Exhibit G
PROJECT XXXXX
OPERATING AGREEMENT
SUMMARY TERM SHEET
MEMBERSHIP Appaloosa Management L.P. ("Appaloosa"),
Franklin Mutual Advisers, LLC ("Franklin"),
Formation Capital, LLC ("Formation") and
Eureka Capital Markets, LLC ("Eureka") and
collectively, (the "Members") have determined
to work together with the intent to effect a
transaction whereby they would acquire
control of not less than 80% of the shares of
Xxxxx Enterprises, Inc. ("Xxxxx") or its real
estate assets and SNF operations.
The acquisition will be made through a newly
formed Delaware limited liability company
("Newco"), which will be funded through
equity contributed by Appaloosa, Franklin and
Formation. In addition, Formation and Eureka
will contribute 50% of the financial advisory
fee (see Fees and Expenses) to Newco as Class
A equity.
EQUITY CONTRIBUTION Appaloosa will make an equity contribution to
Newco equal to $150 million. Xxxxxxxx will
make an equity contribution to Newco equal to
$175 million. Formation will make an equity
contribution to Newco equal to $50 million.
The remaining equity will be raised by the
Members as necessary. All of the Members of
Newco contributing capital will receive Class
A Membership Interests in return for their
capital contributions. The obligation of each
Member to fund their equity contribution
would be conditioned upon mutual agreement of
the Members as to all economic terms of the
transaction, Newco receiving offers to
purchase not less than 80% of the shares of
Xxxxx, the successful conclusion of a merger
agreement or such other transaction as the
Members find acceptable.
Any Member who owns shares of Xxxxx prior to
the commencement of the tender offer or
merger shall contribute such shares to Newco
as part of such Member's equity contribution
at the offer price or merger consideration.
RESTRUCTURING TRANSACTIONS Xxxxx will undertake such restructuring
transactions as will be mutually agreed upon
by the Members.
PURCHASES IN ADVANCE
OF TENDER OR MERGER The Members will disclose to each other all
purchases of shares in Xxxxx prior to the
date of this Term Sheet made by such parties
or any other person that is an investor in,
member of or that could otherwise be
aggregated with such person under SEC rules
(collectively, the "Purchasing Persons"). All
future purchases of shares in Xxxxx to
establish a position shall be coordinated
through Eureka.
CAPITAL DISTRIBUTIONS The real estate entity will distribute cash
to the Members monthly to the extent that
such cash is available for distribution after
satisfying (i) any outstanding payments due
on or under each of the debt financings; and
(ii) any outstanding payments due under the
Asset Management Agreement as defined below.
CLASS A PREFERRED RETURN The Class A Members shall receive an annual
cumulative preferred return of 10% on their
outstanding capital contributions.
CARRIED INTEREST Newco will enter into an Asset Management
contract with Formation. Further, there will
be the issuance of Class B shares which will
provide for a "carried interest" or profit
override. Both agreements will be negotiated
and documented prior to closing. The Carried
Interest will be equal to 16% of the Return
on Capital following the payment to the Class
A Members of the Class A Preferred Return
plus Return of Capital (and 25% of the
returns once the Class A Members have
received a 40% Return on Capital as defined
below). The Carried Interest will be
distributed in the following manner:
Formation will receive 13.5%, and Eureka will
receive 2.5% up to a 40% Return on Capital to
Class A Members and thereafter, Formation
will receive 18.375% and Eureka will receive
6.625%.
RETURN OF CAPITAL Members shall be entitled to receive a return
of their capital upon the happening of a
capital event such as a refinancing or a sale
of substantially all of the real estate
properties.
RETURN ON CAPITAL Return on Capital shall be measured as the
cash on cash return received by Members. If
Members receive shares in a public entity,
the Return on Capital shall be measured as
the six month weighted average trading value
of the shares less a 10% discount following
any lock-up period.
MOST FAVORED NATIONS
PROVISION Class A Members agree that they will be
treated equally from a financial standpoint
except as agreed to in this Term Sheet. Any
and all "Side Operating Agreements" between
Formation and any Class A Member(s) as well
as agreements between Class A Members
themselves, will be fully disclosed.
ASSET MANAGEMENT FEE Pursuant to one or more asset management
agreements, Formation Capital Asset
Management, LLC, or its designee ("FCAM")
will be paid an asset management fee equal to
$15,000 per facility per annum plus
reasonable reimbursement of third party
expenses less $500,000. Third party expenses
will be approved by the Management Committee.
$500,000 per annum for general financial and
legal advisory services to Newco will be
retained by Xxxxx and expended pursuant to
the direction of the Management Committee. To
the extent the amounts expended by Newco for
financial and legal advisory are less than
$500,000 per annum, the difference will be
remitted to Formation.
FEES AND EXPENSES Prior to closing, Appaloosa, Franklin and
Formation will pay all reasonable fees and
expenses relating to the acquisition of Xxxxx
to unaffiliated third parties in an amount
not to exceed $7.0 million ("Pre-Closing
Fees") in proportion to their equity
contribution, provided however, approval of
such Pre-Closing Fees shall be required by
the Members prior to occurrence. At closing,
all fees and expenses will be borne by
Appaloosa, Franklin and Formation in
proportion to their equity contributions.
Projected fees and expenses are scheduled on
Exhibit A. Pre-Closing Fees incurred by Class
A Members will be credited as a capital
contribution to Newco.
Upon closing, a Financial Advisory fee equal
to the lesser of $8.2 million or 0.5% of
Total Consideration whereby Total
Consideration shall be defined as the cash
paid for not less than 80% of the shares of
Xxxxx or its real estate assets and SNF
operations reduced by the value of any
operations or subsidiaries "spun off" to or
returned to shareholders of Xxxxx. The
Financial Advisory fee will be distributed in
the following manner: Formation will receive
37.5% and Eureka will receive 50%. The
remaining 12.5% of the Financial Advisory fee
will be retained by Newco for general working
capital. A minimum of 50% of the financial
advisory fees received by Formation and
Eureka shall be contributed by Formation and
Eureka to Newco in return for Class A
Membership Interests.
BREAK-UP FEE To the extent the Members enter into an
agreement with Xxxxx whereby they are
entitled to a Break-Up Fee, such fee will
first be applied to pay or reimburse the
Class A Members pro rata for Pre-Closing Fees
and after payment of all such fees and
expenses in full, 70% will be distributed to
the Class A Members in proportion to their
equity contribution. The remaining 30% will
be distributed 15% to Eureka and 15% to
Formation.
MANAGEMENT COMMITTEE The Management Committee will initially have
six members. Appaloosa, Franklin and
Formation will each appoint two members. To
the extent substantial additional equity is
contributed to Newco by a party other than
the Members, a maximum of one additional
member may be designated to the Management
Committee provided Members approve such
designation. Four votes will constitute
voting control over those corporate actions
referred to the Management Committee for
approval, which shall include, but not be
limited to:
(i) acquisitions or disposals of assets;
(ii) filing for bankruptcy protection;
(iii) dissolution of Newco;
(iv) appointment of a receiver;
(v) merger of Newco with or into another
Person;
(vi) leasing or renting any property;
(vii) changes in capitalization or the
rights relative to various classes of
shares;
(viii) admission of new members;
(ix) debt incurrence;
(x) changes in the composition of the
Management Committee;
(xi) material modification of business
plans or budgets;
(xii) approval of key management employment
contracts,
(xiii) certain provisions for an exit
covering the sale or an initial
public offering of shares of Newco,
(xiv) material contracts with affiliates of
any Member; and
(xv) changes to the operating agreement.
Formation Capital or its designee shall serve
as the Manager of Newco and shall have
authority to control all day-to-day decisions
of Newco other than matters referred to the
Management Committee.
REMOVAL OF ASSET MANAGER FCAM may be removed at any time as the Asset
Manager by a vote of Members representing 51%
of the capital of Newco. Under a "For Cause"
termination, defined as (i) gross negligence,
willful misconduct or fraud of FCAM or (ii)
insolvency, involuntary reorganization or
bankruptcy of FCAM or Newco, FCAM will
disgorge its Class B shares.
Formation agrees that they will not resign as
Asset Manager without the consent of 75% of
the Class A Members. In the event of such a
voluntary resignation Formation will forfeit
their Class B shares.
In the event of a termination other than "For
Cause" Newco shall pay FCAM a Termination Fee
equal to six months' asset management fees.
In the event of a "For Cause" termination,
Formation would not be entitled to a
Termination Fee.
In the event there is a liquidity occurrence
including, but not limited to a public
offering, refinancing or sale of
substantially all of the real estate
properties at any time, FCAM may be
terminated without cause and will not be
entitled to a termination fee and further, no
party will be entitled to an asset management
fee unless and until agreed to by the board
of directors of the public company.
EXCLUSIVITY Pursuant to a Confidentiality,
Non-Circumvention and Exclusivity Agreement,
the parties shall represent and warrant that
there is no existing agreement,
understanding, letter of intent or other
commitment or arrangement of any kind between
such party and any other person, concerning
the acquisition of the shares or assets of
Xxxxx. Until the later of (i) 90 days; (ii)
the date that the parties agree in writing to
abandon the transactions contemplated hereby;
or (iii) the consummation of the transactions
contemplated hereby:
(i) None of the parties hereto will
directly or indirectly, through any
representative or otherwise, solicit
offers from, or in any manner
encourage any proposal from any other
person relating to the acquisition of
Xxxxx shares or assets, in whole or
in part, whether directly or
indirectly, through purchase, merger,
consolidation or otherwise; and
(ii) Such person will immediately notify
Formation and Eureka regarding any
contact between such person and any
person regarding any such offer,
proposal or related inquiry unless
such person is precluded from doing
so by applicable law or regulation or
other contractual agreement.
CONFIDENTIALITY Except and to the extent required by law,
without the prior consent of the other
parties hereto, none of the parties hereto
will make (and each will direct its
representatives not to make), directly or
indirectly, any public comment, statement or
communication with respect to, or otherwise
disclose or permit the disclosure of the
existence of discussions regarding a possible
transaction in which the parties will
participate or any of the terms, conditions
or other aspects of the transactions proposed
in this letter. If a party is required by law
to make such a disclosure, it must first
provide to the other parties hereto the
content of the proposed disclosure, the
reasons that such disclosure is required by
law and the time and place at which such
disclosure will be made.
NON-CIRCUMVENTION No party shall use any of the information
disclosed in this Term Sheet or otherwise by
the parties hereto for any purpose other than
to evaluate and carry out the transactions
contemplated by this Term Sheet substantially
in accordance with its terms.
IN WITNESS WHEREOF, the parties have executed this Term Sheet as of this
14th day of December, 2004.
APPALOOSA MANAGEMENT L.P.,
on behalf of certain funds for
which it acts as investment adviser
By:/s/ Xxxxxx Xxxxxxxxx
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Xxxxxx Xxxxxxxxx
Vice President
EUREKA CAPITAL MARKETS, LLC
By:/s/ Xxxxxxx X. Xxxxxx
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Xxxxxxx X. Xxxxxx
Managing Director
FORMATION CAPITAL, LLC
By:/s/ Xxxxxx X. Xxxxxxx
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Xxxxxx X. Xxxxxxx
Chief Executive Officer
FRANKLIN MUTUAL ADVISERS, LLC
By:/s/ Xxxxxxx Xxxxxx
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Xxxxxxx Xxxxxx
Senior Vice President
