EX-99.G 8 sillstermsheet.txt Exhibit G PROJECT SILLS 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 Sills Enterprises, Inc. ("Sills") 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. Franklin 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 Sills, the successful conclusion of a merger agreement or such other transaction as the Members find acceptable. Any Member who owns shares of Sills 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 Sills 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 Sills 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 Sills 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 Newco 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 Sills 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 Sills 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 Sills. 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 Sills 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 Sills. 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 Sills 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/ Ronald Goldstein ------------------------------- Ronald Goldstein Vice President EUREKA CAPITAL MARKETS, LLC By:/s/ Stephen A. Greene ------------------------------- Stephen A. Greene Managing Director FORMATION CAPITAL, LLC By:/s/ Arnold M. Whitman ------------------------------- Arnold M. Whitman Chief Executive Officer FRANKLIN MUTUAL ADVISERS, LLC By:/s/ Michael Embler ------------------------------- Michael Embler Senior Vice President