EXHIBIT 10.32
SECOND AMENDED AND RESTATED
WARRANT AGREEMENT
This SECOND AMENDED AND RESTATED WARRANT AGREEMENT dated as of
November 19, 1999, is by and among SELECT MEDICAL CORPORATION, a Delaware
corporation (the "Company'), WELSH, CARSON, XXXXXXXX & XXXXX VII, L.P., a
Delaware limited partnership ("WCAS VII"), WCAS CAPITAL PARTNERS III, L.P., a
Delaware limited partnership ("WCAS CP III"), GOLDER, THOMA, XXXXXXX, XXXXXX
FUND V, L.P., a Delaware limited partnership ("GTCR V" and, together with WCAS
VII and WCAS CP Ill, individually, a "Guarantor" and collectively, the
"Guarantors"), Xx. Xxxxx X. Xxxxxxxx, an individual with an address as set forth
beneath his name on Schedule I hereto ("Xxxxx Xxxxxxxx"), and Xx. Xxxxxx X.
Xxxxxxxx, an individual with an address set forth beneath his name on Schedule I
hereto ("Xxxxxx Xxxxxxxx"; and, together with Xxxxx Xxxxxxxx, being hereinafter
referred to individually as a "Co-Support Party" and collectively as the "Co-
Support Parties").
WHEREAS, the Company and the Guarantors have entered into that certain
Warrant Agreement dated as of June 30, 1998, as amended as of February 9, 1999
(the "Original Warrant Agreement"); and
WHEREAS, the Guarantors and the Co-Support Parties collectively own a
majority of the outstanding Common Stock (as such terms are defined below) of
the Company; and
WHEREAS, the Company, the Guarantors and the Co-Support Parties have
determined that it is imperative to the future growth of the Company that the
Company enter into, on or about the date hereof (i) the Second Amended and
Restated Credit Agreement (the "U.S. Credit Agreement"), with Bank of America,
N.A., as administrative agent, collateral agent and swingline lender, The Chase
Manhattan Bank, as syndication agent, Canadian Imperial Bank of Commerce, as
documentation agent and the other financial institutions party thereto, and (ii)
the Credit Agreement (the "Canadian Credit Agreement", together with the "US
Credit Agreement" the "Credit Agreements"), with CANADIAN BACK INSTITUTE
LIMITED, Bank of America Canada, as administrative agent, and the other
financial institutions party thereto. The US Credit Agreement and the Canadian
Credit Agreement provide for loans by the lenders set forth therein (the
"Banks") to the Company in the aggregate principal amount of $225,000,000 (the
"Loans"); and
WHEREAS, the Banks are unwilling to enter into the Credit Agreements
or make the Loans available to the Company unless the payment of the Company's
obligations to the Banks thereunder is, on the terms and subject to the
conditions set forth in the Guarantors' respective Guarantees (as such term is
defined below), guaranteed severally by the Guarantors;
WHEREAS, in order to protect their existing substantial equity
investments in the Company and to ensure the Company's future financial growth,
the Guarantors and the CoSupport Parties are willing to assume additional
financial risk in their role as stockholders of
the Company by (i) in the case of the Guarantors, giving certain several
guarantees to the Banks with respect to the Loans and (ii) in the case of the
Co-Support Parties (and in order to induce the Guarantors to give their
respective aforesaid several guarantees to the Banks), agreeing to make
contributions to each of the Guarantors, up to each Co-Support Party's
Percentage (which is the percentage shown on Schedule II hereto in the column
headed "Percentage" for such party) in the event such Guarantor is required to
make payment under its Guarantee; and
WHEREAS, in consideration of the Guarantors and the Co-Support Parties
assuming such additional financial risk by, in the case of the Guarantors,
giving such guarantees and, in the case of the Co-Support Parties, agreeing to
be responsible to the Guarantors for contribution payments, the Company is
willing to issue Warrants (as such term is defined below) to the Guarantors and
the Co-Support Parties, on the terms and subject to the conditions hereinafter
set forth; and
WHEREAS, on December 15, 1998, the Certificate of Incorporation of the
Company was amended to increase the number of authorized shares of the Company's
Common Stock and to authorize a new class of nonvoting common stock of the
Company, par value $.01 per share (the "Class A Common Stock"); and
WHEREAS, the parties have agreed to amend the Original Warrant
Agreement to provide that the Guarantors who are members of the WCAS Group (as
defined below) will receive shares of Class A Common Stock as provided for
herein; and
WHEREAS, pursuant to the Original Warrant Agreement, each Guarantor
(other than WCAS CP III) and each Co-Support Party is entitled to Warrants to
purchase a number of Warrant Shares (as hereinafter defined) shown opposite such
Guarantor's and such Co-Support Party's name in Schedule I hereto on the dates
as set forth on such Schedule I; and
WHEREAS, the Company desires to execute and deliver to such Guarantors
and such Co-Support Parties amended and restated Warrants as provided for
herein;
NOW, THEREFORE, in consideration of the foregoing and the mutual
agreements contained herein, the parties hereby agree as follows:
I.
ISSUANCE OF WARRANTS
Section 1.01. Issuance of Warrants. (a) Upon (i) the execution and
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delivery by each Guarantor of its guarantee in substantially the form annexed
hereto as Exhibit A-i and A-2 hereto (collectively, the "Guarantees") and (ii)
upon the execution and delivery of this Agreement by each Co-Support Party, the
Company will execute and deliver to each Guarantor and to each Co-Support Party
an amended and restated warrant, in the form annexed hereto as Exhibit B
(individually, a "Warrant" and collectively, the "Warrants") to purchase a
number of shares of the Company's Common Stock, $01 par value ("Common Stock")
shown opposite such
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Guarantor's and such Co-Support Party's name on Schedule I hereto under the
heading "Aggregate Warrant Shares", at an initial exercise price of $3.50 per
share; provided, however, that, notwithstanding the provisions of this Section
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1.00 1, in the event the exercise of such Warrants would result in WCAS VII,
WCAS CP III, WCAS Healthcare Partners, L.P., a Delaware limited liability
partnership or their respective affiliates (the "WCAS Group"), individually or
collectively, owning, controlling or having the power to vote in the aggregate
more than 49% of the voting securities of the Company outstanding at such time,
then such Warrant shall constitute the right to purchase shares of the Company's
Class A Common Stock, par value $.01 per share, at an initial exercise price of
$3.50 per share (any shares of Common Stock or Class A Common Stock issuable
upon exercise of the Warrants being herein sometimes called the "Warrant
Shares"). For purposes of calculating the percentage of voting securities held
by the WCAS Group, any voting securities not outstanding that any member of the
WCAS Group has the right to acquire through the exercise of any option, warrant
or other right or upon the conversion of any security (each a "Convertible
Security") shall be deemed to be outstanding for the purpose of such calculation
and any voting securities not outstanding that any other person has the right to
acquire through the exercise or conversion of any Convertible Security shall not
be deemed to be outstanding for the purpose of calculating the percentage of
voting securities held by any other person. Notwithstanding the foregoing, the
Warrants issued pursuant to this Section 1.001 represent all Warrants issued and
outstanding as of the date hereof and any other Warrants issued pursuant to the
Original Warrant Agreement are hereby canceled.
(b) On January 31, 2000 and on each April 30, July 31, October 31 and
January 31 thereafter (each a "Quarterly Payment Date"), the Company will
execute and deliver to each Guarantor and each Co-Support Party, as the holder
of a Warrant, an amendment to such Warrant (individually, a "Warrant Amendment"
and collectively, the "Warrant Amendments") pursuant to which the number of
Warrant Shares issuable upon exercise of such Warrant immediately prior to the
execution and delivery of the Warrant Amendment applicable thereto shall be
increased by such number of Warrant Shares as is obtained by multiplying:
(x) the Percentage set forth opposite such Guarantor's or Co-
Support Party's name on Schedule II hereto; by
(y) the product of 275,000 and a fraction, the numerator of which
is the Average Quarterly Bank Exposure and the denominator of which is
the Aggregate Bank Credit Exposure.
For purposes of this Agreement, the term "Average Quarterly Bank Exposure" shall
mean the average daily amounts outstanding (including interest and all costs)
under the Loans, that are supported by the Guarantees, for the quarterly period
preceding and including the Quarterly Payment Date; and the term "Aggregate Bank
Credit Exposure" shall mean, the aggregate amount of each Guarantor's and Co-
Support Party's liability with respect to the Loans as of the Quarterly Payment
Date (including interest and all costs), assuming the entire amount of the Loans
available for borrowing by the Company under the Credit Agreements, as at such
date, as having been borrowed and being outstanding and unpaid. In the event the
Aggregate Bank
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Credit Exposure is greater or lesser than $55,000,000 (excluding interest and
costs), the 275,000 Warrant Share number in clause (y)(i) shall be
proportionately increased or decreased.
Section 1.02. Tax and Accounting Treatment. The Company, the
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Guarantors and the Co-Support Parties agree that for federal, state and local
income tax as well as for financial accounting purposes, the issuance by the
Company to the Guarantors and the Co-Support Parties of (i) the Warrants (as
same may be hereafter from time to time amended by the Warrant Amendments or
otherwise) and (ii) the issuance of Warrant Shares upon the exercise of any of
the Warrants, each is or shall be in the nature of a capital transaction, and
not compensation (or a payment) received for any services or in connection with
the pursuit of any trade or business, and the Company, the Guarantors and the
Co-Support Parties hereby further agree to treat the issuance of the Warrants
and such Warrant Shares in such manner for all such purposes, all to the maximum
extent permitted by applicable law, and in no event will the Company claim any
tax deduction with respect to any such issuance.
II.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to, and agrees with, the
Guarantors and the Co-Support Parties as follows:
Section 2.01. Organization. The Company is a corporation duly
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incorporated, validly existing and in good standing under the laws of the State
of Delaware and is duly licensed or qualified to do business as a foreign
corporation in good standing in each of the jurisdictions in which it owns or
leases any real property or in which the nature of business transacted by it
makes such licensing or qualification necessary and where the failure to be so
licensed or qualified would have a material adverse effect on the business,
operations or financial condition of the Company. The Company has the corporate
power and authority to own and hold its properties and to carry on its business
as currently conducted, to execute, deliver and perform this Agreement, the
Warrants and any and all Warrant Amendments from time to time executed and
delivered, and to issue, sell and deliver the shares of Common Stock or Class A
Common Stock issuable upon the exercise of the Warrants, as same may from time
to time be amended pursuant to the Warrant Amendments (the "Warrant Shares").
Section 2.02. Authorization of Agreement. etc. (a) The execution,
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delivery and performance by the Company of this Agreement, the Warrants and each
Warrant Amendment that may from time to time be executed and delivered by the
Company, and the issuance, sale and delivery of the Warrant Shares upon exercise
of the Warrants, in each case has been duly authorized by all requisite
corporate action and will not violate, conflict with or constitute a breach of
any provision of law, any order of any court or other agency of government, the
Restated Certificate of Incorporation or By-laws of the Company, or any
provision of any indenture, agreement or other instrument by which the Company
or any of its subsidiaries or any of their respective properties or assets is
bound or affected, or conflict with, result in a breach of or constitute (with
due notice or lapse of time or both) a default of any such indenture, agreement
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or other instrument, or result in the creation or imposition of any lien, charge
or incumbrance of any nature upon any of the properties or assets of the Company
or any of its subsidiaries.
(b) The Warrant Shares have been, and will at all times be, duly
reserved for issuance upon exercise of the Warrants and, when so issued, will be
duly authorized, validly issued and outstanding, fully paid and non assessable
shares of Common Stock and Class A Common Stock, free and clear of any and all
taxes, liens, charges and other encumbrances of any kind or nature. Neither the
execution and delivery of the Warrants nor the issuance and delivery of the
Warrant Shares upon exercise thereof is subject to any preemptive rights of
shareholders of the Company or to any right of first refusal or other similar
right in favor of any person.
Section 2.03. Validity. This Agreement has been duly executed and
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delivered by the Company and constitutes the legal, valid and binding obligation
of the Company, enforceable in accordance with its terms. The Warrants and each
Warrant Amendment, when executed by the Company in accordance with this
Agreement, will constitute legal, valid and binding obligations of the Company,
enforceable against it in accordance with their respective terms.
III.
REPRESENTATIONS AND WARRANTIES OF THE GUARANTORS
Each Guarantor and Co-Support Party represents and warrants, severally
and not jointly, to the Company that it is acquiring the Warrants, and will,
upon exercise thereof acquire the Warrant Shares, for its own account for
purposes of investment and not with a view to or for sale in connection with any
distribution thereof. Each Guarantor and Co-Support Party further represents
that it understands (i) that neither the Warrants nor the Warrant Shares have
been registered under the Securities Act by reason of their issuance in
transactions exempt from the registration requirements of the Securities Act
pursuant to Section 4(2) thereof, (ii) the Warrants and, upon exercise thereof,
the Warrant Shares must be held indefinitely unless a subsequent disposition
thereof is registered under the Securities Act or is otherwise exempt from such
registration, (iii) the Warrants and the Warrant Shares will bear a legend to
such effect and (iv) the Company will make a notation on its transfer books to
such effect. Each Guarantor and CoSupport Party (i) acknowledges that it has had
a full opportunity to request from the Company to review and has received all
information deemed relevant in making a decision to enter into this Agreement
and consummate the transactions contemplated thereby and (ii) will comply with
the restrictions on transferability of the Warrants and Warrant Shares contained
in the Warrant. Each Guarantor and Co-Support Party is an "accredited investor"
within the meaning of Rule 50 1(a) of the Securities Act.
IV.
AGREEMENTS AMONG THE GUARANTORS AND THE CO-SUPPORT PARTIES
Each of the Guarantors and Co-Support Parties agrees, severally and
not jointly, with one another that any and all payments made by the Guarantors
pursuant to their respective
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Guarantees shall be allocated among the Guarantors and the Co-Support Parties in
the proportions shown opposite their respective names on Schedule II in the
column headed "Percentage," regardless of whether claims shall have been
asserted under or in respect of one Guarantor's Guarantee and not the other, and
without regard to any release of either Guarantee by any beneficiary thereof In
the event that either Guarantor makes a payment (whether for obligations of the
Company under either or both of the Credit Agreements, fees, expenses or
otherwise) pursuant to its respective Guarantees, such Guarantor shall, in
accordance with the notice provisions set forth in Section 6.004 hereof, give
written notice ( a "Payment Notice") to the other Guarantor and to each of the
Co-Support Parties of the making of such payment. Each Guarantor and each
CoSupport Party agrees to make any payments required to be made by it under this
Article III to the other party or parties, as the case may be, to whom such
required payments are to made by wire transfer within five business days after
delivery of a Payment Notice given hereunder.
V.
AGREEMENTS OF THE COMPANY
The Company covenants and agrees that any right to payment received by
the Guarantors and the Co-Support Parties, as the case may be, in respect of
either or both of the Credit Agreements and their guaranty or other credit
support in connection therewith, whether by way of purchase, subrogation,
contribution or otherwise, and regardless whether and to what extent the same
shall be subordinated to other indebtedness to the Banks or shall have been
waived pending certain events, may be applied, both as to principal and accrued
and unpaid interest, dollar for dollar, by the Guarantors and the Co-Support
Parties, or any of them, as the purchase price of any equity securities offered
by the Company to investors for cash. In addition, in the event that the Company
shall be unable to make a payment under either or both of the Credit Agreements,
the Guarantors and the Co-Support Parties shall have the right (but not the
obligation) (i) to purchase additional equity securities of the Company and (ii)
to require the Company to use the net proceeds of such purchase to make such
payment under either of the Credit Agreements. The right set forth in the
preceding sentence may only be exercised upon joint approval by the Guarantors
and the Co-Support Parties, and the securities so purchased shall be issued at
fair value, based upon current market conditions for the issuance of equity
securities. The Company shall use its best efforts to provide the Guarantors and
the Co-Support Parties with sufficient notice in advance of a payment default
under either of the Credit Agreements to enable the Guarantors and the CoSupport
Parties to exercise their rights under this Article IV.
The parties hereto acknowledge that (i) the Warrant Shares issued or
issuable to the Guarantors are "Investor Registrable Securities" for purposes of
the Registration Agreement, dated as of February 5, 1997, and amended as of
December 15, 1998 and November 19, 1999 (the "Registration Agreement"), by and
among the Company, the Guarantors, the Co-Support Parties and certain other
parties signatory thereto, (ii) the Warrant Shares issued or issuable to the
CoSupport Parties are "Executive Registrable Securities" for purposes of the
Registration
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Agreement and (iii) the Warrant Shares issued or issuable to the Guarantors and
the Co-Support Parties are "Stockholder Shares" for purposes of the Stockholders
Agreement, dated as of February 5, 1997, and amended as of December 15, 1998,
and November 19, 1999 by and among the Company, the Guarantors, the Co-Support
Parties and certain other parties signatory thereto.
VI.
MISCELLANEOUS
Section 6.01. Expenses. Each party hereto will pay its own expenses
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in connection with the transactions contemplated hereby, whether or not such
transactions shall be consummated, provided, however, that the Company shall pay
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the fees and disbursements of the Guarantors' special counsel, Reboul,
MacMurray, Xxxxxx, Xxxxxxx & Kristol and Xxxxxxxx & Xxxxx.
Section 6.02. Survival of Agreements. All covenants, agreements,
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representations and warranties made herein shall survive the execution and
delivery of this Agreement and the Warrants and the issuance, sale and delivery
of the Warrant Shares.
Section 6.03. Parties in Interest. All covenants and agreements
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contained in this Agreement by or on behalf of any of the parties hereto shall
bind and inure to the benefit of the respective successors and assigns of the
parties hereto whether so expressed or not.
Section 6.04. Notices. All notices, requests, consent and other
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communications hereunder shall be in writing and shall be mailed by first class
registered mail, postage prepaid, or sent by a recognized courier service
addressed as follows:
If to the Company to it at:
0000 Xxx Xxxxxxxxxx Xxxx
P.0. Box 2034
Xxxxxxxxxxxxx, Xxxxxxxxxxxx 00000
Attention: Xxxxxxx X. Xxxxxx, General Counsel
If to any Guarantor or Support Party, to it at its address as set
forth in Schedule I, or, in any such case, at such other address or addresses as
shall have been furnished in writing my such party to the others.
Section 6.05. Law Governing. This Agreement shall be governed by and
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construed in accordance with the laws of the State of New York.
Section 6.06. Entire Agreement. This Agreement constitutes the entire
----------------
Agreement of the parties with respect to the subject matter hereof and may not
be modified or amended except in writing by the parties hereto.
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Section 6.07. Counterparts. This Agreement may be executed in two or
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more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
SELECT MEDICAL CORPORATION
By /s/ Xxxxxxx X. Xxxxxx
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Name:
Title:
WELSH, CARSON, XXXXXXXX & XXXXX VII,
L.P.
By WCAS VII Partners, General Partner
By Illegible
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General Partner
WCAS CAPITAL PARTNERS III, L.P.
By WCAS CP III Associates, L.L.C., General
Partner
By Illegible
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General Partner
GOLDER, THOMA, XXXXXXX, XXXXXX FUND
V, L.P.
By Golder, Thoma, Cressey, Rauner, Inc.,
General Partner
By Illegible
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Principal
By /s/ Xxxxx X. Xxxxxxxx
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Xxxxx X. Xxxxxxxx
By /s/ Xxxxxx X. Xxxxxxxx
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Xxxxxx X. Xxxxxxxx
Schedule I
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Number of Number of Number of Number of Number of Aggregate
Warrants Warrants Warrants Warrants Number of Warrants Warrants
Name and Address issued on issued on issued on issued on Warrants on issued on issued as on
of Guarantor or June 30, Oct. 31, Jan. 29, April 30, July 31, October 31, November 19,
Co-Support Party Percentage 1998 1998 1999 1999 1999 1999 1999
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Welsh, Carson, Xxxxxxxx & 34.44% 376,370 188,185 188,185 17,923 38,609.5 68,837 848,109.5
Xxxxx, VII, L.P. (as of 11/19/99)
000 Xxxx Xxxxxx
Xxx Xxxx, XX 00000-0000 31.878%
(from 4/30/99
thru 11/19/99)
37.637%
(from 6/30/98
thru 4/30/00)
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WCAS Capital Partners, III, 6.56% 0 0 0 3,238 6,975 7,015 17,228
L.P. (as of 11/19/99)
000 Xxxx Xxxxxx
Xxx Xxxx, XX 00000-0000 5.759%
(from 4/30/98
thru 11/19/99)
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Golder, Thoma, Xxxxxxx, 41.0% 376,370 188,185 188,185 21,161 45,584.5 45,852 865,337.5
Xxxxxx Fund V, L.P. (as of 11/19/99)
0000 Xxxxx Xxxxx
Xxxxxxx, XX 00000-0000 37.637%
(from 6/30/98
thru 11/19/99)
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Xxxxx X. Xxxxxxxx 12.20% 169,180 84,590 84,590 9,512 20,490 20,610 388,972
c/o Select Medical (as of 11/19/99)
Corporation
0000 Xxx Xxxxxxxxxx Xxxx 16.918%
P.O. Box 2034 (from 6/30/98
Xxxxxxxxxxxxx, XX 00000 thru 11/19/99)
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Xxxxxx X. Xxxxxxxx 5.8% 78,080 39,040 39,040 4,390 9,457 9,512 179,519
------ ------ ------ ----- ----- ----- -------
c/o Select Medical (as of 11/19/99)
Corporation
0000 Xxx Xxxxxxxxxx Xxxx 7.808%
P.O. Box 2034 (from 6/30/98
Xxxxxxxxxxxxx, XX 00000 thru 11/19/99)
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100.000% 1,000,000 500,000 500,000 56,224 121,116 121,826 2,299,166
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Schedule II
Guarantor or Co-Support Party Percentage
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Welsh, Carson, Xxxxxxxx & Xxxxx VII, L.P. 34.44%
WCAS Capital Partners III, L.P. 6.56%
Golder, Thoma, Xxxxxxx, Xxxxxx Fund V, L.P. 41.1%
Xxxxx Xxxxxxxx 12.2%
Xxxxxx Xxxxxxxx 5.8%
Memorandum to
Xxxxx Xxxx
Xxxxxxx Xxxxxx
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Select Medical Corporation
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Attached is an executed copy of the Second Amended and Restated
Warrant Agreement. As you know, the schedules to the Agreement were finalized
post-closing. I would appreciate it if you could both review the schedules to
confirm that they are in final form.
Please call me at (000) 000-0000 with any questions.
Xxxxx X. Xxxx
