Document:

ex103.htm

Exhibit 10.3

 

LOAN AGREEMENT

 

This Loan Agreement, dated as of February 26, 2013 (this “Agreement”), is entered into by and among: VHGI Holdings, Inc., a Delaware corporation (“VHGI”);  Lily Group Inc., an Indiana corporation (“Lily”); Lily Group Holdings Company, an Indiana corporation (“LGHC”); Paul R. Risinger (“Risinger”); James W. Stuckert and Diane V. Stuckert (together, the “Stuckerts”); and Solomon Oden Howell, Jr. (“Howell” and, together with the Stuckerts, the “Lenders”). The Lenders, Risinger, VHGI, LGHC, and Lily are referred to collectively herein as the “Parties.”

 

RECITALS

 

A. Regions Bank (“Regions”) and the Lenders are parties to that certain Revolving Loan and Security Agreement of even date herewith (the “Regions Loan Agreement”), pursuant to which Regions is providing Lenders with a $6,000,000 revolving credit facility (the “Regions Loan”).

 

B. In connection with and as inducement for Regions to make the Regions Loan, each of Risinger and LGHC will enter into a Guaranty, the form of which is attached hereto as Exhibit A (the “Guarantees”), such that each of Risinger and LGHC will be liable for all obligations related to the “Indebtedness” (as defined in the Regions Loan Agreement related to the Regions Loan).

 

C. Lily is the “maker” and Lenders are the “payee” under that certain: (i) Secured Drawdown Promissory Note, of even date herewith, in the original principal amount of up to $5,000,000 (the “Secured Note”); and (ii) Drawdown Promissory Note, of even date herewith, in the principal amount of up to $1,000,000 (the “Secondary Note,” and, collectively with the Secured Note, the “Notes”), amounts under which will be loaned by Lenders out of the proceeds of the Regions Loan and, with respect to the Secured Note, secured, as provided for in that certain Security Agreement of even date herewith, by and between Lenders and Lily, a copy of which is attached hereto as Exhibit B (the “Security Agreement”), by a first priority lien on up to $5,000,000 of the Platinum Collateral (as defined below).

 

D. $500,000 of the proceeds of the Notes will be used to retire $500,000 of principal owed by Lily to Platinum Partners Credit Opportunities Master Fund LP (“Platinum”) under that certain Note Purchase Agreement, dated as of February 16, 2012, as amended (the “Platinum Loan Agreement”), in exchange for which Platinum will, among other things, release its first priority lien on the first $5,000,000 of the equipment portion of its collateral (excluding any fixtures that could be deemed Equipment) by which the Platinum Loan is secured (the “Platinum Collateral”).

 

E. An additional portion of the proceeds of the Drawdown Note will be used to pay all accrued but unpaid interest on, and the principal balance of, that certain Promissory Note, dated December 19, 2012, with Lily as “maker” and HEB Ventures, LLC as “payee” (the “HEB Ventures Note”).

 

 

  

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F. The Regions Loan Agreement, the Guaranty, the Notes, the Security Agreement, the Platinum Loan Agreement, and the Warrants (as defined below), together with all documents ancillary thereto, are referred to collectively herein as the “Transaction Documents,” with all transactions contemplated by or ancillary to the Transaction Documents being referred to collectively herein as the “Transactions.”

 

NOW, THEREFORE, in consideration of the foregoing and other good and valuable consideration, the parties hereto agree as follows:

 

1. Execution and Delivery of Transaction Documents.  Each of the Parties hereby agrees to enter into and consummate the Transactions on the terms and conditions set forth in the Transaction Documents.

 

2. Execution and Delivery of Warrants.  As consideration for the making of the loans under the Notes (or, in the case of Risinger, his entrance into the Guaranty), VHGI will issue and deliver to each Guarantor (other than Diane V. Stuckert) a Warrant, the form of which is attached hereto as Exhibit C.

 

3. Reimbursement.  In connection with the Regions Loan and the Guarantees, Risinger, Howell, and the Stuckerts will be responsible for certain obligations with respect to the Indebtedness (the “Joint and Several Claims”). Subject to the terms of this Agreement, each of (i) Rising, (ii) Howell, and (iii) jointly, the Stuckerts ((i), (ii), and (iii) each a “Responsible Party”), shall be liable for one-third of any Joint and Several Claim.  Within 30 days of receipt by one or more Responsible Parties (the “Reimbursing Responsible Parties”) of notice from one or both of the other Responsible Parties (the “Notifying Responsible Parties”) that the Notifying Responsible Parties have made or have become obligated to make a payment in respect of a Joint and Several Claim, each Reimbursing Responsible Party shall deliver to the Notifying Responsible Parties payment (a “Reimbursement”) in an amount equal to one-third of the amount of such Joint and Several Claim, subject to the exclusions set forth in Section 4 below (one-half of such Reimbursement to be delivered to each Notifying Responsible Party if there are two Notifying Responsible Parties with respect to a given Joint and Several Claim).

 

4. Responsibility for Certain Claims.  Notwithstanding any provision of this Agreement, no Responsible Party shall be entitled to any payment from any other Responsible Party with respect to a claim or liability relating to, arising or resulting from, or otherwise attributable to any of the following eventualities:

 

(a) A breach by such Responsible Party of any provision of a Guaranty or the Regions Loan Agreement; or

 

(b) Any Joint and Several Claim to the extent voluntarily settled or compromised by such Responsible Party without the consent of the other Responsible Parties;

 

and each Responsible Party agrees to pay any such claim or liability personally without any contribution from the other Responsible Parties hereunder.

 

 

  

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5. No Further Indebtedness.  Except for the Indebtedness evidenced by the Notes, Lily will not borrow any amounts from any Lender without the prior written approval of all Responsible Parties.

 

6. Subrogation.  If any of the Responsible Parties ever pay any of the Indebtedness, then such Responsible Parties shall be subrogated against Lily for such payments and Lily will reimburse such Responsible Parties for any such payments.

 

7. Miscellaneous.

 

(a)  All notices, demands and other communications to be given or delivered under or by reason of the provisions of this Agreement shall be in writing and shall be deemed to have been given (a) when personally delivered, (b) when transmitted via telecopy (or other facsimile device) to the number set out below or transmitted by electronic mail if the sender on the same day sends a confirming copy of such notice by a recognized overnight delivery service (charges prepaid), (c) the day following the day (except if not a Business Day then the next Business Day) on which the same has been delivered prepaid to a reputable national overnight air courier service or (d) the third Business Day following the day on which the same is sent by certified or registered mail, postage prepaid, in each case to the respective Parties, as applicable.

 

(b) This Agreement and all of the provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns, except that neither this Agreement nor any of the rights, interests or obligations of this Agreement may be assigned or delegated by any Party without the prior written consent of the other Parties.

 

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

 

(d) Any provision of this Agreement may be amended or waived only in a writing signed by all Parties.  No waiver of any provision of this Agreement or any breach or default thereof shall extend to or affect in any way any other provision or prior or subsequent breach or default.

 

(e) This Agreement may be executed in multiple counterparts, any one of which need not contain the signature of more than one party, but all such counterparts taken together shall constitute one and the same instrument.  Any executed counterpart signature page may be delivered by facsimile or electronic mail in portable document format and such signature page delivered by facsimile or electronic mail shall be deemed an original.

 

(f) All issues and questions concerning the transactions contemplated by this Agreement and the construction, validity, interpretation and enforceability of this Agreement and all litigation among the parties (whether grounded in contract, tort, equity, statute or law) shall be governed by, and construed in accordance with, the laws of the State of Texas, without giving effect to any choice of law or conflict of law rules or provisions (whether of the State of Texas or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of Texas.

 

[SIGNATURE PAGE FOLLOWS]

 

 

  

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

 

	 	
VHGI HOLDINGS, INC.

 

 

By:                                                                           

 

 

	 	  
	 	
LILY GROUP, INC.

 

 

By:                                                                         

	 	
 

 

                                                                         

Solomon Oden Howell, Jr.

	 	
 

 

                                                                         

Paul R. Risinger

	 	
 

 

                                                                         

James W. Stuckert

	 	
 

 

                                                                         

     Diane V. Stuckert

 

 

 

 

  

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EXHIBIT A

 

Form of Guaranty

 

[See attached document]

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  

A-1

  

 

EXHIBIT B

 

Form of Security Agreement

 

[See attached document]

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  

B-1

  

 

EXHIBIT C

 

Form of Warrant

 

[See attached document]

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  

C-1ex104.htm

Exhibit 10.4

 

SECURITY AGREEMENT

 

This Security Agreement, dated as of February 26, 2013 (this “Security Agreement”), is by and between (a) Lily Group Inc., an Indiana corporation (“Debtor”), and (b) Solomon Oden Howell, Jr., James W. Stuckert and Diane V. Stuckert (together, the “Secured Party”).

 

W I T N E S S E T H :

 

WHEREAS, Secured Party has agreed to loan Debtor up to $5,000,000 pursuant to the terms and provisions of that certain Secured Drawdown Promissory Note, of even date herewith, with Debtor as “maker” and Secured Party as “payee” (the “Secured Note”).

 

NOW, THEREFORE, in consideration of the premises and to induce Secured Party to accept the Secured Note, Debtor hereby agrees with Secured Party as follows:

 

1. Defined Terms.  As used herein, the following terms shall have the following meanings:

 

“Equipment” shall mean, with respect to Debtor, all of the equipment of Debtor as the term “Equipment” is defined in the UCC, including, but not limited to the equipment listed on Exhibit A attached hereto, but excluding any fixtures that could deemed Equipment.

 

“Obligations” means all sums payable under the Secured Note, and any substitutions, extensions, renewals and re-amortization of the Secured Note.

 

“Proceeds” has the meaning assigned in the UCC.

 

“UCC” means the Uniform Commercial Code as from time to time in effect in the State of Indiana.

 

2. Grant of Security Interest.  As collateral security for the prompt and complete payment and performance when due (whether at the stated maturity, by acceleration or otherwise) of the Obligations, Debtor hereby grants to Secured Party a security interest in the Equipment, together with all accessions, substitutions, replacements, betterments, Proceeds and products thereof (collectively, the “Collateral”).  This Security Agreement shall be deemed terminated upon full payment of the Obligations.

 

3. Covenants.  Debtor covenants and agrees with Secured Party that, from and after the date of this Security Agreement until the Obligations are paid in full:

 

(a) Additional Documents; Pledge of Instruments.  Debtor agrees to promptly and duly execute and deliver all such other and further documents, agreements and instruments and take such further action as Secured Party may reasonably request for the purpose of obtaining or preserving the full benefits of this Security Agreement and of the rights and powers herein granted, including, without limitation, the filing of any financing or continuation statements under the UCC in effect in any jurisdiction with respect to the liens created hereby.  Debtor also hereby authorizes Secured Party to file any such financing or continuation statement without the signature of Debtor to the extent permitted by applicable law. A carbon, photographic or other reproduction of this Security Agreement shall be sufficient as a financing statement for filing in any jurisdiction.

 

 

  

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(b) Maintenance of Records.  Debtor will keep and maintain at its own cost and expense satisfactory and complete records of the Collateral.  Debtor will mark its books and records pertaining to the Collateral to evidence this Security Agreement and the security interests granted hereby.  For the further security of Secured Party, Secured Party shall have a security interest in all of Debtor’s books and records pertaining to the Collateral (the “Collateral Records”), and Debtor shall turn over the Collateral Records to Secured Party or to its representatives for inspection during normal business hours at the request of Secured Party.

 

(c) Limitation on Liens on Collateral/Subordination Agreements.  Debtor will not create, assume or permit to exist, will defend the Collateral against, and will take such other action as is necessary to remove, any lien or claim on or to the Collateral, and will defend the right, title and interest of Secured Party in and to any of the Collateral against the claims and demands of all persons whomsoever.

 

(d) Notices.  Debtor will advise Secured Party promptly, in reasonable detail, (i) of any lien (other than liens created hereby) on, or claim asserted against, any of the Collateral other than permitted encumbrances and (ii) of the occurrence of any other event which could reasonably be expected to have a material adverse effect on the aggregate value of the Collateral hereunder.

 

(e) Insurance.  Debtor shall maintain insurance on the Equipment in amounts customary for the industry in which it does business and shall make Secured Party an additional insured under all such insurance policies.

 

4. Debtor’s Appointment as Attorney-in-Fact.

 

(a) Powers.  Debtor hereby irrevocably constitutes and appoints Secured Party and any officer or agent thereof, with full power of substitution, as its true and lawful attorney-in-fact with full irrevocable power and authority in the place and stead of Debtor and in the name of Debtor or in its own name, from time to time in Secured Party’s discretion, for the purpose of carrying out the terms of this Security Agreement, to take any and all appropriate action and to execute any and all documents and instruments which may be necessary or desirable to accomplish the purposes of this Security Agreement.  Debtor hereby ratifies all that said attorneys shall lawfully do or cause to be done by virtue hereof.  This power of attorney is coupled with an interest and shall be irrevocable until the Obligations shall have been paid in full or this Security Agreement shall have been terminated.

 

(b) No Duty on the Part of Secured Party.  The powers conferred on Secured Party hereunder are solely to protect the interests of Secured Party in the Collateral and shall not impose any duty upon Secured Party to exercise any such powers.  Secured Party shall be accountable only for amounts that they actually receive as a result of the exercise of such powers, and neither it nor any of its officers, directors, employees or agents shall be responsible to Debtor for any act or failure to act hereunder, except for its own gross negligence or willful misconduct.

 

 

  

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5. Performance by Secured Party of Debtor’s Obligations.  If Debtor fails to perform or comply with any of its agreements contained herein and Secured Party, as provided for by the terms of this Security Agreement, shall itself perform or comply, or otherwise cause performance or compliance, with such agreement, the expenses of Secured Party incurred in connection with such performance or compliance, together with interest thereon at the maximum lawful rate, shall be payable by Debtor to Secured Party on demand and shall constitute obligations secured hereby.

 

6. Remedies.  If an Event of Default (as defined in the Secured Note) occurs, then Secured Party may exercise, in addition to all other rights and remedies granted to it in this Security Agreement and in any other instrument or agreement securing, evidencing or relating to the Obligations, all rights and remedies of a secured party under the UCC.

 

7. No Waiver by Secured Party, Etc.  Secured Party shall not be deemed to have waived any of its rights or remedies in respect of the Obligations or the Collateral unless such waiver shall be in writing and signed by Secured Party.  No delay or omission on the part of Secured Party in exercising any right or remedy shall operate as a waiver of such right or remedy or any other right or remedy.  A waiver on any one occasion shall not be construed as a bar to or waiver of any right or remedy on any future occasion.  All rights and remedies of Secured Party with respect to the Obligations or the Collateral, whether evidenced hereby or by any other instrument or papers, shall be cumulative and may be exercised singularly, alternatively, successively or concurrently at such time or at such times as Secured Party deem expedient.

 

8. Powers Coupled with an Interest.  All authorizations and agencies herein contained with respect to the Collateral are irrevocable and powers coupled with an interest.

 

9. Severability.  Any provision of this Security Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.

 

10. Paragraph Headings.  The paragraph headings used in this Security Agreement are for convenience of reference only and are not to affect the construction hereof or be taken into consideration in the interpretation hereof.

 

11. No Waiver; Cumulative Remedies.  No failure to exercise, nor any delay in exercising, on the part of Secured Party, any right, power or privilege hereunder shall operate as a waiver thereof.  No single or partial exercise of any right, power or privilege hereunder shall preclude any other or further exercise thereof or the exercise of any other right, power or privilege.  A waiver by Secured Party of any right or remedy hereunder on any one occasion shall not be construed as a bar to any right or remedy which Secured Party would otherwise have on any future occasion.  The rights and remedies herein provided are cumulative, may be exercised singly or concurrently and are not exclusive of any rights or remedies provided by law or in any of the other loan documents.

 

 

  

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12. Waivers and Amendments; Successors and Assigns.  None of the terms or provisions of this Security Agreement may be waived, amended, supplemented or otherwise modified, altered or amended except by a written instrument executed by Debtor and Secured Party.  This Security Agreement shall be binding upon the successors and assigns of Debtor and shall inure to the benefit of Secured Party and its successors and assigns.

 

13. Choice of Law.  THIS SECURITY AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS.

 

14. Notices.  All notices and other communications given to or made upon any party hereto in connection with this Security Agreement shall, except as otherwise expressly herein provided, be in writing (including telecopy, but in such case, a confirming copy will be sent by another permitted means) and mailed via certified mail, telecopied or delivered by guaranteed overnight parcel express service or courier to the respective parties, as follows: (i) if to Maker: 777 Main Street, Suite 3100, Fort Worth, Texas 76102; rick@lilygroup.com; (ii) if to Secured Party: Lily Group Inc., 103 North Court Street, Sullivan, Indiana 47882, Attn: Chief Executive Officer, rick@lilygroup.com .  Debtor or Secured Party may change its address by giving written notice to the other party hereto in accordance with this Section of such change.

 

15. Counterparts.  This Security Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original, but all of which shall constitute one and the same instrument, and in making proof of this Security Agreement it shall not be necessary to produce or account for more than one such counterpart.

 

 

[SIGNATURE PAGE FOLLOWS]

 

 

  

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IN WITNESS WHEREOF, Debtor and Secured Party have caused this Security Agreement to be duly executed and delivered as of the date first above written.

 

 

	 	
 
DEBTOR:

 

 

LILY GROUP, INC.

 

 

 

By:  _____________________________

 

 

 

	 	

SECURED PARTY:

 

 

_____________________________

  Solomon Oden Howell, Jr.

 

	 	  
	 	
_____________________________

  James W. Stuckert

	 	  
	 	  
	 	
_____________________________

  Diane V. Stuckert

 

 

 

 

  

  

  

 

Exhibit A

 

Equipment

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