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                                                                    EXHIBIT 10.1

UNITED STATES BANKRUPTCY COURT
DISTRICT OF DELAWARE

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In re:                                 :    Chapter 11

MARINER POST-ACUTE NETWORK,            :    Case Nos. 00-113 (MFW)
INC., et al.,                                through  00-214 (MFW)
      -- ---
                                       :
                     Debtors.               (Jointly Administered)
---------------------------------------X

                  INTERIM ORDER AUTHORIZING DEBTORS TO OBTAIN
    POST-PETITION FINANCING PURSUANT TO 11 U.S.C. (S)(S)105, 361, 362, 363
      364(c)(1), 364(c)(2), 364(c)(3) and 364(d)(1), AND TO UTILIZE CASH
             COLLATERAL PURSUANT TO 11 U.S.C. (S)363 AND GRANTING
              ADEQUATE PROTECTION TO PRE-PETITION SECURED PARTIES
             ----------------------------------------------------

     Upon the motion (the "Motion"), dated January 17, 2000, of Mariner Post-
                           ------
Acute Network, Inc., as Debtor and Debtor-in-Possession (the "Borrower"), and
                                                              --------
the Guarantors listed on Schedule I hereto, each as a Debtor and Debtor-in-
Possession (hereinafter referred to collectively as the "Guarantors"; and
                                                         ----------
together with the Borrower, the "Debtors"),
                                 -------

     (i) seeking this Court's authorization, pursuant to Sections 105, 361, 362,
   363 364(c)(1), 364(c)(2), 364(c)(3) and 364(d)(1) of the United States
   Bankruptcy Code, 11 U.S.C. (S)(S)101, et seq. (the "Code"), and Rules 2002,
                                         -------       ----
   4001 and 9014 of the Federal Rules of Bankruptcy Procedure (the "Bankruptcy
                                                                    ----------
   Rules"), for the Borrower to (1) obtain post-petition financing (the
   -----
   "Financing"), and for the Guarantors to guaranty the payment of the
    ---------
   Borrower's obligations incurred in connection with the Financing, up to the
   principal amount of $100,000,000 from The Chase Manhattan Bank ("Chase" or
                                                                    -----
   "Agent"), 270 Park Avenue, New York, New York 10017 and a
    -----
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   syndicate of financial institutions (together with Chase, the "Banks"), with
                                                                  -----
   Chase acting as Agent for itself and the Banks,

          (w) having priority over any and all administrative expenses of the
     kind specified in Sections 503(b) and 507(b) of the Code pursuant to
     Section 364(c)(1) of the Code, subject to the Carve-Out (as defined below),

          (x) to be secured, subject to the Carve-Out, pursuant to Section
     364(c)(2) of the Code by perfected first priority security interests in and
     liens upon (aa) all cash maintained in the Letter of Credit Account (as
     defined in the DIP Credit Agreement hereinafter referred to) and any
     investment of the funds contained therein (all of such property referred to
     in this clause (aa) being hereinafter referred to as the "Credit Agreement
                                                               ----------------
     Cash Collateral"), and (bb) all unencumbered pre- and post-petition
     ---------------
     property of the Debtors (including, without limitation, all accounts
     receivable arising on and after the date of the filing of the petitions
     herein (the "Filing Date"), except as otherwise provided herein with
                  -----------
     respect to the adequate protection that may be provided to the Real Estate
     Lenders and certain other post-petition Permitted Liens hereinafter
     referred to, but excluding all of the Debtors' rights in and to claims and
     causes of action under Sections 544, 545, 547, 548 or 549 of, and any other
     avoidance actions under, the Code, with the proviso that, notwithstanding
     such exclusion, the proceeds of such causes of action shall be available
     for the repayment of the obligations incurred under and in connection with
     the Financing),

          (y) to be secured, subject to the Carve-Out, pursuant to Section
     364(c)(3) of the Code by perfected security interests and liens upon all
     pre- and post-petition property of the Debtors that is subject to valid and
     perfected liens in existence on the

                                       2
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     Filing Date (including, without limitation, accounts receivable and
     inventory in existence as of the Filing Date that are subject to valid and
     perfected liens in favor of SPTMNR Properties Trust, as successor in
     interest to Health and Retirement Properties Trust ("HRPT"), Omega
                                                          ----
     Healthcare Investors, Inc. ("Omega"), SouthTrust Bank of Alabama, National
                                  -----
     Association ("SouthTrust"), Nationwide Health Properties, Inc. ("NHP"),
                   ----------
     limited in the case of NHP to certain inventory, and certain other holders
     of Indebtedness (as defined in the DIP Credit Agreement) in an aggregate
     amount not in excess of $1,000,000 (the "Other Holders"; HRPT, Omega,
                                              -------------
     SouthTrust, NHP and the Other Holders, together with any successors
     thereto, including LaSalle National Bank, as successor in interest to
     SouthTrust as to certain SouthTrust transactions, the "Real Estate
     Lenders") and accounts receivable and inventory arising on and after the
     Filing Date through the use of the healthcare facilities financed by the
     Real Estate Lenders to the extent that the Real Estate Lenders are granted
     liens in such accounts receivable or inventory as adequate protection for
     the use of cash collateral (the "Real Estate Receivables") and the proceeds
                                      -----------------------
     thereof, but not including property that is subject to the existing liens
     that secure obligations under the Existing Agreements referred to in clause
     (z) below, which liens referred to in clause (z) below shall be primed
     pursuant to Section 364(d)(1) of the Code by the liens to be granted to the
     Agent as described in such clause) and to post-petition Permitted Liens (as
     defined in the DIP Credit Agreement), junior to such valid and perfected
     liens and

          (z) to be secured, subject to the Carve-Out, pursuant to Section
     364(d)(1) of the Code by perfected first priority senior priming security
     interests in and liens upon

                                       3
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     all pre- and post-petition property of the Debtors (including, without
     limitation, accounts receivable, contracts, documents, equipment, general
     intangibles, instruments, inventory, interests in leaseholds, real property
     and the capital stock of certain subsidiaries of the Debtors and the
     proceeds of all of the foregoing (which property includes, without
     limitation, all of the right, title and interest of the Debtors in the
     property that is subject to or secures the Amended and Restated Credit
     Agreement with FBTC Leasing Corp. and the Synthetic Guarantee referred to
     below)) that is subject to the existing liens presently securing the
     Debtors' indebtedness owing (including issued but undrawn letters of credit
     issued pursuant to the Existing Credit Agreement (as defined below)) to
     certain lenders under or in connection with (i) that certain Credit
     Agreement dated as of November 4, 1997 (as heretofore amended, the
     "Existing Credit Agreement") among the Borrower (formerly known as Paragon
      -------------------------
     Health Network, Inc.), the several lenders from time to time party thereto
     (collectively, the "Paragon Pre-Petition Secured Lenders"), Chase, as
                         ------------------------------------
     Administrative Agent (in such capacity, the "Administrative Agent"), and
                                                  --------------------
     Bank of America, N.A. (formerly known as Nationsbank, N.A.), as
     Documentation Agent, (ii) the Tranche A Loans under and as defined in the
     Synthetic Credit Agreement hereinafter referred to and in that certain
     Amended and Restated Guarantee dated as of November 4, 1997 (as heretofore
     amended, the "Synthetic Guarantee"; such Synthetic Credit Agreement, the
                   -------------------
     Synthetic Guarantee, the Existing Credit Agreement and the Deficiency Note
     hereinafter referred to, together the "Existing Agreements") made by the
                                            -------------------
     Borrower and the Guarantors signatory thereto in favor of Chase, as
     administrative agent (in such capacity, the "Synthetic Agent") for the
                                                  ---------------
     lenders

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     (collectively, the "Synthetic Lenders"; the makers of the Tranche A Loans,
                         -----------------
     the "Tranche A Synthetic Lenders") under that certain Amended and Restated
          ---------------------------
     Credit Agreement dated as of November 4, 1997 (as heretofore amended, the
     "Synthetic Credit Agreement") to which FBTC Leasing Corp. ("FBTC"), among
      --------------------------                                 ----
     others, is a party and the instruments and agreements executed in
     connection therewith (the obligations of the Borrower and the Guarantors
     signatory thereto under or in connection with the Synthetic Guarantee and
     the instruments and agreements executed in connection therewith shall
     include, without limitation, such direct obligations as the Borrower and
     such Guarantors may have to FBTC and the Synthetic Lenders upon and after
     the entry of an order approving that certain Stipulation Acknowledging
     Ownership of Properties Subject to "Synthetic Lease Transactions" among
     certain parties including FBTC, the Synthetic Agent, the Borrower and the
     Guarantors (including Living Centers Holding Company, Inc., one of the
     Guarantors) provided, that such priming security interests and liens shall
     not prime the security interests and liens of (x) the Synthetic Agent to
     the extent of the Tranche B Loans (under and as defined in the Synthetic
     Credit Agreement) outstanding on the Filing Date and (y) FBTC to the extent
     of the Lessor Contributions and related obligations (under and as defined
     in the Synthetic Credit Agreement) (the security interests and liens
     described in the foregoing clauses (x) and (y) are hereinafter referred to
     as "Excluded Pre-Petition Collateral"), and (iii) that certain Deficiency
         --------------------------------
     Note held by Bank of America, N.A. (the "Deficiency Note") (Bank of
                                              ---------------
     America, N.A. as holder of the Deficiency Note, the Paragon Pre-Petition
     Secured Lenders, the Synthetic Lenders and FBTC being hereinafter
     collectively

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     referred to as the "Pre-Petition Secured Lenders"), senior in all respects
                         ----------------------------
     to such existing liens (the "Primed Liens") (but not to liens, if any, to
                                  ------------
     which such existing liens are subject on the Filing Date) and senior in all
     respects to any liens granted on or after the Filing Date to provide
     adequate protection to the Pre-Petition Secured Lenders

     (all of the foregoing property specified in clauses (x), (y) and (z) above
  being hereinafter collectively referred to in this Order as the "Collateral")
                                                                   ----------
  and (2) provide adequate protection to the Pre-Petition Secured Lenders whose
  liens and security interests are being primed by the Financing,

     (ii) seeking this Court's authorization, pursuant to Section 363(c)(2) of
   the Code, for the use of cash collateral (as such term is defined in the
   Code) in which the Pre-Petition Secured Lenders have an interest and for the
   provision of adequate protection to the Pre-Petition Secured Lenders with
   respect to such use of cash collateral,

     (iii) seeking, upon a first day hearing (the "First Day Hearing") on the
                                                   -----------------
   Motion, the entry of a first day order pursuant to Bankruptcy Rule 4001 (this
   "Order"), (x) authorizing the Borrower, on an interim basis, to forthwith
    -----
   borrow or obtain letters of credit under the Financing from the Banks up to
   an aggregate of $25,000,000, which borrowings and letters of credit to be
   authorized at the First Day Hearing will be used to (a) provide working
   capital and letter of credit support for the Borrower and the Guarantors as
   set forth in the Credit Agreement and (b) cover overdrafts and related
   liabilities arising from treasury, depository and cash

                                       6
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   management services provided by Chase or any of their respective affiliates
   to the Debtors or in connection with any automated clearing house fund
   transfers effected by Chase or any of their respective affiliates for the
   Debtors, (y) authorizing the use by the Debtors of cash collateral and (z)
   granting the adequate protection hereinafter described,

     (iv) requesting that an interim hearing (the "Interim Hearing") thereafter
                                                   ---------------
   be held for this Court to consider entry of an interim order (the "Interim
                                                                      -------
   Order") authorizing the Borrower, on an interim basis, to borrow or obtain
   -----
   letters of credit under the Financing from the Banks up to an aggregate of
   $50,000,000, taken together with the authorization in this Order, as set
   forth in the Motion and the loan documentation filed with this Court; and

     (v) requesting that a final hearing (the "Final Hearing") thereafter be
                                               -------------
   held for this Court to consider entry of an order authorizing the balance of
   the Financing on a final basis, as set forth in the Motion and the loan
   documentation filed with this Court;

and pursuant to Bankruptcy Rules 4001(b) and 4001(c)(1), due and sufficient
notice under the circumstances of the Motion and the First Day Order referred to
below having been given by the Debtors to the twenty largest unsecured creditors
of each of the Debtors, the Administrative Agent (on behalf of itself and the
Pre-Petition Secured Lenders), the Synthetic Agent, FBTC, the Real Estate
Lenders, the United States Trustee for the District of Delaware, the United
States Department of Heath and Human Services, all state Medicaid agencies with
which the Debtors deal and to any other party that has filed a request for
notices with this Court, a hearing to consider the Debtors' request to authorize
borrowings under the Financing on an emergency basis having been conducted on
January 18 and 19, 2000 (the "First Day Hearing") and an order authorizing such
                              -----------------
borrowings having been entered

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by this Court (the "First Day Order") and the Interim Hearing having been held
                    ---------------
on January 28, 2000, and upon all the pleadings filed with this Court, and upon
the record made by the Debtors at the First Day Hearing and the Interim Hearing
and after due deliberation and consideration and sufficient cause appearing
therefor;

     IS FOUND, DETERMINED, ORDERED AND ADJUDGED, that:

     1.  This Court has core jurisdiction over these proceedings and the parties
and property affected hereby pursuant to 28 U.S.C. (S)(S)157(b) and 1334.

     2.  Without prejudice to the rights of any other party (but subject to the
limitations thereon described below in paragraph 25), the Debtors have agreed
that they will not raise any defense, counterclaim or offset of any kind with
respect to the terms of the Existing Agreements and with respect to their
Indebtedness to the Pre-Petition Secured Lenders, and have acknowledged that as
of the Filing Date (i) the Borrower was liable to the Paragon Pre-Petition
Secured Lenders in the aggregate principal amount of approximately $917,271,432
in respect of loans made and letters of credit issued by the Paragon Pre-
Petition Secured Lenders pursuant to the Existing Credit Agreement, plus
interest thereon and fees and expenses incurred in connection therewith as
provided in the Existing Credit Agreement, (ii) the Borrower and most of the
Guarantors were liable to FBTC and the Synthetic Lenders in the aggregate
principal amount of approximately $66,644,000 in respect of loans made pursuant
to the Synthetic Credit Agreement, plus interest thereon and fees and expenses
incurred in connection therewith as provided in the Synthetic Guarantee, (iii)
the Borrower was liable to Bank of America, N.A. as holder of the Deficiency
Note in the aggregate principal amount of $26,485,562.79 pursuant to the
Deficiency Note, plus interest thereon and fees and expenses incurred in
connection therewith as provided in the Deficiency Note, and (iv) certain

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Guarantors were contingently liable to FBTC and the Pre-Petition Secured Lenders
in respect of their respective guarantees under the Existing Agreements
(collectively, the "Pre-Petition Debt").
                    -----------------

     3.  Without prejudice to the rights of any other party (but subject to the
limitations thereon described below in paragraph 25), the Debtors have also
agreed that they will not challenge the validity, perfection, enforceability or
priority of the liens and security interests granted to Chase, as Collateral
Agent for the ratable benefit of itself, the Administrative Agent, the Synthetic
Agent (collectively, the "Pre-Petition Agent") and the Pre-Petition Secured
                          ------------------
Lenders and the Synthetic Lenders pursuant to the Existing Agreements and all
mortgages, deeds of trust and other security documents executed by one or more
of the Debtors for the benefit of the Pre-Petition Secured Lenders in connection
with the Existing Agreements in the personal and real property described in such
agreement, mortgages, deeds of trust and security documents (the "Pre-Petition
                                                                  ------------
Collateral").
----------

     4.  As of the Filing Date, funds on deposit at Chase and various of the
other Pre-Petition Secured Lenders were subject to rights of set-off under the
Existing Agreements and applicable law and, by virtue of such set-off rights,
are subject to a lien in favor of such Pre-Petition Secured Lenders pursuant to
Sections 506(a) and 553 of the Code.  Pursuant to the Existing Agreements, such
Pre-Petition Secured Lenders are obligated to share the benefit of such lien
with the other Pre-Petition Secured Lenders party to such Existing Agreements
based upon their respective pro rata shares of the obligations under such
                            --- ----
Existing Agreements. Accordingly, any proceeds of the Pre-Petition Collateral
(including cash on deposit at Chase or any of the Pre-Petition Secured Lenders
as of the Filing Date) are cash collateral of the Pre-Petition Secured Lenders
within the meaning of Section 363(a) of the Code herein (the "Cash Collateral").
                                                              ---------------
The Pre-Petition Secured Lenders are entitled, pursuant to Sections 361, 363(e)
and 364(d)(1) of the Code, to adequate protection of their interest in the Pre-
Petition Collateral, including the Cash Collateral, for any

                                       9
<PAGE>

diminution in value of the Pre-Petition Collateral, including, without
limitation, resulting from the use of the Cash Collateral, the incurrence by the
Debtors of post-petition financing secured by priming liens on the Pre-Petition
Collateral, or the use, sale or lease of the Pre-Petition Collateral and the
imposition of the automatic stay.

     5.  The Borrower has an immediate need to obtain financing in order to
permit, among other things, the orderly continuation of the operation of its
business and the businesses of the Guarantors and the care of its patients, to
maintain business relationships with vendors and suppliers, to make certain
strategic capital expenditures and to satisfy other working capital needs.  The
Borrower is unable to obtain adequate unsecured credit allowable under Section
503(b)(1) of the Code as an administrative expense.  A facility in the amount
provided by the Financing is unavailable to the Borrower without the Debtors
granting to the Agent and the Banks, subject to the Carve-Out, (i) pursuant to
Section 364(c)(1) of the Code, allowed claims, with respect to all indebtedness
and obligations of the Debtors under and in connection with the DIP Credit
Agreement (and with respect to all indebtedness and obligations in respect of
overdrafts and related liabilities referred to in Section 6.03(vi) of the DIP
Credit Agreement), having priority over any and all administrative expenses of
the kind specified in Sections 503(b) and 507(b) of the Code, (ii) pursuant to
Section 364(c)(2) of the Code, security for such obligations by the granting of
perfected first priority senior security interests in and liens upon the Credit
Agreement Cash Collateral and all unencumbered pre-and post-petition property of
the Debtors (including, without limitation, all accounts receivable arising on
and after the Filing Date, but excluding (1) all of the Debtors' rights in and
to claims and causes of action under Sections 544, 545, 547, 548 or 549 of, and
any other avoidance actions under, the Code, with the proceeds of such causes of
action being available for the repayment of the obligations under the DIP Credit
Agreement and (2) assets that are subject to

                                       10
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Permitted Adequate Protection Liens and other post-petition Permitted Liens,
both as defined in the DIP Credit Agreement), (iii) pursuant to Section
364(c)(3) of the Code, security for such obligations by the granting of
perfected junior priority security interests and liens upon all pre- and post-
petition property of the Debtors, including, without limitation, accounts
receivable in existence as of the Filing Date that are subject to valid and
perfected liens in favor of the Real Estate Lenders and the Real Estate
Receivables, and the proceeds thereof (but not including the property that is
described in clause (iv) below, as to which the security interests and liens in
favor of the Agent shall be as described in such clause) that is subject to
valid and perfected liens in existence on the Filing Date or to Permitted
Adequate Protection Liens and other post-petition Permitted Liens, and (iv)
pursuant to Section 364(d)(1) of the Code, security for such obligations by the
granting of first priority senior priming security interests in and liens upon
all of the Pre-Petition Collateral (other than the Excluded Pre-Petition
Collateral), senior in all respects to existing liens and to any liens granted
on or after the Filing Date herein to provide adequate protection in respect of
such liens or otherwise, but subject to any liens to which such existing liens
are subject as of the Filing Date. The ability of the Debtors to obtain
sufficient working capital and liquidity through the use of the cash collateral,
incurrence of new indebtedness for borrowed money and other financial
accommodations is vital to the Debtors. The preservation and maintenance of the
going concern values of the Debtors is integral to a successful reorganization
of the Debtors pursuant to the provisions of Chapter 11 of the Code.

     6.  The terms of the Financing appear to be fair and reasonable, reflect
the Debtors' exercise of prudent business judgment consistent with their
fiduciary duty and are supported by reasonably equivalent value and fair
consideration.  The Financing has been negotiated in good faith and at arm's-
length among the Debtors, the Agent and the Banks and any credit extended,
letters of

                                       11
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credit issued for the account of and loans made to the Borrower by the Banks
pursuant to the Revolving Credit and Guaranty Agreement dated as of January 18,
2000 (the "DIP Credit Agreement"), and any credit extended in respect of
           --------------------
overdrafts referred to in the DIP Credit Agreement, shall be deemed to have been
extended by the Banks in good faith, as that term is used in Section 364(e) of
the Code.

     7.  The Debtors have requested immediate entry of this Order pursuant to
Bankruptcy Rules 4001(b)(2) and 4001(c)(2).  Absent entry of this Order, the
Debtors' estates will be immediately and irreparably harmed.

     8.  The Documents (as defined below) are hereby approved and the Borrower
is immediately authorized to borrow or obtain letters of credit pursuant to the
DIP Credit Agreement, and the Guarantors may guaranty such borrowings, up to an
aggregate of $50,000,000 (inclusive of amounts borrowed and letters of credit of
credit issued pursuant to the First Day Order), which shall be used for the
purpose of providing working capital for the Borrower and the Guarantors.  In
addition, the Debtors are immediately authorized to incur overdrafts and related
liabilities arising from treasury, depository and cash management services or in
connection with any automated clearing house fund transfers provided to or for
the benefit of the Debtors by Chase or any of its affiliates (in addition to the
amount of borrowings and letters of credit obtained pursuant to the Credit
Agreement).  Notwithstanding anything herein to the contrary, no borrowings,
letters of credit, Cash Collateral, Collateral or the Carve-Out (as defined
below) may be used to object, contest or raise any defense to, the validity,
perfection, priority, extent or enforceability of the Pre-Petition Debt or the
liens securing the Pre-Petition Debt, or to assert any claims or causes of
action against the Pre-Petition Agent or the Pre-Petition Secured Lenders.

                                       12
<PAGE>

     9.  The Debtors are expressly authorized and empowered to execute and
deliver, among other documents, the DIP Credit Agreement, and the Security and
Pledge Agreement to which such Debtors are party (as each such term is defined
in the DIP Credit Agreement) in substantially the forms heretofore filed with
this Court (collectively, and together with the letter agreement referred to in
paragraph 19 (iii) hereof, the "Documents").  The Debtors are hereby authorized
                                ---------
to perform and do all acts that may be required in connection with the
Documents.  Upon execution and delivery of the Documents, the Documents shall
constitute valid and binding obligations of the Debtors party thereto,
enforceable against each Debtor party thereto in accordance with their terms.

     10.  For all of the Debtors' obligations and indebtedness arising under and
in connection with the Financing and the Documents (and in respect of overdrafts
and related liabilities referred to in Section 6.03(vi) of the Credit
Agreement), the Agent and the Banks are granted pursuant to Section 364(c)(1) of
the Code an allowed claim (which allowed claim shall be payable from and have
recourse to, in addition to the property of the Debtors that is made subject to
security interests and liens in favor of the Agent on behalf of the Banks as set
forth in paragraph 12 of this Order, any unencumbered pre- and post-petition
property of the Debtors, including, without limitation, any amounts that are
recovered or otherwise received by any of the Debtors in respect of claims under
Sections 544, 545, 547, 548 or 549 of, or any other avoidance actions under, the
Code) having priority over any and all administrative expenses of the kind
specified in Sections 503(b) and 507(b) of the Code, subject only to (x) in the
event of the occurrence and during the continuance of an Event of Default (as
defined in the DIP Credit Agreement) or an event that would constitute an Event
of Default with the giving of notice or lapse of time or both, the payment of
(i) accrued and unpaid professional fees and disbursements theretofore incurred
or incurred after the cure or waiver of such Event of Default or event, and (ii)
professional fees and disbursements incurred during the time of

                                       13
<PAGE>

such continuance in an aggregate amount not in excess of $2,500,000, in each
case by the Borrower, the Guarantors and any statutory committee (each, a
"Committee") appointed in the Debtors' Chapter 11 cases (the "Cases") and
 ---------                                                    -----
allowed by an order of the Court and (y) the payment of fees pursuant to 28
U.S.C. (S)1930 and to the Clerk of the Court (collectively, the "Carve-Out"),
                                                                 ---------
provided that following the Termination Date (as defined in the Credit
--------
Agreement) amounts in the Letter of Credit Account shall not be subject to the
Carve-Out. No other claim having a priority superior or pari passu with that
granted by this Order (i) to the Agent and the Banks and (ii) to the Pre-
Petition Agent and the Pre-Petition Secured Lenders, respectively, shall be
granted while any portion of the Financing (or refinancing thereof) or the
commitment thereunder remains outstanding.

     11.  So long as an Event of Default or an event which with the giving of
notice or lapse of time or both would constitute an Event of Default shall not
have occurred, (i) Debtors shall be permitted to pay administrative expenses
allowed and payable under Sections 330 and 331 of the Code, as the same may be
due and payable, and (ii) such payments shall not be applied against the Carve-
Out.  Except to the extent of the Carve-Out, no expenses of administration of
the Cases or any future proceeding or case which may result therefrom, including
liquidation in bankruptcy or other proceedings under the Code, shall (except as
otherwise stated on the record of the First Day Hearing) be charged pursuant to
Section 506(c) of the Code or otherwise against (a) the Collateral without the
prior written consent of the Agent and no such consent shall be implied from any
other action, inaction, or acquiescence by the Agent or the Banks or (b) the
Pre-Petition Collateral by the Debtors (without prejudice to the rights of any
other party in interest to assert claims under Section 506(c) of the Code)
without the prior written consent of the Pre-Petition Agent (on behalf of the
Pre-Petition Secured Lenders), and no such consent shall be implied from any
action, inaction, or acquiescence by the Pre-Petition Agent or the Pre-Petition
Secured Lenders.

                                       14
<PAGE>

     12.  As security for all of the Debtors' obligations and indebtedness
arising under the Financing and the Documents (and in respect of overdrafts and
related liabilities referred to in Section 6.03(vi) of the DIP Credit
Agreement), the Agent on behalf of the Banks is hereby granted (effective upon
the date of this Order and without the necessity of the execution by the Debtors
of mortgages, security agreements or otherwise), (x) pursuant to Section
364(c)(2) of the Code, perfected first priority senior security interests in and
liens upon (aa) the Credit Agreement Cash Collateral, and (bb) all unencumbered
pre- and post-petition property of the Debtors (excluding (1) all of the
Debtors' rights in and to claims and causes of action under Sections 544, 545,
547, 548 or 549 of, and any other avoidance actions under, the Code, it being
expressly held that, notwithstanding such exclusion from the liens authorized
hereby, the proceeds or other amounts received by the Debtors in respect of such
claims and causes of action may be applied to, among other obligations, the
payment of the allowed claims of the Agent and the Banks that are referred to in
paragraph 10 of this Order, and (2) Real Estate Receivables), (y) pursuant to
Section 364(c)(3) of the Code, perfected junior priority security interests in
and liens upon all pre- and post-petition property of the Debtors, including,
without limitation, accounts receivable in existence as of the Filing Date that
are subject to valid and perfected liens in favor of the Real Estate Lenders and
the proceeds thereof (but not including property that is subject to the existing
liens that secure obligations under the Existing Agreements referred to in
clause (z) below which shall be primed by the liens to be granted to the Agent
as described in such clause), that is subject to valid and perfected liens in
existence on the Filing Date and to post-petition Permitted Liens, junior to
such valid and perfected liens and (z) pursuant to Section 364(d)(1) of the
Code, perfected first priority senior priming security interests in and liens
upon all pre- and post-petition property of the Debtors (including, without
limitation, accounts receivable, contracts, documents, equipment, general

                                       15
<PAGE>

intangibles, instruments, inventory, interests in leaseholds, real property and
the capital stock of certain subsidiaries of the Debtors and the proceeds of all
of the foregoing but excluding the Excluded Pre-Petition Collateral), that is
subject to the existing liens presently securing the Debtors' indebtedness owing
to the Pre-Petition Secured Lenders (including, in the case of the Paragon Pre-
Petition Secured Lenders, any issued and undrawn letters of credit), such
security interests and liens being senior in all respects to any and all present
and future liens, if any, of the Pre-Petition Secured Lenders which encumber
such security interests and liens referred to in this clause (z) (but not to
liens, if any, to which the liens of the Pre-Petition Secured Lenders are
subject on the Filing Date) and any liens granted after the Filing Date to
provide adequate protection to the Pre-Petition Secured Lenders, in each case
subject only to the Carve-Out; provided that following the Termination Date,
                               --------
amounts in the Letter of Credit Account shall not be subject to the Carve-Out
and provided, further, that notwithstanding the exclusion of the Excluded Pre-
    -----------------
Petition Collateral from the security interests and liens referred to in the
foregoing clause (z), the Borrower shall remain obligated, as set forth in
Section 2.11(b) of the DIP Credit Agreement, to apply to the prepayment of the
loans made under the Credit Agreement that portion of the Net Proceeds (as
defined in the DIP Credit Agreement) received by the Borrower from the sale or
other disposition of properties the completion of which was financed by such
loans that is equal to the amount of the loans so used. The security interests
and liens granted to the Agent on behalf of the Banks hereunder shall not be
subordinated to or made pari passu with any other lien or security interest
under Section 364(d) of the Code.

     13.  Debtors are hereby authorized effective as of the Filing Date to use
all Cash Collateral of the Pre-Petition Secured Lenders; provided, that the Pre-
                                                         --------
Petition Secured Lenders are granted adequate protection as hereinafter set
forth.

                                       16
<PAGE>

     14.  As adequate protection for any diminution in value of the Pre-Petition
Secured Lenders' interests in the Pre-Petition Collateral resulting from (x) the
use by the Debtors of Cash Collateral and any other Pre-Petition Collateral, (y)
the priming of the Pre-Petition Agent's and the other Pre-Petition Secured
Lenders' security interests and liens in the Pre-Petition Collateral by the
Agent and the Banks pursuant to the Financing and this Order and (z) the
imposition of the automatic stay pursuant to Section 362 of the Code, the Pre-
Petition Agent and the Pre-Petition Secured Lenders (A) are granted (effective
upon the Filing Date and without the necessity of the execution by the Debtors
of mortgages, security agreements, pledge agreements, financing statements or
other agreements) a security interest in and lien upon all the Collateral which
adequate protection lien shall have a priority immediately junior to the priming
and other liens to be granted in favor of the Agent (and, in the case of Real
Estate Receivables arising on or after the Filing Date out of the use of the
properties that are subject as of the Filing Date to valid and perfected liens
in favor of the Real Estate Lenders, also junior to adequate protection liens on
such Real Estate Receivables that may be granted in favor of the Real Estate
Lenders), subject and subordinate to only (i) the security interests and liens
granted to the Agent for the benefit of the Banks in this Order and pursuant to
the Documents (and any other liens to which the liens in favor of the Agent are
subject) and (ii) the Carve-Out, (B) are granted a superpriority claim pursuant
to Section 507(b) of the Code, immediately junior to the claims under Section
364(c)(1) of the Code held by the Agent and the Banks as set forth in paragraph
10 (and junior to the Carve-Out) and (C) shall receive current cash payments
from Debtors of the reasonable fees and disbursements (as to which invoices are
furnished) of counsel and financial, internal and third-party consultants
incurred by the  Pre-Petition Agent under the Existing Agreements, the
reasonable counsel fees and disbursements (as to which invoices are furnished)
of the members of the Pre-Petition Steering Committee under the Existing

                                       17
<PAGE>

Agreements, the reasonable counsel fees and disbursements (as to which invoices
are furnished) of FBTC and fees payable to the Pre-Petition Agent under the
Existing Agreements; provided, that, without prejudice to the rights of any
                     --------
other party to contest such assertion, the Pre-Petition Agent and the Pre-
Petition Secured Lenders reserve their rights to assert claims for accrued and
unpaid letter of credit fees and interest on the Pre-Petition Debt at the
applicable amount or rates of interest, as the case may be, as provided for in
the Existing Agreements (it being understood that neither the Pre-Petition Agent
nor the Pre-Petition Secured Lenders shall seek payment of such claims prior to
the Consummation Date of a Reorganization Plan, as each such term is defined in
the DIP Credit Agreement, in any of the Chapter 11 cases absent a showing of
materially changed circumstances).  As additional adequate protection, so long
as no Event of Default or event, which upon notice or lapse of time or both,
would constitute an Event of Default shall have occurred and be continuing, the
Debtors are authorized and directed to pay to the Pre-Petition Agent, for the
benefit of the Pre-Petition Secured Lenders, the cash proceeds of any "prudent
buyer" settlement entered into with the United States Health Care Financing
Administration and 75% of the Net Proceeds of asset sales or dispositions
(other than of Excluded Pre-Petition Collateral) that are permitted under the
Credit Agreement and are not required to be applied to the loans thereunder.

     15.  Under the circumstances, the Court finds that the adequate protection
provided herein is reasonable and sufficient to protect the interests of the
Pre-Petition Secured Lenders notwithstanding any other provision hereof.

     16.  The Agent, the Banks, the Pre-Petition Agent and the Pre-Petition
Secured Lenders who were granted security interests and liens hereunder shall
not be required to file or record financing statements, mortgages, notices of
lien or similar instruments in any jurisdiction or take any other action in
order to validate and perfect the security interests and liens granted to them
pursuant

                                       18
<PAGE>

to this Order. If the Agent on behalf of the Banks or the Pre-Petition Secured
Lenders shall, in their sole discretion, choose to file such financing
statements, mortgages, notices of lien or similar instruments or otherwise
confirm perfection of such security interests and liens, all such documents
shall be deemed to have been filed or recorded at the time and on the date of
entry of the First Day Order (as to the Financing and the Documents) and the
Filing Date (as to the use of Cash Collateral). Neither the Pre-Petition Secured
Lenders nor the Pre-Petition Agent shall file such financing statements,
mortgages, notices of lien or similar instruments, or otherwise confirm
perfection of such security interests and liens, unless the Agent on behalf of
the Banks shall theretofore have done so.

     17.  Upon the request of the Agent, the Pre-Petition Secured Lenders are
authorized to take, execute and deliver such instruments (in each case without
representation or warranty of any kind) to enable the Agent to further perfect,
preserve and enforce the security interests and liens granted to the Agent for
the benefit of the Banks by the Documents and this Order.

     18.  The Pre-Petition Secured Lenders are directed to (i) promptly turn
over to the Debtors all Cash Collateral, within the meaning of Section 363(a) of
the Code received or held by them, and (ii) so long as there are any borrowings
or letters of credit outstanding, or the Banks have any Commitment (as defined
in the DIP Credit Agreement) under the DIP Credit Agreement, take no action to
foreclose upon the liens granted to the Pre-Petition Secured Lenders pursuant to
the Existing Agreements and this Order, or otherwise exercise remedies against
the Collateral, in each case to the extent not authorized by an order of this
Court.

     19.  Each of the Debtors is authorized and directed to do and perform all
acts, to make, execute and deliver all instruments and documents (including,
without limitation, the execution of security agreements, mortgages and
financing statements), and to pay fees, which may be reasonably required or
necessary for the Debtors' performance under the Financing, including, without

                                       19
<PAGE>

limitation:  (i) the execution of the Documents, (ii) the execution of one or
more amendments to the DIP Credit Agreement for, among other things, the purpose
of adding additional financial institutions as Banks and reallocating the
Commitments for the Financing among the current Banks and such additional
financial institutions, and (iii) the non-refundable payment to Chase or the
Banks, as the case may be, of the Fees referred to in the DIP Credit Agreement
(and in the separate letter agreement dated December 22, 1999, between the
Borrower and Chase referred to in the DIP Credit Agreement) and such Letter of
Credit Fees, Commitment Fees and reasonable costs and expenses (as to which
invoices are furnished) as may be due from time to time including, without
limitation, reasonable attorneys' fees and disbursements (as to which invoices
are furnished) as provided in the Documents, all as such terms are defined in
the Documents.

     20.  (a) The authority of the United States Department of Health and Human
Services ("HHS") to collect prepetition overpayments from the Debtors shall be
           ---
governed by this order and the Stipulation dated January 18, 2000, between HHS
and the Debtors, the terms of which are hereby incorporated by reference.

          (b)  Subject to the HHS Stipulation, any federal governmental unit,
including the departments and agencies thereof, and any fiscal intermediaries
thereof, shall have no right to recoup provider reimbursement overpayments that
were made to any Debtor from any amounts due to such Debtor (or any other
Debtor) other than to recoup such overpayments that arise under the same
provider agreement or comparable applicable statutes, regulations, or
arrangements, and in the same provider cost-year as the amounts due to such
Debtor arise.  This paragraph does not affect offset rights permitted by order
of the Court or by written postpetition agreement of the parties.

     21.  So long as there are any borrowings or letters of credit outstanding,
or the Banks have any Commitment, under the DIP Credit Agreement, or any of the
Documents remains in effect, the

                                       20
<PAGE>

Debtors shall not assume without the written consent of the Agent, and no order
shall be entered authorizing the assumption of, any provider agreements between
any of the Debtors and any governmental unit.

     22.  This Order shall be deemed the order of a court of competent
jurisdiction for purposes of 42 U.S.C. (S) 1395g(c)(1). In view of the filing of
these Chapter 11 Cases and the HHS Stipulation referred to in paragraph 20(a)
above, 42 C.F.R. (S) 424.90(b) on its face does not apply and nothing contained
herein shall limit any claims or defenses of the Debtors, the Agent or the Banks
under applicable law, except as provided in the HHS Stipulation.

     23.  Subject only to the provisions of the Credit Agreement, the automatic
stay provisions of Section 362 of the Code are vacated and modified to the
extent necessary so as to permit the Agent and the  Banks to exercise, upon the
occurrence of an Event of Default and the giving of the 5 business days' written
notice provided for in the Credit Agreement, all rights and remedies provided
for in the Documents (including, without limitation, the right to setoff monies
of the Debtors in accounts maintained with the Agent or any Bank).  Except as
otherwise provided in Article VII of the Credit Agreement, the Debtors' right to
use Cash Collateral shall terminate automatically on the Termination Date.

     24.  The Documents and the provisions of this Order shall be binding upon
the Agent, the Banks, the Pre-Petition Agent, the Pre-Petition Secured Lenders
and the Debtors and their respective successors and assigns (including any
Chapter 7 or Chapter 11 trustee hereinafter appointed or elected for the estate
of any of the Debtors) and inure to the benefit of the Agent, the Banks, the
Pre-Petition Agent, the Pre-Petition Secured Lenders and the Debtors and (except
with respect to any trustee hereinafter appointed or elected for the estate of
any of the Debtors) their respective successors and assigns.

                                       21
<PAGE>

     25.  The agreements and acknowledgments contained in paragraphs 2 and 3 of
this Order shall be binding upon all parties in interest, including any
Committee, unless (i) a party in interest has properly filed an adversary
proceeding or contested matter (subject to the limitation contained in paragraph
8) by no later than the date that is 90 days after the selection of counsel by
the Official Committee of Unsecured Creditors in the Cases, (x) challenging the
validity, enforceability, priority or extent of the Pre-Petition Debt or the
Pre-Petition Agent's or the Pre-Petition Secured Lenders' liens on the Pre-
Petition Collateral, or (y) otherwise asserting any claims or causes of action
against the Pre-Petition Agent or the Pre-Petition Secured Lenders on behalf of
the Debtors' estates, and (ii) the Court rules in favor of the plaintiff in any
such timely and properly filed adversary proceeding or contested matter. If no
such adversary proceeding or contested matter is properly filed as of such date,
(a) the Pre-Petition Obligations shall constitute allowed claims, not subject to
subordination and otherwise unavoidable, for all purposes of the Debtors'
Chapter 11 Cases and any subsequent Chapter 7 Cases, (b) the Pre-Petition
Agent's and the Pre-Petition Secured Lenders' liens on the Pre-Petition
Collateral shall be deemed to have been, as of the Filing Date, legal, valid,
binding, perfected, not subject to subordination and otherwise unavoidable and
(c) the Pre-Petition Obligations, the Pre-Petition Agent's and the Pre-Petition
Secured Lenders' liens on the Pre-Petition Collateral and the Pre-Petition Agent
and the Pre-Petition Secured Lenders shall not be subject to any other or
further challenge by any party in interest seeking to exercise the rights of the
Debtors' estates, including, without limitation, any successor thereto. If any
such adversary proceeding or contested matter is properly filed as of such date,
the agreements and acknowledgments contained in paragraphs 2 and 3 shall
nonetheless remain binding and preclusive (as provided in the second sentence of
this paragraph 25) except to the extent that such findings were expressly
challenged in such adversary proceeding or contested matter.

                                       22
<PAGE>

     26.  Unless all obligations and indebtedness owing to the Agent and the
Banks under the DIP Credit Agreement shall theretofore have been paid in full
(and, with respect to outstanding Letters of Credit issued pursuant to the DIP
Credit Agreement, collateralized with cash or back-to-back letters of credit in
accordance with the provisions of the DIP Credit Agreement), the Debtors shall
not seek, and it shall constitute an Event of Default if any of the Debtors
seek, or if there is entered, an order dismissing any of the Cases.  If an order
dismissing any of the Cases under Section 1112 of the Code or otherwise is at
any time entered, such order shall provide (in accordance with Sections 105 and
349 of the Code) that (x) the priming liens and security interests and
replacement security interests granted to the Agent and the Banks and the Pre-
Petition Secured Lenders, as the case may be, pursuant to this Order shall
continue in full force and effect and shall maintain their priorities as
provided in this Order until all obligations in respect thereof shall have been
paid and satisfied in full (and that such priming liens and replacement liens,
shall, notwithstanding such dismissal, remain binding on all parties in
interest) and (y) this Court shall retain jurisdiction, notwithstanding such
dismissal, for the purposes of enforcing the liens and security interests
referred to in (x) above.  If any or all of the provisions of this Order are
hereafter reversed, modified, vacated or stayed, such reversal, stay,
modification or vacation shall not affect (i) the validity of any obligation,
indebtedness or liability incurred by the Debtors to the Banks prior to written
notice to the Agent of the effective date of such reversal, stay, modification
or vacation, or (ii) the validity and enforceability of any lien or priority
authorized or created hereby or pursuant to the DIP Credit Agreement with
respect to any such obligations, indebtedness or liability.  Notwithstanding any
such reversal, stay, modification or vacation, any use of Cash Collateral or any
indebtedness, obligation or liability incurred by the Debtors to the Banks prior
to written notice to Pre-Petition Agent, the  Pre-Petition Secured Lenders and
the Agent of the effective date of such reversal, stay, modification

                                       23
<PAGE>

or vacation shall be governed in all respects by the original provisions of this
Order, and the Banks and the Pre-Petition Secured Lenders shall be entitled to
all the rights, remedies, privileges and benefits, granted herein and/or
pursuant to the DIP Credit Agreement with respect to all uses of Cash Collateral
and such indebtedness, obligation or liability. The obligations of the Debtors
under this Order and the Financing shall not be discharged by the entry of an
order confirming a plan of reorganization in any of the Cases and, pursuant to
Section 1141(d)(4) of the Code, the Debtors have waived such discharge with
respect to such obligations.

     27.  The Borrower is hereby authorized and directed to perform its
obligations described in the Management Protocol attached hereto as Annex A, the
terms of which are hereby approved.

     28.  Nothing set forth in this Order shall be deemed to be a determination
as to the validity, priority, perfection or nonavoidability of the liens and
security interests of any of the Real Estate Lenders (including HRPT, Omega,
SouthTrust, LaSalle National Bank, NHP or the Other Holders), and the rights of
all parties with respect thereto are fully reserved.

     29.  The notice given by the Debtors of the Motion and of the Interim
Hearing constitutes due and sufficient notice of the Motion and of the Interim
Hearing.  Debtors shall promptly mail copies of this Order to the parties having
been given notice of the First Day Hearing and the Interim Hearing and to any
other party which has filed a request for notices with this Court and to any
Committee after the same has been appointed, or Committee counsel, if the same
shall have been appointed.  Any party in interest objecting to the relief sought
at the Final Hearing shall serve and file written objections; which objections
shall be served upon (i) Stutman, Treister & Glatt Professional Corporation,
3699 Wilshire Boulevard, Suite 900, Los Angeles, California, 90010 Attn: Isaac
Pachulski, Esq. and K. John Shaffer, Esq. (Facsimile: 213-251-5288) and Powell,
Goldstein, Frazer & Murphy LLP, 191 Peachtree Street, N.E., 16th Floor, Atlanta,
Georgia, 30303, Attn: Robert

                                       24
<PAGE>

C. Lewinson, Esq. (Facsimile: 404-572-6999), and Richards, Layton & Finger,
P.A., One Rodney Square, P.O. Box 551, Wilmington, Delaware 19899, Attn: Thomas
L. Ambro, Esq., (Facsimile: 302-658-6548), Attorneys for the Debtors; (ii)
Morgan, Lewis & Bockius LLP, 101 Park Avenue, New York, New York 10178,
Attention: Robert H. Scheibe, Esq. (Facsimile: 212-309-6273), Attorneys for The
Chase Manhattan Bank, as Agent under the Credit Agreement; (iii) Simpson,
Thacher & Bartlett, 425 Lexington Avenue, New York, New York, Attention: Kenneth
Ziman, Esq. (Facsimile: 212-455-2502), Attorneys for The Chase Manhattan Bank,
as Pre-Petition Agent; (iv) Duane Morris & Heckscher LLP, 1201 Market Street,
Wilmington, Delaware 19801, Attention: Adam Landis, Esq. (Facsimile: 302-571-
5560), Attorneys for The Chase Manhattan Bank, as Agent under the Credit
Agreement and as Pre-Petition Agent; (v) Mayer, Brown & Platt, 1672 Broadway,
New York, New York 10019, Attention: Raniero D'Aversa, Esq. (Facsimile: 212-849-
5823), Attorneys for FBTC Leasing Corp.; and (vi) the Office of the United
States Trustee for the District of Delaware, and shall be filed with the Clerk
of the United States Bankruptcy Court, District of Delaware, in each case to
allow receipt by the foregoing no later than five (5) days before such hearing.

                                       25
<PAGE>

     30.  Notwithstanding anything in this Order to the contrary, any liens and
claims granted by this Order against the Omega Debtors (as referred to at the
First Day Hearing) are limited as stated on the record of the First Day Hearing;
provided that nothing contained in this paragraph 30 applies to GranCare, Inc.
--------

Dated:  Wilmington, Delaware
        January 28, 2000


                                   /s/  Mary F. Walrath
                                   ------------------------------
                                   UNITED STATES BANKRUPTCY JUDGE

                                       26
<PAGE>

                              Status of Petitions
                       Mariner Post Acute Network, Inc.
                          Mariner Health Group, Inc.
                               and Subsidiaries


              Subsidiary                              Tax ID    Bankr. Case No.
              ----------                              ------    ---------------
1    Mariner Post-Acute Network, Inc.               74-2012902     00-00113
2    American Medical Insurance Billing
       Services, Inc.                               58-1835451     00-00114
3    American Pharmaceutical Services, Inc.         94-1736287     00-00115
4    American Rehability Services, Inc.             87-0517516     00-00116
5    American-Cal Medical Services, Inc.            95-2950019     00-00117
6    Amerra Properties, Inc.                 never applied for     00-00118
7    AMS Green Tree, Inc.                           39-1445025     00-00119
8    AMS Properties, Inc.                           95-4299212     00-00120
9    APS Holding Company, Inc.                      88-0365764     00-00121
10   APS Pharmacy Management, Inc.                  76-2091355     00-00122
11   Brian Center Health & Retirement/
       Alleghany, Inc.                              56-1621199     00-00123
12   Brian Center Health & Retirement/
       Bastian, Inc.                                56-1624374     00-00124
13   Brian Center Health & Rehabilitation/
       Tampa, Inc.                                  06-1209962     00-00125
14   Brian Center Health & Retirement/
       Wallace, Inc.                                56-1648741     00-00126
15   Brian Center Management Corporation            56-1086182     00-00127
16   Brian Center Nursing Care/Austell, Inc.        56-1108577     00-00128
17   Brian Center Nursing Care/Fincastle, Inc.      56-1621198     00-00129
18   Brian Center Nursing Care/Hickory, Inc.        56-1154190     00-00130
19   Brian Center Nursing Care/Powder
       Springs, Inc.                                56-1619996     00-00131
20   Brian Center of Asheboro, Inc.                 56-1342445     00-00132
21   Brian Center of Central Columbia, Inc.         56-1343624     00-00133

                                       27
<PAGE>

              Subsidiary                              Tax ID    Bankr. Case No.
              ----------                              ------    ---------------
22   Cambridge Bedford, Inc.                        38-2549352     00-00134
23   Cambridge East, Inc.                           38-2549069     00-00135
24   Cambridge North, Inc.                          38-2549072     00-00136
25   Cambridge South, Inc.                          38-2549074     00-00137
26   Clintonaire Nursing Home, Inc.                 38-2727238     00-00138
27   Connerwood Healthcare, Inc.                    35-1920689     00-00139
28   Cornerstone Health Management Company          75-2339430     00-00140
29   Crestmont Health Center, Inc.                  38-2631128     00-00141
30   Devcon Holding Company                         76-0504538     00-00142
31   EH Acquisition Corp.                           35-1921817     00-00143
32   EH Acquisition Corp. II                        38-1923423     00-00144
33   EH Acquisition Corp. III                       35-1947211     00-00145
34   Evergreen Healthcare, Inc.                     75-2155338     00-00146
35   Evergreen Healthcare, Ltd., L.P.               38-2795206     00-00147
36   Frenchtown Nursing Home, Inc.                  38-2697105     00-00148
37   GC Services, Inc.                              39-1756284     00-00149
38   GCI Bella Vita, Inc.                           39-1756284     00-00150
39   GCI Camellia Care Center, Inc.                 84-1247816     00-00151
40   GCI Colter Village, Inc.                       39-1747058     00-00152
41   GCI East Valley Medical &
       Rehabilitation Center, Inc.                  86-0782141     00-00153
42   GCI Faith Nursing Home, Inc.                   95-4478515     00-00154
43   GCI Health Care Centers, Inc.                  95-4371674     00-00155
44   GCI Jolley Acres, Inc.                         95-4478510     00-00156
45   GCI Palm Court, Inc.                           95-4386135     00-00157

                                       28
<PAGE>

              Subsidiary                              Tax ID    Bankr. Case No.
              ----------                              ------    ---------------
46   GCI Prince George, Inc.                        95-4478511     00-00158
47   GCI Rehab, Inc.                                39-1755667     00-00159
48   GCI Springdale Village, Inc.                   95-4478513     00-00160
49   GCI Therapies, Inc.                            33-0396430     00-00161
50   GCI Village Green, Inc.                        95-4478514     00-00162
51   GCI-Wisconsin Properties, Inc.                 39-1756278     00-00163
52   GCI-Cal Therapies Company                      33-0592366     00-00164
53   GranCare Home Health Services, Inc.            95-4383753     00-00165
54   GranCare of Michigan, Inc.                     38-2483520     00-00166
55   GranCare of North Carolina, Inc.               58-2345994     00-00167
56   GranCare of Northern California, Inc.          95-4450976     00-00168
57   GranCare of South Carolina, Inc.               95-4476032     00-00169
58   GranCare, Inc.                                 95-4336136     00-00170
59   Hawk's - Perimeter, Inc.                          unknown     00-00171
60   Heritage Nursing Home, Inc.                    38-2697398     00-00172
61   Heritage of Louisiana, Inc.                    58-1435495     00-00173
62   HMI Convalescent Care, Inc.                    95-4303086     00-00174
63   Hospice Associates of America, Inc.            76-0504536     00-00175
64   HostMasters, Inc.                              95-4123374     00-00176
65   International Health Care Management, Inc.     38-2549065     00-00177
66   International X-Ray, Inc.                      38-2839855     00-00178
67   LC Management Company                          74-1809336     00-00179
68   LCA Operational Holding Company                76-0463839     00-00180
69   LCR, Inc.                                      76-0490253     00-00181

                                       29
<PAGE>

              Subsidiary                              Tax ID    Bankr. Case No.
              ----------                              ------    ---------------
70   Living Centers - East, Inc.                    74-1955204     00-00182
71   Living Centers - PHCM, Inc.                    58-2402848     00-00183
72   Living Centers - Rocky Mountain, Inc.          84-0583991     00-00184
73   Living Centers - Southeast Development
       Corporation                                  56-1286742     00-00185
74   Living Centers - Southeast, Inc.               56-0997245     00-00186
75   Living Centers Development Company             76-0529365     00-00187
76   Living Centers Holding Company                 76-0521130     00-00214
77   Living Centers LTCP Development Company        76-0511537     00-00188
78   Living Centers of Texas, Inc.                  74-1623371     00-00189
79   Madonna Nursing Center, Inc.                   38-2727240     00-00190
80   Med-Therapy Rehabilitation Services, Inc.      56-1120078     00-00191
81   Middlebelt Nursing Home, Inc.                  38-2577064     00-00192
82   Middlebelt-Hope Nursing Home, Inc.             38-2599703     00-00193
83   Nan-Dan Corp.                                  59-1936462     00-00194
84   National Heritage Realty, Inc.                 78-2080781     00-00195
85   Nightingale East Nursing Center, Inc.          38-2671539     00-00196
86   Omega/Indiana Care Corp.                       38-2795209     00-00197
87   Professional Health Care Management, Inc.      38-2549067     00-00198
88   Professional Rx Systems, Inc.                  65-0032651     00-00199
89   Rehability Health Services, Inc.               74-1502449     00-00200
90   Renaissance Mental Health Center, Inc.         39-1772436     00-00201
91   St. Anthony Nursing Home, Inc.                 38-2727241     00-00202
92   Summit Hospital Holdings, Inc.                 58-2145076     00-00203
93   Summit Hospital of East Georgia, Inc.                         00-00204

                                       30
<PAGE>

              Subsidiary                              Tax ID    Bankr. Case No.
              ----------                              ------    ---------------
94   Summit Hospital of Southeast Arizona, Inc.     58-2264857     00-00205
95   Summit Hospital of Southeast Texas, Inc.       58-2264831     00-00206
96   Summit Hospital of Southwest
       Louisiana, Inc.                              58-2188760     00-00207
97   Summit Hospital of West Georgia, Inc.   never applied for     00-00208
98   Summit Institute for Pulmonary
       Medicine and Rehabilitation, Inc.            58-192230      00-00209
99   Summit Institute of Austin, Inc.               58-2145074     00-00210
100  Summit Institute of West Monroe, Inc.          58-2015591     00-00211
101  Summit Medical Holdings, Ltd.
       (this is not a partnership)                  58-2403691     00-00212
102  Summit Medical Management, Inc.                58-1926543     00-00213

                                       31
<PAGE>

              Subsidiary                              Tax ID    Bankr. Case No.
              ----------                              ------    ---------------
103  Mariner Health Group, Inc.                     06-1251310     00-00215
104  Aid & Assistance, Inc.                         06-0922046     00-00216
105  Allegis Health and Living Center at
       Heritage Harbour, L.L.C.                     58-2433067     00-00217
106  Beechwood Heritage Retirement
       Community, Inc.                              58-2433064     00-00218
107  Bride Brook Nursing & Rehabilitation
       Center, Inc.                                 06-1281699     00-00219
108  Compass Pharmacy Services of
       Maryland, Inc.                               06-1460006     00-00220
109  Compass Pharmacy Services of
       Texas, Inc.                                  75-2615244     00-00221
110  Compass Pharmacy Services, Inc.                04-3166495     00-00222
111  Cypress Nursing Facility, Inc.                 57-0628689     00-00223
112  IHS Rehab Partnership, Ltd.                    75-2196937     00-00224
113  Long Ridge Nursing and Rehabilitation
       Center, Inc.                                 58-2433065     00-00225
114  Longwood Rehabilitation Center, Inc.           04-3105863     00-00226
115  Mariner - Regency Health Partners, Inc.        58-1686105     00-00227
116  Mariner Health at Bonifay, Inc.                06-1447760     00-00228
117  Mariner Health Care of Atlantic Shores, Inc.   59-3331913     00-00229
118  Mariner Health Care of Deland, Inc.            59-3331901     00-00230
119  Mariner Health Care of Fort Wayne, Inc.        35-1924040     00-00231
120  Mariner Health Care of Greater Laurel, Inc.    52-1839750     00-00232
121  Mariner Health Care of Inverness, Inc.         59-3331904     00-00233
122  Mariner Health Care of Lake Worth, Inc.        59-3250672     00-00234
123  Mariner Health Care of MacClenny, Inc.         59-3331909     00-00235
124  Mariner Health Care of Metrowest, Inc.         59-3331905     00-00236
125  Mariner Health Care of Nashville, Inc.         58-2238489     00-00237

                                       32
<PAGE>

              Subsidiary                              Tax ID    Bankr. Case No.
              ----------                              ------    ---------------
126  Mariner Health Care of North Hills, Inc.       25-1732608     00-00238
127  Mariner Health Care of Orange City, Inc.       59-3260680     00-00239
128  Mariner Health Care of Palm City, Inc.         65-0512016     00-00240
129  Mariner Health Care of Pinellas Point, Inc.    59-3287015     00-00241
130  Mariner Health Care of Port Orange, Inc.       59-3260682     00-00242
131  Mariner Health Care of Southern
       Connecticut, Inc.                            06-1289658     00-00243
132  Mariner Health Care of Toledo, Inc.            34-1773874     00-00244
133  Mariner Health Care of Tuskawilla, Inc.        59-3331915     00-00245
134  Mariner Health Care of West Hills, Inc.        25-1736852     00-00246
135  Mariner Health Care, Inc.                      04-2926741     00-00247
136  Mariner Health Central, Inc.                   06-1476203     00-00248
137  Mariner Health Home Care, Inc.                 06-1482883     00-00249
138  Mariner Health Properties, IV, LTD             59-3112307     00-00250
139  Mariner Health of Jacksonville, Inc.           16-1459910     00-00251
140  Mariner Health of Maryland, Inc.               52-1988921     00-00252
141  Mariner Health of Orlando, Inc.                06-1462467     00-00253
142  Mariner Health of Palmetto, Inc.                06-144775     00-00254
143  Mariner Health of Seminole County, Inc.        06-1441718     00-00255
144  Mariner Health of Tampa, Inc.                  06-1463167     00-00256
145  Mariner Health Properties VI, LTD.             59-3359078     00-00257
146  Mariner Health Resources, Inc.                 04-0884000     00-00258
147  Mariner Physician Services, Inc.               06-1423565     00-00259
148  Mariner Practice Corporation                   06-1476521     00-00260
149  Mariner Supply Services, Inc.                  06-1418697     00-00261

                                       33
<PAGE>

              Subsidiary                              Tax ID    Bankr. Case No.
              ----------                              ------    ---------------
150  MarinerSelect Staffing Solutions, Inc.         06-1462360     00-00262
151  MedRehab of Indiana, Inc.                      35-1710608     00-00263
152  MedRehab of Louisiana, Inc.                    72-0912855     00-00264
153  MedRehab of Missouri, Inc.                     43-1124329     00-00265
154  MedRehab, Inc.                                 58-2805053     00-00266
155  Merrimack Valley Nursing & Rehabilitation
       Center, Inc.                                 04-2970051     00-00267
156  Methuen Nursing & Rehabilitation
       Center, Inc.                                 04-3038057     00-00268
157  MHC Rehab Corp.                                06-1418699     00-00269
158  MHC Transportation, Inc.                       06-1411787     00-00270
159  Mystic Nursing & Rehabilitation
       Center, Inc.                                 04-2847870     00-00271
160  National Health Strategies, Inc.               04-3165077     00-00272
161  Ocean Pharmacy, Inc.                           06-0724667     00-00273
162  Park Terrace Nursing & Rehabilitation
       Center, Inc.                                 04-2972799     00-00274
163  Pendleton Nursing & Rehabilitation
       Center, Inc.                                 06-1281698     00-00275
164  Pinnacle Care Corporation                      62-1250299     00-00276
165  Pinnacle Care Corporation of Huntington        62-1311408     00-00277
166  Pinnacle Care Corporation of Nashville         62-1282817     00-00278
167  Pinnacle Care Corporation of Seneca            62-1338119     00-00279
168  Pinnacle Care Corporation of Sumter            62-1287142     00-00280
169  Pinnacle Care Corporation of Williams Bay      62-1332923     00-00281
170  Pinnacle Care Corporation of Wilmington        56-1536965     00-00282
171  Pinnacle Care Management Corporation           62-1406751     00-00283
172  Pinnacle Pharmaceutical Services, Inc.         62-1451396     00-00284
173  Pinnacle Pharmaceuticals, Inc.                    Unknown     00-00285

                                       34
<PAGE>

              Subsidiary                              Tax ID    Bankr. Case No.
              ----------                              ------    ---------------
174  Pinnacle Rehabilitation of Missouri, Inc.      43-1210889     00-00286
175  Pinnacle Rehabilitation, Inc.                  62-1325550     00-00287
176  Prism Care Centers, Inc.                       04-3165075     00-00288
177  Prism Health Group, Inc.                       04-3165074     00-00289
178  Prism Home Care Company, Inc.                  04-3327298     00-00290
179  Prism Home Care, Inc.                          04-3324344     00-00291
180  Prism Home Health Services, Inc.               04-3327297     00-00292
181  Prism Hospital Ventures, Inc.                  75-2251466     00-00293
182  Prism Rehab. Systems, Inc.                     54-1537031     00-00294
183  Regency Health Care Center of Seminole
       County, Inc.                                 59-3347673     00-00295
184  Sassaquin Nursing & Rehabilitation
       Center, Inc.                                 04-2889876     00-00296
185  Seventeenth Street Associates Limited
       Partnership                                  55-0666388     00-00297
186  Tampa Medical Associates, Inc.                 59-3377257     00-00298
187  Tri-State Health Care, Inc.                    58-1696013     00-00299
188  Windward Health Care, Inc.                     04-3166396     00-00300
189  Mariner Health of Florida, Inc.                06-1447762     00-00301

                                       35
<PAGE>

                                    Annex A

                            Management Protocol /1/

      (a)  The MHG Debtors shall make Overhead Payments to MPAN at the times and
   in accordance with the terms set forth in Section 7.07 of the MHG DIP
   Financing Agreement so long as and to the extent that MPAN provides
   supervisory services with respect to certain aspects of the management of the
   Healthcare Facilities in substantially the same manner in which MPAN
   supervises such aspects of management as of the Closing Date.

      (b)  The MHG Debtors shall not permit MPAN to, and MPAN shall not, cease
   for any reason to supervise those aspects of the management of each
   Healthcare Facility which MPAN supervises as of the Closing Date in
   substantially the same manner in which MPAN supervises such aspects of
   management as of the Closing Date, except as set forth below.

      (c)  Each of (i) the Required Lenders under the MHG DIP Financing
   Agreement or the Administrative Agent under the MHG DIP Financing Agreement
   on behalf of such Required Lenders, on the one hand, or (ii) MPAN, on the
   other, each in their respective discretion, may terminate MPAN's supervisory
   obligations in accordance with the terms and conditions of Section 5.13(b)
   and (c) of the MHG DIP Financing Agreement, and the automatic stay shall be
   deemed terminated as provided in Section 5.13(b) of the MHG DIP Financing
   Agreement as of the Termination Effective Date with respect to any such
   termination by MPAN. Each of the MHG Debtors and MPAN shall take such actions
   as are contemplated by Section 5.13(b) and 5.13(c) of the MHG DIP Financing
   Agreement in connection with any such termination. Court approval of any
   Replacement Manager designated pursuant to clause (c)(i) of this Annex A
   shall be limited solely to approval of the qualifications of such Replacement
   Manager. At all times after the Petition Date until MPAN is permitted
   hereunder to cease performing its supervisory services with respect to any
   Healthcare Facility, the MHG Debtors shall, and shall cause MPAN to, and MPAN
   shall, cooperate fully with the Administrative Agent and the Required Lenders
   and any consultants or advisors or other Persons identified by the
   Administrative Agent or the Required Lenders in providing reasonable access
   to such Healthcare Facility, employees of the MHG Debtors and the MHG
   Debtors' books and records all in accordance with the terms of the MHG DIP
   Financing Agreement. Without limiting the generality of the foregoing, the
   MHG Debtors shall not permit, and MPAN shall not cause, any of the books and
   records (including but not limited to separate financial and accounting
   records, patient information, personnel information and census information)
   or any applicable computer programs and computer materials for any such
   Healthcare Facility to be removed from such Healthcare Facility. Such books
   and records (including but not limited to separate financial and accounting

----------------
/1/ All undefined capitalized terms herein used shall have the meanings ascribed
to them in the Mariner Health Group DIP Financing Agreement in effect as of the
date hereof (the "MHG DIP Financing Agreement"); the term "MHG Debtors" shall
                  ---------------------------              -----------
mean Mariner Health Group, Inc. and its filed subsidiaries and the term "MPAN"
                                                                         ----
shall mean Mariner Post-Acute Network, Inc.

                                       36
<PAGE>

   records, patient information, personnel information and census information)
   for each Healthcare Facility, which books and records, together with any
   applicable computer programs and computer materials, shall be at all times
   owned by (or, in the case of computer programs, licensed to) the relevant
   Healthcare Facility and copies of which shall be kept at the relevant
   Healthcare Facility to the extent consistent with the practices of the MHG
   Debtors in effect on the Petition Date.

     (d) Except as otherwise permitted under the MHG DIP Financing Agreement,
   the MHG Debtors shall not, without the written consent (not to be
   unreasonably withheld) of the Agents, (i) cause or permit the transfer of any
   Management Employee to MPAN and (ii) enter into any new employment agreement
   with, or make any change in the compensation or other terms of employment of,
   any Management Employee other than changes consistent with the normal
   business practices of the MHG Debtors prior to the Petition Date or
   consistent with changes made by MPAN with respect to comparable employees of
   MPAN; provided that, in any event, no retention or severance policy may be
   implemented after the Closing Date by the MHG Debtors without written
   approval of the Agents. MPAN shall not enter into any contractual arrangement
   or agreement with any Regional Manager that has the effect of prohibiting
   such Regional Manager from accepting employment with the MHG Debtors or the
   Healthcare Facilities.

     (e) This Annex A and those provisions of the MHG DIP Financing Agreement
   herein referenced shall not be amended in any manner that substantively
   affects the provisions of this Annex A without the prior written consent of
   the Required Lenders and MPAN. This Annex A and the rights of MPAN and the
   respective parties to the MHG DIP Financing Agreement and the DIP Credit
   Agreement (as defined in the prefixed Order) to enforce this Annex A shall
   survive the termination of the MHG DIP Financing Agreement and the DIP Credit
   Agreement. Nothing in this Annex A shall be deemed to limit any other rights
   or remedies available to (x) the Agents or the Lenders under the MHG DIP
   Financing Agreement or (y) the Agent or the Banks under the DIP Credit
   Agreement (as each such term used in this clause (y) is used therein). This
   Annex A shall be binding on the MHG Debtors, MPAN and their respective
   estates and on any trustee appointed for any of the foregoing in this or in
   the MHG Debtors' cases or any Chapter 7 case.

     (f) The respective obligations of each of the MHG Debtors and MPAN shall
   constitute an expense of administration of each of their respective estates,
   junior in each case to the Obligations under the MHG DIP Financing Agreement
   and the obligations of MPAN under the DIP Credit Agreement and any other
   super priority administration claims in the MPAN chapter 11 case.

                                       37