Exhibit 10.2
SECOND AMENDMENT TO LOAN AGREEMENT
     THIS SECOND AMENDMENT TO LOAN AGREEMENT is made as of July 21, 2006 (this
“Second Amendment”) by and among THE HILLMAN COMPANIES, INC., (“Holdings”),
HILLMAN INVESTMENT COMPANY (“Intermediate Holdings”), THE HILLMAN GROUP, INC.
(the “Borrower”), ALLIED CAPITAL CORPORATION (“Allied Capital”), and MERRILL
LYNCH CAPITAL CORPORATION, its successors and assigns (“Merrill Lynch” and,
together with Allied Capital, the “Lenders”).
     WHEREAS, Holdings, Intermediate Holdings, the Borrower, and Allied Capital
are parties to a Loan Agreement dated as of March 31, 2004, as amended (the
“Loan Agreement”);
     WHEREAS, pursuant to that certain Assignment and Assumption Agreement dated
as of April 12, 2004, by and among Borrower, Allied Capital and Merrill Lynch
(the “Assignment Agreement”), Allied Capital sold and assigned to Merrill Lynch
a portion of the Subordinated Debt evidenced by the Subordinated Debentures in
favor of Allied Capital (the “Assigned Interest”) and all rights and obligations
of Allied Capital under the Loan Agreement with respect to such portion of the
Assigned Interest on the terms and subject to the conditions set forth in the
Assignment Agreement, and Merrill Lynch accepted the assignment of such rights
and assumed such obligations from Allied Capital on such terms and subject to
such conditions;
     WHEREAS, Holdings, Intermediate Holdings and the Borrower have requested
that the Lenders agree to certain amendments to the Loan Agreement, and the
Lenders have agreed, subject to the terms and conditions set forth herein, to
amend the Loan Agreement as herein provided;
     WHEREAS, the Borrower has issued Subordinated Debentures in favor of each
of Allied Capital and Merrill Lynch; and
     WHEREAS, the Borrower has requested that the Lenders agree to certain
amendments to the Loan Agreement and the Subordinated Debentures as herein
provided. Accordingly, Holdings, Intermediate Holdings, the Borrower and the
Lenders agree as follows:
ARTICLE I
DEFINITIONS
     1. Definitions. Unless otherwise defined herein, capitalized terms defined
in the Loan Agreement have the same meanings when used in this Second Amendment.
ARTICLE II
AMENDMENTS TO THE LOAN AGREEMENT
     1. Article I of the Loan Agreement is hereby revised to include the
following new definition:
     ““Second Amendment” means the Second Amendment to Loan Agreement dated
July 21, 2006 between Holdings, Intermediate Holdings, the Borrower and the
Lenders.”

 

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     2. The definition of Senior Debt contained in Article I of the Loan
Agreement is hereby revised such that the reference to “$300,000,000” contained
therein shall become “$317,500,000”.
     3. Section 2.06 of the Loan Agreement is hereby amended to include a new
Section 2.06(c) as follows:
     “(c) Notwithstanding anything to the contrary contained herein, the
Borrower shall have no obligation to pay the Repayment Charge in connection with
any prepayment of the Subordinated Debentures occurring upon a Change of Control
as provided in Section 2.07 below.”
     4. Section 2.07 of the Loan Agreement is hereby deleted in its entirety and
replaced with the following:
     “Section 2.07 Mandatory Prepayment. The Borrower’s obligations under the
Subordinated Debentures and this Agreement are not assumable. Subject to the
Subordination Agreement, upon (a) a Change of Control, or (b) the sale or
disposition by the Sponsor Group of Equity Interests of Holdings or Intermediate
Holdings with a value of $35,000,000 or more in aggregate, each Lender shall
have the right (but not the obligation) to require the Borrower to: (i) prepay
all or any portion of the Subordinated Debentures held by such Lender for an
amount equal to the then outstanding principal balance, all accrued but unpaid
interest thereon, plus all PIK Amounts and, in the case of a prepayment required
under clause (b) above, 50% of any Repayment Charge computed in accordance with
Section 2.06(a), provided that any prepayment under this Section 2.07 that
occurs prior to the 18 month anniversary of the date hereof shall be subject to
a Repayment Charge equal to 6.0% of any principal prepaid (excluding any PIK
Amount); and (ii) pay in full a corresponding portion of the other Obligations
owing to such Lender, which amount shall be calculated on the date of prepayment
and be payable in cash on such date. On the date of prepayment, the Borrower
shall pay to the Lenders of the Subordinated Debentures being prepaid pursuant
to this Section 2.07, the price specified above, by wire transfer of immediately
available funds to an account designated by such Lender. Concurrently therewith,
each Lender of Subordinated Debentures being prepaid in full shall deliver to
the Borrower the original copy of its Subordinated Debenture or an affidavit of
loss thereof in a form that is reasonably satisfactory to the Borrower. Any
offer made by the Borrower pursuant to this Section 2.07 shall be irrevocable so
long as the Change of Control occurs.”
     5. Section 7.17(a) of the Loan Agreement is hereby deleted in its entirety
and replaced with the following:
     “(a) Leverage Ratio. The Leverage Ratio as of the last day of the most
recently ended fiscal quarter of Holdings ending on the last day of any calendar
quarter ending during any period described below will not be greater than the
ratio set forth below opposite the period during which such calendar quarter
ends:

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          Calendar Quarters Ended During   Ratio
Closing Date through 3/31/05
    5.64 to 1.0  
4/1/05 through 9/30/05
    5.46 to 1.0  
10/01/05 through 3/31/06
    5.18 to 1.0  
4/01/06 through 9/30/06
    5.14 to 1.0  
10/01/06 through 6/30/07
    4.85 to 1.0  
7/01/07 through 6/30/08
    4.56 to 1.0  
1/01/09 through 12/31/09
    3.70 to 1.0  
1/01/10 through 12/31/10
    3.13 to 1.0  
1/01/11 and thereafter
    2.84 to 1.0  

     6. Section 7.17(b) of the Loan Agreement is hereby deleted in its entirety
and replaced with the following:
          “(b) Interest Coverage Ratio. The Interest Coverage Ratio as of the
last day of the most recently ended fiscal quarter of Holdings and its
Consolidated Subsidiaries ending on or about the last day of any calendar
quarter ending during any period described below, in each case for the period of
four consecutive fiscal quarters of the Borrower and its Consolidated
Subsidiaries then ended, taken as a single accounting period, will not be less
than the ratio set forth below opposite the period during which such calendar
quarter ends:

      Calendar Quarters Ended During   Ratio
Closing Date through 12/31/05
1/01/06 and thereafter
  3.10 to 1.0
2.25 to 1.0

ARTICLE III
CONDITIONS TO EFFECTIVENESS
          Section 3.01 Conditions to Effectiveness of this Second Amendment.
This Second Amendment, and the amendments contained herein, shall become
effective as of May 15, 2006 on the date (the “Second Amendment Effective Date”)
when each of the following conditions precedent have been fulfilled to the
reasonable satisfaction of the Lenders:
          (a) Execution and Delivery of this Second Amendment. The Lenders shall
have received counterparts of this Second Amendment duly executed by Holdings,
Intermediate Holdings and the Borrower.
          (b) Execution of Allonge. The Lenders shall have received the Allonges
to the Subordinated Debentures, duly executed by the Borrower in the form
attached hereto as Exhibit A.

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          (c) Execution of First Amendment to Subordination Agreement. All
parties to the Subordination Agreement other than the Lenders shall have
executed and delivered to Lenders the First Amendment to Subordination
Agreement, in the form attached hereto as Exhibit B.
          (d) Acknowledgement. The Lenders shall have received counterparts of
an Acknowledgement and Agreement, substantially in the form of Exhibit C hereto,
duly executed by each of the Guarantors (other than Holdings, Intermediate
Holdings and the Borrower) who are or are required by the Loan Agreement to be
Credit Parties.
          (e) Fees. The Lenders shall have received full payment from the
Borrower of its fees and expenses described in Section 5.05 of this Second
Amendment which are billed through the Second Amendment Effective Date.
          (f) Other. The Lenders shall have received such other documents,
instruments, agreements or information as may be reasonably requested by the
Lenders.
          Section 3.02 General Conditions. All corporate and legal proceedings
relating to the transactions contemplated by this Second Amendment or in the
Acknowledgement and Agreement shall be reasonably satisfactory in form and
substance to the Lenders and their counsel, and the Lenders shall have received
copies of all corporate proceedings, which the Lenders may reasonably have
requested, such records where appropriate to be certified by the Responsible
Officer. The documents referred to in this Section 3.02 shall be delivered to
the Lenders no later than the Second Amendment Effective Date.
          Section 3.03 Effects of this Second Amendment.
          (a) On the Second Amendment Effective Date, the Loan Agreement will be
automatically amended to reflect the amendments thereto provided for in this
Second Amendment. On and after the Second Amendment Effective Date, the rights
and obligations of the parties hereto shall be governed by the Loan Agreement,
as amended by this Second Amendment. Once the Second Amendment Effective Date
has occurred, all references to the Loan Agreement in any document, instrument,
agreement, or writing shall be deemed to refer to the Loan Agreement as amended
by this Second Amendment. Promptly after the Second Amendment Effective Date
occurs, the Lenders shall notify the Borrowers and the Lenders of the Second
Amendment Effective Date, and such notice shall be conclusive and binding on all
parties hereto.
          (b) Other than as specifically provided herein, this Second Amendment
shall not operate as a waiver amendment of any right, power or privilege of any
Lender under the Loan Agreement or any other Subordinated Debentures Document or
of any other term or condition of the Loan Agreement or any other Subordinated
Debentures Document, nor shall the entering into of this Second Amendment
preclude any Lender from refusing to enter into any further waivers or
amendments with respect thereto. This Second Amendment is not intended by any of
the parties hereto to be interpreted as a course of dealing which would in any
way impair the rights or remedies of any Lender except as expressly stated
herein, and no Lender shall have any obligation to extend credit to the
Borrowers other than pursuant to the strict terms of the Loan Agreement and the
other Subordinated Debentures Documents, as amended or supplemented to date
(including by means of this Second Amendment).

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ARTICLE IV
REPRESENTATIONS AND WARRANTIES
          Section 4.01 Representations and Warranties. In order to induce the
Lenders to consent to the amendments and waivers contained herein and to enter
into this Second Amendment, each of Holdings, Intermediate Holdings and the
Borrower represents and warrants as set forth below:
          (a) Each of Holdings, Intermediate Holdings and the Borrower reaffirms
as of the Second Amendment Effective Date its covenants and agreements contained
in the Loan Agreement and each other Subordinated Debentures Document to which
it is a party, including, in each case, as such covenants and agreements may be
modified by this Second Amendment on the Second Amendment Effective Date. Each
of Holdings, Intermediate Holdings and the Borrower further confirms that each
such Subordinated Debentures Document to which it is a party is, and shall
continue to be, in full force and effect, and the same are hereby ratified,
approved and confirmed in all respects, except as the Loan Agreement may be
modified by this Second Amendment.
          (b) Both immediately before and immediately after giving effect to
this Second Amendment, the representations and warranties set forth in Article V
of the Loan Agreement and each other Subordinated Debentures Document are, in
each case, true and correct in all material respects (or in all respects in the
case of such representations or warranties containing materiality qualifiers) at
and as if made as of the Second Amendment Effective Date except to the extent
they expressly relate to an earlier date, in which case such representations and
warranties shall be true and correct as of such earlier date.
          (c) This Second Amendment constitutes the legal, valid and binding
obligation of each of Holdings, Intermediate Holdings and the Borrower
enforceable in accordance with its terms, subject to the effects of bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and other similar
laws relating to or affecting creditors’ rights generally, general equitable
principles (whether considered in a proceeding in equity or at law) and an
implied covenant of good faith and fair dealing.
          (d) The parties signatory to the Acknowledgment and Agreement
delivered pursuant to Section 3.01(b) of this Second Amendment constitute all of
the Persons who (together with Holdings, Intermediate Holdings and the Borrower)
are or are required under the terms of the Subordinated Debentures Documents to
be Credit Parties.
          (e) The written statements and information contained in this Second
Amendment and the other documents, certificates and statements furnished to the
Lenders on or prior to the Second Amendment Effective Date by or on behalf of
any Credit Party for use in connection with the transactions contemplated by
this Second Amendment, taken as a whole, do not, as of the Second Amendment
Effective Date, contain any untrue statement of a material fact or omit to state
a material fact necessary in order to make the statements contained therein not
materially misleading.
          (f) The Borrower acknowledges that, as of July 21, 2006, after giving
effect to the provisions of this Amendment, (i) the outstanding principal amount
of the Subordinated Debenture in favor of Allied Capital is $44,330,246.12
(inclusive of all PIK Amounts) and accrued and unpaid cash interest thereon is
$87,114.93 and (ii) the outstanding principal amount of the Subordinated
Debenture in favor of Merrill Lynch is $5,240,267.51 (inclusive of all PIK
Amounts) and accrued and unpaid cash interest thereon is $8,733.77.

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ARTICLE V
MISCELLANEOUS
          Section 5.01 Headings. The various headings of this Second Amendment
are inserted for convenience only and shall not affect the meaning or
interpretation of this Second Amendment or any provisions hereof.
          Section 5.02 Execution in Counterparts. This Second Amendment may be
executed by the parties hereto in several counterparts, each of which shall be
deemed to be an original and all of which shall constitute together but one and
the same agreement. A counterpart hereof executed and delivered by facsimile
shall be effective as an original.
          Section 5.03 Successors and Assigns. This Second Amendment shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns.
          Section 5.04 Governing Law; Entire Agreement. THIS SECOND AMENDMENT
AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF
MARYLAND, WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES. This Second Amendment
and the other Subordinated Debentures Documents constitute the entire
understanding among the parties hereto with respect to the subject matter hereof
and supersede any prior agreements, written or oral, with respect thereto.
          Section 5.05 Fees and Expenses. The Borrower agrees to pay all
reasonable out-of-pocket expenses incurred by the Lenders in connection with the
preparation, negotiation, execution, delivery and enforcement of this Second
Amendment and the other documents and instruments referred to herein or
contemplated hereby, including, but not limited to, the fees and disbursements
of DLA Piper Rudnick Gray Cary US LLP, counsel to Allied Capital.
          Section 5.06 Subordinated Debentures Document Pursuant to Loan
Agreement. This Second Amendment is a Subordinated Debentures Document executed
pursuant to the Loan Agreement and shall be construed, administered and applied
in accordance with all of the terms and provisions of the Loan Agreement (and,
following the date hereof, the Loan Agreement, as amended hereby).
[Signature Pages Follow]

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Exhibit C
          IN WITNESS WHEREOF, the signatories hereto have caused this Second
Amendment to be executed by their respective officers thereunto duly authorized
as of the day and year first above written.

          THE BORROWER  THE HILLMAN GROUP, INC.
      By:           Name:           Title:         HOLDINGS  THE HILLMAN
COMPANIES, INC.
      By:           Name:           Title:         INTERMEDIATE HOLDINGS  THE
HILLMAN INVESTMENT COMPANY
      By:           Name:           Title:         LENDERS  ALLIED CAPITAL
CORPORATION
      By:           Name:           Title:           MERRILL LYNCH CAPITAL
CORPORATION
      By:           Name:           Title: