind, paid or incurred by the
Lender in endeavoring to collect any of the foregoing indebtedness, obligations
and liabilities of the Borrower or any part thereof, or in enforcing this
Guaranty, or in defending against any defense, counterclaim, setoff or
crossclaim 

 

 

based
on any act of commission or omission by the Lender with respect to any of the
foregoing indebtedness, obligations and liabilities of the Borrower, or in
connection with any Repayment Claim (as hereinafter defined).

 

3.                                       As used herein,
“Guaranteed Obligation” shall mean and include any and all indebtedness,
obligations and liabilities of the Borrower to the Lender arising under and
pursuant to the Note executed by the Borrower, including any amendments
thereto.

 

4.                                       In case of the
occurrence of an Event of Default by Borrower under the Note or the Loan
Agreement, or a default by Guarantor hereunder of any of the covenants, terms
and conditions set forth herein, all of the Guaranteed Debt shall, without
notice to anyone, immediately become due or accrued and all amounts due
hereunder shall be payable from the Guarantor. 
The Guarantor hereby expressly and irrevocably:  (a) waives, to the fullest extent possible,
on behalf of himself and his successors and assigns (including any surety) and
any other person, any and all rights at law or in equity to subrogation,
reimbursement, exoneration, contribution, indemnification, set off or to any
other rights that could accrue to a surety against a principal, a guarantor
against a maker or obligor, an accommodation party against the party
accommodated, a holder or transferee against a maker, or to the holder of a
claim against any person, and which Guarantor may have or hereafter acquire
against any person in connection with or as a result of Guarantor’s execution,
delivery and/or performance of this Guaranty, or any other documents to which
Guarantor is a party or otherwise; (b) waives any “claim” (as such term is
defined in the United States Bankruptcy Code) of any kind against the Borrower,
and further agrees that he or she, as the case may be, shall not have or assert
any such rights against any person (including any surety), either directly or
as an attempted set off to any action commenced against the Guarantor by the
Lender or any other person; and (c) acknowledges and agrees (i) that foregoing
waivers are intended to benefit the Lender and shall not limit or otherwise
effect the Guarantor’s liability hereunder or the enforceability of this
Guaranty, (ii) that the Borrower and its successors and assigns are intended
third party beneficiaries of the foregoing waivers, and (iii) the agreements
set forth in this paragraph and the Lender’s rights under this paragraph shall
survive payment in full of the Guaranteed Debt.

 

5.                                       All dividends
or other payments received by the Lender on account of the Guaranteed Debt,
from whatever source derived, shall be taken and applied by the Lender toward
the payment of the Guaranteed Debt and in such order of application as the
Lender may, in its sole discretion, from time to time elect, and this Guaranty
shall apply to and secure any ultimate balance that shall remain owing to the
Lender.  The Lender shall have the
exclusive right to determine how, when and what application of payments and
credits, if any, whether derived from the Borrower or any other source, shall
be made on the Guaranteed Debt and such determination shall be conclusive upon
the Guarantor.

 

6.                                       This
Guaranty shall in all respects be continuing, absolute and unconditional, and
shall remain in full force and effect with respect to Guarantor until all
Guaranteed Debt shall have been fully paid.

 

7.                                       Guarantor’s liability under
this Guaranty shall in no way be modified, affected, impaired, reduced,
released or discharged by any of the following (any or all of which may be done
or omitted by the Lender in its sole discretion, without notice to anyone and
irrespective of 

 

 

whether
the Guaranteed Debt shall be increased or decreased thereby): (a) any
acceptance by the Lender of any new or renewal note or notes of the Borrower,
or of any security or collateral for, or other guarantors or obligors upon, any
of the Guaranteed Debt; (b) any compromise, settlement, surrender, release,
discharge, renewal, refinancing, extension, alteration, exchange, sale, pledge
or election with respect to the Guaranteed Debt, or any note by the Borrower,
or take any action under Section 364, or any other section of the United States
Bankruptcy Code (11 U.S.C. § 101 et.  seq.), now existing or
hereafter amended, or other disposition of, or substitution for, or indulgence
with respect to, or failure, neglect or omission to realize upon, or to enforce
or exercise any liens or rights of appropriation or other rights with respect
to, any Guaranteed Debt or any security or collateral therefor or any claims
against any person or persons primarily or secondarily liable thereon; (c) any
failure, neglect or omission to perfect, protect, secure or insure any of the
foregoing security interests, liens, or encumbrances of the properties or
interests in properties subject thereto; (d) any change in the Borrower’s name
or the merger of the Borrower into another corporation; (e) any act of
commission or omission of any kind or at any time upon the part of the Lender
with respect to any matter whatsoever, other than the execution and delivery by
the Lender to the Guarantor of an express written release or cancellation of
this Guaranty; or (f) the payment in full of the Guaranteed Debt.  The Guarantor hereby consents to all acts of
commission or omission of the Lender set forth above and agrees that the
standards by which good faith, diligence, reasonableness and care shall be
measured, determined and governed solely by the terms and provisions hereof.

 

8.                                       Notwithstanding
any provision of this Guaranty to the contrary, it is intended that this
Guaranty not constitute a Fraudulent Conveyance (as defined below).  Consequently, Guarantor agrees that if this
Guaranty, would, but for the application of this sentence, constitute a
Fraudulent Conveyance, this Guaranty shall be valid and enforceable only to the
maximum extent that would not cause this Guaranty to constitute a Fraudulent
Conveyance, and this Guaranty shall automatically be deemed to have been
amended accordingly at all relevant times. 
For purposes hereof, “Fraudulent Conveyance” means a fraudulent
conveyance under Section 548 of the Bankruptcy Code or a fraudulent conveyance
or fraudulent transfer under the provisions of any applicable fraudulent
conveyance or fraudulent transfer law or similar law of any state, nation or
governmental unit, as in effect from time to time.

 

9.                                       In order to
hold the Guarantor liable hereunder, there shall be no obligation on the part
of the Lender, at any time, to resort for payment from the Borrower or to
anyone else, or to any collateral, security, property, liens or other rights
and remedies whatsoever, all of which are hereby expressly waived by the
Guarantor.  The Guarantor hereby
expressly waives diligence in collection or protection, presentment, demand or
protest or in giving notice to anyone of the protest, dishonor, default, or
nonpayment or of the creation or existence of any of the Guaranteed Debt or of
the acceptance of this Guaranty or of extension of credit or indulgences
hereunder or of any other matters or things whatsoever relating hereto.

 

10.                                 The Guarantor
waives any and all defenses, claims and discharges of the Borrower, or any
other obligor, pertaining to the Guaranteed Debt, except the defense of
discharge by payment in full.  Without
limiting the generality of the foregoing, the Guarantor will not assert, plead
or enforce against the Lender any defense of waiver, release, discharge in
bankruptcy, statute of limitations, res judicata, statute of frauds,
anti-deficiency statute, minority or unenforceability which may be available to
the Borrower or any other person liable in respect 

 

 

of
any of the Guaranteed Debt, or any setoff available against the Lender to the
Borrower or any such other person, whether or not on account of a related
transaction.  The Guarantor expressly
agrees that the Guarantor shall be and remain liable for any deficiency
remaining after foreclosure of any security interest securing the Guaranteed
Debt, whether or not the liability of the Borrower or any other obligor for
such deficiency is discharged pursuant to statute or judicial decision.

 

11.                                 The Lender may,
without demand or notice of any kind to anyone, apply or set off any balances,
credits, deposits, accounts, moneys or other indebtedness at any time credited
by or due from the Lender to the Guarantor against the amounts due hereunder
and in such order of application as the Lender may from time to time
elect.  Any notification of intended
disposition of any property required by law shall be deemed reasonably and
properly given if given in the manner provided by the applicable statute.

 

12.                                 THE GUARANTOR
WAIVES EVERY DEFENSE, CAUSE OF ACTION, COUNTERCLAIM OR SETOFF WHICH THE
GUARANTOR MAY NOW HAVE OR HEREAFTER MAY HAVE TO ANY ACTION BY THE LENDER IN
ENFORCING THIS GUARANTY.  AS FURTHER
SECURITY, ANY AND ALL DEBTS AND LIABILITIES NOW OR HEREAFTER ARISING AND OWING
TO THE GUARANTOR BY THE BORROWER, OR TO ANY OTHER PARTY LIABLE TO THE LENDER,
ARE HEREBY SUBORDINATED TO THE LENDER’S CLAIMS AND ARE HEREBY ASSIGNED TO THE
LENDER.  THE GUARANTOR HEREBY AGREES THAT
THE GUARANTOR MAY BE JOINED AS A PARTY DEFENDANT IN ANY LEGAL PROCEEDING (INCLUDING,
BUT NOT LIMITED TO, A FORECLOSURE PROCEEDING) INSTITUTED BY THE LENDER AGAINST
THE BORROWER.  THE GUARANTOR AND THE
LENDER, AFTER CONSULTING OR HAVING HAD THE OPPORTUNITY TO CONSULT WITH COUNSEL,
EACH KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE IRREVOCABLY THE RIGHT TO
TRIAL BY JURY WITH RESPECT TO ANY SUCH LEGAL PROCEEDING IN WHICH THE GUARANTOR
AND THE LENDER ARE ADVERSE PARTIES.  THIS
PROVISION IS A MATERIAL INDUCEMENT TO THE LENDER GRANTING ANY FINANCIAL ACCOMMODATION
TO THE BORROWER AND ACCEPTING THIS GUARANTY.

 

13.                                 Should a claim
(a “Repayment Claim”) be made upon the Lender at any time for repayment of any
amount received by the Lender in payment of the Guaranteed Debt, or any part
thereof, whether received from the Borrower, the Guarantor pursuant hereto, or
received by the Lender as the proceeds of collateral, by reason of:  (i) any judgment, decree or order of any
court or administrative body having jurisdiction over the Lender or any of its
property; or (ii) any settlement or compromise of any such Repayment Claim
effected by the Lender, in its sole discretion, with the claimant (including
the Borrower), the Guarantor shall remain liable to the Lender for the amount
so repaid to the same extent as if such amount had never originally been received
by the Lender, notwithstanding any termination hereof or the cancellation of
any note or other instrument evidencing any of the Guaranteed Debt.

 

14.                                 The Lender may,
without notice to anyone, sell or assign the Guaranteed Debt, or any part
thereof, or grant participations therein, and in any such event each and every
immediate or remote assignee or holder of, or participant in, all or any of the
Guaranteed Debt shall have the 

 

 

right
to enforce this Guaranty, by suit or otherwise for the benefit of such
assignee, holder, or participant, as fully as if herein by name specifically
given such right herein, but the Lender shall have an unimpaired right, prior
and superior to that of any such assignee, holder or participant, to enforce
this Guaranty for the benefit of the Lender, as to any part of the Guaranteed
Debt retained by the Lender.

 

15.                                 Unless and
until all of the Guaranteed Debt has been paid in full, no release or discharge
of any other person, whether primarily or secondarily liable for and obligated
with respect to the Guaranteed Debt, or the institution of bankruptcy,
receivership, insolvency, reorganization, dissolution or liquidation
proceedings by or against the Guarantor or any other person primarily or
secondarily liable for and obligated with respect to the Guaranteed Debt, or
the entry of any restraining or other order in any such proceedings, shall
release or discharge the Guarantor, or any other guarantor of the indebtedness,
or any other person, firm or corporation liable to the Lender for the
Guaranteed Debt.

 

16.                                 (a)                                  All references
herein to the Borrower and to the Guarantor, respectively, shall be deemed to
include any successors or assigns, whether immediate or remote, to either
corporation and any executors or administrators to such individual.

 

(b)                                 If this
Guaranty contains any blanks when executed by the Guarantor, the Lender is
hereby authorized, without notice to the Guarantor, to complete any such blanks
according to the terms upon which this Guaranty is executed by the Guarantor
and is accepted by the Lender.

 

(c)                                  This Guaranty
has been delivered to the Lender, and the rights, remedies and liabilities of
the parties shall be construed and determined in accordance with the laws of
the State of Illinois, in which State it shall be performed by the Guarantor.

 

(d)                                 TO INDUCE THE
LENDER TO GRANT FINANCIAL ACCOMMODATIONS TO THE BORROWER, THE GUARANTOR
IRREVOCABLY AGREES THAT ALL ACTIONS ARISING DIRECTLY OR INDIRECTLY AS A RESULT
OR IN CONSEQUENCE OF THIS GUARANTY SHALL BE INSTITUTED AND LITIGATED ONLY IN
COURTS HAVING SITUS IN THE CITY OF CHICAGO, ILLINOIS, COUNTY OF COOK.  THE GUARANTOR HEREBY CONSENTS TO THE
EXCLUSIVE JURISDICTION AND VENUE OF ANY STATE OR FEDERAL COURT LOCATED AND
HAVING ITS SITUS IN CHICAGO, ILLINOIS, COUNTY OF COOK AND WAIVES ANY OBJECTION
BASED ON FORUM NON CONVENIENS.  THE
GUARANTOR HEREBY WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS, AND TO THE
SERVICE OF PROCESS BY CERTIFIED MAIL, RETURN RECEIPT REQUESTED, DIRECTED TO THE
GUARANTOR AT THE ADDRESS SET FORTH BELOW IN THE MANNER PROVIDED BY APPLICABLE
STATUTE, LAW, RULE OF COURT OR OTHERWISE. 
FURTHERMORE, THE GUARANTOR WAIVES ALL NOTICES AND DEMANDS IN CONNECTION
WITH THE ENFORCEMENT OF THE LENDER’S RIGHTS HEREUNDER, AND HEREBY CONSENTS TO,
AND WAIVES NOTICE OF THE RELEASE, WITH OR WITHOUT CONSIDERATION, OF THE
BORROWER OR ANY OTHER PERSON RESPONSIBLE FOR PAYMENT OF THE GUARANTEED DEBT, OR
OF ANY COLLATERAL THEREFOR.

 

 

(e)                                  Wherever
possible each provision of this Guaranty shall be interpreted in such manner as
to be effective and valid under applicable law, but if any provision of this
Guaranty shall be prohibited by or invalid under such law, such provision shall
be ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of
this Guaranty.

 

(f)                                    It is agreed
that the Guarantor’s liability is independent of any other guaranties at any
time in effect with respect to all or any part of the Borrower’s indebtedness
to the Lender, and that the Guarantor’s liability hereunder may be enforced
regardless of the existence of any such other guaranties.

 

(g)                                 No delay on the
part of the Lender in the exercise of any right or remedy shall operate as a
waiver thereof, and no single or partial exercise by the Lender of any right or
remedy shall preclude other or further exercise thereof, or the exercise of any
other right or remedy.  No modification,
termination, discharge or waiver of any of the provisions hereof shall be
binding upon the Lender, except as expressly set forth in a writing duly signed
and delivered on behalf of the Lender.

 

(h)                                 This Guaranty
may be executed in any number of counterparts and by different parties hereto
in separate counterparts, each of which when so executed and delivered shall be
deemed to be an original and all of which taken together shall constituted one
and the same instrument.

 

 

IN
WITNESS WHEREOF, the Guarantor has executed and delivered this Guaranty as of
the date set forth above.

 

 

	
   

  	
  ADVANCED
  LIFE SCIENCES HOLDINGS, INC.

  
	
   

  	
   

  
	
   

  	
  /s/John
  L. Flavin

  
	
   

  	
   

  
	
   

  	
  Notice
  Address:

  
	
   

  	
   

  
	
   

  	
  1440
  Davey Road

  
	
   

  	
  Woodridge,
  Illinois 60517

  

 

 

	
  ACCEPTED AND AGREED:

  	
   

  
	
   

  	
   

  
	
  LENDER:

  	
  THE
  LEADERS BANK

  
	
   

  	
   

  
	
   

  	
  /s/
  John Prosia

  
	
   

  	
  By:

  	
  John
  Prosia

  
	
   

  	
  Its:

  	
  Executive
  Vice PresidentExhibit 10.18

 

AMENDED AND RESTATED SECURITY AGREEMENT

 

This
Amended and Restated Security Agreement (the “Security Agreement”) is dated as
of September 9, 2010, by and among Advanced Life Sciences Holdings, Inc.  (the “Guarantor”), with its mailing address as set forth in
Section 13(b) below, and The Leaders Bank (the “Lender”), with its mailing
address as set forth in Section 13(b) below.

 

P R E L I M I N A R Y   S T A T E M E N T S

 

A.                                    Advanced Life
Sciences, Inc. (the “Borrower”), Guarantor, Michael Flavin and Lender have
entered into  that certain Second Amended
and Restated Credit Agreement dated as of even date herewith (such Credit
Agreement, as the same may be amended or modified from time to time, including
amendments and restatements thereof in its entirety, being hereinafter referred
to as the “Credit Agreement”), which amends and restates that certain Amended
and Restated Business Loan Agreement by and between the Borrower and Lender
dated as of October 23, 2008 (the “Original Credit Agreement”), pursuant to
which the Lender has agreed, subject to certain terms and conditions, to extend
credit and make certain other financial accommodations available to the
Borrower.

 

B.                                    In connection
with the Original Credit Agreement, Guarantor executed that certain security
agreement in favor of Lender (the “Original Security Agreement”) in support of
its obligations under that certain Commercial Guaranty (the “Original Guaranty”)
each dated as of October 23, 2008.

 

C.                                    As a condition
to continuing to extend credit or otherwise making financial accommodations
available to or for the account of the Borrower under the Credit Agreement, the
Lender requires, among other things, that Guarantor execute an amended and
restated guaranty evidencing the Guarantor’s obligation to guaranty the
obligations of the Borrower under the Credit Agreement (the “Guaranty”) and
that Guarantor execute this Security Agreement, which amends and restates the
Original Security Agreement, pursuant to which the Guarantor grants to the
Lender a lien on and security interest in the personal property and fixtures of
Guarantor described herein subject to the terms and conditions hereof.

 

D.                                    Borrower owns
all of the equity interests in Guarantor, and provides Guarantor with
financial, management, administrative, and technical support which enables
Guarantor to conduct its business in an orderly and efficient manner in the
ordinary course.

 

E.                                     Guarantor will
benefit, directly or indirectly, from the credit and other financial
accommodations extended by the Lender to the Borrower.

 

 

NOW,
THEREFORE, for good and valuable consideration, receipt whereof is hereby
acknowledged, the parties hereto agree as follows:

 

Section 1.                  Terms defined
in Credit Agreement.  Except as
otherwise provided in Section 2 below, all capitalized terms used herein
without definition shall have the same meanings herein as such terms have in
the Credit Agreement.

 

Section 2.                  Grant of
Security Interest in the Collateral.  As collateral security for the Secured
Obligations defined below, Guarantor hereby grants to the Lender a lien on and
security interest in, and right of set-off against, and acknowledges and agrees
that the Lender has and shall continue to have a continuing lien on and
security interest in, and right of set-off against, all right, title, and
interest of Guarantor, whether now owned or existing or hereafter created,
acquired or arising, in and to all of the following:

 

(a)                                 Accounts;

 

(b)                                 Chattel Paper;

 

(c)                                  Instruments (including the
Revolving Note);

 

(d)                                 Documents;

 

(e)                                  General Intangibles
(including Payment Intangibles and Software, patents, trademarks, tradestyles,
copyrights, and all other intellectual property rights, including all
applications, registration, and licenses therefor, and all goodwill of the
business connected therewith or represented thereby);

 

(f)                                   Letter-of-Credit Rights;

 

(g)                                  Supporting Obligations;

 

(h)                                 Deposit Accounts;

 

(i)                                     Investment Property
(including certificated and uncertificated Securities, Securities Accounts,
Security Entitlements, Commodity Accounts, and Commodity Contracts);

 

(j)                                    Inventory;

 

(k)                                 Equipment (including all
software, whether or not the same constitutes embedded software, used in the
operation thereof);

 

(l)                                     Fixtures;

 

(m)                             Commercial Tort Claims (as
described on Schedule E hereto or on one or more supplements to this
Agreement);

 

2

 

(n)                                 Rights to merchandise and
other Goods (including rights to returned or repossessed Goods and rights of
stoppage in transit) which is represented by, arises from, or relates to any of
the foregoing;

 

(o)                                 Monies, personal property,
and interests in personal property of Guarantor of any kind or description now
held by Lender or at any time hereafter transferred or delivered to, or coming
into the possession, custody or control of Lender, or Lender or affiliate of
Lender, whether expressly as collateral security or for any other purpose
(whether for safekeeping, custody, collection or otherwise), and all dividends
and distributions on or other rights in connection with any such property;

 

(p)                                 Supporting evidence and
documents relating to any of the above-described property, including, without
limitation, computer programs, disks, tapes and related electronic data
processing media, and all rights of Guarantor to retrieve the same from third
parties, written applications, credit information, account cards, payment
records, correspondence, delivery and installation certificates, invoice
copies, delivery receipts, notes and other evidences of indebtedness, insurance
certificates and the like, together with all books of account, ledgers, and
cabinets in which the same are reflected or maintained;

 

(q)                                 Accessions and additions to,
and substitutions and replacements of, any and all of the foregoing; and

 

(r)                                    Proceeds and products of the
foregoing, and all insurance of the foregoing and proceeds thereof;

 

all of the foregoing being herein sometimes referred to as the “Collateral”.  Notwithstanding anything herein to the
contrary, in no event shall the Collateral include or the security interest
granted hereunder attach to (a) any lease, license, contract, property rights
or agreement to which Guarantor is a party or any of its rights or interests
thereunder if and for so long as the grant of such security interest shall
constitute or result in (i) the abandonment, invalidation or unenforceability
of any right, title or interest of Guarantor therein or (ii) in a breach or
termination pursuant to the terms of, or a default under, any such lease,
license, contract property rights or agreement (other than to the extent that
any such term would be rendered ineffective pursuant to Sections 9-406, 9-407,
9-408 or 9-409 of the UCC (or any successor provision or provisions) of any
relevant jurisdiction or any other applicable law (including the Bankruptcy
Code) or principles of equity); provided, however, (x) that the Collateral
shall include, and such security interest shall attach, immediately and
automatically at such time as the condition causing such abandonment, invalidation
or unenforceability shall be remedied and to the extent severable, shall attach
immediately to any portion of such lease, license, contract, property rights or
agreement that does not result in any of the consequences specified in (i) or (ii)
above and (y) upon request of the Lender, Guarantor will in good faith use
reasonable efforts to obtain consent for the creation of a security interest in
favor of the Lender (and to Lender’s enforcement of such security interest)
such lease, license, contract, property rights or agreement.  All terms which are used in this Agreement
which are defined in the Uniform Commercial Code of the State of Delaware as in
effect from time to time (“UCC”) shall have the same meanings herein as such 

 

3

 

terms are defined in the UCC, unless this Agreement shall otherwise
specifically provide.  For purposes of
this Agreement, the term “Accounts” means all rights to the payment of a
monetary obligation, whether or not earned by performance, and whether
evidenced by an Account, Chattel Paper, Instrument, General Intangible, or
otherwise.

 

Section 3.                  Secured
Obligations.  This
Agreement is made and given to secure, and shall secure, the prompt payment and
performance of (a) any and all indebtedness, obligations, and liabilities of
Guarantor to the Lender under or in connection with or evidenced by the
Guaranty or any other Loan Documents, including, without limitation, all
obligations evidenced by Revolving Note of the Borrower heretofore or hereafter
issued under the Credit Agreement, and all obligations of Guarantor arising
under any guaranty issued by it relating to the foregoing or any part thereof,
in each case whether now existing or hereafter arising (and whether arising before
or after the filing of a petition in bankruptcy and including all interest
accrued after the petition date), due or to become due, direct or indirect,
absolute or contingent, and howsoever evidenced, held or acquired and (b) any
and all reasonable expenses and charges, legal or otherwise, suffered or
incurred by the Lender in collecting or enforcing any of such indebtedness,
obligations, and liabilities or in realizing on or protecting or preserving any
security therefor, including, without limitation, the lien and security
interest granted hereby (all of the indebtedness, obligations, liabilities,
expenses, and charges described above being hereinafter referred to as the “Secured
Obligations”).  Notwithstanding anything
in this Agreement to the contrary, the right of recovery against Guarantor
under this Agreement shall not exceed $1.00 less than the lowest amount that
would render Guarantor’s obligations under this Agreement void or voidable
under applicable law, including fraudulent conveyance law.

 

Section 4.                  Covenants,
Agreements, Representations and Warranties.  Guarantor hereby covenants and agrees with,
and represents and warrants to, the Lender that:

 

(a)                            Guarantor is
duly organized and validly existing in good standing under the laws of the
jurisdiction of its organization. 
Guarantor is the sole and lawful owner of its Collateral, and has full
right, power, and authority to enter into this Agreement and to perform each
and all of the matters and things herein provided for.  The execution and delivery of this Agreement,
and the observance and performance of each of the matters and things herein set
forth, will not (i) contravene or constitute a default under any provision of
law or any judgment, injunction, order or decree binding upon Guarantor or any
provision of Guarantor’s organizational documents (e.g., charter, articles or
certificate of incorporation and bylaws or similar organizational documents) or
any covenant, indenture or agreement of or affecting Guarantor or any of its
property or (ii) result in the creation or imposition of any lien or
encumbrance on any property of Guarantor except for the lien and security
interest granted to the Lender hereunder.

 

(b)                            Guarantor’s
chief executive office is located at 1440 Davey Drive, Woodridge, Illinois
60517, and Guarantor has no other executive offices or places of business other
than those listed under on Schedule A attached hereto.  The Collateral is and shall remain in
Guarantor’s possession or control at the locations listed on Schedule A attached
hereto (the “Permitted Collateral Locations”).  If for any reason any Collateral
is at any time kept or located at a location other than a Permitted Collateral

 

4

 

Location, the Lender shall nevertheless have and retain a lien on and
security interest therein.  Guarantor
shall not move its chief executive office or maintain a place of business at a
location other than those specified on Schedule A or permit any
Collateral to be located at a location other than a Permitted Collateral
Location, in each case without first providing the Lender at least 30 days
prior written notice of Guarantor’s intent to do so; provided  that
Guarantor shall at all times maintain its chief executive office, places of
business, and Permitted Collateral Locations in the United States of America
unless specifically agreed to in writing by the Lender and Guarantor shall have
taken all action reasonably requested by the Lender to maintain the lien and
security interest of the Lender in the Collateral at all times fully perfected
and in full force and effect.

 

(c)                             Guarantor’s
legal name, jurisdiction of organization and organizational number are
correctly set forth on Schedule A of this Agreement.  Guarantor has not transacted business at any
time during the immediately preceding five-year period, and does not currently
transact business, under any other legal names or trade names other than the
prior legal names and trade names set forth on Schedule B attached hereto.  Guarantor shall not change its jurisdiction
of organization without the Lender’s prior written consent.  Guarantor shall not change its legal name or
transact business under any other trade name without first giving 30 days’
prior written notice of its intent to do so to the Lender.

 

(d)                            The Collateral
and every part thereof is and shall be free and clear of all security
interests, liens (including, without limitation, mechanics’, laborers’ and
statutory liens), attachments, levies, and encumbrances of every kind, nature, and
description and whether voluntary or involuntary, except for the lien and
security interest of the Lender therein and other Permitted Liens.  To the extent it is commercially reasonable,
Guarantor shall warrant and defend the Collateral against any claims and
demands of all persons at any time claiming the same or any interest in the
Collateral adverse to the Lender.

 

(e)                             Guarantor will
promptly pay when due all taxes, assessments, and governmental charges and
levies upon or against it or its Collateral, in each case before the same
become delinquent and before penalties accrue thereon, unless and to the extent
that the same are being contested in good faith by appropriate proceedings
which prevent attachment of any lien resulting therefrom to, foreclosure on or
other realization upon any Collateral and preclude interference with the
operation of its business in the ordinary course and Guarantor shall have
established adequate reserves therefor.

 

(f)                              Guarantor
agrees it will not waste or destroy the Collateral or any part thereof and will
not be negligent in the care or use of any Collateral.  Guarantor agrees it will not use,
manufacture, sell or distribute any Collateral in violation of any statute,
ordinance or other governmental requirement. 
To the extent it is commercially reasonable, Guarantor will perform in
all material respects its obligations under any contract or other agreement
constituting part of the Collateral, it being understood and agreed that the
Lender has no responsibility to perform such obligations.

 

5

 

(g)                             Guarantor
agrees it will not, without the Lender’s prior written consent, sell, assign,
mortgage, lease, or otherwise dispose of the Collateral or any interest therein
except for (i) transactions in the ordinary course of business and (ii) transaction
in an aggregate amount not to exceed $100,000 in any given calendar year.

 

(h)                            Guarantor will
insure its Collateral consisting of tangible personal property against such
risks and hazards as other companies similarly situated insure against, and
including in any event loss or damage by fire, theft, burglary, pilferage, and
loss in transit, in amounts and under policies containing loss payable clauses
to the Lender as its interest may appear (and, if the Lender requests, naming
the Lender as additional insureds therein) by insurers reasonably acceptable to
the Lender.  All premiums on such
insurance shall be paid by Guarantor and the policies of such insurance (or
certificates therefor) delivered to the Lender. 
All insurance required hereby shall provide that any loss shall be
payable notwithstanding any act or negligence of Guarantor, shall provide that
no cancellation thereof shall be effective until at least 30 days after receipt
by Guarantor and the Lender of written notice thereof, and shall be reasonably
satisfactory to the Lender in all other respects.  In case of any material loss, damage to or
destruction of the Collateral or any part thereof, Guarantor shall promptly
give written notice thereof to the Lender generally describing the nature and
extent of such damage or destruction.  In
case of any loss, damage to or destruction of the Collateral or any part
thereof, the relevant Guarantor, whether or not the insurance proceeds, if any,
received on account of such damage or destruction shall be sufficient for that
purpose, at Guarantor’s cost and expense, will promptly repair or replace the
Collateral so lost, damaged or destroyed, except to the extent such Collateral
is not necessary to the conduct of Guarantor’s business in the ordinary course.
In the event Guarantor shall receive any proceeds of such insurance, Guarantor
shall immediately pay over such proceeds of insurance to Lender which will
thereafter be applied to the reduction of the Secured Obligations (whether or
not then due) or held as collateral security therefor, as the Lender may then
determine or as otherwise provided for in the Credit Agreement; provided,
however, that the Lender agrees to release such insurance proceeds to Guarantor
for replacement or restoration of the portion of the Collateral lost, damaged
or destroyed if, but only if, (i) at the time of release no Default or Event of
Default exists, (ii) written application for such release is received by the
Lender from Guarantor within 30 days of the receipt of such proceeds, and (iii)
the Lender has received evidence reasonably satisfactory to it that the
collateral lost, damaged or destroyed has been or will be replaced or restored
to its condition immediately prior to the loss, destruction or other event
giving rise to the payment of such insurance proceeds.  Guarantor hereby authorizes the Lender, at
the Lender’s option, to adjust, compromise, and settle any losses under any
insurance afforded at any time after the occurrence and during the continuation
of any Default or Event of Default, and Guarantor irrevocably designates the
Lender, its officers, Lenders, and attorneys, as Guarantor’s attorneys-in-fact,
with full power and authority after the occurrence and during the continuation
of any Default or Event of Default to effect such adjustment, compromise,
and/or settlement and to endorse any drafts drawn by an insurer of the
Collateral or any part thereof and to do everything necessary to carry out such
purposes and to receive and receipt for any unearned premiums due under
policies of such insurance.  Unless the 

 

6

 

Lender elects to adjust, compromise or settle losses as aforesaid, any
adjustment, compromise, and/or settlement of any losses under any insurance
shall be made by Guarantor subject to final approval of the Lender (regardless
of whether or not an Event of Default shall have occurred) in the case of
losses exceeding $[50,000].  All
insurance proceeds shall be subject to the lien and security interest of the
Lender hereunder.

 

UNLESS GUARANTOR PROVIDES THE LENDER WITH EVIDENCE OF THE INSURANCE
COVERAGE REQUIRED BY THIS AGREEMENT, THE LENDER MAY PURCHASE INSURANCE AT
GUARANTOR’S EXPENSE TO PROTECT THE LENDER’S INTERESTS IN THE COLLATERAL.  THIS INSURANCE MAY, BUT NEED NOT, PROTECT
GUARANTOR’S INTERESTS IN THE COLLATERAL. 
THE COVERAGE PURCHASED BY THE LENDER MAY NOT PAY ANY CLAIMS THAT
GUARANTOR MAKES OR ANY CLAIM THAT IS MADE AGAINST GUARANTOR IN CONNECTION WITH
THE COLLATERAL.  GUARANTOR MAY LATER
CANCEL ANY SUCH INSURANCE PURCHASED BY THE LENDER, BUT ONLY AFTER PROVIDING THE
LENDER WITH EVIDENCE THAT GUARANTOR HAS OBTAINED INSURANCE AS REQUIRED BY THIS
AGREEMENT.  IF THE LENDER PURCHASES
INSURANCE FOR THE COLLATERAL, GUARANTOR WILL BE RESPONSIBLE FOR THE COSTS OF
THAT INSURANCE, INCLUDING INTEREST AND ANY OTHER CHARGES THAT THE LENDER MAY IMPOSE
IN CONNECTION WITH THE PLACEMENT OF THE INSURANCE, UNTIL THE EFFECTIVE DATE OF
THE CANCELLATION OR EXPIRATION OF THE INSURANCE.  THE COSTS OF THE INSURANCE MAY BE ADDED TO
THE SECURED OBLIGATIONS SECURED HEREBY. 
THE COSTS OF THE INSURANCE MAY BE MORE THAN THE COST OF INSURANCE
GUARANTOR MAY BE ABLE TO OBTAIN ON ITS OWN.

 

(i)                                Guarantor will
at all times allow the Lender and their respective representatives free access
to and right of inspection of the Collateral at such reasonable times and
intervals as the Lender or any other Lender may designate and, in the absence
of any existing Default or Event of Default, with reasonable prior written
notice to Guarantor.

 

(j)                               If any
Collateral is in the possession or control of Guarantor or processors of
Guarantor and the Lender so requests, Guarantor agrees to notify such
processors in writing of the Lender’s lien and security interest therein and
instruct them to hold all such Collateral for the Lender’s account and subject
to the Lender’s instructions.  Guarantor
will, upon the request of the Lender, authorize and instruct all bailees and
any other parties, if any, at any time processing, labeling, packaging,
holding, storing, shipping or transferring all or any part of the Collateral to
permit the Lender and their respective representatives to examine and inspect
any of the Collateral then in such party’s possession and to verify from such
party’s own books and records any information concerning the Collateral or any
part thereof which the Lender or their respective representatives may seek to
verify.  As to any premises not owned by
Guarantor wherein any of the Collateral is located, if any, Guarantor shall,
upon the Lender’s request, cause each party having any right, title or interest
in, or lien on, any of such premises to enter

 

7

 

into an agreement (any such agreement to contain a legal description of
such premises) whereby such party disclaims any right, title, and interest in
and lien on the Collateral, allows the removal of such Collateral by the Lender
or representatives, and otherwise is in form and substance reasonably acceptable
to the Lender.

 

(k)                            Guarantor
agrees from time to time to deliver to the Lender such evidence of the
existence, identity, and location of its Collateral and of its availability as
collateral security pursuant hereto (including, without limitation, schedules
describing all Accounts created or acquired by Guarantor, copies of customer
invoices or the equivalent and original shipping or delivery receipts for all
merchandise and other goods sold or leased or services rendered by it, together
with Guarantor’s warranty of the genuineness thereof, and reports stating the
book value of its Inventory and Equipment by major category and location), in
each case as the Lender may reasonably request. 
The Lender shall have the right to verify all or any part of the
Collateral in any manner, and through any medium, which the Lender considers
appropriate and reasonable, and Guarantor agrees to furnish all assistance and
information, and perform any acts, which the Lender may require in connection
therewith.

 

(l)                                Guarantor will
comply in all material respects with the terms and conditions of any and all
leases, easements, right-of-way agreements, and other agreements binding upon
Guarantor or affecting the Collateral, in each case which cover the premises
wherein the Collateral is located, and any orders, ordinances, laws or statutes
of any city, state or other governmental entity, department or agency having
jurisdiction with respect to such premises or the conduct of business thereon.

 

(m)                        Schedule C attached
hereto contains a true, complete, and current listing of all patents,
trademarks, tradestyles, copyrights, and other intellectual property rights
(including all registrations and applications therefor) owned by Guarantor as
of the date hereof that are registered with any governmental authority.  Guarantor shall promptly notify the Lender in
writing of any additional intellectual property rights acquired or arising
after the date hereof, and shall submit to the Lender a supplement to Schedule
C to reflect such additional rights (provided Guarantor’s failure to do so
shall not impair the Lender’s security interest therein).  Guarantor owns or possesses rights to use all
franchises, licenses, patents, trademarks, trade names, tradestyles,
copyrights, and rights with respect to the foregoing which are required to
conduct its business and which do not infringe on the rights of any third
party.  No event has occurred which
permits, or after notice or lapse of time or both would permit, the revocation
or termination of any such rights, and Guarantor is not liable to any person
for infringement under applicable law with respect to any such rights as a
result of its business operations.

 

(n)                            Schedule E attached
hereto contains a true, complete and current listing of all Commercial Tort
Claims held by Guarantor as of the date hereof, each described by referring to
a specific incident giving rise to the claim.

 

(o)                            Guarantor
agrees to execute and deliver to the Lender such further agreements,
assignments, instruments, and documents, and to do all such other things, as

 

8

 

the Lender may reasonably deem necessary or appropriate to assure the
Lender its lien and security interest hereunder, including, without limitation,
(i) such financing statements or other instruments and documents as the Lender
may from time to time reasonably require to comply with the UCC and any other
applicable law, (ii) such agreements with respect to patents, trademarks,
copyrights, and similar intellectual property rights as the Lender may from
time to time reasonably require to comply with the filing requirements of the
United States Patent and Trademark Office and the United States Copyright
Office, and (iii) such control agreements with respect to Deposit Accounts, Investment
Property, Letter-of-Credit Rights, and electronic Chattel Paper, and to cause
the relevant depository institutions, financial intermediaries, and issuers to
execute and deliver such control agreements, as the Lender may from time to time
reasonably require.  Guarantor hereby
agrees that a carbon, photographic or other reproduction of this Agreement or
any such financing statement is sufficient for filing as a financing statement
by the Lender without notice thereof to Guarantor wherever the Lender in its
sole discretion desires to file the same. 
Guarantor hereby authorizes the Lender to file any and all financing
statements covering the Collateral or any part thereof as the Lender may
require, including financing statements describing the Collateral as “all
assets” or “all personal property” or words of like meaning.  The Lender may order lien searches from time
to time against Guarantor and the Collateral, and Guarantor shall promptly
reimburse the Lender for all reasonable costs and expenses incurred in
connection with such lien searches.  In
the event for any reason the law of any jurisdiction other than Delaware
becomes or is applicable to the Collateral or any part thereof, or to any of
the Secured Obligations, Guarantor agrees to execute and deliver all such
agreements, assignments, instruments, and documents and to do all such other
things as the Lender deems necessary or appropriate to preserve, protect, and
enforce the security interest of the Lender under the law of such other jurisdiction.  Guarantor agrees to mark its books and
records to reflect the lien and security interest of the Lender in the
Collateral.

 

(p)                            On failure of
Guarantor to perform any of the covenants and agreements herein contained, the
Lender may, at its option, perform the same and in so doing may expend such
sums as the Lender deems reasonably advisable in the performance thereof,
including, without limitation, the payment of any insurance premiums, the
payment of any taxes, liens, and encumbrances, expenditures made in defending
against any adverse claims to the extent commercially reasonable, and all other
reasonable expenditures which the Lender may be compelled to make by operation
of law or which the Lender may make by agreement or otherwise for the protection
of the security hereof.  All such sums
and amounts so expended shall be repayable by Guarantor upon demand, shall
constitute additional Secured Obligations secured hereunder, and shall bear
interest at the Default Rate.  No such
performance of any covenant or agreement by the Lender on behalf of Guarantor,
and no such advancement or expenditure therefor, shall relieve Guarantor of any
default under the terms of this Agreement or in any way obligate Lender to take
any further or future action with respect thereto.  The Lender, in making any payment hereby
authorized, may do so according to any bill, statement or estimate procured
from the appropriate public office or holder of the claim to be discharged
without inquiry into the accuracy of such bill, statement or estimate or into
the validity of

 

9

 

any tax assessment, sale, forfeiture, tax lien or title or claim.  The Lender, in performing any act hereunder,
shall be the sole judge of whether Guarantor is required to perform the same
under the terms of this Agreement.  The
Lender is hereby authorized to charge any account of Guarantor maintained with
Lender for the amount of such sums and amounts so expended.

 

Section 5.                  Special
Provisions Re: Accounts.  (a) As
of the time any Account owned by Guarantor becomes subject to the security
interest provided for hereby, and at all times thereafter, Guarantor shall be
deemed to have warranted as to each such Account that all warranties of
Guarantor set forth in this Agreement are true and correct with respect to such
Account; that such Account and all papers and documents relating thereto are
genuine and in all respects what they purport to be; that such Account is valid
and subsisting; that the amount of such Account represented as owing is the
correct amount actually and unconditionally owing, except for normal cash
discounts on normal trade terms in the ordinary course of business; that the
amount of such Account represented as owing is not disputed and is not subject
to any set-offs, credits, deductions or countercharges other than those arising
in the ordinary course of Guarantor’s business which are disclosed to the
Lender in writing promptly upon Guarantor becoming aware thereof; and, except
as disclosed to the Lender in writing at or prior to the time such Account is
created, that no surety bond was required or given in connection with such
Account or the contracts or purchase orders out of which the same arose.

 

(b)                                      If any Account
arises out of a contract with the United States of America, or any state or
political subdivision thereof, or any department, agency or instrumentality of
any of the foregoing, Guarantor agrees to promptly so notify the Lender and, at
the request of the Lender or the Lender, execute whatever instruments and
documents are required by the Lender in order that such Account shall be
assigned to the Lender and that proper notice of such assignment shall be given
under the federal Assignment of Claims Act (or any successor statute) or any similar
state or local statute, as the case may be.

 

(c)                                      Unless and
until an Event of Default has occurred and is continuing, any merchandise or
other goods which are returned by a customer or account debtor or otherwise
recovered may be resold by Guarantor in the ordinary course of its business as
presently conducted in accordance with Section 7(b) hereof; and, during the
existence of any Event of Default, such merchandise and other goods shall be
set aside at the request of the Lender and held by Guarantor as trustee for the
Lender and shall remain part of the Lender’ Collateral.  Unless and until an Event of Default has
occurred and is continuing, Guarantor may settle and adjust disputes and claims
with its customers and account debtors, handle returns and recoveries, and
grant discounts, credits, and allowances in the ordinary course of its business
as presently conducted for amounts and on terms which Guarantor in good faith
considers advisable; and, during the existence of any Event of Default, at the
Lender’s request, Guarantor shall notify the Lender promptly of all returns and
recoveries and, on the Lender’s request, deliver any such merchandise or other
goods to the Lender.  During the
existence of any Event of Default, at the Lender’s request, Guarantor shall
also notify the Lender promptly of all disputes and claims and settle or adjust
them at no expense to the Lender, but no discount, credit or allowance other
than on normal trade terms in the ordinary course of business as presently
conducted shall be granted to any customer or account debtor and no returns of
merchandise or other goods shall be

 

10

 

accepted by Guarantor without the Lender’s consent.  The Lender may, at all times during the
existence of any Event of Default, settle or adjust disputes and claims
directly with customers or account debtors for amounts and upon terms which the
Lender considers advisable.

 

(d)                                      To the extent
any Account or other item of Collateral is evidenced by an Instrument or
tangible Chattel Paper, Guarantor shall cause such Instrument or tangible
Chattel Paper to be pledged and delivered to the Lender; provided, however,
that, prior to the existence of a Default or Event of Default and thereafter
until otherwise required by the Lender, Guarantor shall not be required to
deliver any such Instrument or tangible Chattel Paper if and only so long as
the aggregate unpaid principal balance of all such Instruments and tangible
Chattel Paper held by Guarantor and not delivered to the Lender hereunder is
less than $25,000 at any one time outstanding. 
Unless delivered to the Lender, all tangible Chattel Paper and
Instruments shall contain a legend acceptable to the Lender indicating that such
Chattel Paper or Instrument is subject to the security interest of the Lender
contemplated by this Agreement.

 

Section 6. Collection of
Accounts.  (a) Except
as otherwise provided in this Agreement, Guarantor shall make collection of its
Accounts and may use the same to carry on its business in accordance with sound
business practice and otherwise subject to the terms hereof.

 

(b)                                      Upon the
occurrence of any Default or Event of Default, whether or not the Lender has
exercised any of its other rights under other provisions of this Section 6, in
the event the Lender requests Guarantor to do so:

 

(i)                                     all Instruments and tangible
Chattel Paper at any time constituting part of the Accounts (including any
postdated checks) shall, upon receipt by Guarantor, be immediately endorsed to
and deposited with Lender; and/or

 

(ii)                                  Guarantor shall instruct all
customers and account debtors to remit all payments in respect of Accounts or
any other Collateral to a lockbox or lockboxes under the sole custody and
control of the Lender and which are maintained at one or more post offices
selected by the Lender.

 

(c)                                      Upon the
occurrence and during the continuation of any Default or Event of Default,
whether or not the Lender has exercised any of its other rights under the other
provisions of this Section 6, the Lender or its designee may notify Guarantor’s
customers and account debtors at any time that Accounts have been assigned to
the Lender or of the Lender’s security interest therein, and either in its own
name, or Guarantor’s name, or both, demand, collect (including, without
limitation, through a lockbox analogous to that described in Section 6(b)(ii) hereof),
receive, receipt for, sue for, compound and give acquittance for any or all
amounts due or to become due on Accounts, and in the Lender’s discretion file
any claim or take any other action or proceeding which the Lender may deem
necessary or appropriate to protect and realize upon the security interest of
the Lender in the Accounts or any other Collateral.

 

(d)                                      Any proceeds of
Accounts or other Collateral transmitted to or otherwise received by the Lender
pursuant to any of the provisions of Sections 6(b) or 6(c) hereof may be
handled

 

11

 

and
administered by the Lender in and through a remittance account or accounts
maintained at the Lender or by the Lender at a commercial bank or banks
selected by the Lender (collectively the “Depositary Banks” and individually a “Depositary
Bank”), and Guarantor acknowledges that the maintenance of such remittance
accounts by the Lender is solely for the Lender’s convenience and that
Guarantor does not have any right, title or interest in such remittance
accounts or any amounts at any time standing to the credit thereof.  The Lender may, after the occurrence and
during the continuation of any Default or Event of Default, apply all or any
part of any proceeds of Accounts or other Collateral received by it from any
source to the payment of the Secured Obligations (whether or not then due and
payable), such applications to be made in such amounts, in such manner and
order, and at such intervals as the Lender may from time to time in its
discretion determine, but not less often than once each week.  The Lender need not apply or give credit for
any item included in proceeds of Accounts or other Collateral until the
Depositary Bank has received final payment therefor at its office in cash or
final solvent credits current at the site of deposit acceptable to the Lender
and the Depositary Bank as such. 
However, if the Lender does permit credit to be given for any item prior
to a Depositary Bank receiving final payment therefor and such Depositary Bank
fails to receive such final payment or an item is charged back to the Lender or
any Depositary Bank for any reason, the Lender may at its election in either
instance charge the amount of such item back against any such remittance
accounts or any Deposit Account of Guarantor subject to the lien and security
interest of this Agreement, together with interest thereon at the Default
Rate.  Concurrently with each
transmission of any proceeds of Accounts or other Collateral to any such
remittance account, upon the Lender’s request, Guarantor shall furnish the
Lender with a report in such form as Lender shall reasonably require
identifying the particular Account or such other Collateral from which the same
arises or relates.  Unless and until a
Default or an Event of Default has occurred and is continuing, the Lender will
release proceeds of Collateral which the Lender has not applied to the Secured
Obligations as provided above from the remittance account from time to time
after receipt thereof.  Guarantor hereby
indemnifies the Lender from and against all liabilities, damages, losses,
actions, claims, judgments, and all reasonable costs, expenses, charges, and
attorneys’ fees suffered or incurred by Lender because of the maintenance of
the foregoing arrangements; provided, however, that Guarantor shall not be
required to indemnify Lender for any of the foregoing to the extent they arise
solely from the gross negligence or willful misconduct of the person seeking to
be indemnified.  The Lender shall have no
liability or responsibility to Guarantor for the Lender or any Depositary Bank
accepting any check, draft or other order for payment of money bearing the
legend “payment in full” or words of similar import or any other restrictive
legend or endorsement whatsoever or be responsible for determining the
correctness of any remittance.

 

Section 7.              Special Provisions Re:  Inventory and Equipment.  (a) Guarantor shall at its own cost and
expense maintain, keep, and preserve its Inventory in good and merchantable
condition and keep and preserve its Equipment in good repair, working order,
and condition, ordinary wear and tear excepted, and, without limiting the
foregoing, make all necessary and proper repairs, replacements, and additions
to its Equipment so that the efficiency thereof shall be fully preserved and
maintained.

 

(b)             Guarantor may, until an Event of
Default has occurred and is continuing and thereafter until otherwise notified
by the Lender, use, consume, sell, and lease the Inventory in

 

12

 

the
ordinary course of its business, but a sale in the ordinary course of business
shall not under any circumstance include any transfer or sale in satisfaction,
partial or complete, of a debt owing by Guarantor.

 

(c)             Guarantor may, until an Event of
Default has occurred and is continuing and thereafter until otherwise notified
by the Lender, sell Equipment to the extent permitted by the Credit Agreement.

 

(d)             As of the time any Inventory or
Equipment of Guarantor becomes subject to the security interest provided for
hereby and at all times thereafter, Guarantor shall be deemed to have warranted
as to any and all of such Inventory and Equipment that all warranties of
Guarantor set forth in this Agreement are true and correct with respect to such
Inventory and Equipment; and that all of such Inventory and Equipment is
located at a location set forth pursuant to Section 4(b) hereof.  Guarantor warrants and agrees that none of
its Inventory is or will be consigned to any other person without the Lender’s
prior written consent.

 

(e)             Upon the Lender’s request,
Guarantor shall at its own cost and expense cause the lien of the Lender in and
to any portion of the Collateral subject to a certificate of title law to be
duly noted on such certificate of title or to be otherwise filed in such manner
as is prescribed by law in order to perfect such lien and will cause all such
certificates of title and evidences of lien to be deposited with the Lender.

 

(f)             Except for Equipment from time to
time located on the real estate described on Schedule D attached hereto or
as otherwise hereafter disclosed to the Lender and the Lender in writing, none
of the Equipment is or will be attached to real estate in such a manner that
the same may become a fixture.

 

(g)             If any of the Inventory is at any
time evidenced by a document of title, such document shall be promptly
delivered by Guarantor to the Lender.

 

Section 8.              Power of Attorney.  In addition to any other powers of attorney
contained herein, Guarantor hereby appoints the Lender, its nominee, or any
other person whom the Lender may designate as Guarantor’s attorney-in-fact,
with full power and authority upon the occurrence and during the continuation
of any Event of Default to sign Guarantor’s name on verifications of Accounts
and other Collateral; to send requests for verification of Collateral to
Guarantor’s customers, account debtors, and other obligors; to endorse
Guarantor’s name on any checks, notes, acceptances, money orders, drafts, and
any other forms of payment or security that may come into the Lender’s possession;
to endorse the Collateral in blank or to the order of the Lender or its
nominee; to sign Guarantor’s name on any invoice or bill of lading relating to
any Collateral, on claims to enforce collection of any Collateral, on notices
to and drafts against customers and account debtors and other obligors, on
schedules and assignments of Collateral, on notices of assignment and on public
records; to notify the post office authorities to change the address for
delivery of Guarantor’s mail to an address designated by the Lender; to
receive, open, and dispose of all mail addressed to Guarantor; and to do all
things necessary to carry out this Agreement. 
Guarantor hereby ratifies and approves all acts of any such attorney and
agrees that neither the Lender nor any such attorney will be liable for any
acts or omissions or for any

 

13

 

error
of judgment or mistake of fact or law other than such person’s gross negligence
or willful misconduct.  The foregoing
powers of attorney, being coupled with an interest, are irrevocable until the
Secured Obligations have been fully paid and satisfied and the commitments of
the Lenders to extend credit to or for the account of the Borrower under the
Credit Agreement have expired or otherwise terminated.

 

Section 9.              Defaults and Remedies.  (a) The occurrence of any event or the
existence of any condition specified as an “Event of Default” under the
Guaranty shall constitute an “Event of Default” hereunder.

 

(b)             Upon the occurrence and during the
continuation of any Event of Default, the Lender shall have, in addition to all
other rights provided herein or by law, the rights and remedies of a secured
party under the UCC (regardless of whether the UCC is the law of the
jurisdiction where the rights or remedies are asserted and regardless of
whether the UCC applies to the affected Collateral), and further the Lender
may, without demand and, to the extent permitted by applicable law, without
advertisement, notice, hearing or process of law, all of which Guarantor hereby
waives to the extent permitted by applicable law, at any time or times, sell
and deliver any or all Collateral held by or for it at public or private sale,
at any securities exchange or broker’s board or at the Lender’s office or
elsewhere, for cash, upon credit or otherwise, at such prices and upon such
terms as the Lender deems advisable, in its discretion.  In the exercise of any such remedies, the
Lender may sell the Collateral as a unit even though the sales price thereof
may be in excess of the amount remaining unpaid on the Secured
Obligations.  In addition to all other
sums due Lender hereunder, Guarantor shall pay the Lender all costs and
expenses incurred by the Lender, including reasonable attorneys’ fees and court
costs, in obtaining, liquidating or enforcing payment of Collateral or the
Secured Obligations or in the prosecution or defense of any action or
proceeding by or against Lender or Guarantor concerning any matter arising out
of or connected with this Agreement or the Collateral or the Secured
Obligations, including, without limitation, any of the foregoing arising in,
arising under or related to a case under the United States Bankruptcy Code (or
any successor statute).  Any requirement
of reasonable notice shall be met if such notice is personally served on or
mailed, postage prepaid, to Guarantor in accordance with Section 13(b) hereof
at least 10 days before the time of sale or other event giving rise to the
requirement of such notice; provided, however, no notification need be given to
Guarantor if Guarantor has signed, after an Event of Default hereunder has
occurred, a statement renouncing any right to notification of sale or other
intended disposition.  The Lender shall
not be obligated to make any sale or other disposition of the Collateral
regardless of notice having been given. 
Lender may be the purchaser at any such sale.  Guarantor hereby waives all of its rights of
redemption from any such sale.  The
Lender may postpone or cause the postponement of the sale of all or any portion
of the Collateral by announcement at the time and place of such sale, and such
sale may, without further notice, be made at the time and place to which the
sale was postponed or the Lender may further postpone such sale by announcement
made at such time and place.  The Lender
has no obligation to prepare the Collateral for sale.  The Lender may sell or otherwise dispose of
the Collateral without giving any warranties as to the Collateral or any part
thereof, including disclaimers of any warranties of title or the like, and
Guarantor acknowledges and agrees that the absence of such warranties shall not
render the disposition commercially unreasonable.

 

14

 

(c)             Without in any way limiting the
foregoing, upon the occurrence and during the continuation of any Event of
Default hereunder, in addition to all other rights provided herein or by law, (i) the
Lender shall have the right to take physical possession of any and all of the
Collateral and anything found therein, the right for that purpose to enter
without legal process any premises where the Collateral may be found (provided
such entry be done lawfully), and the right to maintain such possession on
Guarantor’s premises (Guarantor hereby agreeing, to the extent it may lawfully
do so, to lease such premises without cost or expense to the Lender or its
designee if the Lender so requests) or to remove the Collateral or any part
thereof to such other places as the Lender may desire, (ii) the Lender
shall have the right to direct any intermediary at any time holding any
Investment Property or other Collateral, or any issuer thereof, to deliver such
Collateral or any part thereof to the Lender and/or to liquidate such
Collateral or any part thereof and deliver the proceeds thereof to the Lender
(including, without limitation, the right to deliver a notice of control with
respect to any Collateral held in a securities account or commodities account
and deliver all entitlement orders with respect thereto), (iii) the Lender
shall have the right to exercise any and all rights with respect to all Deposit
Accounts of Guarantor, including, without limitation, the right to direct the
disposition of the funds in each Deposit Account and to collect, withdraw, and
receive all amounts due or to become due or payable thereunder, and
(iv) Guarantor shall, upon the Lender’s demand, promptly assemble the
Collateral and make it available to the Lender at a place reasonably designated
by the Lender.  If the Lender exercises
its right to take possession of the Collateral, Guarantor shall also at its
expense perform any and all other steps reasonably requested by the Lender to
preserve and protect the security interest hereby granted in the Collateral,
such as placing and maintaining signs indicating the security interest of the
Lender, appointing overseers for the Collateral and maintaining Collateral
records.

 

(d)             Without in any way limiting the
foregoing, Guarantor hereby grants to the Lender a royalty-free irrevocable
license and right to use all of Guarantor’s patents, patent applications,
patent licenses, trademarks, trademark registrations, trademark licenses, trade
names, trade styles, and similar intangibles in connection with any foreclosure
or other realization by the Lender or the Lender on all or any part of the
Collateral to the extent permitted by law. 
The license and right granted the Lender hereby shall be without any
royalty or fee or charge whatsoever.

 

(f)             The powers conferred upon the
Lender hereunder are solely to protect their interest in the Collateral and
shall not impose on them any duty to exercise such powers.  The Lender shall be deemed to have exercised
reasonable care in the custody and preservation of the Collateral in its
possession or control if such Collateral is accorded treatment substantially
equivalent to that which the Lender accords its own property, consisting of
similar type assets.  This Agreement
constitutes an assignment of rights only and not an assignment of any duties or
obligations of Guarantor in any way related to the Collateral, and the Lender
shall have no duty or obligation to discharge any such duty or obligation.  Neither Lender nor any party acting as
attorney for Lender shall be liable for any acts or omissions or for any error
of judgment or mistake of fact or law other than such person’s gross negligence
or willful misconduct.

 

(g)             Failure by the Lender to exercise
any right, remedy or option under this Agreement or any other agreement between
Guarantor and the Lender or provided by law, or delay by the

 

15

 

Lender
in exercising the same, shall not operate as a waiver; and no waiver shall be
effective unless it is in writing, signed by the party against whom such waiver
is sought to be enforced and then only to the extent specifically stated.  The rights and remedies of the Lender under
this Agreement shall be cumulative and not exclusive of any other right or
remedy which Lender may have.  For
purposes of this Agreement, an Event of Default shall be construed as
continuing after its occurrence until the same is waived in writing by the
Lender.

 

Section 10.               Application of Proceeds.  The proceeds and avails of the Collateral at
any time received by the Lender upon the occurrence and during the continuation
of any Event of Default shall, when received by the Lender in cash or its
equivalent, be applied by the Lender in reduction of, or held as collateral
security for, the Secured Obligations in accordance with the terms of the
Credit Agreement.  The Borrower shall
remain liable to the Lender for any deficiency. 
Any surplus remaining after the full payment and satisfaction of the
Secured Obligations shall be returned to the Borrower or to whomsoever the
Lender reasonably determines is lawfully entitled thereto.

 

Section 11.               Continuing Agreement.  This Agreement shall be a continuing
agreement in every respect and shall remain in full force and effect until all
of the Secured Obligations, both for principal and interest, have been fully
paid and satisfied and the commitments of the Lender to extend credit to or for
the account of the Borrower under the Credit Agreement have expired or
otherwise terminated.  Upon such
termination of this Agreement, the Lender shall, upon the request and at the
expense of Guarantor, forthwith release its liens and security interests
hereunder.

 

Section 12.               The Lender.  In acting under or by virtue of this
Agreement, the Lender shall be entitled to all the rights, authority,
privileges, and immunities provided in the Credit Agreement, all of which
provisions of said Credit Agreement are incorporated by reference herein with
the same force and effect as if set forth herein in their entirety.  The Lender hereby disclaims any
representation or warranty to the Lender or any other holders of the Secured
Obligations concerning the perfection of the liens and security interests
granted hereunder or in the value of any of the Collateral.

 

Section 13.               Miscellaneous.  (a) This Agreement cannot be changed or
terminated orally.  This Agreement shall
create a continuing lien on and security interest in the Collateral and shall
be binding upon Guarantor, its successors and assigns and shall inure, together
with the rights and remedies of the Lender hereunder, to the benefit of the
Lender and their successors and permitted assigns; provided, however, that
Guarantor may not assign its rights or delegate its duties hereunder without
the Lender’s prior written consent. 
Without limiting the generality of the foregoing, and subject to the
provisions of the Credit Agreement, Lender may assign or otherwise transfer any
indebtedness held by it secured by this Agreement to any other person, and such
other person shall thereupon become vested with all the benefits in respect
thereof granted to such Lender herein or otherwise.

 

(b)           Except as otherwise specified herein,
all notices hereunder shall be in writing (including, without limitation,
notice by telecopy) and shall be given to the relevant party at its address or
telecopier number set forth below (or, if no such address is set forth below,
at the

 

16

 

address
of Guarantor as shown on the records of the Lender), or such other address or
telecopier number as such party may hereafter specify by notice to the other
given by courier, by United States certified or registered mail, by telecopy or
by other telecommunication device capable of creating a written record of such
notice and its receipt.  Notices
hereunder shall be addressed:

 

	
  to
  Guarantor at:

  	
  to
  the Lender at

  
	
   

  	
   

  
	
  Advanced
  Life Sciences, Inc.

  	
  The
  Leaders Bank

  
	
  1440
  Davey Road

  	
  2001
  York Road

  
	
  Woodridge,
  Illinois 60517

  	
  Suite
  150

  
	
   

  	
  Oak
  Brook, Illinois 60523

  

 

Each
such notice, request or other communication shall be effective (i) if
given by telecopier, when such telecopy is transmitted to the telecopier number
specified in this Section and a confirmation of such telecopy has been
received by the sender, (ii) if given by mail, five (5) days after
such communication is deposited in the mail, certified or registered with
return receipt requested, addressed as aforesaid or (iii) if given by any
other means, when delivered at the addresses specified in this Section.

 

(c)             In the event and to the extent that
any provision hereof shall be deemed to be invalid or unenforceable by reason
of the operation of any law or by reason of the interpretation placed thereon
by any court, this Agreement shall to such extent be construed as not
containing such provision, but only as to such jurisdictions where such law or
interpretation is operative, and the invalidity or unenforceability of such
provision shall not affect the validity of any remaining provisions hereof, and
any and all other provisions hereof which are otherwise lawful and valid shall
remain in full force and effect.  Without
limiting the generality of the foregoing, in the event that this Agreement
shall be deemed to be invalid or otherwise unenforceable with respect to
Guarantor, such invalidity or unenforceability shall not affect the validity of
this Agreement with respect to Guarantor.

 

(d)             The lien and security interest
herein created and provided for stand as direct and primary security for the
Secured Obligations of the Guarantor arising under or otherwise relating to the
Guaranty as well as for the other Secured Obligations secured hereby.  No application of any sums received by the
Lender in respect of the Collateral or any disposition thereof to the reduction
of the Secured Obligations or any part thereof shall in any manner entitle
Guarantor to any right, title or interest in or to the Secured Obligations or
any collateral or security therefor, whether by subrogation or otherwise,
unless and until all Secured Obligations have been fully paid and satisfied and
all commitments to extend credit to or for the account of the Borrower under
the Credit Agreement have expired or otherwise terminated.  Guarantor acknowledges and agrees that the
lien and security interest hereby created and provided are absolute and
unconditional and shall not in any manner be affected or impaired by any acts
of omissions whatsoever of Lender or any other holder of any Secured
Obligations, and without limiting the generality of the foregoing, the lien and
security interest hereof shall not be impaired by any acceptance by Lender or
any other holder of any Secured Obligations of any other security for or
guarantors upon any of the Secured Obligations or by any failure, neglect or
omission on the part of Lender or any other holder of any of the Secured
Obligations to realize upon or protect any of

 

17

 

the
Secured Obligations or any collateral or security therefor.  The lien and security interest hereof shall
not in any manner be impaired or affected by (and the Lender, without notice to
anyone, are hereby authorized to make from time to time) any sale, pledge,
surrender, compromise, settlement, release, renewal, extension, indulgence,
alteration, substitution, exchange, change in, modification or disposition of
any of the Secured Obligations or of any collateral or security therefor, or of
any guaranty thereof, or of any instrument or agreement setting forth the terms
and conditions pertaining to any of the foregoing.  The Lender may at its discretion at any time
grant credit to the Borrower without notice to Guarantor in such amounts and on
such terms as the Lender may elect without in any manner impairing the lien and
security interest created and provided for. 
In order to realize hereon and to exercise the rights granted the Lender
hereunder and under applicable law, there shall be no obligation on the part of
Lender or any other holder of any Secured Obligations at any time to first
resort for payment to the Borrower or to any guaranty of the Secured Obligations
or any portion thereof or to resort to any other collateral, security,
property, liens or any other rights or remedies whatsoever, and the Lender
shall have the right to enforce this Agreement against Guarantor or its
Collateral irrespective of whether or not other proceedings or steps seeking
resort to or realization upon or from any of the foregoing are pending.

 

(e)             This Agreement may be executed in
any number of counterparts and by different parties hereto on separate
counterpart signature pages, each constituting an original, but all together
one and the same instrument.  Guarantor
acknowledges that this Agreement is and shall be effective upon its execution
and delivery by Guarantor to the Lender, and it shall not be necessary for the
Lender to execute this Agreement or any other acceptance hereof or otherwise to
signify or express its acceptance hereof.

 

(f)             This Agreement shall be deemed to
have been made in the State of Illinois and shall be governed by, and construed
in accordance with, the laws of Illinois. 
The headings in this Agreement are for convenience of reference only and
shall not limit or otherwise affect the meaning of any provision hereof.

 

(g)             Guarantor hereby submits to the
non-exclusive jurisdiction of the United States District Court for the Northern
District of Illinois and of any Illinois state court sitting in DuPage County
for purposes of all legal proceedings arising out of or relating to this
Agreement or the transactions contemplated hereby.  Guarantor irrevocably waives, to the fullest
extent permitted by law, any objection which it may now or hereafter have to
the laying of the venue of any such proceeding brought in such a court and any
claim that any such proceeding brought in such a court has been brought in an inconvenient
form.  Guarantor and, by accepting the
benefits of this Agreement, Lender hereby irrevocably waives any and all right
to trial by jury in any legal proceeding arising out of or relating to this
Agreement or the transactions contemplated hereby.

 

[SIGNATURE PAGES TO FOLLOW]

 

18

 

IN
WITNESS WHEREOF, Guarantor has caused this Security Agreement to be duly
executed and delivered as of the date first above written.

 

	
   

  	
  GUARANTOR

  
	
   

  	
   

  	
   

  
	
   

  	
  ADVANCED
  LIFE SCIENCES HOLDINGS, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  John L. Flavin

  
	
   

  	
   

  	
   

  
	
   

  	
  Its:

  	
  President
  and Chief Financial Officer

  
				

 

Accepted
and agreed to as of the date first above written.

 

 

	
   

  	
  THE
  LEADERS BANK

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  John Prosia

  
	
   

  	
   

  	
   

  
	
   

  	
  Its:

  	
  Executive
  Vice President

  

 

19

 

SCHEDULE A

 

LOCATIONS

 

1440
Davey Drive

Woodridge, Illinois 60517

 

Organizational
ID Number
                              

 

 

SCHEDULE B

 

OTHER NAMES

 

A.                                   PRIOR LEGAL
NAMES

 

None.

 

B.                                     TRADE NAMES

 

None.

 

 

SCHEDULE C

 

INTELLECTUAL PROPERTY RIGHTS

 

 

SCHEDULE D

 

REAL ESTATE LEGAL DESCRIPTIONS

 

None.

 

2

 

SCHEDULE E

 

COMMERCIAL TORT CLAIMS

 

[PLEASE PROVIDE LIST, IF ANY]

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