Stock Pledge to Secure Contract and Other Obligations PLEDGE AND SECURITY AGREEMENT THIS PLEDGE AND SECURITY AGREEMENT (this "Agreement") is made this ^ day of ^, 19^ by and among ^A.B.C., an individual residing in ^, Illinois ("^C"), ^D.E.F., an individual residing in ^, Illinois ("^F"), ^X.Y.Z., an individual residing in ^, Illinois ("^Z"), and ^ABC Inc., an Illinois corporation (the "Corporation"). EXPLANATORY STATEMENT A. ^Z is the record and beneficial owner of ^ shares of the Class A Common Stock, par value $1.00, of the Corporation (hereinafter sometimes referred to as the "^Z Shares"), represented by stock certificate numbers ^; A is the record owner of ^ shares of the Class B Common Stock, par value $1.00, of the Corporation, represented by stock certificate number ^; and ^F is the record owner of ^ shares of the Class B Common Stock, par value $1.00 of the Corporation, represented by stock certificate number ^ (all shares of the Class B Common Stock (or so many shares thereof that shall then be) owned of record by ^C and all shares of the Class B Common Stock (or so many shares thereof that shall then be) owned of record by ^F are sometimes hereinafter collectively referred to as the "^C^F Shares"); and the ^Z Shares and the ^C^F Shares represent all of the issued and outstanding capital stock of the Corporation. B. ^C is the registered owner of ^ debentures of the Corporation, being debenture numbers ^ to ^, inclusive, each in the principal amount of $^ and each of which bears interest at the rate of ^% per annum and is dated ^, 19^ (all of such debentures are hereinafter sometimes collectively referred to as the "Debentures"). C. ^C, ^F, ^Z, and the Corporation are parties to a certain Shareholders Agreement dated ^, 19^ (the "Shareholders Agreement"). D. ^Z is President of the Corporation; ^C is Secretary of the Corporation; and ^F is Treasurer of the Corporation. E. The Corporation wishes to make a loan in the principal amount of not more than ^ Dollars ($^) (the "Loan") from ^ ("^") under and pursuant to a certain commitment letter (the "Commitment") from ^ dated ^, 19^, addressed to ^Z as President of the Corporation. F. ^C, ^F and ^Z and the Corporation recite and acknowledge that certain disputes are outstanding between ^C, ^F and the Corporation, on the one hand, and ^Z, on the other hand, arising out of or in connection with ^Z's employment by the Corporation under a certain employment agreement (the "Employment Agreement") between ^Z and the Corporation dated ^, 19^, and the alleged breach by ^Z of fiduciary duties owed by ^Z to the Corporation and to ^C and ^F. G. Without any party hereto waiving, releasing, relinquishing, settling, compromising, prejudicing or otherwise affecting any now existing rights, obligations, duties or 2 liabilities to any other party hereto, but solely in order to induce the present forbearance by ^C and ^F from instituting litigation against ^Z and the Corporation, the parties desire to enter into this Agreement and to enter into a Purchase and Redemption Agreement (the "Purchase Agreement") of even date herewith providing, among other things, for the redemption of the Debentures and the purchase of the ^C^F Shares. NOW, THEREFORE, in consideration of the matters set forth in the Explanatory Statement and the mutual covenants, promises and agreements hereinafter set forth, the parties hereto hereby covenant and agree as follows: 1. Pledge (a) To secure the full, due and punctual payment and performance: (i) by the Corporation of the price to be paid for the ^C^F Shares under the Purchase Agreement (the "Purchase Price"); (ii) by ^Z and the Corporation of all of their other obligations and liabilities under and respecting the Purchase Agreement and this Agreement; and (iii) by ^Z of all other obligations and liabilities of ^Z to the Corporation under the Employment Agreement or otherwise, ^Z hereby grants to ^C and ^F (sometimes hereinafter referred to as the "Pledgees") a continuing security interest in and hereby pledges, hypothecates, sets over, assigns, transfers, conveys, and delivers, as security to secure such payment and performance: (x) the ^Z Shares and the certificates representing or evidencing the ^Z Shares, and all cash, securities, interest, dividends, rights and other property at any time and from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of the Shares; (y) all other property hereafter delivered to ^C or ^F in substitution for or in addition to any of the foregoing, all certificates and instruments representing or evidencing such other property and all cash, securities, interest, dividends, rights and other property at any time and from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all thereof; and (z) all proceeds of all of the foregoing (all such pledged shares, additional shares, certificates, instruments, cash, securities, interest, dividends, rights and other property being herein collectively called the "Collateral"); TO HAVE AND TO HOLD the Collateral, together with all rights, titles, interests, privileges and preferences appertaining or incidental thereto, unto the Pledges, their successors and assigns, FOREVER, subject, however, to the terms, covenants and conditions hereafter set forth. (b) The registered ownership of any or all of the Collateral may, at the option of the 3 Pledgees who are hereby authorized and empowered to take at any time such action as is necessary to do the same, be transferred on the books of the Corporation into the names of the Pledgees or their nominee or nominees as joint tenants, and, to accomplish such transfer, any or all of the stock certificates representing Collateral may, at the option of the Pledgees be delivered to the Corporation in exchange for the issuance and delivery to the Pledgees of one or more new stock certificates representing Collateral registered in the names of the Pledgees or their nominees. ^Z hereby designates and appoints ^C as his agent and attorney-in-fact to execute any and all instruments and documents in the name of ^Z and to do any and every act that ^Z might do in his own behalf in order to effectuate the change in registered ownership of any Collateral as contemplated by this Section 1. 2. Voting Rights In the event of the transfer of any or all of the Collateral as contemplated by Section 1 the Pledgees shall, upon the written request and the sole cost and expense of ^Z, execute a proxy or proxies, as the case may be, to ^Z to vote the shares included in the Collateral; provided, however, that such proxy or proxies shall be revocable, at the sole option of the Pledgees, in the event of a breach or default by ^Z of or under this Agreement or the Purchase Agreement, whereupon the Pledgees shall have the right to vote such shares on all matters. 3. Dividends Anything contained herein to the contrary notwithstanding, all cash dividends and other monies received by the Pledgees of any of the Collateral shall be applied by the Pledgees, as a credit against the unpaid balance of the Purchase Price. 4. Covenants of ^Z Until the full Purchase Price has been paid in accordance with the Purchase Agreement and all of the covenants, agreements, warranties, representations and conditions contained in the Purchase Agreement and this Agreement, and any and all other of ^Z's obligations and liabilities to the Corporation under the Employment Agreement have been fully performed, whichever shall last occur, ^Z hereby covenants and agrees that: (a) Without the prior consent of ^F, neither ^Z for or on behalf of the Corporation, nor the Corporation, shall: (i) advance or lend any sum of money to ^Z or any employee of the Corporation; (ii) purchase or sell any item of personal property the price or fair value of which is in excess of $^ in the aggregate; (iii) incur any expenditure or expense for advertisements, promotional activities, travel or entertainment; (iv) make any charitable contribution or pledge to any nonprofit or charitable organization; or (v) incur any expense or create any liability that would not be allowed as a 4 deduction by the Corporation for federal income tax purposes. (b) ^Z shall provide to the Pledgees: (i) calendar monthly profit and loss statements of the Corporation not later than the 10th day of each next-succeeding calendar month; and (ii) payroll records, accounts payable records, invoices and purchase records, cheek vouchers and any supporting documents relating to the foregoing, at such times as the Pledgees shall request. All fees and expenses of accountants, auditors or other persons in connection with the preparation of the foregoing statements and records shall be paid by the Corporation. (c) In addition to the statements and records referred to in the foregoing Subsection 4(b), ^Z shall provide to the Pledgees when available all monthly, quarterly and annual financial statements and reports regularly prepared by or for the Corporation, and shall assume that annual audited financial statements shall be prepared by ^ or such other accountants or shall be designated by the Pledgees. (d) ^Z shall cause the Corporation to maintain accurate records and books of account, in accordance with generally acceptable accounting principles, consistently applied throughout the periods included therein, and the Pledgees shall have the right to call at the Corporation's place or places of business at intervals to be determined by the Pledgees and without any hindrance or delay, to inspect, check and make extracts from the Corporation's books, records, ledgers, journals, orders, receipts, correspondence and other data. (e) ^Z shall cause the Corporation to maintain adequate insurance against loss or damage to all of its properties and assets, in such manner and to the extent to which like properties are so insured by others owning, operating or leasing properties of similar character, and in any event will maintain insurance deemed by the Pledgees to be adequate against loss or damage to all of its properties and assets and liability for damage to the person or property of others. (f) ^Z shall notify the Pledgees if at any time the Corporation changes the address of the office where it keeps its books and records, it being represented and warranted by ^Z to the Pledgees that on the date hereof, the Corporation's books and records are maintained at its principal place of business located at ^, Illinois. (g) ^Z shall cause the Corporation to maintain its corporate existence and to remain in good standing in Illinois and each other state in which it does business, comply and remain in compliance with all applicable laws, and to maintain its properties in good operating condition. (h) Without the prior written consent of the Pledgees, ^Z shall not permit the Corporation to: (i) assume, guarantee, endorse, or otherwise become liable in connection with the obligations of any person, entity, firm or corporation, except by endorsement of instruments for deposit or collection or similar transactions in the ordinary course of business; 5 (ii) declare or pay dividends on its capital stock; (iii) make loans or advances to any person, entity, firm or corporation; (iv) increase the aggregate compensation for services payable to the officers and directors of the Corporation in any fiscal year; (v) enter into or be a party to any merger or consolidation or sell or lease all or substantially all of its assets; (vi) factor or in any manner or for any purpose assign, transfer or pledge any of its future accounts or contract rights; (vii) mortgage, pledge, hypothecate or give or contract to give any security interest of any kind in, or permit to exist any lien or encumbrance against, any of its properties or assets, or sell or otherwise dispose of any of its assets of any kind except in the ordinary course of business; or (viii) issue any additional shares of capital stock or other securities. 6. Default Each of the following events shall be and shall constitute an event of default under this Agreement: (a) Any default in the full and punctual payment of any installment of the Purchase Price; or (b) Any default by ^Z under or breach by ^Z or the Corporation in the performance of any covenant, agreement, warranty, representation or condition contained in the Purchase Agreement or this Agreement; or (c) If ^Z or the Corporation shall: ^[Insert description of appropriate events.] 7. Remedies (a) Upon the occurrence of any one or more of the events of default described in Section 6 of this Agreement, then, anything contained herein or in the Purchase Agreement to the contrary notwithstanding, the Pledgees may, at their option and in their sole discretion, declare the unpaid balance of the Purchase Price immediately due and payable as fully and as completely as if said aggregate sums were originally agreed to be paid at such time, all without notice or demand, which are hereby expressly waived by ^Z and the Corporation. In addition, upon the occurrence of any one or more of such events of default, then, anything contained herein or in the Purchase Agreement to the contrary notwithstanding, the Pledgees may proceed to enforce payment of the Purchase Price, and any and all other obligations and liabilities secured by this Agreement, to exercise all rights and remedies with respect to the Collateral which the Pledgees have as secured parties under the Uniform Commercial Code and other applicable law, including but not limited to the sale or other disposition of all or any part of the Collateral. Further, upon the occurrence of any one or more of such events of 6 default, then, anything contained herein or in the Purchase Agreement to the contrary notwithstanding, the Pledgees shall have the right to purchase the shares included in the Collateral at a price equal to the shareholders' equity per share of such shares as reflected on the then-most recent audited or unaudited balance sheet of the Corporation and all of the parties hereto do expressly covenant and agree that any such purchase of the Collateral shall be, and be deemed to be, effected in good faith and in a commercially reasonable manner. The proceeds of any disposition of the Collateral other than a purchase of the Collateral by the Pledgees shall be applied first to the costs of collection plus court costs and attorneys' fees, and all rights to proceed against ^Z for any deficiency remaining after such sale or other disposition of the Collateral are hereby preserved. (b) In addition to and not in limitation of the remedies provided in Section 7(a) of this Agreement, upon the occurrence of any one or more events of default described in Section 6 of this Agreement which are deemed, in the absolute and sole discretion of the Pledgees, to be minor in nature, the Pledgees may cause such default to be cured by reducing the amount due to ^Z in the next cheek or draft from the Corporation as salary to ^Z and by paying over such amount directly to the Pledgees. Upon the occurrence of any one or more of the events of default described in Section 6 of this Agreement then, anything contained herein or in the Purchase Agreement to the contrary notwithstanding, ^Z shall vote all of the shares of the capital stock of the Corporation owned by him and pledged hereunder for the election or appointment of such officers of the Corporation as shall be designated in writing by the Pledgees, and the then existing officers of the Corporation shall immediately resign. 8. Return of Collateral Upon the payment and performance in full of all of the obligations and liabilities referred to in Subsection l(a), the Pledgees shall reassign and deliver (or cause to be reassigned and delivered) to ^Z or to such persons as ^Z shall designate, against receipt, such of the Collateral (if any) as shall not have been applied by the Pledgees pursuant to the terms hereof and shall still be held by the Pledgees hereunder, together with appropriate instruments of transfer and release. Any such reassignment shall be without recourse upon or representations or warranty by the Pledgees or either thereof and at the cost of ^Z. 9. Assignment This Agreement shall inure to the benefit of the Pledgees and their respective heirs, personal and/or legal representatives, and assigns, and shall bind ^Z, his heirs, personal and/or legal representatives, and assigns, provided, however, that ^Z shall not assign his obligations hereunder without the prior written consent of the Pledgees. 10. Invalidity The invalidity or unenforceability of any provision or provisions of this Agreement shall not affect or impair the validity of any other provision hereof. 11. Amendments This Agreement shall not be amended, modified, altered or changed except by an agreement in writing signed by the party against whom enforcement of the amendment, modification, alteration, or change shall be sought. 7 12. Waivers Waiver by the Pledgees of any of the covenants, agreements, warranties, representations, rights, remedies, and/or conditions herein shall not operate as a future waiver thereof or of any other covenant, agreement, warranty, representation, right, remedy and/or condition hereof. IN WITNESS WHEREOF, the parties hereto have set their hands and seals the day and year first above written. WITNESS: ___________________________________ ____________________________________ ^A.B.C. ___________________________________ ____________________________________ ^D.E.F. ___________________________________ ____________________________________ ^X.Y.Z. ATTEST: ^ABC Inc. ___________________________________ ____________________________________ ^, Secretary Its: ^