Exhibit 10.5
 
LILY GROUP INC.

 
SECURED DRAWDOWN PROMISSORY NOTE
 
Up to $5,000,000
February 26, 2013

 
FOR VALUE RECEIVED, the undersigned, Lily Group Inc., an Indiana corporation
(“Maker”), hereby promises to pay to the order of Solomon Oden Howell, Jr.,
James W. Stuckert, and Diane V. Stuckert, or their successors or assigns
(collectively, “Payee”), the unpaid principal balance of the Drawdowns (as
defined below), together with interest accrued thereon at the Applicable Rate
(as defined herein) from the date hereof until the date that this Secured
Promissory Note (this “Note”) is paid in full; provided, however, upon the
occurrence of an Event of Default (as defined below), then to the extent
permitted by law, Maker will pay interest to the Payee, payable on demand, on
the outstanding principal balance of the Note from the date of the Event of
Default until payment in full at the Default Rate (as defined herein).  All
payments on this Note shall be due and payable in lawful money of the United
States of America.
 
1. Definitions.
 
“Adjusted LIBOR Rate” means three and one-half percentage points (3.50%) in
excess of the LIBOR Base Rate.
 
“Applicable Rate” means a fluctuating per annum rate equal to the Adjusted LIBOR
Rate.
 
“Business Day” means a day (other than Saturday or Sunday) when commercial banks
in Dallas, Texas are open for conducting customary commercial banking
activities.
 
“Default Rate” means the lesser of the Maximum Rate and ten percent (10%) per
annum.
 
“Index Rate” means at any time the variable rate of interest published in The
Wall Street Journal’s “Money Rates” table as the prime rate.  If multiple prime
rates are quoted in the table, then the highest prime rate will be the Index
Rate.  In the event the prime rate is no longer published in the “Money Rates”
table, the Payee will choose a substitute index rate which is based upon
comparable information.  The “prime rate” is a rate set by banks based upon
various factors, including such banks’ costs and desired return, general
economic conditions and other factors, and is used as a reference point for
pricing some loans, which may be priced at, above, or below such announced rate.
 
“Interest Period” means a period of thirty (30) days corresponding with the
thirty (30) day LIBOR Reference Period commencing on the first Business day of
each calendar month, and continuing up to but excluding the date of the next
successive thirty (30) day LIBOR Reference Period.  Succeeding Interest Periods
shall commence on and include the day immediately following the expiration date
of the preceding Interest Period and shall continue up to but exclude the
beginning date of the next applicable Interest Period.
 
 
 
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“LIBOR Base Rate” refers to the London Interbank Offered Rate (“LIBOR”) for the
thirty (30) day LIBOR Reference Period as quoted on the Telerate Information
System.  Until Bank notifies Maker otherwise, the LIBOR will be the rate quoted
on the first Business Day of each Interest Period.  If LIBOR is no longer
published on the Telerate Information System, or in the event no such quotation
is available on such date, then the LIBOR Base Rate shall be LIBOR for the
thirty (30) day Libor Reference Period as quoted in The Wall Street Journal.  If
LIBOR is no longer published in The Wall Street Journal, or in the event no such
quotation is available on such date, then the LIBOR Base Rate shall be that rate
for an Interest Period at which U.S. dollars are offered by four major banks
(the “Reference Banks”) in the London Interbank market at approximately 11:00
a.m. London time, on the day that is two (2) Business Days preceding that
Interest Period (subject to availability of quotations, as set forth in the
first two sentences of this subsection (i)), to prime banks in the London
Interbank market, as determined by Payee, for a period equal to the LIBOR
Reference Period, and in a representative principal amount corresponding to the
Note.  Payee will request the principal London office of each of the Reference
Banks to provide a quotation of its rate.  If at least two such quotations are
provided, the rate for that Interest Period will be the arithmetic mean of the
quotations.  If fewer than two quotations are provided as requested, the rate
for that Interest Period will be the arithmetic mean of the rates quoted by
major banks in New York City, selected by Payee, at approximately 11:00 a.m. New
York City time, on that date for loans in U.S. dollars to leading European banks
for a period equal to the LIBOR Reference Period, and in a representative
principal amount corresponding to the Note.
 
“LIBOR Reference Period” is a period of thirty (30) days.
 
“Loan” means all amounts loan to Payee under this Note.
 
“Maturity Date” means the earlier of February 26, 2014, or such earlier date
upon which Payee demands payment in full of all unpaid principal under this Note
and accrued but unpaid interest thereon.
 
“Maximum Rate” means the maximum lawful rate as determined in accordance with
Section 13 hereof.
 
 “Note” means this Secured Drawdown Promissory Note.
 
2. Drawdowns.  Up to $5,000,000.00 of principal under this Note may be drawn
down from time to time prior to the Maturity Date (as defined below), upon
written request from Maker to Payee (each, a “Drawdown Request”), which Drawdown
Request must state: (i) the amount to be drawn down; and (ii) the purpose for
which the proceeds from such drawdown will be utilized.  If any such Drawdown
Request is approved by Payee (which approval shall be in Payee’s sole and
absolute discretion), Payee shall execute such Drawdown Request, and such
approved Drawdown Request shall be attached to this Note.  Within two (2)
Business Days (as defined below) after such approval, Payee shall fund such
approved Drawdown Request.  The proceeds of any approved Drawdown Request may
only be used for the purpose(s) set forth in such approved Drawdown Request.
Upon Payee funding a Drawdown Request, Maker will amend Schedule I to this
Agreement to reflect such drawdown (each, a “Drawdown”).  Upon execution of this
Note, Payee will fund an initial Drawdown as set forth on Schedule I.
 
 
 
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3. Principal and Interest Payments.
 
(a) Maker shall pay monthly payments of all accrued and unpaid interest on the
unpaid principal balance drawn down under this Note on the first (1st) day of
each month, commencing on March 1, 2013, and continuing on the first (1st) day
of each month thereafter, until the Maturity Date, computed at the Applicable
Rate.  All outstanding principal and accrued and unpaid interest on this Note
and all other amounts due with respect to the Note shall be due and payable on
the Maturity Date.
 
(b) Should any payment become due and payable on any day other than a Business
Day, the date of such payment shall be extended to the next succeeding Business
Day, and, in the case of a payment of principal or past due interest or any
installment of either thereof, interest shall accrue and be payable thereon for
the period of such extension at the applicable interest rate or rates specified
herein.  Each payment by Maker on account of the principal of or interest on
this Note or of any fee or other amount payable to Payee shall be made not later
than 11:00 a.m. (Dallas, Texas time) on the applicable due date (or if such day
is not a Business Day, the next succeeding Business Day).  Any payment made
after 11:00 a.m. (Dallas, Texas time) shall be credited on the next succeeding
Business Day.  All payments shall be made to Payee, in U.S. Dollars, in
immediately available funds and shall be made without any setoff, counterclaim
or deduction whatsoever.
 
(c) All payments of principal and interest that are past due shall, at the
option of Payee, bear interest at a per annum interest rate equal to the Default
Rate.  Maker agrees to pay interest on all amounts which Maker fails or refuses
to pay, following the applicable notice and cure period, if any, at the Default
Rate from the date due until paid.
 
(d) Except for purposes of computing the Maximum Rate, interest shall be
calculated on the basis of a 360-day year applied to the actual number of days
upon which principal is outstanding by multiplying the principal amount
outstanding hereunder by the applicable interest rate, multiplying the product
thereof by the actual number of days elapsed, and dividing the product so
obtained by three hundred sixty (360).
 
4. Intercreditor and Subordination Agreements.  Payee agrees to enter into
intercreditor and subordination agreements (the “Subordination Agreements”) from
time to time with Platinum Partners Credit Opportunities Master Fund LP
(“Platinum”), in which Platinum will subordinate payment of its note to the
highest outstanding amount due and payable under this Note (up to a maximum of
$5,000,000), as provided in such Subordination Agreements.
 
5. Security Agreement.  The payment of principal and interest on this Note, as
well as other amounts that may become due and payable under this Note, is
secured by all of the Equipment (as defined in the Security Agreement) of Maker
pursuant to that certain Security Agreement by and between Maker and Payee of
even date herewith (the “Security Agreement”).
 
 
 
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6. Prepayments.  Maker may at its sole option prepay all or any part of the
principal of this Note, or interest thereon, before maturity without penalty or
premium.  All such prepayments shall first be applied to accrued interest under
this Note, and the remaining balance of any such prepayments, if any, shall be
applied to principal of this Note.
 
7. Method of Payment.  All payments made under this Note, whether of principal
or interest, shall be made by Maker to Payee on the date specified or provided
herein and shall be delivered by means of certified or cashiers’ check or wire
transfer of immediately available funds to an account specified by the holder
hereof.  Whenever payment hereunder shall be due on a day which is not a
Business Day, the date for payment thereof shall be extended to the next
succeeding Business Day.  If the date for any payment is extended by operation
of law or otherwise, interest thereon shall be payable for such extended
time.  “Business Day” means every day which is not a Saturday, Sunday or legal
holiday in the State of Texas.
 
8. Events of Default.  The following shall constitute events of default (“Events
of Default”) hereunder:
 
(a) failure of Maker to make any payment on this Note as and when the same
becomes due and payable in accordance with the terms hereof and the continuance
of such failure for a period of five (5) days after written notice specifying
such default has been delivered to Maker by Payee;
 
(b) failure of Maker to perform any other covenant contained herein, if the same
has continued for thirty (30) days after written notice specifying such default
has been delivered to Maker by Payee;
 
(c) Maker (i) shall default in the payment of any of its obligations for
borrowed money other than under this Note, (ii) shall default in the performance
or observance of any other provision contained in any agreements or instruments
evidencing or governing any of its obligations for borrowed money and such
default is not waived and continues beyond any applicable cure period or (iii)
any other event or condition occurs which results in the acceleration of
obligations for borrowed money.
 
(d) if Maker makes an assignment for the benefit of creditors, or petitions or
applies for the appointment of a liquidator, receiver or custodian (or similar
official) of it or of any substantial part of its assets, or if Maker commences
any proceeding or case relating to it under the Bankruptcy Code or any other
bankruptcy, reorganization, arrangement, insolvency, readjustment of debt,
dissolution or liquidation or similar law of any jurisdiction, or takes any
action to authorize any of the foregoing; or
 
(e) if any petition or application of the type described in subparagraph (c)
immediately above is filed or if any such proceeding or case described in
subparagraph (c) is commenced against Maker and is not dismissed within sixty
(60) days, or if Maker indicates its approval thereof, consents thereto or
acquiesces therein, or if an order is entered appointing any such liquidator or
receiver or custodian (or similar official), or adjudicating Maker bankrupt or
insolvent, or approving a petition in any such proceeding, or if a decree or
order for relief is entered in respect of Maker in an involuntary case under the
Bankruptcy Code or any other bankruptcy, reorganization, arrangement,
insolvency, readjustment of debt, dissolution or liquidation or similar law of
any jurisdiction.
 
 
 
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In the event any one or more of the Events of Default specified above occurs and
is continuing, the holder of this Note may (i) accelerate the maturity of this
Note with notice to Maker at which time all such amounts shall be immediately
due and payable, (ii) proceed to protect and enforce its rights either by suit
in equity or by action at law, or by other appropriate proceedings, whether for
the specific performance of any covenant or agreement contained in this Note or
in aid of the exercise of any power or right granted by this Note, and/or (iii)
enforce any other legal or equitable right of the holder of this Note.
 
9. Delay or Omission Not Waiver.  No delay or omission on the part of the holder
of this Note in the exercise of any power, remedy or right under this Note, or
under any other instrument executed pursuant hereto, shall operate as a waiver
thereof, nor shall a single or partial exercise of any such power or right
preclude any other or further exercise thereof or the exercise of any other
right or power hereunder.
 
10. Waiver.  Any term, covenant, agreement or condition of this Note may, with
the written consent of Maker and Payee, be amended or compliance therewith may
be waived (either generally or in a particular instance and either retroactively
or prospectively), altered, modified or amended.
 
11. Attorneys’ Fees and Costs.  In the event an Event of Default shall occur,
and in the event that thereafter this Note is placed in the hands of an attorney
for collection, or in the event this Note is collected in whole or in part
through legal proceedings of any nature, then and in any such case Maker
promises to pay all costs of collection, including, but not limited to,
reasonable attorneys’ fees and court costs incurred by the holder hereof on
account of such collection, whether or not suit is filed.
 
12. Successors and Assigns.  All of the covenants, stipulations, promises and
agreements in this Note made by Maker and Payee shall bind its successors and
assigns, whether so expressed or not.
 
13. Maximum Lawful Rate. It is the intent of the Maker and holder of this Note
to conform to and contract in strict compliance with applicable usury law from
time to time in effect.  In no way, nor in any event or contingency (including
but not limited to prepayment, default, demand for payment, or acceleration of
the maturity of any obligation), shall the rate of interest taken, reserved,
contacted for, charged or received under this Note exceed the highest lawful
interest rate permitted under applicable law.  If the holder of this Note shall
ever receive anything of value which is characterized as interest under
applicable law and which would apart from this provision be in excess of the
highest lawful interest rate permitted under applicable law, an amount equal to
the amount which would have been excessive interest shall, without penalty, be
applied to the reduction of the principal amount owing on this Note in the
inverse order of its maturity and not to the payment of interest, or refunded to
Maker or the other payor thereof if and to the extent such amount which would
have been excessive exceeds such unpaid principal.  All interest paid or agreed
to be paid to the holder hereof shall, to the extent permitted by applicable
law, be amortized, prorated, allocated and spread throughout the full stated
term (including any renewal or extension) of this Note so that the amount of
interest on account of such obligation does not exceed the maximum permitted by
applicable law.  As used in this Section, the term “applicable law” shall mean
the laws of the State of Texas or the federal laws of the United States,
whichever laws allow the greater interest, as such laws now exist or may be
changed or amended or come into effect in the future.
 
 
 
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14. Governing Law; Venue.  This Note shall be governed by and construed in
accordance with the substantive laws (but not the rules governing conflicts of
laws) of the State of Texas.  Any and all disputes arising or relating to this
Note shall be adjudicated exclusively in Dallas, Texas.
 
15. Notice.  Any notice or demand given hereunder shall be deemed to have been
given and received (i) when actually received by the receiving party, if
delivered in person, by facsimile transmission (as evidenced by confirmation),
by e-mail or by overnight courier service, or (ii) if mailed, on the earlier of
the date actually received or (whether ever received or not) five Business Days
after a letter containing such notice, certified or registered, with postage
prepaid, addressed to the receiving party, is deposited in the United States
mail.  The address of: (i) Maker is 777 Main Street, Suite 3100, Fort Worth,
Texas 76102, Attn: P. Richard Risinger, rick@lilygroup.com; and (ii) the address
for Payee is, 103 North Court Street, Sullivan, Indiana 47882;
rick@lilygroup.com; in each case of (i) or (ii) above, or such other address as
either Maker or Payee shall advise the other by the procedure set forth above.
 
16. Severability.  In case any one or more of the provisions contained in this
Note shall for any reason be held to be invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability shall not affect any
other provision hereof.
 
 
 
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EXECUTED as of the date set forth above.
 

 

 
LILY GROUP INC.
 
 
By:  ________________________
 

 
Each of the undersigned execute this Note in order to acknowledge the
undersigned’s agreements and obligations set forth herein.
 

 
 
 
________________________
   Solomon Oden Howell, Jr.
     
________________________
   James W. Stuckert
     
________________________
   Diane V. Stuckert

 
 
 
 
 
Signature Page to Secured Drawdown Promissory Note
 
 
 
 

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SCHEDULE I
 

 
Date of Drawdown
Amount of Drawdown
February 26, 2013
$2,000,000

 
 
 
 

 
 
 

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