EXHIBIT 10.3
SUBORDINATION AND INTERCREDITOR AGREEMENT
THIS SUBORDINATION AND INTERCREDITOR AGREEMENT (this "Agreement") is
entered into as of this March 31, 2004, by and among: (i) THE HILLMAN GROUP,
INC., a Delaware corporation ("Borrower"); (ii) THE HILLMAN COMPANIES, INC., a
Delaware corporation, and each of its Subsidiaries other than the Borrower (the
"Guarantors", and together with Borrower, each an "Obligor" and collectively,
"Obligors"); (iii) ALLIED CAPITAL CORPORATION, a Maryland corporation
("Subordinated Creditor"); and (iv) MERRILL LYNCH CAPITAL, a division of Merrill
Lynch Business Financial Services, Inc., a Delaware corporation, as
Administrative Agent for all Senior Lenders party to the Senior Credit Agreement
described below.
RECITALS
A. Borrower, Agent (as hereinafter defined) and Senior Lenders
(as hereinafter defined) have entered into a Credit Agreement of even date
herewith (as the same may be amended, supplemented, extended, renewed, replaced,
refinanced or otherwise modified from time to time as permitted hereunder, the
"Senior Credit Agreement") pursuant to which, among other things, Senior Lenders
have agreed, subject to the terms and conditions set forth in the Senior Credit
Agreement, to make certain loans and financial accommodations to Borrower.
B. To induce Agent and Senior Lenders to execute and deliver the
Senior Credit Agreement, each of the Guarantors has executed and delivered to
Agent that certain Guaranty Agreement of even date herewith (as the same may be
amended, supplemented or otherwise modified from time to time, the "Senior
Guaranty") pursuant to which Guarantors have guaranteed all of Borrower's
obligations to Agent and Senior Lenders under the Senior Credit Agreement and
the other Senior Debt Documents (as hereinafter defined).
C. All of Obligors' obligations to Agent and Senior Lenders under
the Senior Credit Agreement, the Senior Guaranty and the other Senior Debt
Documents are secured by liens on and security interests in substantially all of
the now existing and hereafter acquired real and personal property of each
Obligor (the "Collateral").
D. Borrower and Subordinated Creditor have entered into a Loan
Agreement of even date herewith (as the same may be amended, restated,
supplemented or otherwise modified from time to time as permitted hereunder, the
"Loan Agreement") pursuant to which Subordinated Creditor is extending credit to
Borrower as evidenced by Senior Subordinated Debentures of even date herewith in
the aggregate principal amount of $47,500,000 (as the same may be amended,
supplemented or otherwise modified from time to time as permitted hereunder, the
"Subordinated Notes").
E. To induce Subordinated Creditor to execute and deliver the
Loan Agreement, each of the Guarantors has executed and delivered to
Subordinated Creditor that certain Guaranty Agreement of even date herewith (as
the same may be amended, supplemented or otherwise modified from time to time as
permitted hereunder, the "Subordinated Guaranty") pursuant to which Guarantors
have guaranteed all of Borrower's
obligations to Subordinated Creditor under the Loan Agreement and the other
Subordinated Debt Documents (as hereinafter defined).
F. As an inducement to and as one of the conditions precedent to
the agreement of Agent and Senior Lenders to consummate the transactions
contemplated by the Senior Credit Agreement, Agent and Senior Lenders have
required the execution and delivery of this Agreement by Subordinated Creditor
and each Obligor in order to set forth the relative rights and priorities of
Agent, Senior Lenders and Subordinated Creditor under the Senior Debt Documents
and the Subordinated Debt Documents.
NOW, THEREFORE, in order to induce Agent and Senior Lenders to
consummate the transactions contemplated by the Senior Credit Agreement, and for
other good and valuable consideration, the receipt and sufficiency of which
hereby are acknowledged, the parties hereto hereby agree as follows:
1. DEFINITIONS. Capitalized terms used herein but not otherwise
defined herein shall have the meanings assigned to them in the Senior Credit
Agreement. In addition, the following terms shall have the following meanings in
this Agreement:
"AGENT" shall mean Merrill Lynch Capital, a division of Merrill
Lynch Business Financial Services, Inc., as Administrative Agent for the
Senior Lenders, or any other Person appointed by the holders of the Senior
Debt as successor administrative agent for purposes of the Senior Debt
Documents and this Agreement.
"BANKRUPTCY CODE" shall mean Chapter 11 of Title 11 of the United
States Code, as amended from time to time and any successor statute and
all rules and regulations promulgated thereunder.
"DERIVATIVES AGREEMENT" means any agreement between any Obligor and
any Derivatives Creditor with respect to one or more Derivative
Obligations, and "Derivatives Agreements" means any two or more of such
Derivatives Agreements, collectively.
"DERIVATIVES CREDITOR" means the Agent, in its individual capacity,
any Affiliate of the Agent, any Senior Lender, any Affiliate of any Senior
Lender or any syndicate of financial institutions arranged by the Agent or
any Senior Lender from time to time party to one or more Derivatives
Agreements with any Obligor (even if the Agent or such Senior Lender
ceases after the execution of such agreement to be the Agent or a Senior
Lender, as applicable, under the Senior Credit Agreement for any reason)
and their successors and assigns, and "Derivatives Creditors" means any
two or more of such Derivatives Creditors, collectively.
"DISTRIBUTION" means, with respect to any indebtedness, (a) any
payment or distribution by any Person of cash, securities or other
property, by set-off or otherwise, on account of such indebtedness or
obligation, (b) any redemption, purchase or other acquisition of such
indebtedness or obligation
2
by any Person or (c) the granting of any lien or security interest to or
for the benefit of the holders of such indebtedness or obligation in or
upon any property of any Person.
"ENFORCEMENT ACTION" shall mean (a) to take or receive from, for the
account or on behalf of any Obligor or any guarantor of the Subordinated
Debt, by set-off or in any other manner, the whole or any part of any
moneys which may now or hereafter be owing by any Obligor or any such
guarantor with respect to the Subordinated Debt (except for the payment of
Permitted Subordinated Debt Payments to the extent permitted by Section
2.3), (b) to demand or sue for payment of, or to initiate or participate
with others in any suit, action or proceeding against any Obligor or any
such guarantor to (i) enforce payment of or to collect the whole or any
part of the Subordinated Debt or (ii) commence judicial enforcement of any
of the rights and remedies under the Subordinated Debt Documents or
applicable law with respect to the Subordinated Debt, (c) to accelerate
the Subordinated Debt, (d) to exercise any put option or to cause any
Obligor or any such guarantor to honor any redemption or mandatory
prepayment obligation under any Subordinated Debt Document or (e) to take
any action under the provisions of any state or federal law, including,
without limitation, the Uniform Commercial Code, or under any contract or
agreement, to enforce, foreclose upon, take possession of or sell any
property or assets of any Obligor or any such guarantor.
"MERRILL LYNCH LOAN DOCUMENTS" shall mean the Senior Credit
Agreement, the Notes issued under the Senior Credit Agreement, the Senior
Guaranty and all other agreements, documents and instruments executed from
time to time in connection therewith, now existing or hereinafter entered
into evidencing or pertaining to all or any portion of the Senior Debt, as
the same may be amended, supplemented or otherwise modified (including to
increase the amounts outstanding thereunder to the extent permitted
hereunder) from time to time as permitted hereunder.
"OBLIGOR" shall have the meaning given in the preamble to this
Agreement and shall include any subsidiary of any Obligor which hereafter
executes a joinder to this Agreement agreeing to be bound hereby.
"PERMITTED REFINANCING" shall mean any addition to or refinancing in
whole or in part of the Senior Debt under the Merrill Lynch Loan Documents
provided that the financing documentation entered into by Obligors in
connection with such Permitted Refinancing constitute Permitted
Refinancing Senior Debt Documents.
"PERMITTED REFINANCING SENIOR DEBT DOCUMENTS" shall mean any
financing documentation which replaces all or any portion of the Merrill
Lynch Loan Documents and pursuant to which the Senior Debt is extended,
renewed, replaced or refinanced, as such financing documentation may be
amended, supplemented or otherwise modified or further extended, renewed,
3
replaced or refinanced from time to time in compliance with this
Agreement, but specifically excluding any such financing documentation to
the extent that it contains, either initially or by amendment or other
modification, any material terms, conditions, covenants or defaults other
than those which (a) then exist in Merrill Lynch Loan Documents or (b)
could be included in the Merrill Lynch Loan Documents by an amendment or
other modification, extension, renewal, replacement or refinancing that
would not be prohibited by the terms of this Agreement.
"PERMITTED SUBORDINATED DEBT PAYMENTS" means regularly scheduled
payments of interest on the Subordinated Debt (including interest paid in
kind under the Subordinated Note), all fees consented to by Agent and all
reasonable out-of-pocket costs and expenses due and payable on a
non-accelerated basis, in accordance with the terms of the Subordinated
Debt Documents as in effect on the date hereof or as modified in
accordance with the terms of this Agreement.
"PERSON" means any natural person, corporation, general or limited
partnership, limited liability company, firm, trust, association,
government, governmental agency or other entity, whether acting in an
individual, fiduciary or other capacity.
"PROCEEDING" shall mean any voluntary or involuntary insolvency,
bankruptcy, receivership, custodianship, liquidation, dissolution,
reorganization, assignment for the benefit of creditors, appointment of a
custodian, receiver, trustee or other officer with similar powers or any
other proceeding for the liquidation, dissolution or other winding up of a
Person.
"REORGANIZATION SUBORDINATED SECURITIES" shall mean any debt or
equity securities of any Obligor or any other Person that are authorized
by an unstayed, final, nonappealable order or decree stating that effect
is being given to the subordination of the Subordinated Obligations to the
Senior Debt and made by a court of competent jurisdiction in a Proceeding
and distributed to the Subordinated Creditor in respect of the
Subordinated Debt pursuant to a confirmed plan of reorganization or
adjustment and that are subordinated in right of payment to the Senior
Debt (or any debt or equity securities issued in substitution of all or
any portion of the Senior Debt) to at least the same extent as the
Subordinated Debt is subordinated to the Senior Debt; provided, that (x)
if a new entity results from any such reorganization or similar
proceeding, such entity assumes all Senior Debt that will be outstanding
after giving effect thereto and (y) the rights of the holders of the
Senior Debt are not, without the consent of such holders, altered or
impaired, including, without limitation, such rights being impaired within
the meaning of Section 1124 of the Bankruptcy Code, or any impairment of
the right to receive interest accruing during the pendency of a
Proceeding, including Proceedings under Title 11 of the Bankruptcy Code.
4
"SENIOR COVENANT DEFAULT" shall mean any "Event of Default" with
respect to Sections 6.01 (a), 6.01(b), 6.01(c) or Article VII of the
Senior Credit Agreement (other than a Senior Payment Default).
"SENIOR DEBT" shall mean all obligations, liabilities and
indebtedness now or hereafter existing, whether fixed or contingent, and
whether for principal of, premium (if any), interest (including, without
limitation, interest accruing at the rates set forth in the Senior Debt
Documents after the commencement of any Proceeding by the Obligors,
whether or not allowed or allowable as a claim in any such proceeding),
fees, expenses, indemnifications, reimbursement obligations or otherwise,
under the Senior Debt Documents or any Derivatives Agreement related to
the Obligations under the Senior Debt Documents, whether or not evidenced
by notes or other instruments, and whether such indebtedness, obligations
and liabilities are direct or indirect, fixed or contingent, liquidated or
unliquidated, due or to become due, secured or unsecured, joint, several
or joint and several, together in each case with all renewals, extensions,
increases or rearrangements thereof; provided, however, that in no event
shall the principal amount of the Senior Debt exceed $300,000,000 as
reduced by the amount of any scheduled principal amortization payments to
the extent paid in cash (specifically excluding, however, any such
repayments and commitment reductions occurring in connection with any
Permitted Refinancing). Senior Debt under the Senior Debt Documents shall
continue to constitute Senior Debt for all purposes hereof,
notwithstanding that such Senior Debt or any claim in respect thereof may
be disallowed, avoided or subordinated pursuant to any insolvency law, the
Bankruptcy Code or any similar federal or state law for the relief of
debtors or other applicable insolvency law or equitable principles (i) as
a claim for unmatured interest, (ii) as a fraudulent transfer or
conveyance or (iii) otherwise. Senior Debt shall be considered to be
outstanding whenever any loan commitment under the Senior Debt Document is
outstanding.
"SENIOR DEBT DOCUMENTS" shall mean (a) the Merrill Lynch Loan
Documents, and (b) after the consummation of any Permitted Refinancing,
the Permitted Refinancing Senior Debt Documents.
"SENIOR DEFAULT" shall mean any Senior Payment Default or Senior
Covenant Default.
"SENIOR DEFAULT NOTICE" shall mean a written notice from Agent to
Subordinated Creditor pursuant to which Subordinated Creditor is notified
of the occurrence of a Senior Default, which notice incorporates a
description of such Senior Default.
"SENIOR LENDERS" shall mean the holders from time to time of the
Senior Debt.
5
"SENIOR PAYMENT DEFAULT" shall mean any "Event of Default" under the
Senior Debt Documents resulting from the failure of any Obligor to pay, on
a timely basis, any principal, interest, fees or other monetary
obligations under the Senior Debt Documents including, without limitation,
any default in payment of Senior Debt after acceleration thereof.
"SUBORDINATED DEBT" shall mean all of the obligations of any Obligor
to Subordinated Creditor evidenced by or incurred pursuant to, or arising
out of, the Subordinated Debt Documents.
"SUBORDINATED DEBT DOCUMENTS" shall mean the Subordinated Note, the
Loan Agreement, the Subordinated Guaranty, any other guaranty with respect
to the Subordinated Debt, and all other documents, agreements and
instruments now existing or hereinafter entered into evidencing or
pertaining to all or any portion of the Subordinated Debt and all
amendments, supplements and modifications thereof, whether or not made in
compliance with this Agreement.
"SUBORDINATED DEBT DEFAULT" shall mean a default in the payment of
the Subordinated Debt or in the performance of any term, covenant or
condition contained in the Subordinated Debt Documents or any other
occurrence permitting Subordinated Creditor to accelerate the payment of,
put or cause the redemption of all or any portion of the Subordinated Debt
or any Subordinated Debt Document.
"SUBORDINATED DEBT DEFAULT NOTICE" shall mean a written notice from
Subordinated Creditor or any Obligor to Agent pursuant to which Agent is
notified of the occurrence of a Subordinated Debt Default, which notice
incorporates a reasonably detailed description of such Subordinated Debt
Default.
2. SUBORDINATION.
2.1. SUBORDINATION OF SUBORDINATED DEBT TO SENIOR DEBT. Each
Obligor covenants and agrees, and Subordinated Creditor by its acceptance of the
Subordinated Debt Documents (whether upon original issue or upon transfer,
exchange, replacement or assignment) likewise covenants and agrees,
notwithstanding anything to the contrary contained in any of the Subordinated
Debt Documents, that the payment of any and all of the Subordinated Debt shall
be subordinate and subject in right and time of payment, to the extent and in
the manner hereinafter set forth, to the prior indefeasible payment in full in
cash of all Senior Debt. Each holder of Senior Debt, whether now outstanding or
hereafter created, incurred, assumed or guaranteed, shall be deemed to have
acquired Senior Debt in reliance upon the provisions contained in this
Agreement.
2.2. LIQUIDATION, DISSOLUTION, BANKRUPTCY. In the event of any
Proceeding involving any Obligor:
6
(a) All Senior Debt shall first be indefensibly paid in full in
cash and all commitments to lend under the Senior Debt Documents shall be
terminated before any Distribution, whether in cash, securities or other
property, shall be made to Subordinated Creditor from the Obligor subject
to such Proceeding on account of any Subordinated Debt (other than a
Distribution of Reorganization Subordinated Securities which the
Subordinated Creditor is hereby specifically authorized to receive and
retain).
(b) Any Distribution, whether in cash, securities or other
property which would otherwise, but for the terms hereof, be payable or
deliverable in respect of the Subordinated Debt (other than a Distribution
of Reorganization Subordinated Securities which the Subordinated Creditor
is hereby specifically authorized to receive and retain) shall be paid or
delivered directly to Agent (to be held and/or applied by Agent in
accordance with the terms of the Senior Debt Documents) until all Senior
Debt is indefeasibly paid in full in cash and all commitments to lend
under the Senior Debt Documents shall have been terminated. Subordinated
Creditor irrevocably authorizes, empowers and directs any debtor, debtor
in possession, receiver, trustee, liquidator, custodian, conservator or
other Person having authority, to pay or otherwise deliver all such
Distributions (other than Reorganization Subordinated Securities) to
Agent. Subordinated Creditor also irrevocably authorizes and empowers
Agent, in the name of Subordinated Creditor, to demand, sue for, collect
and receive any and all such Distributions (other than Reorganization
Subordinated Securities) and agrees to execute such further documents and
instruments evidencing the same as the Agent may reasonably request.
(c) Subordinated Creditor agrees not to initiate, prosecute or
participate in any claim, action or other proceeding challenging the
enforceability, validity, perfection or priority of the Senior Debt, this
Agreement or any liens and security interests securing the Senior Debt.
(d) At the meeting of creditors or in the event of any Proceeding
involving such Obligor, Subordinated Creditor shall retain the right to
vote, file proofs of claim and otherwise act with respect to the
Subordinated Debt (including the right to vote to accept or reject any
plan of partial or complete liquidation, reorganization, arrangement,
composition or extension); provided that Subordinated Creditor hereby
irrevocably authorizes, empowers and appoints Agent its agent and
attorney-in-fact to (i) execute, verify, deliver and file such proofs of
claim upon the failure of Subordinated Creditor promptly to do so prior to
20 days before the expiration of the time to file any such proof of claim
and (ii) vote such claim in any such Proceeding upon the failure of
Subordinated Creditor to do so prior to five days before the expiration of
the time to vote any such claim; provided the Agent shall have no
obligation to execute, verify, deliver, file and/or vote any such proof of
claim. In the event Agent votes any claim in accordance with the authority
granted hereby, no Subordinated Creditor shall be entitled to change or
withdraw such vote.
7
(e) The Senior Debt shall continue to be treated as Senior Debt
and the provisions of this Agreement shall continue to govern the relative
rights and priorities of Senior Lenders and Subordinated Creditor even if
all or part of the Senior Debt or the security interests securing the
Senior Debt are subordinated, set aside, avoided, invalidated or
disallowed in connection with any such Proceeding, and this Agreement
shall be reinstated if at any time any payment of any of the Senior Debt
is rescinded or must otherwise be returned by any holder of Senior Debt or
any representative of such holder.
2.3. SUBORDINATED DEBT PAYMENT RESTRICTIONS.
(a) Notwithstanding the terms of the Subordinated Debt Documents,
each Obligor hereby agrees that it may not make, and Subordinated Creditor
hereby agrees that it will not accept, any Distribution with respect to
the Subordinated Debt until the Senior Debt is indefeasibly paid in full
in cash and all commitments to lend under the Senior Debt Documents have
terminated other than Permitted Subordinated Debt Payments subject to the
terms of Section 2.2 of this Agreement; provided, however, that each
Obligor and Subordinated Creditor further agree that no Permitted
Subordinated Debt Payment may be made (other than interest paid in kind)
by any Obligor or accepted by Subordinated Creditor if, at the time of
such payment:
(i) a Senior Payment Default exists and such Senior Payment
Default shall not have been cured or waived in accordance with the
terms of the Senior Debt Documents; or
(ii) (A) Borrower and Subordinated Creditor shall have
received a Senior Default Notice from Agent or all Senior Lenders
stating mat a Senior Covenant Default exists, (B) each such Senior
Covenant Default shall not have been cured or waived and (C) 180
days shall not have elapsed since the date such Senior Default
Notice was received by the Subordinated Creditor.
(b) Obligors shall resume Permitted Subordinated Debt Payments
(and shall make any Permitted Subordinated Debt Payments missed due to the
application of Section 2.3(a)) in respect of the Subordinated Debt or any
judgment with respect thereto:
(i) in the case of a Senior Payment Default referred to in
Section 2.3(a)(i), upon a cure or waiver thereof in accordance with
the terms of the Senior Debt Documents; or
(ii) in the case of a Senior Default Notice referred to in
Section 2.3(a)(ii), upon the earlier to occur of (A) the cure or
waiver of all such Senior Covenant Defaults in accordance with the
terms of the Senior Debt Documents or (B) the expiration of a period
of 18O days
8
from the date such Senior Default Notice was received by the
Subordinated Creditor.
(c) No Senior Default shall be deemed to have been waived for
purposes of this Section 2.3 unless and until Borrower shall have received
a written waiver from Agent or all Senior Lenders.
(d) Notwithstanding any provision of this Section 2.3 to the
contrary:
(i) no Obligor shall be prohibited from making, and
Subordinated Creditor shall not be prohibited from receiving,
Permitted Subordinated Debt Payments under Section 2.3(a)(ii) on
more than one occasion within any period of 360 consecutive days and
on more than five occasions during the period this Agreement is in
effect with respect to the Subordinated Debt;
(ii) no Senior Covenant Default existing on the date any
Senior Default Notice is given pursuant to Section 2.3(a)(ii) shall
be used as a basis for any subsequent Senior Default Notice unless
such default has been cured or waived for a period of at least 90
consecutive days, provided, however, any breach of Section 7.17 of
the Senior Credit Agreement for a period after the expiration of a
blockage period that would give rise to a new Senior Covenant
Default, even though such breach is a breach of a provision under
which a prior Senior Covenant Default previously existed, shall
constitute a new Senior Covenant Default for this purpose;
(iii) the failure of Obligors to make any Distribution with
respect to the Subordinated Debt by reason of the operation of this
Section 2.3 shall not be construed as preventing the occurrence of a
Subordinated Debt Default arising from such failure under the
applicable Subordinated Debt Documents;
(iv) nothing in this Agreement or in the Subordinated Debt
Documents shall prevent the Obligors at any time, except during the
pendency of any Proceeding referred to in Section 2.2 or under the
conditions referred to in Section 2.3, from making Permitted
Subordinated Debt Payments or prevent the Subordinated Creditor from
receiving Permitted Subordinated Debt Payments or, subject to
Section 2.4, exercising any remedy available to the Subordinated
Creditor under the Subordinated Debt Documents at any time on
account of the principal, interest or other charges with respect to
the Subordinated Debt; and
(v) the provisions of this Section 2.3 shall not apply to
any payment with respect to which Section 2.2 would be applicable.
9
2.4. SUBORDINATED DEBT STANDSTILL PROVISIONS.
(a) Until the Senior Debt is indefeasibly paid in full in cash and
all commitments to lend under the Senior Debt Documents have been
terminated, Subordinated Creditor shall not, without the prior written
consent of Agent, take any Enforcement Action with respect to the
Subordinated Debt, until the earliest to occur of the following and in any
event no earlier than five (5) days after Agent's receipt of written
notice of Subordinated Creditor's intention to take any such Enforcement
Action (which five day notice may be given during the 180 day period
described in clause (ii) below):
(i) acceleration of the Senior Debt;
(ii) the passage of 180 days from the delivery of a
Subordinated Debt Default Notice to Agent if any Subordinated Debt
Default described therein shall not have been cured or waived within
such period;
(iii) the occurrence of any Proceeding with respect to any
Obligor or its assets;
(iv) the commencement by Agent or any Senior Lender of any
judicial or non-judicial action or proceeding against any Obligor or
any guarantor of the Senior Debt to (A) realize upon any collateral
securing the Senior Debt or exercise any right or remedy with
respect to such collateral, (B) enforce any of the rights and
remedies available to Agent or any Senior Lender with respect to the
Senior Debt or any collateral securing the Senior Debt, or (C)
enforce payment of or to collect the whole or any part of the Senior
Debt; or
(v) the occurrence of any Senior Default or Subordinated
Debt Default arising from the merger, sale, liquidation,
dissolution, or change of control of an Obligor.
(b) Notwithstanding the foregoing but subject to Section 2.2
hereof, Subordinated Creditor may vote, file proofs of claim and otherwise
act with respect to the Subordinated Debt against any Obligor in any
Proceeding involving such Obligor or its assets. Any Distributions (other
than a Distribution of Reorganization Subordinated Securities permitted
under Section 2.2(a) or Section 2.2(b)) or other proceeds of any
Enforcement Action obtained by Subordinated Creditor shall in any event be
held in trust by it for the benefit of Agent and Senior Lenders and
promptly paid or delivered to Agent for the benefit of Senior Lenders in
the form received until all Senior Debt is paid in full in cash and all
commitments to lend under the Senior Debt Documents shall have been
terminated.
(c) Notwithstanding anything contained herein to the contrary, if
following the acceleration of the Senior Debt by Senior Lenders such
10
acceleration is rescinded (whether or not any existing Senior Default has
been cured or waived), then all Enforcement Actions taken by the
Subordinated Creditor shall likewise be rescinded if such Enforcement
Action is based solely on Section 2.4(a)(i).
(d) Notwithstanding anything herein to the contrary, no provision
herein shall prevent the Subordinated Creditor from (i) taking any action
described in clause (b) or (c) of the definition of "Enforcement Action"
to the extent necessary to prevent the running of any applicable statute
of limitation or similar restriction on claims or (ii) seeking specific
performance or other injunctive relief to compel an Obligor to comply with
an obligation under the Subordinated Debt Documents, so long as it is not
accompanied by a claim for, or result in or potentially result in the
receipt of, monetary damages.
2.5. INCORRECT PAYMENTS. If any Distribution on account of the
Subordinated Debt not permitted to be made by an Obligor or accepted by
Subordinated Creditor under this Agreement is made and received by Subordinated
Creditor before all Senior Debt is paid in full in cash and all lending
commitments under the Senior Debt Documents have terminated, such Distribution
shall not be commingled with any of the assets of Subordinated Creditor, shall
be held in trust by Subordinated Creditor for the benefit of Agent and Senior
Lenders and shall be promptly paid over to Agent, or its designated
representative, for application (in accordance with the Senior Debt Documents )
to the payment of the Senior Debt then remaining unpaid, until all of the Senior
Debt is indefeasibly paid in full in cash.
2.6. SUBORDINATION OF LIENS AND SECURITY INTERESTS; AGREEMENT NOT
TO CONTEST; AGREEMENT TO RELEASE LIENS. Until the Senior Debt has been paid in
full in cash and all lending commitments under the Senior Debt Documents have
terminated, any liens and security interests of Subordinated Creditor in the
Collateral which may exist in breach of Subordinated Creditor's agreement
pursuant to Section 3.2(f) or Section 4.1 of this Agreement shall be and hereby
are subordinated for all purposes and in all respects to the liens and security
interests of Agent and Senior Lenders in the Collateral, regardless of the time,
manner or order of perfection of any such liens and security interests.
Subordinated Creditor agrees that it will not at any time contest the validity,
perfection, priority or enforceability of the Senior Debt, the Senior Debt
Documents, or the liens and security interests of Agent and Senior Lenders in
the Collateral securing the Senior Debt. In the event that any Obligor grants to
the Subordinated Creditor any liens or security interests in the Collateral,
Subordinated Creditor shall (or shall cause its agent) to promptly execute and
deliver to Agent such termination statements and releases as Agent shall request
to effect the release of the liens and security interests of Subordinated
Creditor in such Collateral solely in connection with any sale of such
Collateral by Agent so long as the proceeds thereof are used to repay and
permanently reduce the amount of Senior Debt outstanding. In furtherance of the
foregoing, Subordinated Creditor hereby irrevocably appoints Agent its
attorney-in-fact, with full authority in the place and stead of Subordinated
Creditor and in the name of Subordinated Creditor or otherwise, to execute and
deliver any document or instrument which Subordinated Creditor may be required
to deliver pursuant to this Section 2.6.
11
2.7. SALE, TRANSFER OR OTHER DISPOSITION OF SUBORDINATED DEBT.
(a) Subordinated Creditor shall not sell, assign, pledge, dispose
of or otherwise transfer all or any portion of the Subordinated Debt or
any Subordinated Debt Document: (i) without giving prior written notice of
such action to Agent and (ii) unless (a) prior to the consummation of any
such action, the transferee thereof shall execute and deliver to Agent an
agreement substantially identical (as reasonably determined by the Agent)
to this Agreement, providing for the continued subordination of the
Subordinated Debt to the Senior Debt as provided herein and for the
continued effectiveness of all of the rights of Agent and Senior Lenders
arising under this Agreement, and (b) after the consummation of such
action there shall be either (i) no more than five holders of Subordinated
Debt, or (ii) one Person acting as agent for all holders of Subordinated
Debt such that any Senior Default Notices and other notices and
communications to be delivered to the holders of Subordinated Debt shall
be made to or obtained from such agent and shall be binding on each holder
of Subordinated Debt as if directly obtained from the Senior Lenders.
(b) Notwithstanding the failure of any transferee to execute or
deliver an agreement substantially identical to this Agreement, the
subordination effected hereby shall survive any sale, assignment, pledge,
disposition or other transfer of all or any portion of the Subordinated
Debt, and the terms of this Agreement shall be binding upon the successors
and assigns of Subordinated Creditor, as provided in Section 9 hereof.
2.8. LEGENDS. Until the termination of this Agreement in accordance
with Section 15 hereof, Subordinated Creditor will cause to be clearly,
conspicuously and prominently inserted on the face of the Subordinated Note and
any other Subordinated Debt Document, as well as any renewals or replacements
thereof, the following legend:
"This instrument and the rights and obligations evidenced hereby are
subordinate in the manner and to the extent set forth in that certain
Subordination and Intercreditor Agreement (the "Subordination Agreement")
dated as of March 31, 2004 among The Hillman Group, Inc. ("Borrower"); The
Hillman Companies, Inc. and its Subsidiaries other than the Borrower (the
"Guarantors", and together with Borrower, each an "Obligor" and
collectively, "Obligors"); Allied Capital Corporation ("Subordinated
Creditor"); and Merrill Lynch Capital, a division of Merrill Lynch
Business Financial Services, Inc., as Agent for all Senior Lenders party
to the Senior Credit Agreement, to the indebtedness (including interest)
owed by certain of such Obligors pursuant to that certain Credit Agreement
dated as of March 31, 2004 among such Obligors, Agent and the lenders from
time to time party thereto, as such Credit Agreement may be amended,
supplemented or otherwise modified from time to time and to indebtedness
refinancing the indebtedness under that agreement, each to the extent
permitted by the Subordination Agreement; and each holder
12
of this instrument, by its acceptance hereof, irrevocably agrees to be
bound by the provisions of the Subordination Agreement."
3. MODIFICATIONS.
3.1. MODIFICATIONS TO SENIOR DEBT DOCUMENTS. Senior Lenders may at
any time and from time to time without the consent of or notice to Subordinated
Creditor, without incurring liability to Subordinated Creditor and without
impairing or releasing the obligations of Subordinated Creditor under this
Agreement, change the manner or place of payment or extend the time of payment
of or renew or alter any of the terms of the Senior Debt, or amend in any manner
any agreement, note, guaranty or other instrument evidencing or securing or
otherwise relating to the Senior Debt; provided that Senior Lenders shall not
amend any Senior Debt Document to (a) increase the principal amount of the
Senior Debt (except as permitted by the definition of Senior Debt herein), (b)
increase any applicable margin (including fees) with respect to the Senior Debt
by more than 2% over the highest interest rate margin applicable to the Senior
Debt on the date hereof except in connection with the imposition of a default
rate of interest in accordance with the terms of the Senior Debt Documents in
effect on the date hereof or change the floating interest rate component of the
Senior Debt from Prime Rate, Federal Funds Rate or London Interbank Offered
Rate, (c) extend the final maturity of the Senior Debt (as set forth in the
Senior Debt Documents in effect on the date hereof) to a date less than six
months prior to the maturity date of the Subordinated Debt, or (d) shorten the
weighted average term to maturity by more than six months. In the event that any
Senior Debt Document is amended to add or make more restrictive any covenant or
event of default with respect to the Senior Debt, the Subordinated Creditor
shall be permitted to amend the Subordinated Debt Documents to provide for such
additional, or more restrictive, covenant or event of default (it being
understood that any such additional, or more restrictive, financial covenant
shall be subject to "cushions" consistent with the existing "cushions" between
the existing financial covenant set forth in the Senior Debt Documents and the
Subordinated Debt Documents); provided that any such covenant, to the extent
amended, may not be used by Agent or the Senior Lenders as the basis of a Senior
Default Notice under Section 2.3(a)(ii) hereof. In the event that any Senior
Debt Document is amended to change the dates upon which payments of principal or
interest on the Senior Debt are due, the Subordinated Creditor shall be
permitted to amend the Subordinated Debt Documents to change interest payment
dates with respect to the Subordinated Debt such that the number of days between
the interest payment dates under the Senior Debt and the Subordinated Debt
remain the same as on the date hereof.
3.2. MODIFICATIONS TO SUBORDINATED DEBT DOCUMENTS. Until the Senior
Debt has been indefeasibly paid in full in cash and all lending commitments
under the Senior Debt Documents have terminated, and notwithstanding anything to
the contrary contained in the Subordinated Debt Documents, Subordinated Creditor
shall not, without the prior written consent of Agent, agree to any amendment,
modification or supplement to the Subordinated Debt Documents if such amendment,
modification or supplement would add or change any terms, agreements, covenants
or conditions in any manner adverse to any Obligor, or shorten the final
maturity or average life to maturity or required any payment to be made sooner
than originally scheduled or increase the interest rate applicable thereto or
change any subordination provision thereof.
13
4. REPRESENTATIONS AND WARRANTIES.
4.1. REPRESENTATIONS AND WARRANTIES OF SUBORDINATED CREDITOR.
Subordinated Creditor hereby represents and warrants to Agent and Senior Lenders
that as of the date hereof: (a) Subordinated Creditor is a corporation duly
formed and validly existing under the laws of the State of Maryland; (b)
Subordinated Creditor has the power and authority to enter into, execute,
deliver and carry out the terms of this Agreement, all of which have been duly
authorized by all proper and necessary action; (c) the execution of this
Agreement by Subordinated Creditor will not violate or conflict with the
organizational documents of Subordinated Creditor, any material agreement
binding upon Subordinated Creditor or any law, regulation or order or require
any consent or approval which has not been obtained; (d) this Agreement is the
legal, valid and binding obligation of Subordinated Creditor, enforceable
against Subordinated Creditor in accordance with its terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights generally and by equitable principles; (e) Subordinated
Creditor is the sole owner, beneficially and of record, of the Subordinated Debt
Documents and the Subordinated Debt; and (f) the Subordinated Debt is an
unsecured obligation of Obligors.
4.2. REPRESENTATIONS AND WARRANTIES OF AGENT. Agent hereby
represents and warrants to Subordinated Creditor that as of the date hereof: (a)
Agent is a division of a corporation duly formed and validly existing under the
laws of the State of Delaware; (b) Agent has the power and authority to enter
into, execute, deliver and carry out the terms of this Agreement, all of which
have been duly authorized by all proper and necessary action; (c) the execution
of this Agreement by Agent will not violate or conflict with the organizational
documents of Agent, any material agreement binding upon Agent or any law,
regulation or order or require any consent or approval which has not been
obtained; and (d) this Agreement is the legal, valid and binding obligation of
Agent, enforceable against Agent in accordance with its terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights generally or by equitable principles.
5. SUBROGATION. Subject to the indefeasible payment in full in
cash of all Senior Debt and the termination of all lending commitments under the
Senior Debt Documents, Subordinated Creditor shall be subrogated to the rights
of Agent and Senior Lenders to receive Distributions with respect to the Senior
Debt until the Subordinated Debt is paid in full. Subordinated Creditor agrees
that in the event that all or any part of a payment made with respect to the
Senior Debt is recovered from the holders of the Senior Debt in a Proceeding or
otherwise, any Distribution received by Subordinated Creditor with respect to
the Subordinated Debt at any time after the date of the payment that is so
recovered, whether pursuant to the right of subrogation provided for in this
Agreement or otherwise, shall be deemed to have been received by Subordinated
Creditor in trust as property of the holders of the Senior Debt and Subordinated
Creditor shall forthwith deliver the same to the Agent for the benefit of the
Senior Lenders for application to the Senior Debt until the Senior Debt is paid
in full. A Distribution made pursuant to this Agreement to Agent or Senior
Lenders which otherwise would have been made to Subordinated Creditor is not, as
between the
14
Companies and Subordinated Creditor, a payment by any Obligor to or on account
of the Senior Debt.
6. MODIFICATION. Any modification or waiver of any provision of
this Agreement, or any consent to any departure by any party from the terms
hereof, shall not be effective in any event unless the same is in writing and
signed by Agent and Subordinated Creditor, and then such modification, waiver or
consent shall be effective only in the specific instance and for the specific
purpose given. Any notice to or demand on any party hereto in any event not
specifically required hereunder shall not entitle the party receiving such
notice or demand to any other or further notice or demand in the same, similar
or other circumstances unless specifically required hereunder.
7. FURTHER ASSURANCES. Each party to this Agreement promptly will
execute and deliver such further instruments and agreements and do such further
acts and things as may be reasonably requested in writing by any other party
hereto that may be necessary or desirable in order to effect fully the purposes
of this Agreement.
8. NOTICE OF SUBORDINATED DEBT DEFAULT; NOTICE OF TRANSFER, (a)
the Borrower shall provide Agent with notice of the occurrence of each
Subordinated Debt Default and shall notify Agent in the event such Subordinated
Debt Default is cured and waived; (b) Upon transfer of Subordinated Debt,
Subordinated Creditor will provide Agent with the notice thereof certifying that
the transfer complies with the provisions of Section 2.7 hereof and supplying
Agent with the name, jurisdiction of formation (for transferees that are not
individuals) and address of each such transferee.
9. NOTICES. Unless otherwise specifically provided herein, any
notice delivered under this Agreement shall be in writing addressed to the
respective party as set forth below and may be personally served, sent by
facsimile or sent by overnight courier service or certified or registered United
States mail and shall be deemed to have been given (a) if delivered in person,
when delivered; (b) if delivered by facsimile, on the date of transmission if
transmitted on a business day before 4:00 p.m. (Chicago time) or, if not, on the
next succeeding business day; (c) if delivered by overnight courier, one
business day after delivery to such courier properly addressed; or (d) if by
United States mail, four business days after deposit in the United States mail,
postage prepaid and properly addressed.
Notices shall be addressed as follows:
If to Subordinated Creditor:
Allied Capital Corporation
401 North Michigan
Suite 2050
Chicago, Illinois 60611
Attention: John Fruehwirth
Facsimile: (312) 828-0909
15
With a copy to:
Piper Rudnick LLP
1200 19th Street, N.W.
Washington, D.C. 20036
Attention: Richard Marks
Facsimile: (202) 223-2085
If to any Obligor:
The Hillman Companies, Inc.
10590 Hamilton Avenue
Cincinnati, OH 45231
Attention: James Waters
Facsimile: (513) 595-8297
With a copy to:
Kirkland & Ellis LLP
Aon Center
200 East Randolph Drive.
Chicago, Illinois 60601-6636
Attention: Christopher Butler
Facsimile: (312)861-2200
If to Agent or Senior Lenders:
Merrill Lynch Capital
222 North LaSalle Street
Chicago, Illinois 60601
Attention: Legal Department
Facsimile: (312) 499-3127
With a copy to:
Fried, Frank, Harris., Shriver & Jacobson LLP
One New York Plaza
New York, New York 10004
Attention: Valerie Jacob
Facsimile: (212) 859-8589
or in any case, to such other address as the party addressed shall have
previously designated by written notice to the serving party, given in
accordance with this Section 8.
16
10. SUCCESSORS AND ASSIGNS. This Agreement shall inure to the
benefit of, and shall be binding upon, the respective successors and assigns of
Agent, Senior Lenders, Subordinated Creditor and each Obligor. To the extent
permitted under the Senior Debt Documents, Senior Lenders may, from time to
time, without notice to Subordinated Creditor, assign or transfer any or all of
the Senior Debt or any interest therein to any Person and, notwithstanding any
such assignment or transfer, or any subsequent assignment or transfer, the
Senior Debt shall, subject to the terms hereof, be and remain Senior Debt for
purposes of this Agreement, and every permitted assignee or transferee of any of
the Senior Debt or of any interest therein shall, to the extent of the interest
of such permitted assignee or transferee in the Senior Debt, be entitled to rely
upon and be the third party beneficiary of the subordination provided under this
Agreement and shall be entitled to enforce the terms and provisions hereof to
the same extent as if such assignee or transferee were initially a party hereto.
11. RELATIVE RIGHTS. This Agreement shall define the relative
rights of Agent, Senior Lenders and Subordinated Creditor. Nothing in this
Agreement shall (a) impair, as among Obligors, Agent and Senior Lenders and as
between Obligors and Subordinated Creditor, the obligation of any Obligor with
respect to the payment of the Senior Debt and the Subordinated Debt in
accordance with their respective terms or (b) affect the relative rights of
Agent, Senior Lenders or Subordinated Creditor with respect to any other
creditors of any Obligor.
12. CONFLICT. In the event of any conflict between any term,
covenant or condition of this Agreement and any term, covenant or condition of
any of the Subordinated Debt Documents or the Senior Debt Documents, the
provisions of this Agreement shall control and govern.
13. HEADINGS. The paragraph headings used in this Agreement are
for convenience only and shall not affect the interpretation of any of the
provisions hereof.
14. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
15. SEVERABILITY. In the event that any provision of this
Agreement is deemed to be invalid, illegal or unenforceable by reason of the
operation of any law or by reason of the interpretation placed thereon by any
court or governmental authority, the validity, legality and enforceability of
the remaining provisions of this Agreement shall not in any way be affected or
impaired thereby, and the affected provision shall be modified to the minimum
extent permitted by law so as most fully to achieve the intention of this
Agreement.
16. CONTINUATION OF SUBORDINATION; TERMINATION OF AGREEMENT. This
Agreement shall remain in full force and effect until the payment in full in
cash of the Senior Debt and the termination of all lending commitments under the
Senior Debt Documents after which this Agreement shall terminate without further
action on the part of the parties hereto.
17
17. APPLICABLE LAW. This Agreement shall be governed by and shall
be construed and enforced in accordance with the internal laws of the State of
New York, without regard to conflicts of law principles.
18. CONSENT TO JURISDICTION. EACH OF AGENT, SUBORDINATED CREDITOR
AND EACH OBLIGOR HEREBY CONSENTS TO THE JURISDICTION OF ANY STATE OR FEDERAL
COURT LOCATED WITHIN THE COUNTY OF NEW YORK, STATE OF NEW YORK. EACH OF AGENT,
SUBORDINATED CREDITOR AND EACH OBLIGOR EXPRESSLY SUBMITS AND CONSENTS TO THE
JURISDICTION OF THE AFORESAID COURTS AND WAIVES ANY DEFENSE OF FORUM NON
CONVENIENS. EACH OF AGENT, SUBORDINATED CREDITOR AND EACH OBLIGOR HEREBY WAIVES
PERSONAL SERVICE OF ANY AND ALL PROCESS AND AGREES THAT ALL SUCH SERVICE OF
PROCESS MAY BE MADE UPON IT BY CERTIFIED OR REGISTERED MAIL, RETURN RECEIPT
REQUESTED, ADDRESSED TO AGENT, SUBORDINATED CREDITOR AND EACH OBLIGOR AT THEIR
RESPECTIVE ADDRESSES SET FORTH IN THIS AGREEMENT AND SERVICE SO MADE SHALL BE
COMPLETE 10 DAYS AFTER THE SAME HAS BEEN POSTED.
19 WAIVER OF JURY TRIAL. SUBORDINATED CREDITOR, EACH OBLIGOR AND
AGENT HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE
OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT, ANY OF THE SUBORDINATED
DEBT DOCUMENTS OR ANY OF THE SENIOR DEBT DOCUMENTS. EACH OF SUBORDINATED
CREDITOR, EACH OBLIGOR AND AGENT ACKNOWLEDGES THAT THIS WAIVER IS A MATERIAL
INDUCEMENT TO ENTER INTO A BUSINESS RELATIONSHIP, THAT EACH HAS RELIED ON THE
WAIVER IN ENTERING INTO THIS AGREEMENT AND THE SENIOR DEBT DOCUMENTS AND THAT
EACH WILL CONTINUE TO RELY ON THE WAIVER IN THEIR RELATED FUTURE DEALINGS. EACH
OF SUBORDINATED CREDITOR, EACH OBLIGOR AND AGENT WARRANTS AND REPRESENTS THAT
EACH HAS HAD THE OPPORTUNITY OF REVIEWING THIS JURY WAIVER WITH LEGAL COUNSEL,
AND THAT EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS.
20. RELIANCE. Upon any payment or distribution of assets of an
Obligor of the Subordinated Debt or Senior Debt in connection with any
Proceeding with respect thereto, the Subordinated Creditor shall be entitled to
rely upon any order or decree by any court of competent jurisdiction in which
such Proceeding is pending, delivered to the Subordinated Creditor, purporting
to enforce or interpret this Agreement for the purpose of ascertaining the
holders of Senior Debt entitled to participate in such payment or distribution
in accordance with this Agreement, the amount thereof, and all other matters
related thereto. The Subordinated Creditor shall not at any time be charged with
knowledge of the existence of any facts which would prohibit the making of any
payment to or the receipt of any payment by it, unless and until the
Subordinated Creditor shall have received written notice thereof in accordance
with this Agreement from the Obligors or Agent, and prior to the
18
receipt of any such written notice the Subordinated Creditor shall be entitled
to assume conclusively that no such facts exist.
{Signatures on following page.}
19
IN WITNESS WHEREOF, Subordinated Creditor,. Obligors and Agent have
caused this Agreement to be executed as of the date first above written.
SUBORDINATED CREDITOR:
ALLIED CAPITAL CORPORATION
By: /s/ JOHN FRUEHWIRTH
-----------------------------------
Name: JOHN FRUEHWIRTH
Title: PRINCIPAL
OBLIGORS:
THE HILLMAN COMPANIES, INC.
BY: /s/ MAX W. HILLMAN, JR.
-----------------------------------
NAME: _________________________________
TITLE:_________________________________
THE HILLMAN GROUP, INC.
BY: /s/ MAX W. HILLMAN, JR.
-----------------------------------
NAME: _________________________________
TITLE: ________________________________
HILLMAN INVESTMENT COMPANY
BY: /s/ MAX W. HILLMAN, JR.
-----------------------------------
Name:__________________________________
Title:_________________________________
SUNSOURCE TECHNOLOGY SERVICES LLC
By: /s/ MAX W. HILLMAN, JR.
-----------------------------------
Name: _________________________________
Title: ________________________________
SIGNATURE PAGE TO SUBORDINATION AND INTERCREDITOR AGREEMENT
SUNSUB C INC.
B: /s/ MAX W. HILLMAN, JR.
------------------------------------
Name: _________________________________
Title: ________________________________
SUNSUB HOLDINGS LLC
By: /s/ MAX W. HILLMAN, JR.
-----------------------------------
Name: _________________________________
Title: ________________________________
AGENT:
MERRILL LYNCH CAPITAL, as Agent
a division of Merrill Lynch Business
Financial Services Inc.
By: /s/ JOSEPH LAZEWSKI
-----------------------------------
Name: Joseph Lazewski
Title: ASSISTANT VICE PRESIDENT
SIGNATURE PAGE TO SUBORDINATION AND INTERCREDITOR AGREEMENT