<PAGE>
 
                                                                   EXHIBIT 10.48
 
                                 FIRST AMENDMENT

     FIRST AMENDMENT, dated as of July 8, 1998 (this "Amendment"), to the Credit
                                                      ---------
Agreement, dated as of November 4, 1997 (the "Credit Agreement"), among PARAGON
                                              ----------------
HEALTH NETWORK, INC., a Delaware corporation (the "Borrower"), the several banks
                                                   --------
and other financial institutions or entities from time to time parties thereto
(the "Lenders"), NATIONSBANK, N.A., as documentation agent (in such capacity,
      -------
the "Documentation Agent"), and THE CHASE MANHATTAN BANK, as Administrative
     -------------------
Agent (in such capacity, the "Administrative Agent").
                              --------------------


                                 W I T N E S S E T H:
                                 ------------------- 

     WHEREAS, pursuant to the Credit Agreement, the Lenders have agreed to make,
and have made, certain loans and other extensions of credit to the Borrower; and

     WHEREAS, the Borrower has requested, and, upon this Amendment becoming
effective, the Lenders have agreed, that certain provisions of the Credit
Agreement be amended in the manner provided for in this Amendment;

     NOW, THEREFORE, the parties hereto hereby agree as follows:

     1.  Defined Terms.  (a)  General.  Terms defined in the Credit Agreement
         -------------        -------                              
and used herein shall, unless otherwise indicated, have the meanings given to
them in the Credit Agreement. Terms defined and used in this Amendment shall
have the meanings given to them in this Amendment.

     (b) Replacement of Definitions.  Section 1.1 of the Credit Agreement is
         --------------------------                                      
hereby amended by deleting therefrom the definitions of the following
definitions in their entirety and substituting in lieu thereof the following
definitions in the appropriate alphabetical order:

     'Consolidated EBITDA':  for any period, Consolidated Net Income for such
      -------------------                                               
     period plus, without duplication and to the extent reflected as a charge in
            ----
     the statement of such Consolidated Net Income for such period, the sum of
     (a) total income tax expense, (b) interest expense, amortization or
     writeoff of debt discount and debt issuance costs and commissions,
     discounts and other fees and charges associated with Indebtedness
     (including the Loans), (c) depreciation and amortization expense, (d)
     amortization of intangibles (including, but not limited to, goodwill) and
     organization costs, (e) any extraordinary or non-recurring expenses or
     losses (including, whether or not otherwise includable as a separate item
     in the statement of such Consolidated Net Income for such period, losses on
     sales of assets outside of the ordinary course of business) or, with
     respect to the computation of the financial covenants contained in Section
     7.1 for any Reference Period ending on or prior to September 30, 1998,
     writeoffs or changes to the income statements increasing the amount of
     reserves, in an aggregate amount not to 
<PAGE>
 
                                                                               2


     exceed $15,000,000, of accounts receivable of the Borrower and its
     Subsidiaries, (f) any other non-cash charges, (g) with respect to the
     computation of the financial covenants contained in Section 7.1 for any
     Reference Period ending on or prior to September 30, 1998, fees and
     expenses related to the transactions contemplated by the Recapitalization
     Agreement (including conforming accounting adjustments) and the financing
     thereof in an aggregate amount equal to the lesser of the actual amount of
     such expenses and $122,000,000, (h) non-recurring cash charges taken within
     six months of the First Amendment Effective Date as a result of the Mariner
     Merger in an aggregate amount not to exceed $25,000,000 (such charges not
     in excess of such amount, the "Mariner Merger Charges"), (i) any lease
                                    ----------------------
     payments by Summit Institute for Pulmonary Medicine and Rehabilitation,
     Inc. ("Summit") with respect to the Riverside Community Hospital, Bossier
            ------
     City, Bossier Parish, Louisiana, to the extent and in the proportion of the
     guarantee by Summit of the then outstanding principal amount of the Summit
     IRB (the "Summit Guarantee") and (j) with respect to the computation of the
               ----------------
     financial covenants contained in Section 7.1, for the Reference Period
     ending: (i) December 31, 1997, $12,000,000, (ii) March 31, 1998, $9,000,000
     and (iii) June 30, 1998, $6,000,000, and minus, to the extent included in
                                              -----
     the statement of such Consolidated Net Income for such period, the sum of
     (a) interest income, (b) any extraordinary or non-recurring income or gains
     (including, whether or not otherwise includable as a separate item in the
     statement of such Consolidated Net Income for such period, gains on the
     sales of assets outside of the ordinary course of business) and (c) any
     other non-cash income, all as determined on a consolidated basis; provided,
                                                                       --------
     that there shall be included in Consolidated EBITDA for such period the
     difference (but not below zero) between (a) the amount of Consolidated Net
     Income with respect to Mariner and its Subsidiaries for such period, to the
     extent of any cash distributions paid by Mariner to the Borrower during
     such period and (b) the amount of any investment by the Borrower in or for
     the account of Mariner during such period which is not utilized by Mariner
     during such period for the purposes set forth in Section 7.8(k).

          "Subsidiary":  as to any Person, a corporation, partnership, limited
           ----------                                                         
     liability company or other entity of which shares of stock or other
     ownership interests having ordinary voting power (other than stock or such
     other ownership interests having such power only by reason of the happening
     of a contingency) to elect a majority of the board of directors or other
     managers of such corporation, partnership or other entity are at the time
     owned, or the management of which is otherwise controlled, directly or
     indirectly through one or more intermediaries, or both, by such Person.
     Unless otherwise qualified, all references to a "Subsidiary" or to
     "Subsidiaries" in this Agreement shall refer to a Subsidiary or
     Subsidiaries of the Borrower.  Unless otherwise specified, the term
     "Subsidiary" or "Subsidiaries" shall not include Mariner and its
     Subsidiaries and Mariner Merger Sub.

          'Substitute Omega Property':  any Health Care Facility and related
           -------------------------                                        
     personal property conveyed to PHCMI after the Closing Date (which Health
     Care Facility may be leased to a New PHCMI Subsidiary), or any Health Care
     Facility and related personal 
<PAGE>
 
                                                                               3

     property contributed or otherwise transferred by LC-Southeast to the
     Substitute Omega Property Subsidiary (which Health Care Facility may be
     leased to PHCMI), and which Health Care Facility in either case is or
     becomes encumbered by a mortgage, deed to secure debt or deed of trust in
     favor of Omega, for the purpose of serving as substitute collateral for the
     obligations of PHCMI to Omega, in exchange for the surrender by Omega of
     the Omega Letter of Credit; provided that the Substitute Omega Property
                                 --------
     shall not, in the aggregate, (i) represent more than $3,500,000 of the
     Borrower's Consolidated EBITDA for the most recent Reference Period for
     which the relevant financial information is available or (ii) have a
     maximum aggregate capacity in excess of 600 beds."

         (c) Amendment of Definitions.  (i) The definition of the term "Assumed
             ------------------------                                          
     Debt" is hereby amended by adding at the end thereof and prior to the
     period the following:  "provided, that, notwithstanding the above, the
                             --------                                      
     Summit Guarantee shall be deemed to constitute Assumed Debt, to the extent
     the principal amount of Indebtedness guaranteed thereby does not exceed
     $3,500,000".

          (ii) The definition of the term "Revolving Credit Commitment" is
     hereby amended by deleting the number "$150,000,000" in the last line and
     substituting in lieu thereof the number "$175,000,000".

          (iii) The definition of the term "Tranche A Term Loan Commitment" is
     hereby amended by deleting the number "$240,000,000" in the last line and
     substituting in lieu thereof the number "$315,000,000".

          (d) Addition of Definitions.  The following defined terms are hereby
              -----------------------                                         
     added to Section 1.1 of the Credit Agreement in appropriate alphabetical
     order:

              'First Amendment':  the First Amendment, dated as of July 8, 1998,
               ---------------                                            
          to this Agreement.

              'First Amendment Effective Date':  the date of effectiveness of
               ------------------------------                                
          the First Amendment.

              'LC-Southeast':  Living Centers-Southeast, Inc., a North Carolina
               ------------                                                    
          corporation and an indirect Wholly Owned Subsidiary of the Borrower.

              'Mariner':  Mariner Health Group, Inc., a Delaware corporation.
               -------                                                       

              'Mariner Credit Agreement':  the Credit Agreement, dated as of
               ------------------------                                     
          May 18, 1994, among Mariner, the lenders party thereto and PNC Bank,
          N.A., as agent, as amended, supplemented, restated or otherwise
          modified from time to time.
<PAGE>
 
                                                                               4

              'Mariner Merger':  the merger of Mariner Merger Sub with and into
               --------------                                                  
          Mariner, with Mariner as the continuing or surviving corporation,
          pursuant to the Mariner Merger Agreement.

              'Mariner Merger Agreement':  the Agreement and Plan of Merger,
               ------------------------                                     
          dated as of April 13, 1998, among the Borrower, Mariner Merger Sub and
          Mariner, as amended, supplemented, restated or otherwise modified from
          time to time in accordance with Section 7.9.

              'Mariner Merger Sub':  Paragon Acquisition Sub, Inc., a Delaware
               ------------------                                             
          corporation.

              'Mariner Notes':  the 9-1/2% Senior Subordinated Notes due 2006
               -------------                                                 
          of Mariner, as amended, supplemented or otherwise modified from time
          to time.

              'Substitute Omega Property Subsidiary':  Living Centers-PHCM,
               ------------------------------------                        
          Inc., a North Carolina corporation and a Wholly Owned Subsidiary of
          LC-Southeast.

              'Summit':  as defined in the definition of "Consolidated EBITDA".
               ------                                                          

              'Summit Guarantee':  as defined in the definition of "Consolidated
               ----------------                                   
          EBITDA".

              'Summit IRB':  the series 1987 revenue refunding bonds issued by
               ----------                                                     
          the Louisiana Public Facilities Authority with respect to the
          Southwest Medical Center, Inc. Project."

          2.  Amendment to Section 2.1.  Section 2.1 of the Credit Agreement is
              ------------------------                                         
hereby amended by deleting such Section in its entirety and substituting in lieu
thereof the following new Section 2.1:

              "2.1  Term Loan Commitments.  (a) Subject to the terms and
                    ---------------------                               
          conditions hereof, (i) each Tranche A Term Loan Lender severally
          agrees to make a term loan (an "Initial Tranche A Term Loan") to the
                                          ---------------------------         
          Borrower on the Closing Date in an amount equal to the amount of the
          Tranche A Term Loan Commitment of such Lender then in effect, (ii)
          each Tranche B Term Loan Lender severally agrees to make a term loan
          (a "Tranche B Term Loan") to the Borrower on the Closing Date in an
              -------------------                                            
          amount equal to the amount of the Tranche B Term Loan Commitment of
          such Lender and (iii) each Tranche C Term Loan Lender severally agrees
          to make a term loan (a "Tranche C Term Loan") to the Borrower on the
                                  -------------------                         
          Closing Date in an amount equal to the amount of the Tranche C Term
          Loan Commitment of such Lender and (b) subject to the terms and
          conditions of the First Amendment, each Tranche A Term Loan Lender
          severally agrees to make a term loan (a "Subsequent Tranche A Term
                                                   -------------------------
          Loan", and together with such 
          ----
<PAGE>
 
                                                                               5

          Tranche A Term Loan Lender's Initial Tranche A Term Loan, if any, a
          "Tranche A Term Loan") to the Borrower on the First Amendment
           -------------------
          Effective Date in an amount equal to the difference between such
          Tranche A Term Loan Lender's Tranche A Term Loan Commitment on the
          First Amendment Effective Date and such Tranche A Term Loan Lender's
          Tranche A Term Loan Commitment on the Business Day immediately
          preceding the First Amendment Effective Date, if any. The Term Loans
          may from time to time be Eurodollar Loans or ABR Loans, as determined
          by the Borrower and notified to the Administrative Agent in accordance
          with Sections 2.2 and 2.12."

          3.  Procedure for Borrowing of Subsequent Tranche A Term Loans.
              ----------------------------------------------------------  
Subject to the terms and conditions of the Credit Agreement and this First
Amendment, each Tranche A Term Loan Lender which has a portion of the Increased
Tranche A Term Loan Commitment (as defined below) agrees to make a term loan to
the Borrower on the Effective Date (as defined below). No later than 12:00 noon,
New York City time, one Business Day prior to the Effective Date, the Borrower
shall give the Administrative Agent irrevocable notice requesting that such
Tranche A Term Loan Lenders make the Subsequent Tranche A Term Loans to be made
on the Effective Date. The Subsequent Tranche A Term Loans made on the Effective
Date shall initially be ABR Loans. Upon receipt of such notice the
Administrative Agent shall promptly notify each such Tranche A Term Loan Lender
thereof. Not later than 12:00 Noon, New York City time, on the Effective Date
each such Tranche A Term Loan Lender shall make available to the Administrative
Agent at its office specified in Section 10.2 an amount in immediately available
funds equal to the Subsequent Tranche A Term Loans to be made by such Tranche A
Term Loan Lender on the Effective Date. The Administrative Agent shall credit
the account of the Borrower on the books of such office of the Administrative
Agent with the aggregate of the amounts made available to the Administrative
Agent by such Tranche A Term Loan Lenders in immediately available funds.

          4.  Amendment to Section 2.3.  Section 2.3(a) of the Credit Agreement
              ------------------------                                         
is hereby amended by deleting such section in its entirety and substituting in
lieu thereof the following new Section 2.3(a):

              "(a) The Tranche A Term Loan of each Tranche A Term Loan Lender
          shall be repayable in 22 consecutive quarterly installments on the
          last day of each December, March, June and September, commencing on
          December 31, 1998, each of which shall be in an amount equal to such
          Lender's Tranche A Term Loan Percentage multiplied by one-quarter of
          the amount set forth below opposite the period during which such
          installment is due or, in the case of the installments due from
          December 31, 2003 through March 31, 2004, one-half of the amount set
          forth below opposite the period during which such installment is due:
 
    Period                                        Principal Amount
    ------                                        ----------------
December 31, 1998 through September 30, 1999         $29,531,250
<PAGE>
 
                                                                               6

December 31, 1999 through September 30, 2000         $59,062,500
December 31, 2000 through September 30, 2001         $62,343,750
December 31, 2001 through September 30, 2002         $62,343,750
December 31, 2002 through September 30, 2003         $68,906,250
December 31, 2003 through March 31, 2004             $32,812,500

          5.  Amendment to Section 4.16.  Section 4.16 of the Credit Agreement
              -------------------------                                       
is hereby amended by deleting such Section in its entirety and substituting in
lieu thereof the following new Section 4.16:

          "4.16  Use of Proceeds.  The proceeds of the Term Loans (other than
                 ---------------                                             
          the Subsequent Tranche A Term Loans) shall be used to finance a
          portion of the Recapitalization and to pay related fees and expenses.
          The proceeds of the Subsequent Tranche A Term Loans, Revolving Credit
          Loans, the Swing Line Loans and the Letters of Credit shall be used
          for Permitted Acquisitions, working capital needs and general
          corporate purposes (including, without limitation, for the purposes
          set forth in Section 7.8(k)); provided, however, that up to
                                        --------  -------            
          $25,000,000 of the Revolving Credit Loans and Swing Line Loans may be
          used to finance a portion of the Recapitalization and to pay related
          fees and expenses."

          6.  Amendment to Section 6.10.  Section 6.10 of the Credit Agreement
              -------------------------                                       
is hereby amended by adding at the end thereof the following new paragraph (e):

               "(e) Notwithstanding anything to the contrary contained herein,
          the Substitute Omega Property Subsidiary shall not be required to
          comply with any provision of this Section 6.10, and neither the
          Property of the Substitute Omega Property Subsidiary nor any of the
          Substitute Omega Property Subsidiary's Capital Stock shall be pledged
          as Collateral, in any such case, for so long as the Substitute Omega
          Property Subsidiary is restricted by any Contractual Obligation from
          complying with this Section 6.10 or from having its Capital Stock
          pledged as Collateral.".

          7.  Amendment to Section 7.1.  Section 7.1 of the Credit Agreement is
              ------------------------                                         
hereby amended by deleting paragraph (d) and substituting in lieu thereof the
following new paragraph (d):

               "(d)  Maintenance of Consolidated Net Worth.  Permit Consolidated
                     -------------------------------------                      
          Net Worth at the last day of any fiscal quarter of the Borrower ending
          after December 31, 1997 to be less than (i) all items which were
          included on the consolidated balance sheet under shareholders' equity
          at December 31, 1997 less $50,000,000, plus (ii) 50% of Consolidated
                                                 ----                         
          Net Income (if positive) for the period from January 1, 1998 to such
          date (not taking into account the Mariner Merger Charges), plus (iii)
                                                                     ----      
          without duplication, 100% of the amount which would in conformity with
          GAAP be included in shareholders' equity on a consolidated balance
          sheet of the 
<PAGE>
 
                                                                               7

          Borrower and its Subsidiaries as a result of the issuance of Capital
          Stock by, or capital contributions made to, the Borrower or any of its
          Subsidiaries after the Closing Date, minus (iv) the amount of the
                                               -----
          Mariner Merger Charges on an after-tax basis."

          8.  Amendment to Section 7.2.  Section 7.2 of the Credit Agreement is
              ------------------------                                         
hereby amended by adding after the word "by" in the fourth line of paragraph (e)
thereof the words "the Substitute Omega Property Subsidiary or".

          9.  Amendment to Section 7.3.  Section 7.3 of the Credit Agreement is
              ------------------------                                         
hereby amended by (a) inserting immediately after the words "by PHCMI" in the
first line of paragraph (m) thereof the words ", the Substitute Omega Property
Subsidiary", (b) relettering current paragraphs (o) and (p) as (p) and (q) and
(c) inserting the following new paragraph (o) as follows:

          "(o) the pledge by Summit in favor of the trustee for the Summit IRB
          of its interest in the sinking fund reserve account for the Summit
          IRB;".

          10.  Amendment to Section 7.4.  Section 7.4 of the Credit Agreement is
               ------------------------                                         
hereby amended by deleting paragraphs (c) and (d) thereof in their entirety and
substituting in lieu thereof the following new paragraphs (c) and (d):

          "(c) any Subsidiary of the Borrower may Dispose of one or more
     Substitute Omega Properties to PHCMI, the Substitute Omega Property
     Subsidiary or any of the New PHCMI Subsidiaries in connection with
     providing substitute collateral to Omega in exchange for the surrender by
     Omega of the Omega Letter of Credit, and PHCMI, the Substitute Omega
     Property Subsidiary or any New PHCMI Subsidiary may temporarily lease or
     sublease the Substitute Omega Properties to LC-Southeast, provided that any
     such lease or sublease to LC-Southeast shall be cancelled as soon as
     reasonably practicable after receipt of necessary Governmental Authority
     Health Care Permits and Medicare and Medicaid licenses for the Substitute
     Omega Properties reissued in the name of PHCMI, the Substitute Omega
     Property Subsidiary or any New PHCMI Subsidiary, as applicable;

          (d)  any acquisition expressly permitted by Section 7.8 may be
     structured as a merger with or into the Borrower (provided that the
                                                       --------         
     Borrower shall be the continuing or surviving corporation), with or into
     any Wholly Owned Subsidiary Guarantor (provided that the Wholly Owned
                                            --------                      
     Subsidiary Guarantor shall be the continuing or surviving corporation) or,
     in the case of the Mariner Merger, with or into Mariner (provided that
                                                              --------     
     Mariner shall be the continuing or surviving corporation); and".

          11.  Amendment to Section 7.8.  Section 7.8 of the Credit Agreement is
               ------------------------                                         
hereby amended by (a) inserting at the end of paragraph (g) thereof and prior to
the semi-colon the following:  "and the capital contribution by LC-Southeast to
the Substitute Omega Property 
<PAGE>
 
                                                                               8

Subsidiary represented by the transfer of the Substitute Omega Properties to the
Substitute Omega Property Subsidiary, as permitted in Section 7.4(c) hereof",
(b) inserting immediately after the amount "$300,000,000" in the last line of
paragraph (h) thereof the following: "provided, further, the Borrower and
                                      -----------------
Mariner Merger Sub shall be permitted to consummate the Mariner Merger pursuant
to the Mariner Merger Agreement without regard to the foregoing dollar
limitations, and shall be deemed not to be a utilization of such dollar
limitations", (c) deleting the word "and" at the end of paragraph (j) thereof,
(d) relettering current paragraph (k) as paragraph (l), and (e) adding thereto
the following new paragraph (k):

          "(k)  investments by the Borrower in or for the account of Mariner (i)
     to finance the redemption or repurchase by Mariner of the Mariner Notes,
     (ii) to make the required payments to holders of the Cash Payment Options
     (as such term is defined in the Mariner Merger Agreement) and (iii) to pay
     other costs and expenses incurred by Mariner directly associated with the
     Mariner Merger, in an aggregate amount for items (i), (ii) and (iii) not to
     exceed $100,000,000 during the term of this Agreement; and".

          12.  Amendment to Section 7.9.  Section 7.9 of the Credit Agreement is
               ------------------------                                         
hereby amended by (a) deleting the word "or" the first time it appears in the
sixth line and substituting in lieu thereof a comma and (b) inserting
immediately after the word "Notes" in the sixth line thereof the words "or the
Mariner Merger Agreement, except for changes to the Mariner Merger Agreement
that do not adversely affect the Lenders in any respect".

          13.  Amendment to Section 7.10.  Section 7.10 of the Credit Agreement
               -------------------------                                       
is hereby amended by inserting immediately at the end thereof and prior to the
period the following:  "provided, that the foregoing provisions of this Section
                        --------                                               
7.10 shall not be deemed to prohibit (i) any transaction incidental to the
Mariner Merger, as contemplated in the Mariner Merger Agreement, (ii) the
provision of certain administrative services by the Borrower for Mariner or any
of its Subsidiaries in the ordinary course of business and consistent with the
Borrower's past practice with respect to its other Subsidiaries, (iii) the
payment by the Borrower in the ordinary course of business of certain third
party payment obligations on behalf of Mariner or any of its Subsidiaries to the
extent Mariner or such Subsidiary, as the case may be, provides timely
reimbursement to the Borrower for such payment, but in any event such
reimbursement shall be in the same fiscal quarter in which the Borrower made
such payment (it being understood that the payment of such obligations by the
Borrower in accordance with this clause (iii) shall be deemed not to be a
utilization of the dollar limitations set forth in Section 7.8(k)) or (iv) the
investment permitted pursuant to section 7.8(k)".

          14.  Amendment to Section 7.14.  Section 7.14 of the Credit Agreement
               -------------------------                                       
is hereby amended by (a) deleting the word "and" in the fifth line and
substituting in lieu thereof a comma and (b) adding at the end thereof and prior
to the period the following:  "and (c) so long as the Summit IRB is outstanding,
any agreement binding on Summit and relating to the Health Care Facility in
Bossier City, Bossier Parish, Louisiana, leased by Summit and financed by the
Summit IRB".
<PAGE>
 
                                                                               9

          15.  Amendment to Section 7.15.  Section 7.15 of the Credit Agreement
               -------------------------                                       
is hereby amended by (a) deleting the word "and" in the eighth line and
substituting in lieu thereof a comma and (b) adding at the end thereof and prior
to the period the following:  "and (iii) Section 6.11(b) of the Amended and
Restated Agreement of Sale, dated as of April 1, 1993, as amended prior to the
date hereof, by and among the Louisiana Public Facilities Authority, Southwest
Medical Center, Inc. and Summit, as guarantor".

          16.  Amendment to Section 8.  Section 8 of the Credit Agreement is
               ----------------------                                       
hereby amended by (a) deleting paragraph (f) and substituting in lieu thereof
the following new paragraph (f):

          "(f) (i) the Borrower or any of its Subsidiaries or Mariner or any of
     its Subsidiaries shall commence any case, proceeding or other action (A)
     under any existing or future law of any jurisdiction, domestic or foreign,
     relating to bankruptcy, insolvency, reorganization or relief of debtors,
     seeking to have an order for relief entered with respect to it, or seeking
     to adjudicate it a bankrupt or insolvent, or seeking reorganization,
     arrangement, adjustment, winding-up, liquidation, dissolution, composition
     or other relief with respect to it or its debts, or (B) seeking appointment
     of a receiver, trustee, custodian, conservator or other similar official
     for it or for all or any substantial part of its assets, or the Borrower or
     any of its Subsidiaries or Mariner or any of its Subsidiaries shall make a
     general assignment for the benefit of its creditors; or (ii) there shall be
     commenced against the Borrower or any of its Subsidiaries or Mariner or any
     of its Subsidiaries any case, proceeding or other action of a nature
     referred to in clause (i) above which (A) results in the entry of an order
     for relief or any such adjudication or appointment or (B) remains
     undismissed, undischarged or unbonded for a period of 60 days; or (iii)
     there shall be commenced against the Borrower or any of its Subsidiaries or
     Mariner or any of its Subsidiaries any case, proceeding or other action
     seeking issuance of a warrant of attachment, execution, distraint or
     similar process against all or any substantial part of its assets which
     results in the entry of an order for any such relief which shall not have
     been vacated, discharged, or stayed or bonded pending appeal within 60 days
     from the entry thereof; or (iv) the Borrower or any of its Subsidiaries or
     Mariner or any of its Subsidiaries shall take any action in furtherance of,
     or indicating its consent to, approval of, or acquiescence in, any of the
     acts set forth in clause (i), (ii), or (iii) above; or (v) the Borrower or
     any of its Subsidiaries or Mariner or any of its Subsidiaries shall
     generally not, or shall be unable to, or shall admit in writing its
     inability to, pay its debts as they become due; or",

(b) deleting the word "or" in the last line of paragraph (l) thereof, (c) adding
at the end of paragraph (l) and prior to the semi-colon the following:  "or (iv)
the Borrower shall cease to own 100% of the issued and outstanding Capital Stock
of Mariner", (d) adding the word "or" at the end of paragraph (m) thereof and
(e) adding thereto the following new paragraph (n):

          "(n)  Mariner or any of its Subsidiaries shall default in the
     observance or performance of any agreement or condition with respect to the
     Mariner Credit Agreement 
<PAGE>
 
                                                                              10

     or the Mariner Notes (including, without limitation, any guarantee
     thereof), or contained in any instrument or agreement evidencing, securing
     or relating thereto, or any other event shall occur or condition exist, the
     effect of which default or event or condition, in each of the foregoing
     instances, is to cause, or to permit the holder or beneficiary of the
     Mariner Credit Agreement or the Mariner Notes or guarantee thereof (or a
     trustee or agent on behalf of such holder or beneficiary) to cause, with
     the giving of notice if required, the Mariner Credit Agreement or the
     Mariner Notes (or any guarantee thereof) to become due prior to its stated
     maturity or (in the case of any such guarantee) to become payable, and such
     holder or beneficiary shall cause the Mariner Credit Agreement or the
     Mariner Notes (or any guarantee thereof) to become due prior to its stated
     maturity or (in the case of any such guarantee) to become payable;".

          17.  Amendment of Schedule 1.1(a).  Schedule 1.1(a) to the Credit
               ----------------------------                                
Agreement is hereby amended by adding thereto the following information set
forth on Schedule 1.1(a) attached hereto.

          18.  Supplement to Schedule 7.14.  Schedule 7.14 to the Credit
               ---------------------------                              
Agreement is hereby amended by adding thereto the information set forth on Annex
A to this Amendment.

          19.  Pledge of Mariner Stock.  The Borrower hereby assigns and
               -----------------------                                  
transfers to the Collateral Agent, and hereby grants to the Collateral Agent,
for the ratable benefit of the Lenders, a security interest in, the shares of
Capital Stock of Mariner listed on Annex B to this Amendment, together with any
other shares, stock certificates, options or rights of any nature whatsoever in
respect of the Capital Stock of Mariner that may be issued or granted to, or
held by, the Borrower while the Credit Agreement is in effect, as collateral
security for the prompt and complete payment and performance when due (whether
at the stated maturity, by acceleration or otherwise) of the Borrower
Obligations, which assignment, transfer and grant shall be governed by the terms
of the Guarantee and Collateral Agreement.

          20.  Fees.  (a) In consideration for the agreement of each Revolving
               ----                                                           
Credit Lender which has agreed to increase its Revolving Credit Commitment
pursuant hereto or any Revolving Credit Lender becoming a Revolving Credit
Lender on the date hereof pursuant hereto (the aggregate increase in the
Revolving Credit Commitments being referred to herein as the "Increased
                                                              ---------
Revolving Credit Commitment"), the Borrower agrees to pay to each such Revolving
---------------------------                                                     
Credit Lender, a fee in an amount previously disclosed to such Revolving Credit
Lender by the Administrative Agent in writing, payable on the date on which the
Mariner Merger becomes effective, as provided in the Mariner Merger Agreement
(the "Mariner Merger Effective Date") in immediately available funds.
      -----------------------------                                  

          (b) In consideration for the agreement of each Tranche A Term Loan
Lender which has agreed to increase its Tranche A Term Loan Commitment pursuant
hereto or any Tranche A Term Loan Lender becoming a Tranche A Term Loan Lender
on the date hereof pursuant hereto (the aggregate increase in the Tranche A Term
Loan Commitments being referred to herein as the "Increased Tranche A Term Loan
                                                  -----------------------------
Commitment"), the Borrower agrees 
----------
<PAGE>
 
                                                                              11

to pay to each such Tranche A Term Loan Lender, a fee in an amount previously
disclosed to such Tranche A Term Loan Lender by the Administrative Agent in
writing, payable on the Mariner Merger Effective Date in immediately available
funds.

          21.  Conditions to Effectiveness.  The amendments provided for herein
               ---------------------------                                     
shall become effective on the date (the "Effective Date") of satisfaction of the
                                         --------------                         
following conditions precedent:

          (a)  The Administrative Agent shall have received counterparts of this
     Amendment duly executed and delivered by the Borrower and the Required
     Lenders (including each Lender which has committed to a portion of the
     Increased Revolving Credit Commitment or the Increased Tranche A Term Loan
     Commitment).

          (b)  The Administrative Agent shall have received a copy of the
     resolutions of the Borrower, in form and substance satisfactory to the
     Administrative Agent, authorizing (i) the execution, delivery and
     performance of this Amendment and (ii) the borrowings contemplated by the
     Increased Revolving Credit Commitments and the Increased Tranche A Term
     Loan Commitments, which resolutions shall be certified by the Secretary or
     an Assistant Secretary of the Borrower as of the date hereof, and which
     certificate shall be in form and substance satisfactory to the
     Administrative Agent and shall state that the resolutions thereby certified
     have not been amended, modified, revoked or rescinded.

          (c)  The Administrative Agent shall have received a certificate of the
     Secretary of the Borrower, dated the date hereof, as to the incumbency and
     signature of the officers of the Borrower executing this Amendment
     satisfactory in form and substance to the Administrative Agent.

          (d)  All governmental and third party approvals (including landlords'
     and other consents) necessary or advisable in connection with this
     Amendment, the making of the loans under the Increased Revolving Credit
     Commitment and the Increased Tranche A Term Loan Commitment and the
     consummation of the Mariner Merger shall have been obtained and be in full
     force and effect (other than certain Health Care Permits relating to Health
     Care Facilities owned or operated by Mariner or its Subsidiaries which may
     be required as a result of the Mariner Merger and which in any event have
     been applied for and are reasonably expected by the management of the
     Borrower to be issued in due course and the failure of which to obtain such
     Health Care Permits shall not have a Material Adverse Effect), and all
     applicable waiting periods shall have expired without any action being
     taken or threatened by any competent authority which would restrain,
     prevent or otherwise impose materially adverse conditions on the Credit
     Agreement as amended by this Amendment, the making of the loans under the
     Increased Revolving Credit Commitment and the Increased Tranche A Term Loan
     Commitment or the consummation of the Mariner Merger.

          (e)  The Lenders shall have received the Mariner Merger Agreement.
<PAGE>
 
                                                                              12

          (f)  The Administrative Agent shall have received the executed legal
     opinion of Powell, Goldstein, Frazer & Murphy LLP, counsel to the Borrower
     dated the date hereof and in form and substance satisfactory to the
     Administrative Agent with respect to this Amendment and the transactions
     contemplated hereby.

          (g)  The Administrative Agent shall have received the certificates
     representing the shares of Capital Stock of Mariner pledged pursuant to
     paragraph 19 above, together with an undated stock power for each such
     certificate executed in blank by a duly authorized officer of the Borrower.

          (h)  The Mariner Merger shall have been consummated pursuant to the
     terms of the Mariner Merger Agreement contemporaneously with the
     effectiveness of this Amendment.

          (i)  The requisite lenders under the Mariner Credit Agreement shall
     have agreed to amend and waive certain provisions of the Mariner Credit
     Agreement on terms and conditions satisfactory to the Administrative Agent,
     so that after giving effect to such amendments and waivers and the
     consummation of the Mariner Merger, no default or event of default shall
     have occurred and be continuing under the Mariner Credit Agreement.

; provided, that, the effectiveness of the amendments set forth in paragraphs
  --------  ----                                                             
1(c)(i), 9(b) and (c), 14 and 15 and the addition of the definitions "Summit",
"Summit Guarantee" and "Summit IRB" contained in paragraph 1(d) shall be
conditioned only upon the satisfaction of the condition contained in clause (a)
of this paragraph 21.

          22.  Representations and Warranties.  The Borrower as of the date
               ------------------------------                              
hereof and after giving effect to the amendment contained herein, hereby
confirms, reaffirms and restates that representations and warranties made by it
in Section 4 of the Credit Agreement; provided, that each reference to the
                                      --------                            
Credit Agreement therein shall be deemed to be a reference to the Credit
Agreement after giving effect to this Amendment.

          23.  Payment of Expenses.  The Borrower agrees to pay or reimburse the
               -------------------                                              
Administrative Agent for all of its out-of-pocket costs and expenses incurred in
connection with the Amendment, any other documents prepared in connection
herewith and the transactions contemplated hereby, including, without
limitation, the reasonable fees and disbursements of counsel to the
Administrative Agent.

          24.  Reference to and Effect on the Loan Documents; Limited Effect.
               -------------------------------------------------------------  
On and after the date hereof and the satisfaction of the conditions contained in
paragraph 21 of this Amendment, each reference in the Credit Agreement to "this
Agreement", "hereunder", "hereof" or words of like import referring to the
Credit Agreement, and each reference in the other Loan Documents to "the Credit
Agreement", "thereunder", "thereof" or words of like import referring to the
Credit Agreement, shall mean and be a reference to the Credit Agreement as
amended 
<PAGE>
 
                                                                              13

hereby. The execution, delivery and effectiveness of this Amendment shall not,
except as expressly provided herein, operate as a waiver of any right, power or
remedy of any Lender or any Agent under any of the Loan Documents, nor
constitute a waiver of any provisions of any of the Loan Documents. Except as
expressly amended herein, all of the provisions and covenants of the Credit
Agreement and the other Loan Documents are and shall continue to remain in full
force and effect in accordance with the terms thereof and are hereby in all
respects ratified and confirmed.

          25.  Counterparts.  This Amendment may be executed by one or more of
               ------------                                                   
the parties hereto in any number of separate counterparts (which may include
counterparts delivered by facsimile transmission) and all of said counterparts
taken together shall be deemed to constitute one and the same instrument.  Any
executed counterpart delivered by facsimile transmission shall be effective as
for all purposes hereof.

          26.  GOVERNING LAW.  THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF
               -------------                                                   
THE PARTIES HERETO SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK (WITHOUT REGARD FOR THE
CONFLICT OF LAWS PRINCIPLES THEREOF).
<PAGE>
 
                                                                              14

          IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duly executed and delivered by their respective proper and duly authorized
officers as of the day and year first above written.


                              PARAGON HEALTH NETWORK, INC.


                              By:
                                 ---------------------------------
                                 Name:
                                 Title:
 

                              THE CHASE MANHATTAN BANK, as 
                              Administrative Agent and as a Lender


                              By:
                                 ---------------------------------
                                 Name:
                                 Title:
<PAGE>
 
                                                                              15

                                                                 Schedule 1.1(a)
                                                                 ---------------

 
                                      Tranche A Term         Revolving
                                      Loan Commitment    Credit Commitment
                                      ---------------    -----------------
                                                   
The Chase Manhattan Bank                $18,000,000          $ 6,000,000
Nationsbank, N.A.                        16,875,000            5,625,000
General Electric Capital Corporation      7,500,000            2,500,000
The Bank of Nova Scotia                   7,500,000            2,500,000
First Union National Bank                 7,500,000            2,500,000
Wachovia Bank, N.A.                       7,500,000            2,500,000
Societe Generale                          3,750,000            1,250,000
Skandinaviska Enskilda Banken AB          3,750,000            1,250,000
Transamerica Business Credit                           
 Corporation                              2,625,000              875,000
                                        -----------          -----------
  TOTAL                                 $75,000,000          $25,000,000
                                        ===========          ===========
<PAGE>
 
                                                                              16

                                                                         Annex A
                                                                         -------

                               NEGATIVE PLEDGES


                                     NONE
<PAGE>
 
                                                                              17

                                                                         Annex B
                                                                         -------

                             MARINER PLEDGED STOCK

<TABLE> 
<CAPTION> 
                                                          Certificate      Number
Stock Issuer         Shareholder        Class of Stock      Number       of Shares
--------------    ------------------    --------------    -----------    ---------
<S>               <C>                   <C>               <C>            <C> 
Mariner Health    Mariner Post-Acute
 Group, Inc.       Network, Inc.            Common              1          1,000
</TABLE>