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                                                                    EXHIBIT 10.1

                                                                     CONFORMED

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)

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                    FINAL ORDER AUTHORIZING DEBTORS TO OBTAIN
     POST-PETITION FINANCING PURSUANT TO 11 U.S.C. SS.SS.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. SS.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. ss.ss.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
                  502(d), 544, 545, 547, 548, 549, 550 or 551 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

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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

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                           (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 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")

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                  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 (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")

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                  (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 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 (the "FIRST DAY 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

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         Borrower and the Guarantors as set forth in the Credit Agreement and
         (b) cover overdrafts and related liabilities arising from treasury,
         depository and cash 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 the First Day 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 a final order
         (the "FINAL 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 Final Hearing 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

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a request for notices with this Court, the First Day Hearing having been
conducted on January 18 and 19, 2000 and the First Day Order authorizing such
borrowings having been entered by this Court, and the Interim Hearing having
been held on January 28, 2000 and the Interim Order having been entered by this
Court at the conclusion of the Interim Hearing, and upon all the pleadings filed
with this Court, and notice of the Final Hearing having been published one time,
at least one week prior to the date of the Final Hearing, in the following
newspapers: THE WALL STREET JOURNAL (national edition), and THE NEW YORK TIMES
(national edition), and upon the record made by the Debtors at the First Day
Hearing, the Interim Hearing and the Final Hearing, and after due deliberation
and consideration and sufficient cause appearing therefor;

         IT 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. ss.ss.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

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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 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

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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 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

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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 502(d), 544, 545, 547, 548, 549, 550 or 551 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 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

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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 are 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 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) and the Financing are hereby
approved as set forth in this Order 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 $100,000,000
inclusive of amounts borrowed and letters of credit of credit issued pursuant to
the First Day Order and the Interim 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).

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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, it being
understood that borrowings and Cash Collateral may be used to investigate such
matters.

         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

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Sections 502(d), 544, 545, 547, 548, 549, 550 or 551 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 such continuance in an aggregate amount not in excess of
$3,000,000, in each case by the Borrower, the Guarantors, any statutory
committee (each, a "COMMITTEE") appointed in the Debtors' Chapter 11 cases (the
"CASES") and any Chapter 7 or Chapter 11 trustee hereafter appointed or elected
for the estate of any of the Debtors, and allowed by an order of the Court and
(y) the payment of fees pursuant to 28 U.S.C. ss.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

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future proceeding or case which may result therefrom, including liquidation in
bankruptcy or other proceedings under the Code, shall 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 (subject to
the last sentence of this paragraph) 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. As
to any creditor in existence at the time of publication, publication notice
given as set forth in this Order is sufficient to bind third parties not
otherwise served with the Motion or this Order to the provisions of this
paragraph 11. Notwithstanding the foregoing provisions of this paragraph 11,
each of (x) MCI WorldCom, Inc. and its affiliates, (y) Entergy Gulf States,
Inc., Entergy Louisiana, Inc., Entergy Mississippi, Inc. and their affiliates,
and (z) Holiday Lodge, L.P., Jacinto City, L.P., Lynn Lodge, L.P., Retama Manor,
L.P., Southfield, L.P., Spring Branch, L.P., and Village, L.P. reserves its
right, if any, to assert a claim pursuant to Section 506(c) of the Code against
the Collateral, and the Debtors, the Agent and the Banks reserve their rights
and defenses with respect to any such claim.

         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 entry of the First Day 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

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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 502(d), 544, 545, 547, 548,
549, 550 or 551 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
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

                                       16
<PAGE>

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.

         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

                                       17
<PAGE>

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 other
members of the Pre-Petition Steering Committee under the Existing Agreements (in
an aggregate amount not in excess of $25,000 in any month for all of such
members), 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

                                       18
<PAGE>

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
3Secured 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 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

                                       19
<PAGE>

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 make, 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
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

                                       20
<PAGE>

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 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.


                                       21
<PAGE>

         22. This Order shall be deemed the order of a court of competent
jurisdiction for purposes of 42 U.S.C. ss. 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. ss. 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.

         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

                                       22
<PAGE>

paragraph 8) by no later than the date that is 120 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. Any adversary proceeding or contested matter
initiated by the Committee of Unsecured Creditors pursuant to this paragraph
shall be deemed authorized and properly filed and commenced, without need for
further order of the Court.

                                       23
<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 limited purpose of validating the priority of 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

                                       24
<PAGE>

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 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 Final
Hearing constitutes due and sufficient notice of the Motion and of the Final
Hearing.

         30. Notwithstanding anything in this Order to the contrary
(including, without limitation, the findings herein and the definition of the
term "Financing"), the claims (including superpriority administrative claims),
liens, and protections that are granted or provided by this Order to the Agent
and the Banks (including pursuant to paragraphs 10 and 12 hereof) against: (i)
the Guarantors that are listed on Schedule 1-A hereto (collectively, the "PHCMI
DEBTORS"), and (ii) the assets of the PHCMI Debtors (including, but not limited
to, any cash of such PHCMI Debtors in which Omega has, as of the Filing Date, a
valid, perfected, nonavoidable, first priority security interest, and which is
held, as of the Filing Date, in accounts of other Debtors) shall be limited to
the amount that is

                                       25
<PAGE>

equal to, and shall apply only to the extent that, the amount by which the cash
flow of the PHCMI Debtors from and after January 1, 2000, taken as a whole, and
determined on a cash basis, but after deducting amounts specified in clauses (i)
and (ii) below whether paid in cash or accrued (the "PHCMI DEBTORS' CASH FLOW"),
is negative. In calculating the PHCMI Debtors' Cash Flow, expenses shall include
operating expenditures and capital expenditures directly incurred by the PHCMI
Debtors, and shall further include, without duplication: (i) a management fee
payable to the Borrower by the PHCMI Debtors in an amount equal to five percent
(5%) of the net inpatient revenues of the facilities of the PHCMI Debtors; and
(ii) all other expenses fairly allocable to the PHCMI Debtors (other than
expenses which would fairly be covered by a five percent (5%) management fee),
but including in any event legal, regulatory, insurance, and self-insurance
charges fairly allocable to the PHCMI Debtors.

         31. Notwithstanding anything in this Order to the contrary (including,
without limitation, the findings herein and the definition of the term
"Financing"), the claims (including superpriority administrative claims), liens,
and protections that are granted or provided by this Order to the Pre-Petition
Agent and the Pre-Petition Secured Lenders (including pursuant to paragraph 14
hereof) against: (i) the PHCMI Debtors, and (ii) the assets of the PHCMI Debtors
(including, but not limited to, any cash of such PHCMI Debtors in which Omega
has, as of the Filing Date, a valid, perfected, nonavoidable, first priority
security interest, and which is held, as of the Filing Date, in accounts of
other Debtors) shall be subject to the limitations set forth in paragraph 30
above, provided that the Pre-Petition Agent and Pre-Petition Secured Lenders
shall not be entitled to recover on such claims or realize on such liens to the
extent that the Agent or the Banks have realized on their claims and/or liens
against the PHCMI Debtors or the assets of the PHCMI Debtors.

                                       26
<PAGE>

         32. This Order shall supersede and govern over the terms of the
Documents, to the extent that such terms are inconsistent with this Order.

         33. Except as otherwise specifically provided herein, all rights of
parties-in-interest are hereby preserved and shall not be prejudiced by anything
that is not explicitly addressed herein.

Dated: Wilmington, Delaware
       March 20, 2000

                                                 /S/  MARY F. WALRATH
                                        ----------------------------------------
                                            UNITED STATES BANKRUPTCY JUDGE



                                       27
<PAGE>

                      SCHEDULE I TO DIP FINANCING ORDER



             LIST OF GUARANTORS WHO HAVE FILED CHAPTER 11 PETITIONS
               [THE LIST OF GUARANTORS IS NOT CURRENTLY AVAILABLE
                    IN ELECTRONIC FORM; CASE NUMBERS 00-00113
                   THROUGH 00-00214 HAVE BEEN ASSIGNED TO THE
              CHAPTER 11 CASES OF MARINER POST-ACUTE NETWORK, INC.
                        AND THE GUARANTORS, RESPECTIVELY]


<PAGE>


                                     Annex A

                             Management Protocol1/1/


         (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 Section 5.13(c)(i) of the MHG DIP Financing Agreement 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


-----------------------
/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.

<PAGE>

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 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.


<PAGE>


                                  SCHEDULE 1-A
                            (LIST OF "PHCMI DEBTORS")

Cambridge Bedford, Inc.
Cambridge East, Inc.
Cambridge North, Inc.
Cambridge South, Inc.
ClintonAire Nursing Home, Inc.
Crestmont Health Center, Inc.
Frenchtown Nursing Home, Inc.
Heritage Nursing Home, Inc.
International Health Care Management, Inc.
International X-Ray, Inc.
Living Centers - PHCM, Inc.
Madonna Nursing Center, Inc.
Middlebelt NursingHome, Inc.
Middlebelt-Hope Nursing Home, Inc.
Nightingale East Nursing Center, Inc.
Professional Health Care Management, Inc.
St. Anthony Nursing Home, Inc.