Restructure And Asset Exchange Agreement

EXHIBIT 10.35


RESTRUCTURE AND ASSET EXCHANGE AGREEMENT


AGREEMENT dated as of October 31, 1997 among HEALTH AND RETIREMENT PROPERTIES TRUST (f/k/a "Health and Rehabilitation Properties Trust") (known in Wisconsin as "Health and Retirement Properties REIT"), a real estate investment trust formed under the laws of the State of Maryland ("HRP"), GRANCARE, INC.
--- (f/k/a "New GranCare, Inc."), a Delaware corporation ("GranCare"), AMS
-------- PROPERTIES, INC., a Delaware corporation ("AMS Properties"), and GCI HEALTH CARE
-------------- CENTERS, INC., a Delaware corporation ("GCIHCC;" and together with GranCare and
------ AMS Properties, collectively, the "GranCare Parties")
----------------


W I T N E S S E T H


WHEREAS, HRP, HostMasters, Inc., a California corporation ("HMI"),
--- GranCare, Inc., a California corporation ("Old GranCare"), American Medical
------------ Services, Inc., a Wisconsin corporation ("AMS") and AMS Properties have entered
--- into an Acquisition Agreement, Agreement to Lease and Mortgage Loan Agreement dated as of December 28, 1990, as amended (as so amended, the "Acquisition
----------- Agreement"), under which, inter alia, (A) HRP has leased 18 nursing properties - --------- ----- ---- located in Wisconsin, California, Colorado and Illinois to AMS Properties pursuant to the several Facility Leases (as amended, the "AMS Properties
-------------- Facility Leases"), each incorporating a Master Lease Document General Terms and - --------------- Conditions dated as of December 28, 1990 (as amended, the "AMS Properties Master
--------------------- Lease") between HRP, as landlord, and AMS Properties, as tenant, and (B) HRP has - ----- made a mortgage loan to AMS Properties in the original principal amount of $11,500,000, the payment of which is currently evidenced by a Promissory Note dated as of October 1, 1994 by AMS Properties to HRP (the "Mortgage Note") and
------------- is secured, inter alia by Mortgage and Security Agreements dated as of March 31,
---------- 1995 (collectively, the "Mortgages") by AMS Properties in favor of HRP
--------- encumbering the GranCare Wisconsin Properties (as hereinafter defined);


WHEREAS, (a) in May 1991, the AMSHC Exchange (as defined in the Acquisition Agreement) took place, whereby Old GranCare, which previously had been a wholly- owned subsidiary of HMI, became the sole stockholder of HMI and AMS; and (b) in December 1993, AMS, which previously had owned all the outstanding common stock of AMS Properties, and AMS Rehab, Inc., a Delaware corporation and a wholly- owned subsidiary of Old GranCare, each merged into AMS Properties, with AMS Properties as the surviving corporation;


WHEREAS, HRP has leased 7 nursing and/or residential living properties located in Arizona, California and South Dakota to GCIHCC pursuant to the several Facility Leases (as amended, the "GCIHCC Facility Leases"), each
---------------------- incorporating a Master Lease Document General Terms and Conditions dated as of June 30, 1992 (as amended, the "GCIHCC Master Lease") between HRP, as landlord,
------------------- and GCIHCC, as tenant;


WHEREAS, Old GranCare transferred all of its skilled nursing, home health care, assisted living and contract management businesses (including, without limitation, such capital stock), and related assets, to GranCare, with Old GranCare thereafter distributing GranCare


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common stock to Old GranCare shareholders (collectively, the "Distribution"),
------------ pursuant to an Agreement and Plan of Distribution dated as of September 3, 1996 between Old GranCare and GranCare;


WHEREAS, immediately following the Distribution, Old GranCare merged with and into Vitalink Pharmacy Services, Inc., a Delaware corporation ("Vitalink"),
-------- with Vitalink as the surviving corporation, pursuant to an Amended and Restated Agreement and Plan of Merger dated as of September 3, 1996 between Vitalink and Old GranCare; and


WHEREAS, GranCare proposes to merge with LCA Acquisition Sub, Inc., a Delaware corporation ("Acquisition Sub"), and a wholly-owned Subsidiary of
--------------- Paragon Health Network, Inc., a Delaware corporation (f/k/a Living Centers of America, Inc.) ("Paragon"), with GranCare as the surviving corporation (the
------- "GranCare Merger"), pursuant to an Amended and Restated Agreement and Plan of - ---------------- Merger dated as of September 17, 1997 among GranCare, Paragon, Acquisition Sub and Apollo Management, L.P. on behalf of one of more of its managed investment funds (the "Merger Agreement"); and
----------------


WHEREAS, GranCare has requested that HRP agree to (a) restructure certain terms of the AMS Properties Facility Leases and the GCIHCC Facility Leases, (b) permit the otherwise prohibited prepayment of the Mortgage Note, (c) waive the provisions of (i) Section 9.15A of the Acquisition Agreement and (ii) any other agreement or document entered into by GranCare, Old GranCare, GCIHCC or AMS Properties in favor of HRP or any Affiliate (collectively, the "HRP Parties")
----------- which either requires consent or approval of one or more of the HRP Parties in order to permit the consummation of Transactions (as hereinafter defined), (d) cure any default arising as a result of the consummation of the Transactions without the consent of any of the HRP Parties, and (e) release Vitalink from its obligations under a Limited Guaranty dated as of February 12, 1997 (the "Limited
------- Guaranty") in favor of HRP; and HRP is, subject to the terms and provisions - -------- hereof, willing to so agree;


NOW, THEREFORE, in consideration of the premises and the mutual agreements herein contained, the parties hereto agree as follows:


SECTION 1. DEFINITIONS.
-----------


Capitalized terms used in this Agreement shall have the meanings set forth in the preambles or the caption hereto, or as set forth below or in the Section referenced below. Terms defined in the singular shall have a comparable meaning when used in the plural, and vice versa, and the reference to any gender shall be deemed to include all genders. References to "hereof", "herein" or similar terms are intended to refer to this Agreement as a whole and not a particular section, and references to "this Section" are intended to refer to the entire section and not a particular subsection thereof.


1.1 "Affiliate", "Affiliated" shall mean, with respect to any Person, any
--------- ---------- other Person at the time directly or indirectly controlling, controlled by or under direct or indirect common control with such Person.


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1.2 "Agreement" shall mean this Restructure and Asset Exchange Agreement,
--------- together with the Exhibits and Schedules attached hereto, as it and they may be amended from time to time as herein provided.


1.3 "Applicable Laws" shall mean and include all applicable Federal, state
--------------- or local statutes, laws, ordinances, rules and regulations, licensing requirements or conditions, whether now existing or hereafter arising, relating to Hazardous Substances.


1.4 "Authority" shall mean any governmental or quasi-governmental
--------- authority, whether administrative, executive, judicial, legislative or other, or any combination thereof, including without limitation any federal, state, territorial, county, municipal or other government or governmental or quasi- governmental agency, arbitrator, authority, board, body, branch, bureau, central bank or comparable agency or entity, commission, corporation, court, department, instrumentality, master, mediator, panel, referee, system or other political unit or subdivision or other Entity of any of the foregoing, whether domestic or foreign.


1.5 "Business Day" shall mean any day other than a Saturday, Sunday or any
------------ other day on which banking institutions in The Commonwealth of Massachusetts are authorized by law or executive action to close.


1.6 "Cash Collateral Pledge" shall have the meaning given such term in
---------------------- Section 5.2. - -----------


1.7 "Code" shall mean the Internal Revenue Code of 1986, as amended, and
---- the rules and regulations thereunder.


1.8 "Continuing Properties" shall mean the properties listed on Schedule
--------------------- -------- 1.8. - ---


1.9 "Contracts" shall mean, with respect to any GranCare Exchange
--------- Property, all service contracts, equipment leases and other arrangements or agreements to which AMS Properties or any predecessor is a party affecting the ownership, repair, maintenance or operation of such GranCare Exchange Property, to the extent AMS Properties' interest therein is assignable or transferable.


1.10 "Contractual Obligation" shall have the meaning given such term in
---------------------- Section 6.4. - ------------


1.11 "Documents" shall mean, with respect to any GranCare Exchange
--------- Property, all books, records and files relating to the leasing, maintenance, management or operation of such GranCare Exchange Property.


1.12 "Entity" shall mean any corporation, firm, unincorporated
------ organization, association, partnership, limited liability company, trust (inter vivos or testamentary), estate of a deceased, insane or incompetent individual, business trust, joint stock company, joint venture or other organization, entity or business, whether acting in an individual, fiduciary or other capacity, or any Authority.


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1.13 "Exchange Closing" shall have the meaning given such term in Section
---------------- ------- 3.1. - ---


1.14 "Exchange Closing Date" shall have the meaning given such term in
--------------------- Section 3.1. - -----------


1.15 "Exchange Properties" shall mean, collectively, the GranCare
------------------- Exchange Properties and the HRP Exchange Properties.


1.16 "Exchange Properties Escrow Agreement" shall have the meaning given
------------------------------------ such term in Section 5.6.
-----------


1.17 "Exchange Transaction" shall have the meaning given such term in
-------------------- Section 3.1. - -----------


1.18 "GranCare Exchange Properties" shall mean the GranCare North
---------------------------- Carolina Properties and the GranCare Wisconsin Properties.


1.19 "GranCare Guaranty" shall have the meaning given such term in
----------------- Section 5.4. - -----------


1.20 "GranCare North Carolina Properties" shall mean the real property
---------------------------------- and related improvements and personal property, located in Wilson, Concord and Winston-Salem, North Carolina, and as otherwise described on Schedule 1.20
------------- hereto.


1.21 "GranCare Wisconsin Properties" shall mean the real property and
----------------------------- related improvements and personal property, located in Milwaukee and Pewaukee, Wisconsin, and as otherwise described on Schedule 1.21 hereto.
-------------


1.22 "Hazardous Substances" shall mean hazardous substances (as defined
-------------------- by the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"), as now in effect or as hereafter from time to time amended), - -------- hazardous wastes (as defined by the Resource Conservation and Recovery Act ("RCRA"), as now in effect or as hereafter from time to time amended), any - ------ hazardous waste, hazardous substance, pollutant or contaminant, oils, radioactive materials, asbestos in any form or condition, or any pollutant or contaminant or hazardous, dangerous or toxic chemicals, materials or substances within the meaning of any other applicable Federal, state or local law, regulation, ordinance or requirements relating to or imposing liability or standards of conduct concerning any hazardous, toxic or dangerous waste, substance or materials, all as now in effect or hereafter from time to time amended.


1.23 "Healthcare Facilities" shall have the meaning given such term in
--------------------- Section 6.8. - -----------


1.24 "HRP Exchange Properties" shall mean the real property and related
----------------------- improvements and personal property, located in Milwaukee, Wisconsin, San Diego and Palm Springs, California, and Nashville, Illinois, and as otherwise described on Schedule 1.24 hereto.
-------------


1.25 "Intangible Property" shall mean, with respect to any GranCare
------------------- Exchange Property, all transferable or assignable permits, certificates of occupancy, operating permits, sign


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permits, development rights and approvals, certificates, licenses, warranties and guarantees, rights to deposits, the Contracts, and all other transferable intangible property, miscellaneous rights, benefits and privileges of any kind or character with respect to such GranCare Exchange Property held by the parties.


1.26 "Lease Amendment" shall have the meaning given such term in Section
--------------- ------- 5.5. - ---


1.27 "Legal Restriction" shall have the meaning given such term in Section
----------------- ------- 6.4. - -----


1.28 "Lien" shall mean any mortgage, pledge, hypothecation, assignment,
---- deposit arrangement, encumbrance, lien (statutory or other), or preference, priority or other security agreement of any kind or nature whatsoever (including, without limitation, any conditional sale or other title retention agreement, any lease that should be capitalized in accordance with generally accepted accounting principles, and the filing of a financing statement under the Uniform Commercial Code or comparable law of any jurisdiction).


1.29 "New Facility Leases" shall have the meaning given such term in
------------------- Section 5.6. - -----------


1.30 "Notices and Applications" shall have the meaning given such term in
------------------------ Section 6.10. - ------------


1.31 "Paragon Guaranty" shall have the meaning given such term in Section
---------------- ------- 5.2. - ---


1.32 "Permitted Encumbrances" (a) with respect to any GranCare Exchange
---------------------- Property, shall mean those Liens disclosed on Schedule 1.32 hereto, and (b) with
------------- respect to the HRP Exchange Properties, shall mean those Liens disclosed on Schedule 1.32 hereto and any Lien created after the date hereof other than - ------------- through the act or omission of HRP.


1.33 "Person" shall mean any natural individual or any Entity.
------


1.34 "Personal Property" shall mean, with respect to any GranCare Exchange
----------------- Property, all appliances, machinery, devices, fixtures, appurtenances, equipment, furniture, furnishings and articles of tangible personal property of every kind and nature whatsoever owned by the parties and located in or at, or used in connection with the ownership, operation or maintenance of such GranCare Exchange Property.


1.35 "Post Closing Consents" shall have the meaning given such term in
--------------------- Section 6.5. - -----------


1.36 "Real Property" shall mean the real property described in Schedules
------------- --------- 1.20, 1.21 and 1.24. - ---- ---- ----


1.37 "Restructure Documents" shall mean, collectively, this Agreement and
--------------------- each document, agreement and instrument delivered pursuant to Section 5 hereof.
---------


1.38 "Restructuring Closing" shall have the meaning given such term in
--------------------- Section 4. - ----------


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1.39 "Restructuring Closing Date" shall have the meaning given such term
-------------------------- in Section 4.
----------


1.40 "Subordination Agreement" shall have the meaning given such term in
----------------------- Section 5.3. - -----------


1.41 "Tax" (and "Taxable", which shall mean subject to Tax), shall mean,
--- ------- with respect to any Person, (a) all taxes (domestic or foreign), including without limitation any income (net, gross or other including recapture of any tax items such as investment tax credits), alternative or add-on minimum tax, gross income, gross receipts, gains, sales, use, leasing, lease, user, ad valorem, transfer, recording, franchise, profits, property (real or personal, tangible or intangible), fuel, license, withholding on amounts paid to or by such Person, payroll, employment, unemployment, social security, excise, severance, stamp, occupation, premium, environmental or windfall profit tax, custom, duty or other tax, or other like assessment or charge of any kind whatsoever, together with any interest, levies, assessments, charges, penalties, addition to tax or additional amount imposed by any Taxing Authority, (b) any joint or several liability of such Person with any other Person for the payment of any amounts of the type described in (a), and (c) any liability of such Person for the payment of any amounts of the type described in (a) as a result of any express or implied obligation to indemnify any other Person.


1.42 "Taxing Authority" shall mean any Authority responsible for the
---------------- imposition of any Tax.


1.43 "Title Company" shall mean First American Title Insurance Company.
-------------


1.44 "Transaction Documents" shall mean, collectively, this Agreement, each
--------------------- other Restructure Document, and all documents, instruments and agreement listed on Schedule 1.44 hereto as in effect from time to time.
-------------


1.45 "Transactions" shall have the meaning given that term in the
------------ Preliminary Prospectus for Living Centers of America, Inc. and GranCare, Inc. included in their Joint Proxy Statement dated September 26, 1997


SECTION 2. MODIFICATIONS TO TRANSACTION DOCUMENTS
--------------------------------------


Effective as of the date first set forth above, subject to the satisfaction of the conditions to effectiveness set forth in Section 5 hereof:
---------


1.46 Termination of Acquisition Agreement. The Acquisition Agreement is
------------------------------------ hereby terminated in its entirety and GranCare and its Affiliates shall have no further or continuing obligations thereunder. Wherever any Transaction Document refers to the Acquisition Agreement for a definition of any term, such reference shall be deemed to be a reference to such term as defined in the AMS Properties Master Lease, as in effect from time to time.


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1.47 Amendment of AMS Properties Master Lease. The AMS Properties Master
---------------------------------------- Lease is hereby amended as follows:


1.47.1 Article 1 of the AMS Properties Master Lease is amended by amending the definitions "Guarantor" and "Transaction Documents" in full to read as follows:


Guarantor: GranCare, GCIHCC and Paragon, in each case together with
---------
their respective successors and assigns, and any other Person that becomes
a guarantor of Tenant's obligations under the applicable Lease after
October 31, 1997.


Transaction Documents: collectively, any agreement, note, lease,
---------------------
master lease, mortgage, security agreement, pledge agreement, assignment,
guaranty or other agreement or instrument now or hereafter executed by any
or all of Tenant or any Guarantor in favor of, for the benefit of, or with,
Landlord (including, without limitation, the GCIHCC Transaction Documents),
and any agreement, note, mortgage, security agreement, pledge agreement,
assignment, guaranty or other agreement or instrument hereafter executed in
connection with any extension, renewal, refunding or refinancing thereof,
as any of the same may hereafter from time to time be amended, amended and
restated, modified or supplemented.


1.47.2 Article 1 of the AMS Properties Master Lease is further amended by adding the following definitions thereto to read as follows:


Cash Collateral Pledge: The Cash Collateral Pledge Agreement dated as
----------------------
of October 31, 1997, between Paragon and Landlord, as amended, amended and
restated, modified or supplemented from time to time.


GCIHCC: GCI Health Care Centers, Inc., a Delaware corporation.
------


GCIHCC Leased Properties: collectively, the "Collective Leased
------------------------
Properties" as such term is defined in the GCIHCC Master Lease.


GCIHCC Lease: any "Lease" as such term is defined in the GCIHCC Master
------------
Lease.


GCIHCC Master Lease: the Master Lease Document dated as of June 30,
-------------------
1992 between HRP, as Landlord, and GCIHCC, as Tenant, as amended, amended
and restated, modified or supplemented from time to time.


GCIHCC Transaction Documents: the "Transaction Documents" as such term
----------------------------
is defined in the GCIHCC Master Lease.


Guaranty: any guaranty in favor of Landlord of Tenant's obligations
--------
under the applicable Lease, including, without limitation, (a) the Amended
and Restated Guaranty


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dated as of October 31, 1997 by GranCare in favor of Landlord, (b) the
Guaranty dated as of October 31, 1997 by Paragon in favor of Landlord, and
(c) the Guaranty, Cross Default and Cross Collateralization Agreement,
dated as of June 30, 1992, from Tenant and GCIHCC in favor of Landlord, in
each case as amended and as the same may be may hereafter be amended,
amended and restated, modified or supplemented from time to time.


Paragon: Paragon Health Network, Inc., a Delaware corporation (f/k/a
-------
Living Centers of America, Inc.)


Voting Trust Agreement: The Amended and Restated Voting Trust
----------------------
Agreement dated as of June 30, 1992 from Tenant to HRPT Advisors, Inc., as
voting trustee, as amended, modified or supplemented from time to time.


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