Document:

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                                                                    Exhibit 10.1

                               THIRD AMENDMENT TO
                          CREDIT AND GUARANTY AGREEMENT

         This THIRD AMENDMENT TO CREDIT AND GUARANTY AGREEMENT, dated as of
October 1, 2003 (this "THIRD AMENDMENT") is entered into by and among MARINER
HEALTH CARE, INC. (f/k/a MARINER POST-ACUTE NETWORK, INC.), a Delaware
corporation ("COMPANY"), and the parties signatory hereto.

         WHEREAS, Company has entered into that certain Credit and Guaranty
Agreement, dated as of May 13, 2002, as amended from time to time, including,
without limitation, by the First Amendment (the "FIRST AMENDMENT") to the Credit
and Guaranty Agreement, dated as of August 9, 2002 and by the Second Amendment
(the "SECOND AMENDMENT") to the Credit and Guaranty Agreement, dated March 31,
2003 (the "CREDIT AGREEMENT"), by and among Company, CERTAIN SUBSIDIARIES OF
COMPANY, as Guarantors, the Lenders party thereto from time to time, GOLDMAN
SACHS CREDIT PARTNERS L.P. ("GSCP"), as a Joint Lead Arranger (in such capacity,
a "JOINT LEAD ARRANGER"), and as Sole Syndication Agent (in such capacity,
"SYNDICATION AGENT"), UBS WARBURG LLC ("UBSW"), as a Joint Lead Arranger (in
such capacity, a "JOINT LEAD ARRANGER", and together with GSCP, the "JOINT LEAD
ARRANGERS"), UBS AG, STAMFORD BRANCH ("UBS") as Administrative Agent and as
Swing Line Lender (together with its permitted successors in such capacities,
"ADMINISTRATIVE AGENT" or "SWING LINE LENDER", respectively), GENERAL ELECTRIC
CAPITAL CORPORATION ("GECC"), as Collateral Monitoring Agent (together with its
permitted successors in such capacity, "COLLATERAL MONITORING AGENT"), and as
Documentation Agent (in such capacity, "DOCUMENTATION AGENT"), and for the
limited purposes of Sections 9.1, 9.6(b) and 10.3 thereof, RESIDENTIAL FUNDING
CORPORATION dba GMAC-RFC HEALTH CAPITAL ("GMAC"), as Joint Collateral Agent
(together with its permitted successors in such capacity, "JOINT COLLATERAL
AGENT");

         WHEREAS, the terms used herein, including in the preamble and recitals
hereto, not otherwise defined herein or otherwise amended hereby shall have the
meanings ascribed thereto in the Credit Agreement;

         WHEREAS, the Company and certain of its subsidiaries have entered into
an asset purchase agreement with Formation Properties III, LLC ("FORMATION") to
divest up to 20 of its Florida skilled nursing facilities listed on Annex II
hereto (the "FORMATION TRANSACTION");

         WHEREAS, in partial consideration for the Formation Transaction the
Company will receive the "FORMATION PROMISSORY NOTE" (as defined herein), and
such note together with the collateral support thereof shall be pledged to UBS
AG, as sub-collateral agent (in such capacity, the "SUB-COLLATERAL AGENT")
pursuant to the Sub-Collateral Agent Pledge and Security Agreement (as defined
herein);
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         WHEREAS, the Company and certain of its subsidiaries are contemplating
the sale or other divestitures of certain other Florida skilled nursing
facilities listed on Annex II hereto;

         WHEREAS, in connection with these divestitures, the Credit Parties have
requested certain amendments to the Credit Agreement, and the Agents and
Requisite Lenders signatory hereto are willing to agree to such amendments, on
the terms and conditions hereinafter set forth; and

         NOW, THEREFORE, in consideration of the premises and the agreements,
provisions and covenants herein contained, Company, the Guarantors, the
Requisite Lenders and Agents party hereto agree as follows:

SECTION 1. AMENDMENTS

                  1.1 AMENDMENTS TO SECTION 1.1: DEFINITIONS. Section 1.1 is
hereby amended as follows:

                  (a) The following definitions of "ADMINISTRATIVE SERVICES
         AGREEMENT", "ASSET PURCHASE AGREEMENT", "DELAYED FORMATION
         DIVESTITURE", "DELAYED FORMATION FACILITIES", "DIVESTITURE Agreements",
         "ESCROW AGREEMENT", "FLORIDA DIVESTITURES", "FORMATION COLLATERAL",
         "FORMATION DIVESTITURES", "FORMATION DIVESTITURE ASSETS", "FORMATION
         DIVESTITURE PROCEEDS", "FORMATION INTERCREDITOR AGREEMENT", "FORMATION
         PLEDGE AND SECURITY AGREEMENT", "FORMATION PROMISSORY NOTE", "FORMATION
         PROMISSORY NOTE INTEREST PROCEEDS", "FORMATION TRANSACTION COST
         RESERVE", "INITIAL FORMATION DIVESTITURE", "IT REINVESTMENT PROPERTY",
         "KELLETT DIVESTITURE", "KELLETT FLORIDA FACILITIES", "KELLETT FLORIDA
         LANDLORDS", "KELLETT FLORIDA LEASES", "KELLETT FLORIDA TENANT",
         "NONCOMPETITION AGREEMENT", "OPERATIONS TRANSFER AGREEMENT",
         "SUB-COLLATERAL AGENT", "TAMPA MORTGAGE LOAN", "THIRD AMENDMENT",
         "THIRD AMENDMENT PRIMARY EFFECTIVE DATE", "THIRD AMENDMENT SECONDARY
         EFFECTIVE DATE", "SUB-COLLATERAL AGENT PLEDGE AND SECURITY AGREEMENT",
         "WESTCHESTER MORTGAGE", "WESTCHESTER PREPAYMENT", "WESTCHESTER
         PREPAYMENT RESERVE" and "WESTCHESTER PROPERTY" are inserted in the
         proper alphabetical order:

                           "ADMINISTRATIVE SERVICES AGREEMENT" means that
                  certain Administrative Services Agreement, in the form
                  delivered to the Lenders on or prior to the Third Amendment
                  Primary Effective Date and reasonably satisfactory to
                  Requisite Lenders, dated as of the Third Amendment Secondary
                  Effective Date by and between Mariner Health Care Management
                  Company, a Delaware corporation, Sovereign Healthcare, LLC, a
                  Delaware limited liability company, Sovereign Healthcare
                  Holdings, LLC, a Delaware limited liability company, and
                  Southern Healthcare Management, LLC, a Delaware limited
                  liability company, as amended from time to time in accordance
                  with Section 6.19.

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                           "ASSET PURCHASE AGREEMENT" means that certain Asset
                  Purchase Agreement dated as of August 19, 2003 by and between
                  Formation Properties III, LLC, a Delaware limited liability
                  company, the Company, Mariner Health Care Management Company,
                  certain subsidiaries of the Company and FC Properties III,
                  LLC, a Delaware limited liability company, as amended from
                  time to time in accordance with Section 6.19.

                           "DELAYED FORMATION DIVESTITURE" means the sale on or
                  prior to December 31, 2003 (or on such later date on or prior
                  to March 31, 2004 as the Administrative Agent may agree to in
                  writing, or on such later date satisfactory to Requisite
                  Lenders) of any or all of the Delayed Formation Facilities for
                  aggregate consideration equal to the portion of the
                  $92,000,000 gross purchase price respectively allocated to
                  such Delayed Formation Facilities under the Asset Purchase
                  Agreement, a portion of which consideration shall be payable
                  in cash at closing and a portion of which shall be evidenced
                  by a promissory note, through the amendment and restatement of
                  the Formation Promissory Note, all as provided in Section 4.21
                  of the Asset Purchase Agreement. The terms of each Delayed
                  Formation Divestiture shall be substantially similar to those
                  described on Schedule 6.9(i)(b), or as otherwise reasonably
                  satisfactory to the Administrative Agent; provided, however,
                  that any material change to the economic or financial terms of
                  a Delayed Formation Divestiture shall be subject to approval
                  by Requisite Lenders.

                           "DELAYED FORMATION FACILITIES" means those skilled
                  nursing facilities listed on Schedule 6.9(i)(a) which are not
                  sold to Formation Properties III, LLC on the Third Amendment
                  Secondary Effective Date.

                           "DIVESTITURE AGREEMENTS" means, collectively, (a) the
                  Escrow Agreement and the Noncompetition Agreement executed in
                  connection with the Formation Divestitures, as amended from
                  time to time, and (b) as the Asset Purchase Agreement, the
                  Administrative Services Agreement, the Formation Intercreditor
                  Agreement, the Formation Promissory Note, the Formation Pledge
                  and Security Agreement and the Operations Transfer Agreement
                  executed in connection with the Formation Divestitures,
                  amended from time to time in accordance with Section 6.19.

                           "ESCROW AGREEMENT" means that certain Escrow
                  Agreement dated as of August 19, 2003 by and between Formation
                  Properties III, LLC, the Company, certain subsidiaries of the
                  Company, and LandAmerica National Commercial Services, a
                  division of LandAmerica Financial Group, Inc.

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                           "FLORIDA DIVESTITURES" means each of the Initial
                  Formation Divestiture, each Delayed Formation Divestiture and
                  the Kellett Divestiture.

                           "FORMATION COLLATERAL" means, collectively, the
                  Formation Promissory note and the collateral support thereto.

                           "FORMATION DIVESTITURES" means, collectively, the
                  Initial Formation Divestiture and any Delayed Formation
                  Divestitures.

                           "FORMATION DIVESTITURE ASSETS" means the Facilities
                  identified on Schedule 6.9(i)(a), and all associated personal
                  property being transferred by the sellers under the terms of
                  the Asset Purchase Agreement.

                           "FORMATION DIVESTITURE PROCEEDS" means an amount
                  equal to (a) Net Asset Sale Proceeds received in connection
                  with the Initial Formation Divestiture and any Delayed
                  Formation Divestitures less (b) up to $3,250,000, in the
                  aggregate, of consent fees paid in connection with the Delayed
                  Formation Divestitures.

                           "FORMATION INTERCREDITOR AGREEMENT" means that
                  certain Intercreditor Agreement, in the form delivered to the
                  Lenders on or prior to the Third Amendment Primary Effective
                  Date and reasonably satisfactory to Requisite Lenders, dated
                  as of the Third Amendment Secondary Effective Date by and
                  between the Company and Citigroup Global Markets Reality
                  Corp., a New York corporation, as amended from time to time in
                  accordance with Section 6.19.

                           "FORMATION PLEDGE AND SECURITY AGREEMENT" means that
                  certain Pledge and Security Agreement, in the form delivered
                  to the Lenders on or prior to the Third Amendment Primary
                  Effective Date and reasonably satisfactory to Requisite
                  Lenders, dated as of the Third Amendment Secondary Effective
                  Date from FC Properties III, LLC pursuant to which Company is
                  granted a first priority security interest in all of FC
                  Properties III, LLC's ownership interests in Formation
                  Properties III, LLC and its managing member.

                           "FORMATION PROMISSORY NOTE" means that certain
                  Promissory Note dated as of the Third Amendment Secondary
                  Effective Date in the principal sum of $14,000,000.00 (or,
                  initially, such lesser principal amount provided for in
                  Section 2.8 of the Asset Purchase Agreement, if fewer than all
                  of the Formation Divestiture Assets are sold on the Third
                  Amendment Secondary Effective Date, and subject to increases
                  as provided in Section 4.21 of the Asset Purchase Agreement)
                  made by FC Properties III, LLC on such date in favor of the
                  Company as agent for the Sellers named therein, as amended
                  from time to time in accordance with Section 6.19.

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                           "FORMATION PROMISSORY NOTE INTEREST PROCEEDS" means
                  all interest on the outstanding principal balance of the
                  Formation Promissory Note received by the Company pursuant to
                  the terms thereof.

                           "FORMATION TRANSACTION COST RESERVE" means the total
                  amount held in reserve by the Company as set forth on Schedule
                  2.14.

                           "INITIAL FORMATION DIVESTITURE" means the sale, on
                  the Third Amendment Secondary Effective Date, of any or all
                  those skilled nursing facilities listed on Schedule 6.9(i)(a)
                  to Formation Properties III, LLC, and related transactions
                  consummated on such date, for aggregate gross consideration of
                  $92,000,000, including a Cash amount of $78,000,000 and a
                  $14,000,000 promissory note; provided that if fewer than all
                  of the skilled nursing facilities identified on such Schedule
                  are sold on the Third Amendment Secondary Effective Date, the
                  gross consideration, and the portions thereof payable in Cash
                  and in the form of a promissory note, shall be ratably reduced
                  as provided in the Asset Purchase Agreement.

                           "IT REINVESTMENT PROPERTY" means information
                  technology equipment and software necessary in the ordinary
                  course of Company's business conducted in accordance with
                  Section 6.13 of the Credit Agreement.

                           "KELLETT DIVESTITURE" means the divestiture of those
                  facilities listed on the Kellett Florida Facilities to the
                  respective Kellett Florida Landlords on or prior to March 31,
                  2004, (or such later date on or prior to June 30, 2004 as the
                  Administrative Agent may agree to in writing, or on such later
                  date satisfactory to Requisite Lenders) including without
                  limitation the assignment of net working capital associated
                  with such facilities, in an amount not to exceed $5,000,000,
                  the consideration for which shall consist of the termination
                  of capital lease obligations associated with the Kellett
                  Florida Facilities, and otherwise on substantially the same
                  terms as those set forth on Schedule 6.9(i)(c)(ii), or as
                  otherwise may be reasonably satisfactory to the Administrative
                  Agent; provided, however, that any material change to the
                  economic or financial terms of any Kellett Divestiture shall
                  be subject to approval by Requisite Lenders.

                           "KELLETT FLORIDA FACILITIES" means those skilled
                  nursing facilities identified on Schedule 6.9(i)(c)(i).

                           "KELLETT FLORIDA LANDLORDS" means the landlords
                  identified opposite the names of the Kellett Florida
                  Facilities on Schedule 6.9(i)(c)(i), from whom the Kellett
                  Florida Tenant leases such facilities pursuant to the Kellett
                  Leases

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                  pertaining to such Kellett Florida Facilities, which landlords
                  are controlled by Sam Kellett, Stiles Kellett or their
                  affiliates.

                           "KELLETT FLORIDA LEASES" means the lease agreements,
                  as amended and extended to date, pursuant to which the Kellett
                  Florida Tenant leases the Kellett Florida Facilities.

                           "KELLETT FLORIDA TENANT" means MHC/CSI Florida, Inc.,
                  a Delaware corporation and a wholly owned Subsidiary of the
                  Company, as tenant or lessee under the Kellett Florida Leases.

                           "NONCOMPETITION AGREEMENT" means that certain
                  Noncompetition Agreement, in form delivered to the Lenders on
                  or prior to the Third Amendment Primary Effective Date and
                  reasonably satisfactory to Requisite Lenders, dated as of the
                  Third Amendment Secondary Effective Date by and between
                  Formation Properties III, LLC, the Company, and certain
                  Subsidiaries of the Company, as amended from time to time in
                  accordance with Section 6.19.

                           "OPERATIONS TRANSFER AGREEMENT" means that certain
                  Operations Transfer Agreement, in the form delivered to the
                  Lenders on or prior to the Third Amendment Primary Effective
                  Date and reasonably satisfactory to Requisite Lenders, dated
                  as of the Third Amendment Secondary Effective Date by and
                  between Formation Properties III, LLC, Sovereign Healthcare,
                  LLC, the Company, and certain subsidiaries of the Company, as
                  amended from time to time in accordance with Section 6.19.

                           "SUB-COLLATERAL AGENT" means a sub-collateral agent
                  appointed by the Joint Collateral Agent pursuant to Section 9
                  of the Intercreditor Agreement, including without limitation
                  UBS AG, Stamford Branch in its capacity as sub-collateral
                  agent under the Sub-Collateral Agent Pledge and Security
                  Agreement.

                           "SUB-COLLATERAL AGENT PLEDGE AND SECURITY AGREEMENT"
                  means that certain Pledge and Security Agreement, in the form
                  delivered to the Lenders on or prior to the Third Amendment
                  Primary Effective Date and reasonably satisfactory to
                  Requisite Lenders, dated as of the date Third Amendment
                  Secondary Effective Date by and between the Company and the
                  Sub-Collateral Agent, as it may be amended, supplemented or
                  otherwise modified from time to time.

                           "TAMPA MORTGAGE LOAN" means the approximately
                  $5,200,000 loan to Tampa Health Properties, Ltd. held by the
                  Company and secured by a mortgage on the Facility known as
                  Mariner Health of Tampa.

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                           "THIRD AMENDMENT" means that certain Third Amendment
                  to Credit and Guaranty Agreement dated as of October 1, 2003
                  by and among the Company, the Guarantors signatory thereto and
                  the Agents and Lenders signatory thereto.

                           "THIRD AMENDMENT PRIMARY EFFECTIVE DATE" means the
                  date on or prior to 5:00 p.m. Eastern time on October [ ],
                  2003 upon which all the conditions precedent set forth in
                  Section 3.1 of the Third Amendment were satisfied or waived in
                  writing by Requisite Lenders.

                           "THIRD AMENDMENT SECONDARY EFFECTIVE DATE" means the
                  date on or prior to 5:00 p.m. Eastern time on December 1, 2003
                  (or such later date on or before December 31, 2003 as the
                  Administrative Agent may agree to in writing) upon which all
                  the conditions precedent set forth in Sections 3.2 of the
                  Third Amendment were satisfied or waived in writing by
                  Requisite Lenders.

                           "WESTCHESTER MORTGAGE" means that certain Mortgage
                  and Security Agreement dated as of May 24, 1995, in favor of
                  Deutsche Bank national Trust Company, as Trustee, and assignee
                  of SouthTrust Bank, National Association, on the Westchester
                  Property.

                           "WESTCHESTER PREPAYMENT" means the prepayment on in
                  full of the Mortgage Loan secured by the Westchester Mortgage
                  on or before the 65th day after the Third Amendment Secondary
                  Effective Date.

                           "WESTCHESTER PREPAYMENT RESERVE" means the amount, if
                  any, specified on Schedule 2.14 being reserved from the
                  Formation Divestiture Proceeds by Company or Mariner Health
                  Care of Nashville, Inc. for the purpose of making the
                  Westchester Prepayment.

                           "WESTCHESTER PROPERTY" means the Facility known as
                  Mariner Health of Westchester, located at 2901 S. Wolf Road,
                  Westchester, Illinois 60154.

                           (b) The following definition of "CONSOLIDATED
         ADJUSTED EBITDA" is hereby deleted in its entirety and the following
         new definition thereof substituted in its place:

                           "CONSOLIDATED ADJUSTED EBITDA" means, for any period,
                  an amount determined for Company and the Guarantor
                  Subsidiaries on a consolidated basis equal to (i) the sum,
                  without duplication, of the amounts for such period of (a)
                  Consolidated Net Income, (b) Consolidated Interest Expense,
                  (c) provisions for taxes based on income, (d) total
                  depreciation expense, (e) total amortization expense, (f) (for
                  any period ending on or prior to December 31, 2002 only) to
                  the extent deducted in determining Consolidated Net Income,
                  any non-recurring

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                  charge or restructuring charge in connection with the
                  implementation of the Plan of Reorganization, (g) other
                  non-Cash items reducing Consolidated Net Income (excluding any
                  such non-Cash item to the extent that it represents an accrual
                  or reserve for potential Cash items in any future period or
                  amortization of a prepaid Cash item that was paid in a prior
                  period) and (h) the amount, if any, by which the current
                  insurance accounting accruals for general liability and
                  professional liability claims for each of the trailing four
                  Fiscal Quarter calculation periods ending in Fiscal Year 2003
                  and Fiscal Year 2004 exceeds actual cash paid in respect of
                  general liability and professional liability claims during the
                  same period minus (ii) other non-Cash items increasing
                  Consolidated Net Income for such period (excluding any such
                  non-Cash item to the extent it represents the reversal of an
                  accrual or reserve for potential Cash item in any prior
                  period), all as may be adjusted pursuant to the terms of
                  Schedule 1.1(iv); provided, however, that the amount
                  added-back to Consolidated Adjusted EBITDA pursuant to clause
                  (h) above shall not exceed $30,000,000 for each of the
                  trailing four Fiscal Quarter calculation periods ending in
                  Fiscal Year 2003, and $27,000,000 in the first trailing four
                  Fiscal Quarter calculation period ending in Fiscal Year 2004,
                  $24,000,000 in the second trailing four Fiscal Quarter
                  calculation period ending in Fiscal Year 2004, $19,000,000 in
                  the third trailing four Fiscal Quarter calculation period
                  ending in Fiscal Year 2004, and $15,000,000 for the fourth
                  trailing four Fiscal Quarter calculation period ending in
                  Fiscal Year 2004.

                  (c) The following definition of "COLLATERAL DOCUMENTS" is
         hereby deleted in its entirety and the following new definition thereof
         substituted in its place:

                  "COLLATERAL DOCUMENTS" means the Pledge and Security
         Agreement, the Sub-Collateral Agent Pledge and Security Agreement, the
         Mortgages, the Landlord Consent and Estoppel Agreements, if any, and
         all other instruments, documents and agreements delivered by any Credit
         Party pursuant to this Agreement or any of the other Credit Documents
         in order to grant to Joint Collateral Agent or Sub-Collateral Agent,
         for the benefit of Lenders, a Lien on any real, personal or mixed
         property of that Credit Party as security for the Obligations.

                  1.2 AMENDMENT TO SECTION 2.14: MANDATORY
PREPAYMENTS/COMMITMENT REDUCTIONS. Section 2.14(a) is hereby amended by deleting
it in its entirety and substituting the following new clause 2.14(a):

                  (a) Asset Sales. (I) No later than the first Business Day
                  following the date of receipt by Company or any of its
                  Subsidiaries of any Net Asset Sale Proceeds (other than
                  Formation Divestiture Proceeds), Company shall prepay the
                  Loans and/or the Revolving Commitments shall be permanently
                  reduced as set forth in Section 2.15(b) in an aggregate amount
                  equal to such Net Asset Sale Proceeds;

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                  provided, (i) so long as no Default or Event of Default shall
                  have occurred and be continuing, and (ii) to the extent that
                  aggregate Net Asset Sale Proceeds allocated for investment
                  pursuant to this clause (ii) but not yet so reinvested do not
                  exceed $5,000,000, Company shall have the option, directly or
                  through one or more of its Guarantor Subsidiaries, to invest
                  Net Asset Sale Proceeds (other than Formation Divestiture
                  Proceeds) within one hundred eighty (180) days of receipt
                  thereof in long-term useful assets of the general type used in
                  the business of Company and its Guarantor Subsidiaries
                  (provided that "long-term" assets for such purpose shall mean
                  any property having a remaining useful life of at least 5
                  years) or in IT Reinvestment Property (provided that the
                  aggregate amount of all such investments in IT Reinvestment
                  Property shall not exceed $10,000,000); provided further, that
                  pending any such investment all such Net Asset Sale Proceeds
                  shall be applied to prepay Revolving Loans to the extent
                  outstanding on the date of such Asset Sale (without a
                  reduction in Revolving Commitments); (II) no later than the
                  first Business Day following the date of receipt by the
                  Company or any of its Subsidiaries of any Formation
                  Divestiture Proceeds, Company shall prepay the Loans and/or
                  the Revolving Commitments shall be permanently reduced as set
                  forth in Section 2.15(b) in an aggregate amount equal to such
                  Formation Divestiture Proceeds (or, in the case of any
                  Formation Divestiture Proceeds received on or prior to the
                  Third Amendment Primary Effective Date, an amount equal to
                  such proceeds less the sum of the Formation Transaction Cost
                  Reserve and the Westchester Prepayment Reserve); provided,
                  however, that (i) so long as no Default or Event of Default
                  shall have occurred and be continuing and (ii)
                  contemporaneously with the Westchester Prepayment, Mariner
                  Health Care of Nashville, Inc. executes a Mortgage on the
                  Westchester Property pursuant to Section 5.11, Company may
                  apply up to $5,100,000 of Formation Divestiture Proceeds to
                  make the Westchester Prepayment; provided further, that to the
                  extent such Formation Divestiture Proceeds constitute
                  Formation Promissory Note Interest Proceeds, commencing on
                  April 1, 2004 and continuing thereafter on each October 1 and
                  April 1 until the Formation Promissory Note has been paid in
                  full, Company shall prepay the Loans and/or the Revolving
                  Commitments shall be reduced as set forth in Section 2.15(b)
                  in an amount equal to all such Formation Promissory Note
                  Interest Proceeds received during the immediately preceding
                  six-month period; and (III) no later than 65 days following
                  the Third Amendment Secondary Effective Date, the Company
                  shall prepay the Loans and/or the Revolving Commitments shall
                  be reduced as set forth in Section 2.15(b) in an amount equal
                  to, without duplication, the sum of (1) the excess, if any, of
                  the Formation Transaction Cost Reserve over the bona fide
                  direct costs incurred in connection with the Formation
                  Divestitures (which bona fide direct costs may include,
                  without duplication, the Company's reasonable projection of
                  such costs to be incurred in connection with any Delayed
                  Formation Divestiture that has not theretofore occurred
                  provided that such projection is reasonably satisfactory to
                  the Administrative Agent), and (2) the excess, if any, of the
                  Westchester Prepayment

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                  Reserve over the amount actually paid by the Company or
                  Mariner Health Care of Nashville, Inc. to or for the account
                  of the holder of the Westchester Mortgage to effectuate the
                  Westchester Prepayment.

                  1.3 AMENDMENTS TO SECTION 5.12: INTEREST RATE PROTECTION.
Section 5.12 is hereby amended by deleting it in its entirety by substituting
the following new Section 5.12 in its place:

                           5.12 INTEREST RATE PROTECTION. Upon the earlier of
                  (i) the tenth Business Day following the receipt by Company of
                  notice from the Administrative Agent that three month
                  Eurodollar Rate equals or exceeds 3% per annum or (ii) March
                  31st, 2004, Company shall enter into and cause to be
                  maintained in effect one or more Interest Rate Agreements
                  having terms, conditions and tenures, and being otherwise in
                  form and substance reasonably satisfactory to Administrative
                  Agent and Syndication Agent, to the extent necessary so that,
                  until the Term Loan Maturity Date, interest on Indebtedness in
                  a principal amount equal to at least 50.0 percent of the total
                  outstanding funded Indebtedness of the Company and its
                  consolidated Subsidiaries is effectively fixed or capped at
                  rates which are reasonably acceptable to the Administrative
                  Agent.

                  1.4 AMENDMENTS TO SECTION 5: AFFIRMATIVE COVENANTS. Section 5
is hereby amended by adding the following new Section 5.19:

                           5.19 DELAYED FORMATION DIVESTITURES. Upon the
                  occurrence of any Delayed Formation Divestiture, Company will
                  deliver to the Lenders an supplement to Schedule 6.9(i)(a)
                  identifying each Delayed Formation Facility divested in
                  connection with such Delayed Formation Divestiture.

                  1.5 AMENDMENT TO SECTION 6.2: LIENS. Section 6.2(a) is hereby
amended by deleting it in its entirety and substituting the following new clause
6.2(a):

                  (a) Liens in favor of Joint Collateral Agent or the
Sub-Collateral Agent, in each case for the benefit of Secured Parties, or the
Administrative Agent for the benefit of Beneficiaries, in each case granted
pursuant to any Credit Document;

                  1.6 AMENDMENT TO SECTION 6.7: INVESTMENTS. Section 6.7(i) is
hereby amended by deleting it its entirety and substituting the following new
clause 6.7(i):

                           (i) Investments made as a result of the receipt of
                  non-cash consideration from an asset sale made in compliance
                  with Section 6.9 hereof;

                  1.7 AMENDMENTS TO SECTION 6.8: FINANCIAL COVENANTS. Section
6.8(d), Maximum Consolidated Capital Expenditures, is hereby amended by (i)
changing the maximum

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amount of Consolidated Capital Expenditures permitted for Fiscal Year 2003 from
"$65.00 million" to "$70.00 million" and (ii) (i) changing the maximum amount of
Consolidated Capital Expenditures permitted for Fiscal Year 2004 from "$40.00
million" to "$55.00 million".

                  1.8 AMENDMENTS TO SECTION 6.9: FUNDAMENTAL CHANGES;
DISPOSITIONS OF ASSETS; ACQUISITIONS.

         (a) Section 6.9 is hereby amended by deleting clause (c) in its
         entirety and substituting the following new clause 6.9(c):

                  (c) Asset Sales (other than the Florida Divestitures and any
                  disposition of the Tampa Mortgage Loan permitted pursuant to
                  Section 6.9(k)), the proceeds of which (valued at the
                  principal amount thereof in the case of non-Cash proceeds
                  consisting of notes or other debt Securities and valued at
                  fair market value in the case of other non-Cash proceeds) (i)
                  when aggregated with the proceeds of all other Asset Sales
                  (other than the Florida Divestitures and any disposition of
                  the Tampa Mortgage Loan permitted pursuant to Section 6.9(k))
                  made within the same Fiscal Year, are less than $50,000,000;
                  provided (i) the consideration received for such assets shall
                  be in an amount equal to the fair market value thereof,
                  determined in good faith by the Board of Directors (or similar
                  governing body) of the Company or the applicable Credit Party,
                  (ii) no less than 75% thereof shall be paid in Cash, (iii) for
                  any single Asset Sale or series of related Asset Sales in an
                  aggregate amount in excess of $10,000,000, the Company shall
                  deliver to the Administrative Agent a Compliance Certificate
                  at least five (5) Business Days prior to the date of sale (or
                  such shorter period as Administrative Agent may agree to from
                  time to time), verifying that immediately after giving pro
                  forma effect to such Asset Sale, the Company will be in
                  compliance with its financial covenants set forth in Section
                  6.8, and (iv) the Net Asset Sale Proceeds thereof shall be
                  applied as required by Section 2.14(a);

         (b) Section 6.9 is hereby amended by deleting the "and" at the end of
         clause (g), by substituting ";" for "." at the end of clause (h) and by
         adding the following new clauses (i), (j) and (k):

                  (i) Asset Sales made pursuant to the Florida Divestitures of
                  the properties listed on Schedule 6.9(i)(a) and Schedule
                  6.9(i)(c)(i) provided that the Net Asset Sale Proceeds thereof
                  shall be applied as required by Section 2.14(a) hereto;

                  (j) at the Company's option, either (i) the acquisition of
                  joint venture interests in Tampa Health Properties, Ltd. (the
                  owner of the Facility known as Mariner Health of Tampa) from
                  the 99% limited partner in that equity, in connection with the
                  sale of the Mariner Health of Tampa Facility, or (ii) the
                  assignment by Tampa Medical Associates, Inc. of the lease for
                  that Facility to Formation Properties III, LLC or

                                       11
<PAGE>
                  another operator, whether as part of a Delayed Formation
                  Divestiture or otherwise, which transaction may (but need not)
                  include the transfer of the 1% general partnership interest in
                  Tampa Health Properties, Ltd., in either case on or before
                  December 31, 2003 and on terms reasonably satisfactory to the
                  Administrative Agent; and

                  (k) the sale, assignment, payoff or other disposition of the
                  Tampa Mortgage Loan for Net Asset Sale Proceeds of at least
                  $3,000,000, provided that such Net Asset Sale Proceeds shall
                  be applied as prepayment of the Term Loans pursuant to Section
                  2.14(a) hereto, without giving effect to any provision for
                  reinvestment of such proceeds.

                  1.9 ADDITION OF NEW SECTION 6.19. The Credit Agreement is
hereby amended by adding the following provision as a new Section 6.19:

                           6.19 DIVESTITURE AGREEMENTS.

                                    (a) The Company shall provide copies of the
                  final, executed Divestiture Agreements relating to the
                  Formation Divestitures upon the consummation of the Formation
                  Divestitures. No Credit Party shall nor shall permit any of
                  its Subsidiaries, without obtaining the prior written consent
                  of the Administrative Agent, to agree to any material
                  amendment, restatement, supplement or other modification to,
                  or waiver of, any of its material rights, interests or
                  obligations or materially increase the obligations of a Credit
                  Party or any Credit Party's Subsidiaries under any of the
                  Administrative Services Agreement, the Asset Purchase
                  Agreement, the Formation Intercreditor Agreement, the
                  Operations Transfer Agreement, the Formation Pledge and
                  Security Agreement or the Formation Promissory Note if such an
                  amendment, restatement, supplement, modification or waiver
                  would be materially adverse to any Lenders or materially
                  increase the obligations of any Credit Party.

                                    (b) Without limiting the foregoing clause
                  (a), no Credit Party shall nor shall it permit any of its
                  Subsidiaries, without the prior written consent of the
                  Requisite Lenders, to agree to any amendment, restatement,
                  supplement or other modification to, or waiver of the Asset
                  Purchase Agreement, the Formation Promissory Note or the
                  Formation Pledge and Security Agreement which would (a) reduce
                  the aggregate purchase price of the Formation Divestiture
                  Assets, (b) increase the principal amount of the Formation
                  Promissory Note above $14,000,000, (c) reduce the principal
                  amount of the Formation Promissory Note below $14,000,000
                  (subject to the provisions of the Asset Purchase Agreement

                                       12
<PAGE>
                  specifically providing for the initial amount of the
                  Promissory Note to be less than $14,000,000 if the sale of
                  less than fewer than all of the Formation Divestiture Assets
                  shall have been consummated), (d) change any dates upon which
                  payments of principal or interest are due thereon, (e) make
                  materially less strict any event of default (or amend, modify
                  or supplement the definition thereof) or condition to an event
                  of default with respect thereto, (f) change the redemption,
                  prepayment or defeasance provisions thereof in a manner
                  materially adverse to Lenders, (g) change the manner of
                  payment (other than the account to which such payments are
                  made), (h) increase the relative proportion of the purchase
                  price of any Formation Divestiture Assets in connection with
                  any Formation Divestiture payable in the form of purchase
                  money debt rather than cash, (i) materially decrease the
                  obligations of purchaser with respect to the Asset Purchase
                  Agreement or the obligor with respect to the Formation
                  Promissory Note or the grantor with respect to the Formation
                  Pledge and Security Agreement, (j) release all or any material
                  portion of the collateral support for the Formation Promissory
                  Note granted under the Formation Pledge and Security Agreement
                  or (k) increase the maximum aggregate indemnification limits
                  or alter the terms of indemnification specified in the Asset
                  Purchase Agreement.

                  1.10 AMENDMENT TO SECTION 9.6: RIGHT TO INDEMNITY. The Credit
Agreement is hereby amended by deleting Section 9.6(b) in its entirety and
substituting the following new clause (b):

                           (b) Each Lender, in proportion to its Pro Rata Share,
                  severally agrees to indemnify each of the Joint Collateral
                  Agent and the Sub-Collateral Agent, to the extent that the
                  Joint Collateral Agent or the Sub-Collateral Agent, as the
                  case may be, shall not have been reimbursed by any Credit
                  Party within fifteen (15) Business Days after demand (or
                  incurrence if the Joint Collateral Agent or the Sub-Collateral
                  Agent, as the case may be, is stayed from making any demand),
                  for and against any and all liabilities, obligations, losses,
                  damages, penalties, actions, judgments, suits, costs, expenses
                  (including counsel fees and disbursements) or disbursements of
                  any kind or nature whatsoever which may be imposed on,
                  incurred by or asserted against the Joint Collateral Agent or
                  the Sub-Collateral Agent, as the case may be, in exercising
                  its powers, rights and remedies or performing its duties under
                  the Collateral Documents in accordance with the direction of
                  the Administrative Agent or otherwise pursuant to the terms of
                  the Intercreditor Agreement; provided, no Lender shall be
                  liable for any portion of such liabilities, obligations,
                  losses, damages, penalties, actions, judgments, suits, costs,
                  expenses or disbursements resulting from the Joint Collateral
                  Agent's or the Sub-Collateral Agent's, as the case may be,
                  gross negligence or willful misconduct. Without limitation to
                  the generality of the foregoing, each Lender, in proportion to
                  its Pro Rata Share, severally agrees to indemnify the Joint
                  Collateral Agent and the Sub-Collateral Agent, to the extent
                  that the Joint Collateral Agent

                                       13
<PAGE>
                  or the Sub-Collateral Agent, as the case may be, shall not
                  have been reimbursed by any Credit Party within fifteen (15)
                  Business Days after demand (or incurrence if the Joint
                  Collateral Agent or the Sub-Collateral Agent, as the case may
                  be, is stayed from making any demand), for and against any and
                  all liabilities to any depositary bank in respect of
                  reimbursement or payment obligations or indemnity obligations
                  under any control agreement entered into by the Joint
                  Collateral Agent on the Closing Date or otherwise at the
                  direction of the Administrative Agent, or entered into by the
                  Sub-Collateral Agent at the direction of the Administrative
                  Agent, if and to the extent that at the time that the Joint
                  Collateral Agent or the Sub-Collateral Agent, as the case may
                  be, is obligated to reimburse, pay or indemnify a depositary
                  bank, the Joint Collateral Agent or the Sub-Collateral Agent,
                  as the case may be, is prohibited by operation of law or
                  otherwise from discharging such reimbursement, payment or
                  indemnity obligations from the proceeds of Collateral held by
                  it or the same are inadequate.

                  1.11 AMENDMENT TO SECTION 9.8: COLLATERAL DOCUMENTS AND
GUARANTY. The Credit Agreement is hereby amended by deleting Section 9.8(b) in
its entirety and substituting the following new clause (b):

                           (b) Right to Realize on Collateral and Enforce
         Guaranty. Anything contained in any of the Credit Documents to the
         contrary notwithstanding, Company, Administrative Agent, Collateral
         Monitoring Agent and each Lender hereby agree that (i) no Lender shall
         have any right individually to realize upon any of the Collateral or to
         enforce the Guaranty, it being understood and agreed that all powers,
         rights and remedies hereunder may be exercised solely by Administrative
         Agent, on behalf of Lenders in accordance with the terms hereof and all
         powers, rights and remedies under the Collateral Documents may be
         exercised solely by Joint Collateral Agent or the Sub-Collateral Agent
         at the direction of the Administrative Agent in accordance with the
         terms of the Intercreditor Credit, and (ii) in the event of a
         foreclosure by Joint Collateral Agent or the Sub-Collateral Agent on
         any of the Collateral pursuant to a public or private sale, Joint
         Collateral Agent, Administrative Agent, Collateral Monitoring Agent,
         Sub-Collateral Agent or any Lender may be the purchaser of any or all
         of such Collateral at any such sale and Administrative Agent, as agent
         for and representative of Beneficiaries (but not any Lender or Lenders
         in its or their respective individual capacities unless Requisite
         Lenders shall otherwise agree in writing) shall be entitled, for the
         purpose of bidding and making settlement or payment of the purchase
         price for all or any portion of the Collateral sold at any such public
         sale, to use and apply any of the Obligations as a credit on account of
         the purchase price for any collateral payable by Joint Collateral Agent
         or the Sub-Collateral Agent at such sale.

                  1.12 AMENDMENT TO SECTION 10.3: INDEMNITY. The Credit
Agreement is hereby amended incorporating the Sub-Collateral Agent into the
definition of "Indemnitee" contained in Section 10.3(a).

                                       14
<PAGE>
                  1.13 ADDITION OF SCHEDULES. The Credit Agreement is hereby
amended by the addition of Schedule 2.14, Formation Transaction Cost Reserve and
Westchester Prepayment Reserve, Schedule 6.9(i)(a), Formation Divesture Assets,
Schedule 6.9(i)(b), Terms of Delayed Formation Divestitures, Schedule
6.9(i)(c)(i), Kellett Divesture Assets, and Schedule 6.9(i)(c)(ii), Terms of
Kellett Divestiture. Schedule 2.14 is attached hereto as Annex I. Schedules
6.9(i)(a) through 6.9(i)(c)(ii) are attached hereto as Annex II.

SECTION 2. LIMITATION OF AMENDMENTS

                  2.1 Without limiting the generality of the provisions of
Section 10.5 of the Credit Agreement, the amendments set forth above shall be
limited precisely as written and relate solely to the amendments of the
provisions of the Credit Agreement in the manner and to the extent described
above, and nothing in this Third Amendment shall be deemed to:

                  (a) constitute a waiver of compliance by the Company or any
         Guarantor with respect to (1) Section 10.5 of the Credit Agreement in
         any other instance or (2) any other term, provision or condition of the
         Credit Agreement or any other instrument or agreement referred to
         therein; or

                  (b) prejudice any right or remedy that any Lender may now have
         (except to the extent such right or remedy was based upon existing
         defaults that will not exist after giving effect to this Third
         Amendment) or may have in the future under or in connection with the
         Credit Agreement or any other instrument or agreement referred to
         therein.

SECTION 3. CONDITIONS PRECEDENT TO EFFECTIVENESS

                  3.1 THIRD AMENDMENT PRIMARY EFFECTIVE DATE. The effectiveness
of the amendments set forth at Section 1.1(b) and Section 1.3 hereof is subject
to the satisfaction, or waiver, of the following conditions on the date on or
prior to October [ ], 2003 (the "THIRD AMENDMENT PRIMARY EFFECTIVE DATE"):

         (a) The Company, the Guarantors, the Requisite Lenders and the
         Syndication Agent shall have indicated their consent by the execution
         and delivery of the signature pages to the Administrative Agent.

         (b) As of the Third Amendment Primary Effective Date (and after giving
         effect to this Third Amendment), the representations and warranties
         contained herein and in the other Credit Documents shall be true,
         correct and complete in all material respects on and as of the Third
         Amendment Primary Effective Date to the same extent as though made on
         and as of that date, except to the extent such representations and
         warranties specifically relate to an earlier date, in which case such
         representations and warranties shall have been true, correct and
         complete in all material respects on and as of such earlier date.

                                       15
<PAGE>
         (c) As of the Third Amendment Primary Effective Date, after giving
         effect to this Third Amendment, no event shall have occurred and be
         continuing that would constitute an Event of Default or a Default.

         (d) The Company shall have reimbursed or paid to the Collateral
         Monitoring Agent and its outside counsel, Kilpatrick Stockton LLP, all
         reasonable and documented costs, fees, and expenses (including, without
         limitation, legal fees and expenses) incurred by the Collateral
         Monitoring Agent and its outside counsel in connection with the
         preparation, review and negotiation of this Third Amendment and the
         transactions contemplated hereby, to the extent invoiced to the
         Company.

         (e) The Company shall have paid all fees, costs and expenses owing to
         the Administrative Agent, the Syndication Agent and its counsel,
         Skadden, Arps, Slate, Meagher & Flom LLP, invoiced to the Company on or
         before the date hereof and reimbursable by the Company under the terms
         of the Credit Agreement.

                  3.2 THIRD AMENDMENT SECONDARY EFFECTIVE DATE. The
effectiveness of the amendments set forth at Sections 1.1(a), 1.1(c), 1.2, 1.4,
1.5, 1.6, 1.7, 1.8, 1.9. 1.10, 1.11, 1.12 and 1.13 hereof is subject to the
Administrative Agent's confirmation in writing to Lenders of the satisfaction,
or waiver, of the following conditions on the date on or prior to December 1,
2003, or such later date on or before December 31, 2003 as the Administrative
Agent may agree to in writing (the "THIRD AMENDMENT SECONDARY EFFECTIVE DATE"):

         (a) The Third Amendment Primary Effective Date shall have occurred.

         (b) Prior to or substantially simultaneously with the effectiveness of
         the amendments set forth herein, the Company shall have consummated the
         Initial Formation Divestiture on terms pursuant to the Divestiture
         Agreements and Company shall have delivered to the Lenders a supplement
         to Schedule 6.9(i)(a) the facilities divested in connection the Initial
         Formation Divestiture.

         (c) As of the Third Amendment Secondary Effective Date (and after
         giving effect to this Third Amendment), the representations and
         warranties contained herein and in the other Credit Documents shall be
         true, correct and complete in all material respects on and as of the
         Third Amendment Secondary Effective Date to the same extent as though
         made on and as of that date, except to the extent such representations
         and warranties specifically relate to an earlier date, in which case
         such representations and warranties shall have been true, correct and
         complete in all material respects on and as of such earlier date.

                                       16
<PAGE>
         (e) As of the Third Amendment Secondary Effective Date, after giving
         effect to this Third Amendment, no event shall have occurred and be
         continuing that would constitute an Event of Default or a Default.

         (f) The Administrative Agent shall have received the Sub-Collateral
         Agent Pledge and Security Agreement originally executed and delivered
         by the Company, and provision for receipt by the Administrative Agent
         of sufficient copies of the Sub-Collateral Agent Pledge and Security
         Agreement for each Lender shall have been made to the satisfaction of
         the Administrative Agent.

         (g) In order to create in favor of the Sub-Collateral Agent, for the
         benefit of Secured Parties, a valid perfect First Priority security
         interest in the Formation Collateral, the Administrative Agent and the
         Collateral Monitoring Agent shall have received evidence satisfactory
         to the Administrative Agent and the Collateral Monitoring Agent of
         compliance by the Company with its obligations under the Sub-Collateral
         Agent Pledge and Security Agreement

         (h) The Company shall have reimbursed or paid to the Collateral
         Monitoring Agent and its outside counsel, Kilpatrick Stockton LLP, all
         reasonable and documented costs, fees, and expenses (including, without
         limitation, legal fees and expenses) incurred by the Collateral
         Monitoring Agent and its outside counsel in connection with the
         preparation, review and negotiation of this Third Amendment and the
         transactions contemplated hereby, to the extent invoiced to the
         Company.

         (i) The Company shall have paid all fees, costs and expenses owing to
         the Administrative Agent, the Syndication Agent and its counsel,
         Skadden, Arps, Slate, Meagher & Flom LLP, invoiced to the Company on or
         before the Third Amendment Secondary Effective Date and reimbursable by
         the Company under the terms of the Credit Agreement.

SECTION 4. REPRESENTATIONS AND WARRANTIES

                  4.1 In order to induce the Agents and Requisite Lenders to
enter into this Third Amendment, the Company and each Guarantor hereby
represents and warrants that after giving effect to this Third Amendment:

         (a) as of the date hereof, after giving effect to this Third Amendment,
         there exists no Default or Event of Default;

         (b) all representations and warranties contained in the Credit
         Agreement and the other Credit Documents are true, correct and complete
         in all material respects on and as of the date hereof, except to the
         extent such representations and warranties specifically relate to

                                       17
<PAGE>
         an earlier date, in which case they were true, correct and complete in
         all material respects on and as of such earlier date;

         (c) the execution, delivery and performance of this Third Amendment
         have been duly authorized by all necessary action on the part of the
         Company and each Guarantor. The execution, delivery and performance by
         the Company and each Guarantor of this Third Amendment and the
         consummation of the transactions contemplated hereby do not and will
         not (i) violate any provision of any law or governmental rule or
         regulation applicable to such Credit Party, the Organizational
         Documents of such Credit Party, or any order, judgment or decree of any
         court or other agency of government binding on any Credit Party, (ii)
         conflict with, result in a breach of or constitute (with due notice or
         the lapse of time or both) a default under any Contractual Obligation
         of any Credit Party or any of its Subsidiaries, (iii) result in or
         require the creation or imposition of any Lien upon any of the
         properties or assets of any Credit Party or any of its Subsidiaries, or
         (iv) require the approval of members of any Credit Party or any
         approval or consent of any Person under any Contractual Obligation
         which shall not have been obtained on or before the effective date of
         this Third Amendment; and

         (d) this Third Amendment and each Credit Document has been duly
         executed and delivered by each Credit Party and is the legally valid
         and binding obligation of such Credit Party, enforceable in accordance
         with its respective terms, except as may be limited by bankruptcy,
         insolvency, reorganization or moratorium.

SECTION 5. ACKNOWLEDGMENT AND CONSENT

                  5.1 Each of the Company and the Guarantors hereby acknowledges
that it has reviewed the terms and provisions of the Credit Agreement and this
Third Amendment and consents to the amendments effected pursuant to this Third
Amendment. Each of the Company and the Guarantors hereby: (i) confirms that each
Credit Document to which it is a party or otherwise bound and all Collateral
encumbered thereby will continue to guarantee or secure, as the case may be, to
the fullest extent possible in accordance with the Credit Documents, the payment
and performance of all Guaranteed Obligations under the Credit Agreement and
Secured Obligations (as such term is defined in the Pledge and Security
Agreement) under the Pledge and Security Agreement now or hereafter existing
under or in respect of the Credit Agreement, and confirms its grants to the
Joint Collateral Agent of a continuing lien on and security interest in and to
all Collateral as collateral security for the prompt payment and performance in
full when due of the Guaranteed Obligations under the Credit Agreement and the
Secured Obligations (as such term is defined in the Pledge and Security
Agreement) under the Pledge and Security Agreement (whether at stated maturity,
by acceleration or otherwise) and (ii) acknowledges and agrees that any of the
Credit Documents to which it is a party or otherwise bound shall continue in
full force and effect and that all of its obligations thereunder shall be valid
and enforceable (subject to the qualifications set forth in Section 4.6 of the
Credit

                                       18
<PAGE>
Agreement) and shall not be impaired or limited by the execution or
effectiveness of this Third Amendment.

                  5.2 Each Guarantor acknowledges and agrees that (i)
notwithstanding the conditions to effectiveness set forth in this Third
Amendment, such Guarantor is not required by the terms of the Credit Agreement
or any other Credit Document to consent to the amendments effected pursuant to
this Third Amendment, and (ii) nothing in the Credit Agreement, this Third
Amendment or any other Credit Document shall be deemed to require the consent of
such Guarantor to any future waivers or amendments to the Credit Agreement.

                  5.3 The Administrative Agent and each Lender, by delivering
its signature page to this Third Amendment shall be deemed to have acknowledged
receipt of, and consented to and approved, each document required to be approved
by any Agent, Requisite Lenders or Lenders, as applicable.

                  5.4 Each of the Company, the Guarantors, the Administrative
Agent and each Lender, by delivering its signature page to this Third Amendment
hereby appoint the Sub-Collateral Agent and acknowledge, consent to, approve,
the delegation to the Sub-Collateral Agent by the Joint Collateral Agent of such
duties and powers such that delegee may act as sub-collateral agent with respect
to the Formation Collateral. With respect to the Formation Collateral, the
Sub-Collateral Agent shall be entitled to perform all such duties and powers and
exercise all rights of the Joint Collateral Agent, and all references in the
Credit Documents to sums payable to the Joint Collateral Agent shall be deemed
to include sums payable to the Sub-Collateral Agent.

SECTION 6. MISCELLANEOUS

                  6.1 This Third Amendment shall be binding upon the parties
hereto and their respective successors and assigns and shall inure to the
benefit of the parties hereto and the successors and assigns of Lenders. No
Credit Party's rights or obligations hereunder or any interest therein may be
assigned or delegated by any Credit Party without the prior written consent of
all Lenders.

                  6.2 In case any provision in or obligation hereunder shall be
invalid, illegal or unenforceable in any jurisdiction, the validity, legality
and enforceability of the remaining provisions or obligations, or of such
provision or obligation in any other jurisdiction, shall not in any way be
affected or impaired thereby.

                  6.3 On and after the Third Amendment Primary Effective Date
and the Third Amendment Secondary Effective Date, as appropriate each reference
in the Credit Agreement to "this Agreement," "hereunder," "hereof", "herein" or
words of like import referring to the Credit Agreement, and each reference in
the other Credit Documents to the "Credit Agreement",

                                       19
<PAGE>
"thereunder," "thereof", or words of like import referring to the Credit
Agreement, shall mean and be a reference to the Credit Agreement as amended by
this Third Amendment.

                  6.4 Except as specifically waived by this Third Amendment, the
Credit Agreement and the other Credit Documents shall remain in full force and
effect and are hereby ratified and confirmed.

                  6.5 The execution, delivery and performance of this Third
Amendment shall not, except as expressly provided herein, constitute a waiver of
any provision of, or operate as a waiver of any right, power or remedy of any
Agent or Lender under, the Credit Agreement or any of the other Credit
Documents.

                  6.6 Section headings herein are included herein for
convenience of reference only and shall not constitute a part hereof for any
other purpose or be given any substantive effect.

                  6.7 THIS THIRD AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE
PARTIES HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.

                  6.8 This Third Amendment may be executed in any number of
counterparts, each of which when so executed and delivered shall be deemed an
original, but all such counterparts together shall constitute but one and the
same instrument. As set forth herein, this Third Amendment shall become
effective upon the execution of a counterpart hereof by each of the parties
hereto and receipt by Company and Agents of written or telephonic notification
of such execution and authorization of delivery thereof.

           [The remainder of this page is intentionally left blank.]

                                       20
<PAGE>
COMPANY:                  MARINER HEALTH CARE, INC.

                          By:          /s/ Boyd P. Gentry
                               Name:   Boyd P. Gentry
                               Title:  Senior Vice President

                                      S-1
<PAGE>
GUARANTORS:

              AID & ASSISTANCE, INC.
              AMERICAN MEDICAL INSURANCE BILLING SERVICES, INC.
              AMERICAN PHARMACEUTICAL SERVICES, INC.
              AMERICAN REHABILITY SERVICES, INC.
              AMERRA PROPERTIES, INC.
              APS HOLDING COMPANY, INC.
              APS PHARMACY MANAGEMENT, INC.
              BEECHWOOD HERITAGE RETIREMENT COMMUNITY, INC.
              BRIAN CENTER HEALTH & REHABILITATION/TAMPA, INC.
              BRIAN CENTER HEALTH & RETIREMENT/ALLEGHANY, INC.
              BRIAN CENTER HEALTH & RETIREMENT/BASTIAN, INC.
              BRIAN CENTER MANAGEMENT CORPORATION
              BRIAN CENTER NURSING CARE/AUSTELL, INC.
              BRIAN CENTER NURSING CARE/FINCASTLE, INC.
              BRIDE BROOK NURSING & REHABILITATION CENTER, INC.
              COMPASS PHARMACY SERVICES OF MARYLAND, INC.
              COMPASS PHARMACY SERVICES OF TEXAS, INC.
              COMPASS PHARMACY SERVICES, INC.
              CORNERSTONE HEALTH MANAGEMENT COMPANY
              DEVCON HOLDING COMPANY
              EH ACQUISITION CORP. III
              GCI HEALTH CARE CENTERS, INC.
              GCI REHAB, INC.
              GCI THERAPIES, INC.
              GCI-CAL THERAPIES COMPANY
              GCI-WISCONSIN PROPERTIES, INC.
              GRANCARE HOME HEALTH SERVICES, INC.
              GRANCARE OF MICHIGAN, INC.
              GRANCARE OF NORTH CAROLINA, INC.
              GRANCARE SOUTH CAROLINA, INC.
              GRANCARE, LLC
              HERITAGE OF LOUISIANA, INC.
              HOSPICE ASSOCIATES OF AMERICA, INC.
              IHS REHAB PARTNERSHIP, LTD.
              LCR, INC.
              LIVING CENTERS DEVELOPMENT COMPANYLIVING

                                   S-2
<PAGE>
              CENTERS LTCP DEVELOPMENT COMPANY
              LIVING CENTERS OF TEXAS, INC.
              LIVING CENTERS-EAST, INC.
              LIVING CENTERS-ROCKY MOUNTAIN, INC.
              LIVING CENTERS-SOUTHEAST DEVELOPMENT CORPORATION
              LIVING CENTERS-SOUTHEAST, INC.
              LONG RIDGE NURSING AND REHABILITATION CENTER, INC.
              LONGWOOD REHABILITATION CENTER, INC.
              MARINER HEALTH AT BONIFAY, INC.
              MARINER HEALTH CARE MANAGEMENT COMPANY
              MARINER HEALTH CARE OF ATLANTIC SHORES, INC.
              MARINER HEALTH CARE OF DELAND, INC.
              MARINER HEALTH CARE OF FORT WAYNE, INC.
              MARINER HEALTH CARE OF GREATER LAUREL, INC.
              MARINER HEALTH CARE OF INVERNESS, INC.
              MARINER HEALTH CARE OF LAKE WORTH, INC.
              MARINER HEALTH CARE OF MACCLENNY, INC.
              MARINER HEALTH CARE OF METROWEST, INC.
              MARINER HEALTH CARE OF NASHVILLE, INC.
              MARINER HEALTH CARE OF NORTH HILLS, INC.
              MARINER HEALTH CARE OF ORANGE CITY, INC.
              MARINER HEALTH CARE OF PALM CITY, INC.
              MARINER HEALTH CARE OF PINELLAS POINT, INC.
              MARINER HEALTH CARE OF PORT ORANGE, INC.
              MARINER HEALTH CARE OF SOUTHERN CONNECTICUT, INC.
              MARINER HEALTH CARE OF TOLEDO, INC.
              MARINER HEALTH CARE OF TUSKAWILLA, INC.
              MARINER HEALTH CARE OF WEST HILLS, INC.
              MARINER HEALTH CENTRAL, INC.
              MARINER HEALTH HOME CARE, INC.
              MARINER HEALTH MASSACHUSETTS SHELF CORPORATION
              MARINER HEALTH OF FLORIDA, INC.
              MARINER HEALTH OF JACKSONVILLE, INC.
              MARINER HEALTH OF MARYLAND, INC.
              MARINER HEALTH OF ORLANDO, INC.
              MARINER HEALTH OF PALMETTO, INC.
              MARINER HEALTH OF SEMINOLE COUNTY, INC.
              MARINER HEALTH OF TAMPA, INC.
              MARINER HEALTH PROPERTIES IV, LTD. MARINER HEALTH RESOURCES, INC.
              MARINER PHYSICIAN SERVICES, INC.
              MARINER PRACTICE CORPORATION
              MARINER SUPPLY SERVICES, INC.
              MARINER-REGENCY HEALTH PARTNERS, INC.
              MARINERSELECT STAFFING SOLUTIONS, INC.

                                      S-3
<PAGE>
              MEDREHAB OF INDIANA, INC.
              MEDREHAB OF LOUISIANA, INC.
              MEDREHAB OF MISSOURI, INC.
              MEDREHAB, INC.
              MED-THERAPY REHABILITATION SERVICES, INC.
              MERRIMACK VALLEY NURSING & REHABILITATION CENTER, INC.
              METHUEN NURSING & REHABILITATION CENTER, INC.
              MHC CONSOLIDATING CORPORATION
              MHC FLORIDA HOLDING COMPANY
              MHC GULF COAST HOLDING COMPANY
              MHC HOLDING COMPANY
              MHC ILLINOIS, INC.
              MHC MIDAMERICA HOLDING COMPANY
              MHC MIDATLANTIC HOLDING COMPANY
              MHC NORTHEAST HOLDING COMPANY
              MHC RECRUITING COMPANY
              MHC REHAB CORP.
              MHC ROCKY MOUNTAIN HOLDING COMPANY
              MHC TEXAS HOLDING COMPANY, LLC
              MHC TRANSPORTATION, INC.
              MHC WEST HOLDING COMPANY
              MHC/CSI FLORIDA, INC.
              MHC/LCA FLORIDA, INC.
              MYSTIC NURSING & REHABILITATION CENTER, INC.
              NAN-DAN CORP.
              NATIONAL HEALTH STRATEGIES, INC.
              NATIONAL HERITAGE REALTY, INC.
              THE OCEAN PHARMACY, INC.
              PARK TERRACE NURSING & REHABILITATION CENTER, INC.
              PENDLETON NURSING & REHABILITATION CENTER, INC.
              PHCMI HOLDING COMPANY, LLC
              PINNACLE CARE CORPORATION OF HUNTINGTON
              PINNACLE CARE CORPORATION OF NASHVILLE
              PINNACLE CARE CORPORATION OF WILLIAMS BAY
              PINNACLE CARE CORPORATION OF WILMINGTON
              PINNACLE CARE MANAGEMENT CORPORATION
              PINNACLE PHARMACEUTICAL SERVICES, INC.
              PINNACLE REHABILITATION OF MISSOURI, INC.
              PINNACLE REHABILITATION, INC.
              PRISM CARE CENTERS, INC.
              PRISM HEALTH GROUP, INC.
              PRISM HOME CARE COMPANY, INC.
              PRISM HOME CARE, INC.

                                      S-4
<PAGE>
              PRISM HOME HEALTH SERVICES, INC.
              PRISM HOSPITAL VENTURES, INC.
              PRISM REHAB SYSTEMS, INC.
              PROFESSIONAL RX SYSTEMS, INC.
              REGENCY HEALTH CARE CENTER OF SEMINOLE COUNTY, INC.
              REHABILITY HEALTH SERVICES, INC.
              RENAISSANCE MENTAL HEALTH CENTER, INC.
              SASSAQUIN NURSING & REHABILITATION CENTER, INC.
              SEVENTEENTH STREET ASSOCIATES LIMITED PARTNERSHIP
              SUMMIT HOSPITAL OF SOUTHEAST ARIZONA, INC.
              SUMMIT HOSPITAL OF SOUTHWEST LOUISIANA, INC.
              SUMMIT INSTITUTE FOR PULMONARY MEDICINE AND REHABILITATION, INC.
              SUMMIT INSTITUTE OF AUSTIN, INC.
              SUMMIT MEDICAL HOLDINGS, LTD.
              SUMMIT MEDICAL MANAGEMENT, INC.
              TAMPA MEDICAL ASSOCIATES, INC.
              TRI-STATE HEALTH CARE, INC.
              WINDWARD HEALTH CARE, INC.

                 By:          /s/ Boyd P. Gentry
                     Name:    Boyd P. Gentry
                     Title:   Vice President

                                      S-5
<PAGE>
LENDERS:

                            [LENDER'S NAME],
                                  as a Lender

                           By:    _________________________________
                                  Name:
                                  Title:

                                      S-6<PAGE>
                            ASSET PURCHASE AGREEMENT

                                  BY AND AMONG

                          FORMATION PROPERTIES III, LLC

                                       AND

                           MARINER HEALTH CARE, INC.,
                     MARINER HEALTH CARE MANAGEMENT COMPANY,
                          MARINER HEALTH CENTRAL, INC.,
                        MARINER HEALTH OF FLORIDA, INC.,
                         TAMPA MEDICAL ASSOCIATES, INC.,
                             MHC/LCA FLORIDA, INC.,
                    MARINER HEALTH CARE OF ORANGE CITY, INC.,
                    MARINER HEALTH CARE OF PORT ORANGE, INC.,
                     MARINER HEALTH CARE OF PALM CITY, INC.,
                    MARINER HEALTH CARE OF LAKE WORTH, INC.,
                  MARINER HEALTH CARE OF PINELLAS POINT, INC.,
                             MHC/CSI FLORIDA, INC.,
                    MARINER HEALTH CARE OF TUSKAWILLA, INC.,
                     MARINER HEALTH CARE OF METROWEST, INC.,
                     MARINER HEALTH CARE OF INVERNESS, INC.,
                     MARINER HEALTH CARE OF MACCLENNY, INC.,
                       MARINER HEALTH PROPERTIES IV, LTD.,
                        MARINER HEALTH AT BONIFAY, INC.,
                  MARINER HEALTH CARE OF ATLANTIC SHORES, INC.,
                        MARINER HEALTH OF ORLANDO, INC.,
                        MARINER HEALTH OF PALMETTO, INC.,
                    AND MARINER HEALTH OF JACKSONVILLE, INC.

                                   DATED AS OF

                                 AUGUST 19, 2003

<PAGE>

                                TABLE OF CONTENTS

<TABLE>
<S>               <C>                                                                           <C>
ARTICLE I         PURCHASE AND SALE..............................................................2

   Section 1.1        Transfer of Assets.........................................................2
   Section 1.2        Closing....................................................................2
   Section 1.3        Purchase Price.............................................................3
   Section 1.4        Earnest Money..............................................................3
   Section 1.5        Payment of Purchase Price..................................................4
   Section 1.6        Assumed Liabilities........................................................4
   Section 1.7        Allocation of Purchase Price...............................................4
   Section 1.8        No Assignment if Breach....................................................4

ARTICLE II        REPRESENTATIONS AND WARRANTIES OF MHC..........................................5

   Section 2.1        Organization and Qualification.............................................5
   Section 2.2        Authority; Binding Effect..................................................5
   Section 2.3        Governmental Authorities...................................................6
   Section 2.4        Taxes......................................................................6
   Section 2.5        No Defaults................................................................6
   Section 2.6        Absence of Certain Changes or Events.......................................7
   Section 2.7        Assumed Contracts..........................................................7
   Section 2.8        Title to Property and Related Matters......................................7
   Section 2.9        Hazardous Substances.......................................................9
   Section 2.10       Personal Property Leases...................................................9
   Section 2.11       Condition of Purchased Assets.............................................10
   Section 2.12       Intentionally omitted.....................................................10
   Section 2.13       No Litigation.............................................................10
   Section 2.14       Compliance with Law.......................................................10
   Section 2.15       Survey Reports, Etc.......................................................11
   Section 2.16       Employee and Labor Relations..............................................11
   Section 2.17       Employee Benefit Plans....................................................11
   Section 2.18       Intentionally omitted.....................................................12
   Section 2.19       Capital Expenditures......................................................12
   Section 2.20       Absence of Notices........................................................12
   Section 2.21       Medicare and Medicaid Participation.......................................12
   Section 2.22       Third Party Payor Reimbursement...........................................13
   Section 2.23       Patient Records...........................................................13
   Section 2.24       Intentionally omitted.....................................................13
   Section 2.25       Intentionally omitted.....................................................13
   Section 2.26       Inventory and Supplies....................................................13
   Section 2.27       Licensed Beds.............................................................13
   Section 2.28       Financial Statements......................................................13
   Section 2.29       Professional Liability Insurance..........................................14

ARTICLE III       REPRESENTATIONS AND WARRANTIES OF PURCHASER AND PARENT........................14

   Section 3.1        Corporate Organization; Etc...............................................14
   Section 3.2        Authorization, Binding Effect.............................................14
   Section 3.3        No Violation..............................................................14
</TABLE>

<PAGE>

<TABLE>
<S>               <C>                                                                           <C>
   Section 3.4        Governmental Authorities..................................................14
   Section 3.5        Solvency..................................................................15

ARTICLE IV        COVENANTS OF SELLERS..........................................................15

   Section 4.1        Regular Course of Business................................................15
   Section 4.2        Absence of Certain Changes or Events......................................15
   Section 4.3        Borrowing.................................................................16
   Section 4.4        Full Access and Disclosure................................................16
   Section 4.5        Intentionally omitted.....................................................16
   Section 4.6        Third Party Consents......................................................16
   Section 4.7        Intentionally omitted.....................................................17
   Section 4.8        Taxes.....................................................................17
   Section 4.9        No Disposition of Assets..................................................17
   Section 4.10       Further Documentation.....................................................17
   Section 4.11       Confidentiality...........................................................17
   Section 4.12       Title Insurance; Title; Governmental Approval and Third Party Consent.....18
   Section 4.13       Key Employees.............................................................18
   Section 4.14       Intentionally omitted.....................................................18
   Section 4.15       Delivery of Inventories and Supplies at Closing...........................18
   Section 4.16       Payment for Earned Vacation...............................................18
   Section 4.17       Intentionally omitted.....................................................18
   Section 4.18       No Solicitation...........................................................18
   Section 4.19       Intentionally omitted.....................................................19
   Section 4.20       Intentionally omitted.....................................................19
   Section 4.21       Section 2.8 Facilities....................................................19
   Section 4.22       Mariner Health of Tampa...................................................20
   Section 4.23       Mariner Health of St. Augustine...........................................22
   Section 4.24       Section 2.9 Facilities....................................................23
   Section 4.25       OIG Confirmation..........................................................24
   Section 4.26       Intentionally omitted.....................................................24
   Section 4.27       Intentionally omitted.....................................................24
   Section 4.28       Cooperation...............................................................24
   Section 4.29       Subordination Agreement...................................................24
   Section 4.30       Promissory Note Assignment Option.........................................24

ARTICLE V COVENANTS OF PURCHASER AND PARENT.....................................................25

   Section 5.1        Confidentiality...........................................................25
   Section 5.2        Compliance with Laws......................................................25
   Section 5.3        Assumption of and Compliance with the Assumed Contracts...................25
   Section 5.4        Parent Action.............................................................25
   Section 5.5        Intentionally omitted.....................................................25
   Section 5.6        Consents, Etc.............................................................26
   Section 5.7        Further Documentation.....................................................26
   Section 5.8        Intentionally omitted.....................................................26
   Section 5.9        Regulatory Inspections; Surveys...........................................26
   Section 5.10       Purchaser Financial Information...........................................26
   Section 5.11       Notice of Changes to Capital Structure....................................26
   Section 5.12       Subordination of Additional Rent..........................................26
</TABLE>

<PAGE>

<TABLE>
<S>               <C>                                                                           <C>
   Section 5.13       Internal Controls.........................................................26
   Section 5.14       Mariner Designated Operator...............................................27

ARTICLE VI        OTHER COVENANTS...............................................................27

   Section 6.1        HSR Filing................................................................27
   Section 6.2        Escrowed Remediation Funds................................................27
   Section 6.3        Risk of Loss..............................................................29
   Section 6.4        Mutual Cooperation........................................................29

ARTICLE VII       INDEMNIFICATION...............................................................29

   Section 7.1        Survival of Representations and Warranties................................29
   Section 7.2        Agreement to Defend.......................................................30
   Section 7.3        Indemnification by MHC....................................................30
   Section 7.4        Indemnification by Purchaser and Parent...................................31
   Section 7.5        Notification of Claims....................................................33
   Section 7.6        Limitations on Amount/Basket and Cap - MHC................................33
   Section 7.7        Limitations on Amount/Basket and Cap - Purchaser/Parent...................34
   Section 7.8        Exclusive Remedy..........................................................34

ARTICLE VIII      CONDITIONS TO THE OBLIGATIONS OF PURCHASER AND PARENT.........................34

   Section 8.1        Representations, Warranties; Performance..................................35
   Section 8.2        Consents and Approvals....................................................35
   Section 8.3        Intentionally omitted.....................................................35
   Section 8.4        No Destruction of Property................................................35
   Section 8.5        No Proceeding or Litigation...............................................35
   Section 8.6        Intentionally omitted.....................................................36
   Section 8.7        Material Adverse Change...................................................36
   Section 8.8        Noncompetition Agreement..................................................36
   Section 8.9        Occupancy Requirement.....................................................36
   Section 8.10       Related Documents.........................................................37
   Section 8.11       Insurable Title...........................................................37

ARTICLE IX        CONDITIONS TO THE OBLIGATIONS OF SELLERS......................................37

   Section 9.1        Representations and Warranties; Performance...............................37
   Section 9.2        Intentionally omitted.....................................................37
   Section 9.3        Consents and Approvals....................................................37
   Section 9.4        No Proceeding or Litigation...............................................37
   Section 9.5        Consent of Lenders and Noteholders........................................38
   Section 9.6        Operations Transfer Agreement, Master Lease, Master Transaction
                      Agreement and Administrative Services Agreement...........................38
   Section 9.7        Intentionally omitted.....................................................38

ARTICLE X         CLOSING.......................................................................38

   Section 10.1       Possession................................................................38
   Section 10.2       Transfer Documents........................................................38
   Section 10.3       Intentionally omitted.....................................................41
   Section 10.4       Prorations; Other Closing Adjustments.....................................41
   Section 10.5       Closing Costs.............................................................42
</TABLE>

<PAGE>

<TABLE>
<S>               <C>                                                                           <C>
ARTICLE XI        TERMINATION AND ABANDONMENT...................................................43

   Section 11.1       Method of Termination.....................................................43
   Section 11.2       Procedure Upon Termination................................................43
   Section 11.3       Sellers' Remedies Upon Termination........................................44
   Section 11.4       Purchaser's Remedies upon Termination.....................................44
   Section 11.5       Other Terminations........................................................45

ARTICLE XII       MISCELLANEOUS PROVISIONS......................................................45

   Section 12.1 Amendment and Modification......................................................45
   Section 12.2       Waiver of Compliance; Consent.............................................45
   Section 12.3       Intentionally omitted.....................................................45
   Section 12.4       Notices...................................................................45
   Section 12.5       Brokers and Finders; Expenses.............................................46
   Section 12.6       Attorney's Fees...........................................................46
   Section 12.7       Intentionally omitted.....................................................46
   Section 12.8       Assignment................................................................46
   Section 12.9       Governing Law.............................................................47
   Section 12.10      Jurisdiction..............................................................47
   Section 12.11      Counterparts..............................................................47
   Section 12.12      Headings..................................................................47
   Section 12.13      Entire Agreement..........................................................47
   Section 12.14      Intentionally omitted.....................................................47
   Section 12.15      Schedules.................................................................47
   Section 12.16      Compliance with Bulk Sales Law............................................47
   Section 12.17      Publicity.................................................................48
   Section 12.18      Waiver of Jury Trial......................................................48
   Section 12.19      Seller's Liability........................................................48
   Section 12.20      Survival of Obligations...................................................48
   Section 12.21      Construction..............................................................48
   Section 12.22      Miscellaneous.............................................................49
</TABLE>

<PAGE>

                                LIST OF SCHEDULES

Schedule 1.1(a)         Purchased Assets
Schedule 1.1(b)         Assumed Assets
Schedule 1.1(c)         Excluded Assets
Schedule 2.2(a)         Consents
Schedule 2.2(b)         Permits, Licenses and Other Governmental Authorities
Schedule 2.3            Governmental Notices
Schedule 2.4            Taxes
Schedule 2.5            Conflicts
Schedule 2.7            Contracts
Schedule 2.8(a)         Purchase Price Allocation
Schedule 2.8(b)         Real Property Leases
Schedule 2.8(d)         Materialmen's/Mechanic's Liens
Schedule 2.8(g)         Subtenants
Schedule 2.9            Environmental
Schedule 2.10           Personal Property Leases
Schedule 2.11(b)        Condition of Purchased Assets
Schedule 2.13           Litigation
Schedule 2.14(a)        Compliance with Law
Schedule 2.16           Employee and Labor Relations
Schedule 2.17           Employee Benefits Plans
Schedule 2.19           Capital Expenditures
Schedule 2.21(a)        Medicare/Medicaid Participation
Schedule 2.21(a)(v)     Government Program Agreements
Schedule 2.23           Patient Records
Schedule 2.29           Professional Liability Insurance
Schedule 3.4            Purchaser and Parent Governmental Authorities
Schedule 4.13           Key Employees
Schedule 4.16           Earned Vacation Credit of Transitioned Employees
Schedule 6.2            Remediated Conditions

<PAGE>

                                LIST OF EXHIBITS

Exhibit A-1             Skilled Nursing Facilities
Exhibit B-1             Leased Facilities
Exhibit 1.4             Form of Escrow Agreement
Exhibit 1.5(a)(i)       Form of Promissory Note
Exhibit 2.2(b)          Facility Licenses
Exhibit 8.8             Noncompetition Agreement
Exhibit 8.10            Operations Transfer Agreement
Exhibit 10.2(a)(ii)     Form of Special Warranty Deed
Exhibit 10.2(a)(iii)    Form of Bills of Sale
Exhibit 10.2(a)(xvii)   Certificate of Non-Foreign Status
Exhibit 10.2(a)(xix)    Administrative Services Agreement

<PAGE>

                            ASSET PURCHASE AGREEMENT

         THIS ASSET PURCHASE AGREEMENT ("AGREEMENT"), dated as of the 19th day
of August, 2003 (the "EFFECTIVE DATE"), is made and entered into by and between
FORMATION PROPERTIES III, LLC, a Delaware limited liability company
("PURCHASER"), and MARINER HEALTH CARE, INC., a Delaware corporation ("MHC");
MARINER HEALTH CARE MANAGEMENT COMPANY ("MHC Management"), MARINER HEALTH
CENTRAL, INC. ("MHC Central"), MARINER HEALTH OF FLORIDA, INC., a Delaware
corporation ("MHF"), TAMPA MEDICAL ASSOCIATES, INC., a Florida corporation
("TMA"), MHC/LCA FLORIDA, INC., a Delaware corporation ("MHC/LCA"), MARINER
HEALTH CARE OF ORANGE CITY, INC., a Delaware corporation ("ORANGE CITY"),
MARINER HEALTH CARE OF PORT ORANGE, INC., a Delaware corporation ("PORT ORANGE
"), MARINER HEALTH CARE OF PALM CITY, INC., a Delaware corporation ("PALM
CITY"), MARINER HEALTH CARE OF LAKE WORTH, INC., a Delaware corporation ("LAKE
WORTH"), MARINER HEALTH CARE OF PINELLAS POINT, INC., a Delaware corporation
("PINELLAS"), MHC/CSI FLORIDA, INC., a Delaware corporation ("MHC/CSI"), MARINER
HEALTH CARE OF TUSKAWILLA, INC., a Delaware corporation ("TUSKAWILLA"), MARINER
HEALTH CARE OF METROWEST, INC., a Delaware corporation ("Metrowest"), MARINER
HEALTH CARE OF INVERNESS, INC., a Delaware corporation ("INVERNESS"), MARINER
HEALTH CARE OF MACCLENNY, INC., a Delaware corporation ("MACCLENNY"), MARINER
HEALTH PROPERTIES IV, LTD., a Florida limited partnership ("MHP"), MARINER
HEALTH AT BONIFAY, INC., a Delaware corporation ("BONIFAY"), MARINER HEALTH CARE
OF ATLANTIC SHORES, INC., a Delaware corporation ("ATLANTIC SHORES"), MARINER
HEALTH OF ORLANDO, INC., a Delaware corporation ("ORLANDO"), MARINER HEALTH OF
PALMETTO, INC., a Delaware corporation ("PALMETTO"), and MARINER HEALTH OF
JACKSONVILLE, INC., a Delaware corporation ("JACKSONVILLE," and together with
MHC, MHC MANAGEMENT, MHC CENTRAL, MHF, TMA, MHC/LCA, Orange City, Port Orange,
Palm City, Lake Worth, Pinellas, MHC/CSI, Tuskawilla, Metrowest, Inverness,
MacClenny, MHP, Bonifay, Atlantic Shores, Orlando, and Palmetto, the "SELLERS"
and each individually a "SELLER"). FC PROPERTIES III, LLC, a Delaware limited
liability company ("PARENT"), is a party to this Agreement for the limited
purposes of making the specific representations and warranties and providing
certain covenants and agreements set forth herein.

                                    RECITALS

         A.       The Sellers own and operate certain skilled nursing facilities
located in the State of Florida, together with the real property and all
appurtenances thereto, as set forth opposite each respective Seller's name and
as more particularly described on Exhibit A-1 (the "SNFS"). Each SNF is
licensed, to the extent required by applicable law, for the number of nursing
home beds as set forth beside each SNF's name on Exhibit A-1.

         B.       Sellers lease certain skilled nursing facilities located in
the State of Florida, as set forth opposite each applicable Seller's name and
more particularly described on Exhibit B-1 (the "LEASED FACILITIES"). Each
Leased Facility is licensed, to the extent required by applicable law, for the
number of nursing home beds as set forth on Exhibit B-1 (the SNFs and the Leased
Facilities are referred to herein individually as a "FACILITY" and collectively
as the "FACILITIES"

<PAGE>

and the total number of nursing home beds set forth on Exhibit A-1 and Exhibit
B-1 is referred to herein as the "LICENSED BEDS").

         C.       The parties hereto desire to enter into this Agreement
pursuant to which Purchaser will purchase from each Seller substantially all of
the assets of the Facilities upon the terms and subject to the conditions set
forth herein.

                                    AGREEMENT

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

                                    ARTICLE I
                                PURCHASE AND SALE

         1.1      Transfer of Assets. Except as otherwise expressly provided in
this Agreement, for the consideration hereinafter provided, Sellers, in
accordance with the terms and subject to the conditions hereof, shall convey,
transfer and assign to Purchaser at the Closing (as defined in Section 1.2
below), and Purchaser shall purchase from each Seller all of the assets, real,
personal and mixed, tangible and intangible, owned or held by each Seller and
used solely in the conduct of the business and operation of each Facility, or of
the Facilities as a group, including, but not limited to those assets set forth
on Schedule 1.1(a) (the "PURCHASED ASSETS") and Purchaser shall assume the
assumed liabilities set forth on Schedule 1.1(b) (the "ASSUMED LIABILITIES")
from Sellers. The Purchased Assets shall not include the assets set forth on
Schedule 1.1(c) (the "EXCLUDED ASSETS") and with regard to the Assumed Contracts
(as defined in Schedule 1.1(a)(e)) and the Personal Property Leases (as defined
in Schedule 1.1(a)(c)), it is expressly understood and agreed that Purchaser is
only acquiring those assets listed on Schedules 2.7 and 2.10, respectively.

         1.2      Closing.

                  (a)      The closing of the purchase and sale of all real
property sold pursuant to this Agreement (the "CLOSING") shall take place
through an escrow (the "CLOSING ESCROW") to be established with LandAmerica
Title Insurance Company at its Florida national office (the "TITLE COMPANY")
pursuant to form escrow instructions mutually acceptable to Purchaser and
Sellers. All other deliveries will be made directly by the delivering party to
the appropriate receiving party. The parties anticipate that the Closing will
occur by mail or other means of remote delivery; however, in the event it does
not so close such Closing shall take place at a mutually agreeable location.

                  (b)      The Closing shall be effective as of October 1, 2003
or such later date as the parties may otherwise agree in writing ("CLOSING
DATE"). Notwithstanding anything to the contrary, either Purchaser or Sellers
shall have the right to extend the Closing Date for two (2) consecutive periods
of thirty (30) days each if any of the conditions precedent for the Closing
contained in Section 8 and Section 9 hereof have not been satisfied by providing
written notice to the opposite party on or before the then applicable Closing
Date.

                                       2
<PAGE>

                  (c)      The parties shall use commercially reasonable efforts
to coordinate the Closing to be effective as of the first day of a month.
Purchaser shall be entitled to possession of the Purchased Assets (subject to
the possessory rights of the Facilities' residents and to the Permitted Liens),
immediately following 11:59 p.m. on the date before the Closing Date, and all
adjustments to the Purchase Price shall be made as of the day immediately
preceding the Closing Date.

         1.3      Purchase Price. The purchase price for the Purchased Assets
(the "PURCHASE PRICE") shall be Ninety-Two Million Dollars ($92,000,000),
subject to further adjustments, if any, as provided for in this Agreement. At
Closing, Purchaser will also assume the Assumed Liabilities. To the extent that
the Closing and the funding of the Purchase Price does not occur as of the first
day of the month in which the Closing takes place and provided that the parties
have agreed in writing to treat the transfer of the Purchased Assets and the
assumption of the Assumed Liabilities as if they occurred as of the first day of
the month in which the Closing takes place (if this occurs, the first day of
such month shall be treated as the Closing Date for purposes of this Agreement)
then the Purchase Price shall be increased on a per diem basis equal to Fifteen
Thousand One Hundred Twenty-Three and 29/100 Dollars ($15,123.29), for each day
of delay in funding (i.e., a per diem rate of six percent (6%) per annum on the
Purchase Price).

         1.4      Earnest Money. No later than 5:00 p.m. Atlanta time on
August 26th, 2003, Purchaser and Sellers shall each deliver funds to the Title
Company ("ESCROW AGENT") (pursuant to an escrow agreement substantially in the
form attached as Exhibit 1.4 hereto) in such amount as shall be elected by
Purchaser to be not less than One Million Dollars ($1,000,000) and not more than
Three Million Dollars ($3,000,000) (the amount deposited by Purchaser is
referred to as the "DEPOSIT" and the amount deposited by Sellers is referred to
as the "BREAK-UP FEE"). If the Deposit and Break-Up Fee are paid in cash then
such amounts shall each be held in an interest bearing account and any accrued
interest shall be transferred with the Deposit or Break-Up Fee, as the case may
be. In all cases, the Break-Up Fee or the Deposit, as the case may be, shall be
funded by depositing immediately available funds or a Qualifying Letter of
Credit (defined below) with Escrow Agent. As used herein, the term "Qualifying
Letter of Credit" shall mean an irrevocable, direct pay letter of credit with a
one-year term, in form and substance satisfactory to the party for whose benefit
such letter of credit is provided, issued by a commercial bank organized under
the federal laws of the United States of America or any state thereof, located
in the continental United States and having a minimum long-term unsecured debt
rating of "A" from Standard & Poor's Rating Group ("S&P") or Moody's Investors
Service ("MOODY'S") and a minimum short-term debt rating of "P-1" from S&P or
"VMIG-1" from Moody's.

                  1.4.1    In the event the transactions contemplated under this
Agreement shall close as provided herein, any portion of the Deposit that is
funded in cash, together with any accrued interest, shall be applied against the
Purchase Price at Closing.

                  1.4.2    Intentionally omitted.

                  1.4.3    Intentionally omitted.

                                       3
<PAGE>

         1.5      Payment of Purchase Price. Purchaser shall pay the Purchase
Price in the following manner:

                  (a)      (i) At Closing, Parent shall execute and deliver a
subordinated Promissory Note to MHC, as agent for Sellers, in the aggregate
principal amount of Fourteen Million Dollars ($14,000,000) substantially in the
form of Promissory Note attached hereto as Exhibit 1.5(a)(i) and made a part
hereof (the "PROMISSORY NOTE"). The remainder of the Purchase Price shall be
paid in cash by wire transfer of immediately available funds to an account
designated in writing by Sellers.

                           (ii)     Intentionally omitted.

                  (b)      At Closing, Purchaser shall also pay in cash by wire
transfer of immediately available funds to an account designated in writing by
Sellers, the difference between One Hundred Thousand Dollars ($100,000) and the
amount required to be refunded to Sellers by Title Company pursuant to the
Escrow Agreement by and among Sellers, Parent and Title Company in order to
reimburse Sellers for funding certain due diligence expenses prior to the
Effective Date.

         1.6      Assumed Liabilities. At the Closing, Purchaser shall not
assume any liabilities or obligations of Sellers whatsoever, fixed or
contingent, other than those Assumed Liabilities set forth on Schedule 1.1(b)
attached hereto.

         1.7      Allocation of Purchase Price. The Purchase Price shall be
allocated among the Purchased Assets acquired under this Agreement in such
manner as Purchaser shall provide in a schedule to be delivered at Closing.
Sellers and Purchaser each hereby covenant and agree that neither will take a
position on any tax return, before any governmental agency charged with the
collection of any income tax, or in any judicial proceeding that is materially
inconsistent with the terms of this Section 1.7.

         1.8      No Assignment if Breach. Notwithstanding anything contained in
this Agreement to the contrary, this Agreement shall not constitute an agreement
to assign any Purchased Asset, or assume any Assumed Liability, if the attempted
assignment or assumption of the same, as a result of the absence of the consent
or authorization of a third party, would constitute a breach or default under
any such Purchased Asset or Assumed Liability or would in any way adversely
affect the rights, or increase the obligations, of Purchaser or Sellers with
respect thereto. If any such consent or authorization is not obtained, or if an
attempted assignment or assumption would be ineffective or would adversely
affect the rights or increase the obligations of Sellers or Purchaser with
respect to any such Purchased Asset or Assumed Liability, so that Purchaser
would not, in fact, receive all such rights, or assume the obligations of
Sellers, with respect thereto as they exist prior to such attempted assignment
or assumption, then Sellers and Purchaser shall enter into such cooperative
arrangements as may be reasonably acceptable to Purchaser and Sellers
(including, without limitation, sublease, agency, partial closing, management,
indemnity or payment arrangements and enforcement at the cost and for the
benefit of Purchaser of any and all rights of Sellers against an involved third
party) to provide to Purchaser the benefits of such Purchased Asset or to
relieve Sellers from the obligations of such Assumed Liability, and any transfer
or assignment to Purchaser by Sellers of any such Purchased Asset, or any
assumption by Purchaser of any such Assumed Liability, which shall require such

                                       4
<PAGE>

consent or authorization of a third party that is not obtained shall be made
subject to such consent or authorization being obtained. If the parties cannot
agree on any such arrangement, or any such arrangement would not be reasonably
practicable, to provide Purchaser with substantially all the benefits of such
Purchased Asset or substantially all the obligations of such Assumed Liability
by the date indicated in Section 11.1(d) below and: (i) with regard to a
Purchased Asset, the inability to reach agreement with respect to the Purchased
Asset would result in a change, event or effect that is materially adverse to
the business, financial condition or prospects of the Facilities taken as a
whole, then Purchaser shall have the option of terminating this Agreement and
such termination shall not be subject to Section 11.4 hereof; or (ii) with
regard to an Assumed Liability, Sellers have the option to exclude from the
transactions represented by this Agreement such Assumed Liability and such
Assumed Liability shall be deemed an excluded liability and Purchaser and
Sellers shall agree to an adjustment in the Purchase Price. Nothing set forth
above shall have any affect on Sellers' obligation pursuant to Section 9.5
hereof.

                                   ARTICLE II
                      REPRESENTATIONS AND WARRANTIES OF MHC

         As an inducement to Purchaser to enter into this Agreement, and to
consummate the transactions contemplated herein, MHC represents and warrants the
following with respect to the Sellers or the Facilities, as the case may be:

         2.1      Organization and Qualification. Each Seller is a corporation
duly organized and validly existing and in good standing under the laws of the
state of its incorporation, as set forth beside the name of each respective
Seller on Exhibit A-1, with full corporate power and authority to carry on its
business as currently being conducted and to own or lease and operate the assets
it owns or leases as and in the places now owned, leased or operated.

         2.2      Authority; Binding Effect.

                  (a)      Subject to obtaining the consents set forth on
Schedule 2.2(a), each Seller has, and at the Closing will have, the full and
unrestricted corporate right, power and authority to execute, deliver and
perform this Agreement and to consummate the transactions and perform all
obligations contemplated hereby and in all agreements, instruments and documents
being or to be executed and delivered by such Seller in connection with such
transactions as set forth in Section 10.2(a) of this Agreement ("RELATED
DOCUMENTS"), except as limited by applicable laws relating to bankruptcy,
insolvency, reorganization, liquidation, moratorium or other similar laws of
general application relating to creditors' rights.

                  (b)      Except as set forth on Schedule 2.2(b) attached
hereto, each Seller possesses all material permits, licenses and other
authorizations from governmental authorities, which are not subject to any
variances, conditions, waivers or other matters that are necessary in connection
with the leasing, maintenance or operation of each of its respective Facilities,
including, without limitation, licenses from the Florida Agency for Healthcare
Administration for operation of the Facilities as skilled nursing facilities as
appropriate, a copy of which are attached hereto as Exhibit 2.2(b), and except
as set forth on Schedule 2.2(b), has not received written notice that any Seller
is in material violation of any restriction, rule or regulation affecting
possession and use thereof.

                                       5
<PAGE>

                  (c)      This Agreement and each of the Related Documents,
upon due execution and delivery by the Sellers party thereto, will constitute
the legal, valid, and binding obligation of such Sellers, enforceable in
accordance with its respective terms, except as limited by applicable laws
relating to bankruptcy, insolvency, reorganization, liquidation, moratorium or
other similar laws of general application relating to creditors rights.

         2.3      Governmental Authorities. Except as set forth on Schedule 2.3
attached hereto and in connection with the filing under the HSR Act, as
described in Section 6.1, the Sellers are not required to submit any material
notice, report or other filing with any federal, state, municipal, foreign or
other governmental, judicial or regulatory authority in connection with their
execution or delivery of this Agreement or any of the Related Documents or the
consummation of the transactions contemplated hereby and no material consent,
approval or authorization of any governmental, judicial or regulatory authority
is required to be obtained by any Seller in connection with the execution,
delivery and performance of this Agreement.

         2.4      Taxes. Except as set forth in Schedule 2.4 attached hereto,
(i) all taxes, including without limitation, income, property, sales, use,
franchise and payroll taxes, which are due and payable by Sellers in connection
with the operation of the Facilities, have been paid in full and (ii) all tax
returns and reports required by law to be filed by Sellers prior to the
Effective Date (collectively, "TAX RETURNS") have been properly and timely filed
(subject to the right to extend or delay the filing thereof) and correctly
reflect, in all material respects, the tax positions of Sellers, and all taxes
respectively due under such Tax Returns have been paid thereby or will be paid
in the ordinary course. Purchaser is not assuming under this Agreement any tax
liabilities owed by Sellers as a result of the operation of the Facilities prior
to the Closing Date.

         2.5      No Defaults. Except as set forth on Schedule 2.5 attached
hereto, the execution, delivery and performance of this Agreement and any of the
Related Documents by each Seller does not and will not:

                  (a)      Conflict with or result in any material breach of the
provisions of, or constitute a default under any Seller's articles or
certificate of incorporation, bylaws, articles of organization, operating
agreement, or limited partnership agreement, as the case may be;

                  (b)      Violate any material restriction to which any Seller
is subject or, with or without the giving of notice, the passage of time, or
both, violate (or give rise to any right of termination, cancellation or
acceleration under) any mortgage, deed of trust, material license, the leases
described in Section 2.10 below, indenture or other material agreement or
instrument, to which a Seller is a party, which will not be satisfied or
terminated on or prior to the Closing Date as a result of the transactions
contemplated in this Agreement, or result in the termination of any such
instrument or termination of any provisions in any such instrument that will
result in the creation or imposition of any lien, charge or encumbrance upon the
Purchased Assets;

                  (c)      Constitute a violation of any applicable material
resolution, rule, regulation, law, statute or ordinance of any administrative
agency or governmental authority, or of any judgment, decree, writ, injunction
or order of any court to which any Seller is subject; or

                  (d)      Create any liens or other encumbrances on the
Purchased Assets in favor of third parties.

                                       6
<PAGE>

         2.6      Absence of Certain Changes or Events. Since March 31, 2003, to
the Effective Date, none of the Sellers have:

                  (a)      Suffered any Material Adverse Change including, but
not limited to, changes in the financial condition, assets, or liabilities of
the Facilities, or the operation of the Facilities;

                  (b)      Granted any increase in the compensation payable or
to become payable by any Seller to any of its respective officers, employees or
agents employed at the Facilities other than in the ordinary course of business
and consistent with past practice;

                  (c)      Except as contemplated by this Agreement, sold,
transferred or otherwise disposed of, or agreed to sell, transfer or otherwise
dispose of, any assets directly related to, necessary for and used solely in
connection with the operation of the Facilities or cancelled or agreed to
cancel, any debts or claims relating solely to the Facilities, other than in the
ordinary course of business and consistent with past practice;

                  (d)      Mortgaged, pledged or subjected to any lien or
encumbrance, or agreed to mortgage, pledge or subject to any lien or
encumbrance, any of the Purchased Assets; and

                  (e)      Made any material change in any method of accounting
or accounting practice relating primarily to the Facilities.

         2.7      Assumed Contracts. Schedule 2.7 attached hereto includes a
true and correct list as of the Effective Date of all outstanding Assumed
Contracts (as defined in Schedule 1.1(a)(e)) to which any Seller is a party that
require payments in excess of $5,000 per month and are not cancelable by Sellers
upon less than sixty (60) days notice without penalty, which are intended to be
assigned to Purchaser or its designee at Closing, but specifically excluding the
patient care contracts ("PATIENT CARE CONTRACTS") and the leases described on
Schedule 2.10. Each Assumed Contract is in full force and effect; valid, binding
and enforceable by Sellers in accordance with its respective terms, except as
may be limited by applicable laws relating to bankruptcy, insolvency,
reorganization, liquidation, moratorium or other similar laws relating to
creditors' rights; and to each Seller's knowledge, such Seller is not in default
of the terms of any Assumed Contract, including the Patient Care Contracts, in
any material respect.

         2.8      Title to Property and Related Matters.

                  (a)      Each Seller has: (i) legal title to (in the case of
fee interests in real property); (ii) valid leasehold interests in (in the case
of leasehold interests in real or personal property); and (iii) title to (in the
case of all other personal property) all of their respective properties and
assets, real and personal, tangible and intangible, included in and constituting
the Purchased Assets, including, without limitation, the Real Property (as
defined in Schedule 1.1(a)), the Leased Facilities and the Personal Property (as
defined in Schedule 1.1(a)), free and clear of all mortgages, liens, pledges,
material charges or encumbrances of like kind or character except (x) the
Assumed Liabilities, (y) statutory liens not yet delinquent, and (z) all rights
of way, servitudes, defects of title, encumbrances, easements, restrictions and
similar matters ("SECTION 2.8 ENCUMBRANCE") which will not materially adversely
affect Purchaser's use of each

                                       7
<PAGE>

such Facility as a skilled nursing facility in a manner substantially consistent
with the historical use of each such Facility by Sellers as a skilled nursing
facility (such exceptions, collectively, the "PERMITTED LIENS"), and except for
such encumbrances as will be removed as of Closing, and such title to the Real
Property and Leased Facilities shall be insurable under an ALTA Owner's Policy,
Form B, amended 1992, or an ALTA Leasehold Policy, as applicable. Within the
past twelve (12) months, Sellers to their knowledge have not received written
notice that any of the Real Property or Leased Real Property is in violation of
applicable laws, ordinances or regulations. In the event that any Facility shall
as of Closing be subject to a Section 2.8 Encumbrance such that the foregoing
representation is as of the Closing, inaccurate with respect to such Facility,
then such Facility shall be deemed to be a "SECTION 2.8 FACILITY" and shall not
be transferred to Purchaser on the Closing Date (and the Purchase Price
(allocated on a pro rata basis between cash and the Promissory Note) shall be
reduced by the amount set forth in Schedule 2.8(a)) and any such Section 2.8
Facility shall thereafter be subject to the provisions of Section 4.21 hereof.
At Closing Purchaser and Sellers shall execute and deliver a memorandum of
understanding specifying the Section 2.8 Encumbrance(s) which causes any
Facility to be a Section 2.8 Facility and addressing such other matters as
Purchaser and Sellers deem appropriate with respect to the foregoing (the
"Section 2.8 MOU").

                  (b)      As of the Effective Date, the applicable Sellers each
hold a valid and enforceable leasehold interest, as lessee, of the respective
premises constituting the Leased Facilities, for the terms set forth in and
pursuant to the terms of the Real Property Leases (as defined in Schedule
1.1(a)). True and complete copies (including amendments, if any) of the Real
Property Leases have been made available to Purchaser and are listed on Schedule
2.8(b). The Real Property Leases are in full force and effect and the applicable
Sellers have no knowledge of, and have not received written notice of, any
default or breach in any material respect under their respective Real Property
Leases, which default or breach has not been cured or waived. To the applicable
Sellers' knowledge, no event has occurred which with the giving of notice or
lapse of time or both would cause a material breach or a material default by the
applicable Seller under the Real Property Leases.

                  (c)      Within the past twelve (12) months, Sellers to their
knowledge have not received written notice of any threatened rezoning affecting
the Leased Facilities or the Real Property or any material part thereof.

                  (d)      Except as set forth on Schedule 2.8(d), no labor has
been performed or material furnished for the Leased Facilities or the Real
Property for or on behalf of Sellers, in any material amounts, for which Sellers
have not heretofore fully paid or which will not have been paid in ordinary
course by the Closing Date, or for which any mechanics' or materialmen's lien or
liens, or any other lien, can be lawfully claimed by any person, party or
entity. At the Closing, Sellers shall not be indebted to any contractor,
laborer, mechanic, materialman, architect or engineer for, in any material
amounts, work, labor or services performed or rendered, or for materials
supplied or furnished, in connection with the Leased Facilities or the Real
Property for which any such person could lawfully claim a lien against the
Leased Facilities or the Real Property, except for any Assumed Liabilities.

                  (e)      There are no condemnation or eminent domain
proceedings pending and Sellers have not received written notice of any
threatened or contemplated proceedings against the Leased Facilities, the Real
Property or any part thereof, and Sellers have not received written

                                       8
<PAGE>

notice of the desire of any public authority or other entity to take or use the
Leased Facilities or the Real Property or any part thereof. Sellers will give
Purchaser prompt written notice of any actual or any threatened condemnation of
any part of the Real Property or Leased Facilities of which it receives written
notice.

                  (f)      There are no outstanding options or rights of first
refusal to purchase the Leased Facilities or the Real Property, or any portion
thereof or interest therein.

                  (g)      There are no parties (other than Sellers) in
possession of the Leased Facilities or Real Property, or any portion thereof,
other than tenants under any leases in Schedule 2.8(g) who are in possession of
space to which they are entitled, patients pursuant to the Patient Care
Contracts and vendors to the Facilities in connection with the delivery of
services to the occupants thereof.

         2.9      Hazardous Substances. For purposes of this Agreement,
"ENVIRONMENTAL LAWS" means the Resource Conservation and Recovery Act ("RCRA"),
42 U.S.C. Section 6901 et seq., the Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA"), 42 U.S.C. Sections 9601 et seq., the
Clean Water Act, 33 U.S.C. Section 1251 et seq., and all other applicable state,
county, municipal, administrative or other environmental, hazardous waste or
substance, health and/or safety laws, ordinances, rules, and regulations
pertaining to the environmental or ecological conditions on, under or about the
Leased Facilities and the Real Property. For purposes of this Agreement,
"HAZARDOUS SUBSTANCE" means any substance or material which gives rise to
liability under any of the Environmental Laws; but provided that the term
"HAZARDOUS SUBSTANCES" as used herein excludes hazardous substances typically
used in, and in quantities necessary for, the day-to-day operation of the
Facilities and which are commonly used in other similar facilities, including,
but not limited to, cleaning fluids, insecticides and medicines ("COMMON
PRODUCTS"). For purposes of this Agreement, "HAZARDOUS DISCHARGE" shall mean any
releasing, spilling, leaking, pumping, pouring, emitting, emptying, discharging,
injecting, escaping, leeching, disposing or dumping of Hazardous Substances.

                  Sellers represent and warrant that except (a) as set forth in
Schedule 2.9 or (b) for the Common Products and as provided in the environmental
reports provided by Sellers to Purchaser, or obtained or to be obtained by
Purchaser prior to Closing: (i) Sellers have not caused any of the Real Property
or Leased Facilities to be operated in violation of any applicable Environmental
Laws; (ii) Sellers have not received any written notice of any violation or
alleged violation of any Environmental Law; (iii) to Sellers' knowledge, none of
the Purchased Assets are subject to any outstanding lawsuits, administrative
actions or other governmental proceedings relating to an alleged violation of
any Environmental Law; (iv) none of the Purchased Assets have been used by
Sellers for the generation, storage, manufacture, use, transportation, disposal
or treatment of Hazardous Substances; (v) to Sellers' knowledge, there has been
no Hazardous Discharge on or from any of the Purchased Assets during the time of
Sellers' ownership or occupancy thereof that would require remedial action under
applicable Environmental Laws; and (vi) the Leased Facilities and the Real
Property do not contain any Hazardous Substance in violation of any
Environmental Laws.

         2.10     Personal Property Leases. Schedule 2.10 attached hereto
contains a true and correct list of all material leases of all machinery,
equipment and other tangible property leased

                                       9
<PAGE>

to Sellers which constitute Purchased Assets that require payments in excess of
One Thousand Dollars ($1,000) per month and are not cancelable by Sellers upon
less than sixty (60) days' notice without penalty. Except as disclosed on
Schedule 2.10: (i) each lease described thereon is in full force and effect;
(ii) all rents due on or before the date hereof on each such lease have been
timely paid; (iii) neither the applicable Seller, nor, to the best knowledge of
such Seller, any other party to such lease is in default in any material respect
thereunder; and (iv) there exists no occurrence, event, condition or act, to the
knowledge of Sellers, which, upon the giving of notice or the lapse of time or
both, would become a default by any Seller (or, to the knowledge of Sellers, any
lessor) under any such lease.

         2.11     Condition of Purchased Assets.

                  (a)      Other than certain of the Assumed Contracts, Real
Property Leases and Personal Property Leases, all of the Purchased Assets are in
Sellers' possession or control and located at or on the Leased Facilities or the
Real Property.

                  (b)      Except as disclosed on Schedule 2.11(b), all of the
Purchased Assets are, to Sellers' knowledge, in good condition and working order
sufficient for normal operation of the Facilities, subject to normal wear and
tear, and adequate and suitable for the purposes for which they are presently
being used.

         2.12     Intentionally omitted.

         2.13     No Litigation. Except as set forth on Schedule 2.13 attached
hereto, there are no material actions, suits, claims, governmental
investigations or other legal or administrative proceedings, or any orders,
decrees or judgments in progress, pending or in effect, or, to the knowledge of
Sellers, threatened in writing against or relating to the Facilities, Sellers'
operation of the Facilities, or any of the Purchased Assets. For purpose of the
immediately preceding sentence, materiality shall be determined solely by
reference to the impact any of the items referenced in such sentence would have
on the financial condition or operating results of the subject Facility.

         2.14     Compliance with Law.

                  (a)      Except as set forth on Schedule 2.14(a), Sellers do
not know of any suit, action, claim, dispute, investigation, agency review or
other proceeding, nor to Sellers' knowledge have any of the foregoing items been
threatened in writing, pursuant to or involving (and to Sellers' knowledge each
Seller (and the operation of each Facility) is in compliance in all material
respects with): (i) the False Claims Act, 31 U.S.C. ss.ss.3729 et seq; (ii) the
Civil Monetary Penalties Law, 42 U.S.C. ss. 1320a 7a; (iii) federal or state
anti kickback statutes, including, but not limited to, 42 U.S.C. ss. 1320a 7b;
(iv) federal or state referral laws, including but not limited to, 42 U.S.C.
ss.1395nn and Fla. Stat. Ann. ss.ss.455.654 and 455.701; (v) regulations
promulgated pursuant to any of the foregoing statutes; or (vi) any other federal
or state law or regulation of general applicability to health care fraud,
governing or regulating the management of health care providers, or regulating
medical billing or reimbursement, including all applicable Medicare and Medicaid
statues and regulations.

                  (b)      Intentionally omitted.

                                       10
<PAGE>

         2.15     Survey Reports, Etc. To the extent that such documents are in
Seller's possession and located at the Facilities, true and complete copies of
all survey reports, waivers of deficiencies, plans of correction, and any other
investigation reports issued with respect to the Facilities for the calendar
years 2001, 2002 and 2003 year to date have been provided or will be provided to
Purchaser promptly following execution of this Agreement. To Sellers' knowledge
the items provided to Purchaser pursuant to the prior sentence are all of the
survey reports, waivers of deficiencies, plans of correction, and any other
investigation reports issued to Sellers during the years indicated in such
sentence. Any reports filed between the Effective Date and Closing Date shall be
provided to Purchaser within ten (10) business days after filing but in no event
later than the day before Closing.

         2.16     Employee and Labor Relations. Except as provided under
Schedules 2.13 and 2.16:

                  (a)      Compliance. Sellers to their respective knowledge,
are in material compliance with all federal, state or other applicable laws,
domestic or foreign, and all rules, regulations, ordinances, orders and decrees
of governmental authorities respecting employment and employment practices
concerning the Facilities (collectively "EMPLOYMENT LAWS");

                  (b)      No Claims. No legal claim in respect of application
for employment, employment, the terms or conditions of employment, the handling
of benefits or termination of employment of any person has been asserted or
threatened, against Sellers or any of their respective subsidiaries, in
connection with the operation of the Facilities.

                  (c)      No Labor Actions. No labor strike, picketing action,
dispute, slowdown or stoppage, or unfair labor practices are actually pending
or, to the knowledge of Sellers, threatened in writing against, or involving,
any Seller in connection with the Facilities.

                  (d)      No Bargaining Agreements. Sellers are not a party to
any collective bargaining agreement, and no collective bargaining agreement is
currently being negotiated by any Seller. To Sellers' knowledge there have been
no petitions for representation filed against any of the Facilities nor have
there been any written demands for recognition by a union.

                  (e)      At-Will Employees. All employees of Sellers at the
Facilities are employees-at-will.

         2.17     Employee Benefit Plans.

                  (a)      Set forth in Schedule 2.17 is an accurate and
complete list of all Employee Benefit Plans (as defined hereinafter) and
specifies which Seller sponsors each of said Employee Benefit Plans. "EMPLOYEE
BENEFIT PLANS" mean all employee benefit plans and benefit arrangements in which
employees of Sellers who are currently employed at or provide management
services to the Facilities participate.

                  (b)      Each Employee Benefit Plan has, at all times, been
maintained and operated in compliance, in all material respects, with its terms
and requirements of all applicable

                                       11
<PAGE>

laws, including, without limitation, the Employee Retirement Income Security Act
of 1974, as amended, and the Internal Revenue Code of 1986, as amended.

         2.18     Intentionally omitted.

         2.19     Capital Expenditures. Except as set forth in Schedule 2.19, as
of the date hereof, Sellers do not have any outstanding contracts for capital
expenditures relating to the Facilities, nor do they have any agreements,
obligations or commitments for capital expenditures relating to the Facilities,
including, without limitation, additions to property, plant, equipment or
intangible capital assets.

         2.20     Absence of Notices. Except as would not result in a change,
event or effect that is materially adverse to the business, financial condition
or prospects of the Facilities taken as a whole, Sellers have not received any
written notice within the past twelve (12) months that: (i) any supplier of a
Seller intends to discontinue, substantially alter prices or terms to, or
significantly diminish its relationship with the Facilities; or (ii) any of the
employees at the Facilities intends to terminate his or her employment, in
either case on account of the transactions contemplated hereby.

         2.21     Medicare and Medicaid Participation.

                  (a)      Except as set forth on Schedule 2.21(a),

                           (i)      Each of the Facilities is eligible to
participate without restriction under Title XVIII ("MEDICARE") and Title XIX
("MEDICAID") of the Social Security Act and is a "PROVIDER" with valid and
current provider agreements and with one (1) or more provider numbers with the
federal Medicare and all applicable state Medicaid programs through
intermediaries;

                           (ii)     Each of the Facilities that receives
payments under CHAMPUS or TRICARE, if any, is a "PROVIDER" with valid and
current provider agreements and with one or more provider numbers with CHAMPUS
and/or TRICARE and successor programs through intermediaries;

Medicare, Medicaid, CHAMPUS, TRICARE and other federal, state or local
governmental reimbursement programs, or successor programs to any of the above,
are referred to herein as "GOVERNMENT PROGRAMS";

                           (iii)    To the extent that one (1) or more of the
Facilities currently participates in Government Programs, each of the Facilities
that currently participates is in compliance with the conditions of
participation for the Government Programs in all material respects;

                           (iv)     Each Seller currently holds such licenses,
agreements, and certificates pertaining to Medicare and Medicaid provider
agreements entered into with the State of Florida, the United States, and any
municipality or other governmental agency or administrative body that authorizes
the Sellers to conduct their business at the respective

                                       12
<PAGE>

Facilities as are necessary to conduct the business of each Facility as
presently operated ("MEDICARE AND MEDICAID LICENSES"); and

                           (v)      Each agreement currently in effect between
Sellers and a Government Program is listed on Schedule 2.21(a)(v), and each such
agreement is in full force and effect and is applicable to the Facility
specified on Schedule 2.21(a)(v).

                  (b)      All cost reports of each of the Sellers and the
Facilities for the Government Programs which were required to be filed have been
properly filed and are complete in all material respects.

         2.22     Third Party Payor Reimbursement. Since May 13, 2002, all
billing practices of Sellers with respect to the Facilities to all third party
payors, including the Government Programs and private insurance companies, have
been in material compliance with all applicable laws, regulations and policies
of such third party payors and Government Programs.

         2.23     Patient Records. Except as provided on Schedule 2.23, to the
knowledge of Sellers, there is no material deficiency in the patient records and
other relevant records of the Facilities, in the aggregate, that constitute a
Purchased Asset to be delivered by Sellers to Purchaser pursuant to the terms of
this Agreement, and all such records have, prior to the Effective Date, been
maintained, in all material respects, in accordance with all applicable federal,
state or local laws and regulations governing the preparation, maintenance,
confidentiality, transfer and/or destruction of such records.

         2.24     Intentionally omitted.

         2.25     Intentionally omitted.

         2.26     Inventory and Supplies. As of the date hereof, the Inventory
(as defined in Schedule 1.1(a) hereto) is in sufficient quantity and condition
for the normal operation of the business of the Facilities.

         2.27     Licensed Beds. The number of Licensed Beds listed for the
Facilities in Exhibit A-1 and Exhibit B-1 is accurate.

         2.28     Financial Statements. Sellers have delivered to Purchaser
copies of the following financial statements (collectively, the "FINANCIAL
STATEMENTS"): (i) the unaudited individual Facility profit and loss statements
for the fiscal years ended 2000, 2001, 2002 and the three (3) months ended March
31, 2003 for each Facility; and (ii) the unaudited individual Facility balance
sheets and consolidated and consolidating balance sheet and statement of cash
flows for the fiscal years ended 2001 and 2002 and the three (3) months ended
March 31, 2003. The Financial Statements were prepared on the basis of the books
and records of the Sellers, and are the financial statements used by the Sellers
for internal accounting purposes and have been prepared on a basis consistent
with the other internal operating statements used by the Sellers in the ordinary
course of business. It is understood that the Financial Statements are prepared
as internal operating statements that do not necessarily reflect adjustments
required to cause such statements to accurately reflect the operations of the
Facilities in accordance with generally accepted accounting principles or
otherwise. Notwithstanding the foregoing, the Financial

                                       13
<PAGE>

Statements fairly present the operations of the Facilities and are true and
correct in all material respects.

         2.29     Professional Liability Insurance. Attached as Schedule 2.29
are either copies of or a list of the certificates of professional liability
insurance carried by Sellers with respect to the Facilities.

                                   ARTICLE III
             REPRESENTATIONS AND WARRANTIES OF PURCHASER AND PARENT

         As an inducement to Sellers to enter into this Agreement and to
consummate the transactions contemplated herein, Purchaser and Parent represent
and warrant the following:

         3.1      Corporate Organization; Etc. Purchaser and Parent are each a
Delaware limited liability company duly organized and validly existing and in
good standing under the laws of the State of Delaware with full power and
authority to own all of its respective properties and assets and to carry on its
respective business as it is now being conducted. Parent owns beneficially and
of record all of the issued and outstanding membership interests of Purchaser
and has not granted or created any proxy, pledge, lien, charge or encumbrance
with respect to such membership interests.

         3.2      Authorization, Binding Effect. Purchaser and Parent each has,
and at the Closing will have, the full and unrestricted limited liability
company right, power and authority to execute, deliver and perform this
Agreement and to consummate the transactions and perform all obligations
contemplated hereby and in all agreements, instruments and documents being or to
be executed and delivered by Purchaser and Parent in connection with such
transactions, except as limited by applicable laws relating to bankruptcy,
insolvency, reorganization, liquidation, moratorium or other similar laws of
general application relating to creditors rights. The consummation of the
transactions contemplated herein have been duly authorized and approved by all
necessary limited liability company action of Purchaser and Parent. This
Agreement and each such other agreement, instrument and document, upon due
execution and delivery by Purchaser and Parent, will constitute the legal,
valid, and binding obligation of Purchaser and Parent, enforceable in accordance
with its terms.

         3.3      No Violation. Except for compliance with the HSR Act,
Purchaser and Parent are not subject to or obligated under any certificate of
formation, operating agreement, bylaw, law, or rule or regulation of any
governmental authority, or any agreement or instrument, or any license,
franchise or permit, or subject to any judgment, order, writ, injunction or
decree which would be in any material respect breached or violated by the
execution, delivery or performance of this Agreement.

         3.4      Governmental Authorities. Except as set forth on Schedule 3.4
attached hereto and in connection with the filing under the HSR Act, as
described in Section 6.1, neither Purchaser nor Parent is required to submit any
notice, report or other filing with any federal, state, municipal, foreign or
other governmental or regulatory authority in connection with its execution or
delivery of this Agreement or any of Purchaser or Parent deliveries required
under Section 10.2(b) or the consummation of the transactions contemplated
hereby and no consent, approval or authorization of any governmental or
regulatory authority is required to be obtained

                                       14
<PAGE>

by Purchaser or Parent in connection with the execution, delivery and
performance of this Agreement and the Purchaser or Parent deliveries required
under Section 10.2(b).

         3.5      Solvency. Purchaser and Parent are each solvent, have not made
a general assignment for the benefit of their creditors, and have not admitted
in writing their inability to pay their debts as they become due. Neither
Purchaser nor Parent has filed, and neither Purchaser nor Parent contemplate the
filing of, any bankruptcy, reorganization, or arrangement, insolvency or
liquidation proceedings, or any other proceedings for the relief of debtors in
general, nor has any such proceeding been instituted by or against Purchaser or
Parent nor has any such proceeding, to Purchaser's or Parent's respective
knowledge, been threatened.

                                   ARTICLE IV
                              COVENANTS OF SELLERS

         From the date hereof and until the Closing and to the extent thereafter
as contemplated herein, except as otherwise consented to or approved by
Purchaser in writing, each Seller covenants and agrees as to its respective
Facility or Facilities as follows:

         4.1      Regular Course of Business. Each Seller shall: (i) operate its
respective Facility or Facilities in a manner substantially consistent with
applicable law and past practices; (ii) maintain the Purchased Assets in
sufficient repair, order, and condition, and with quantities sufficient to
satisfy the representations and warranties as to the condition and quantity of
the Purchased Assets set forth in Article II; (iii) timely pay all rents and
other payments due with respect to its respective Facility or Facilities on or
before the Closing under, and use its commercially reasonable efforts to
otherwise maintain (except for expiration due to lapse of time), all Real
Property Leases, Personal Property Leases and Assumed Contracts described herein
that constitute Purchased Assets, in effect without change except as expressly
provided herein; (iv) comply in all material respects with the provisions of all
laws, regulations, ordinances and judicial decrees applicable to the operation
of its respective Facility or Facilities, including, without limitation,
compliance with requirements of all Government Programs; (v) not make any
material changes or modifications in any agreement listed on Schedules 2.7 and
2.10 hereof or incur any further obligations or surrender any rights thereunder
other than as routinely occur in the ordinary course of business; (vi) not enter
into any material agreements or leases which would have had to be disclosed on
Schedule 2.7 or Schedule 2.10 hereof had such agreements or leases been entered
into prior to the date hereof other than in the ordinary course of business;
(vii) keep in full force and effect present insurance policies through the
Closing Date or other comparable insurance coverage; (viii) use its commercially
reasonable efforts to maintain all licenses in good standing necessary to
operate the Facilities; and (ix) not take or intentionally permit any action
that would result in the creation of a lien or encumbrance on any of the
Purchased Assets that is not removed prior to Closing.

         4.2      Absence of Certain Changes or Events. Except for increases and
changes made in the ordinary course of business or pursuant to written
contractual obligations in effect as of the Effective Date and disclosed to
Purchaser on Schedule 2.16 hereof, as to the employees of its respective
Facility or Facilities, there will not be any of the following insofar as the
same shall constitute an Assumed Liability: any new bonus, percentage
compensation, service award or other like benefit, or any increase in the
compensation payable or to become payable by a Seller to any of its employees
(except compensation granted to new employees who are hired in the

                                       15
<PAGE>

ordinary course of business); or any change in the method of calculating any
presently existing bonus, percentage compensation, service award or other like
benefit, granted, made or accrued to or to the credit of any of the employees or
agents of Sellers, or any increase in any employee welfare, insurance, pension,
retirement or similar payment or arrangement made or agreed to by a Seller
pursuant to existing welfare, pension and retirement Employee Benefit Plans and
arrangements, deferred compensation, or Employee Benefit Plans.

         4.3      Borrowing. Sellers shall not create or permit to become
effective any mortgage or pledge or material lien, encumbrance or charge of any
kind upon the Purchased Assets other than Permitted Liens, which will not be
satisfied or paid off at Closing.

         4.4      Full Access and Disclosure.

                  (a)      Sellers shall, upon reasonable notice, afford to
Purchaser and its counsel, accountants and other authorized representatives
(collectively, "PURCHASER REPRESENTATIVES") reasonable access during business
hours to the Facilities and the Purchased Assets and the computer systems, books
and records, in any way relating to the Purchased Assets and/or the Facilities.
Officers of each Seller shall furnish such financial and operating data and
other information with respect to the Facilities as Purchaser and/or its
representatives shall from time to time reasonably request.

                  (b)      All such inspections and investigations by Purchaser
Representatives shall be completed at Purchaser's risk without any liability to
Sellers, regardless of cause. Subject to the foregoing sentence, in addition to
any other indemnification obligations set forth under this Agreement, Purchaser
hereby agrees to indemnify and hold harmless (which shall include, without
limitation, paying Sellers reasonable attorneys' fees) Sellers against any
damages or injuries associated with completion of such inspections or
investigations, which undertaking shall survive the termination of this
Agreement or the conveyance of the Purchased Assets by Sellers to Purchaser for
the period of one (1) year. Purchaser further undertakes that any damage
occasioned to the Real Property, Personal Property or the Facilities caused by
such inspections or investigations shall be cured by restoring the Real
Property, Personal Property or portion of the Facilities disturbed or damaged
back to its pre-entry and pre-disturbed state. Purchaser agrees to indemnify and
hold harmless Sellers from claims by third parties for monies due incidental to
such inspections or investigations.

         4.5      Intentionally omitted.

         4.6      Third Party Consents.

                  (a)      Sellers shall use their commercially reasonable
efforts to obtain, on or prior to the Closing Date, all consents necessary
(other than consents in connection with Real Property Leases and Personal
Property Leases which are dealt with in (b) below) for Sellers to fulfill their
obligations to consummate the transactions contemplated hereby, including,
without limitation, all consents needed to assign the Assumed Contracts, in a
form reasonably satisfactory to Purchaser ("THIRD PARTY CONSENTS").

                  (b)      Sellers shall use commercially reasonable efforts to
obtain from the lessors, if required under the Real Property Leases and Personal
Property Leases, written consent

                                       16
<PAGE>

to the assignment of the Real Property Leases (or subleases thereof, in the case
of Mariner Health of St. Augustine if an assignment cannot first be obtained)
and the Personal Property Leases (to the extent they are assignable or otherwise
not subject to a master lease arrangement including other facilities of Sellers
and their affiliates not being transferred pursuant to the terms and conditions
of this Agreement), in a form reasonably acceptable to Purchaser ("LESSOR
CONSENT AND ESTOPPEL").

                  (c)      Sellers shall pay any reasonable fees required by the
lessors, to consent to the assignment of the Real Property Leases or Personal
Property Leases to Purchaser. Sellers shall also be required to fund any
security deposits required in connection with the assignment or sublease of any
Real Property Leases.

                  (d)      As of the Closing Date and contemporaneously with the
payment of the cash portion of the Purchase Price, Sellers shall have caused
their lenders to release their mortgages encumbering the Facilities.

                  (e)      Seller shall use commercially reasonable efforts to
obtain from Omnicare, Inc. ("Omnicare") either the assignment to Purchaser or
its designee at Closing of the Omnicare Contract as set forth on Schedule 2.7 or
a new contract from Omnicare on terms substantially the same as the existing
Omnicare Contract but for a term not less than ten (10) years.

         4.7      Intentionally omitted.

         4.8      Taxes. Sellers shall file federal, state, local tax returns,
and, to the extent applicable, estimates and reports, and pay all amounts then
due thereunder, for all periods through and including the Closing Date to the
extent necessary to transfer the Purchased Assets to Purchaser in accordance
with the terms of this Agreement.

         4.9      No Disposition of Assets. No Seller shall sell, lease or
otherwise dispose of or distribute any Purchased Assets other than in the
ordinary course of business.

         4.10     Further Documentation. Sellers agree that, for a reasonable
period of time following the Closing Date, upon request by Purchaser, Sellers
will do, execute, acknowledge, and deliver, or cause to be done, executed,
acknowledged, and delivered, all such further acts, deeds, assignments,
transfers, conveyances and assurances as may be reasonably required, without
enlarging or extending any liability of Sellers beyond what is otherwise
contemplated by this Agreement, in order to more fully assign, grant, transfer,
convey, assure and confirm to Purchaser, or to its successors and assigns, or
for aiding and assisting in collecting and reducing to possession any or all of
the Purchased Assets and Assumed Liabilities to be sold to or assumed by
Purchaser pursuant to this Agreement.

         4.11     Confidentiality. Nothing herein shall otherwise modify the
obligations of Sellers pursuant to a certain confidentiality agreement with
Purchaser dated March 10, 2003, and Sellers agree to continue their obligations
under such agreement for a period of three (3) years following the Closing.
Notwithstanding the foregoing, Purchaser agrees to fashion with Sellers a
mutually acceptable press release concerning: (i) the execution and delivery of
this Agreement and the sale of the Purchased Assets; and (ii) the Closing
hereunder. Notwithstanding the foregoing, nothing herein shall prevent MHC from
issuing from time to time such public announcements as

                                       17
<PAGE>

it shall determine may be necessary in order to comply with any applicable law,
rule or regulation of any governmental entity or agency or listing requirement
of any national securities exchange or association applicable to MHC.

         4.12     Title Insurance; Title; Governmental Approval and Third Party
Consent.

                  (a)      Sellers have provided Purchaser a copy of all
currently effective title insurance policies and commitments (such policies and
commitments, the "TITLE BINDER") and plats and surveys in their possession that
relate to the Real Property.

                  (b)      Intentionally omitted.

                  (c)      Intentionally omitted.

         4.13     Key Employees. The employment of any of the employees listed
on Schedule 4.13 ("KEY EMPLOYEES") shall not be terminated without the prior
consent of Purchaser, except for cause. Further, Purchaser shall be promptly
notified of any such termination or the resignation of any such Key Employees
and Sellers will consult with Purchaser prior to replacing any such Key
Employees.

         4.14     Intentionally omitted.

         4.15     Delivery of Inventories and Supplies at Closing. At Closing,
Sellers shall deliver to Purchaser by leaving at each of the Facilities the
Inventory in condition, quantity and quality sufficient to meet the regular
operating needs at such Facility consistent with each Seller's past practice.

         4.16     Payment for Earned Vacation. Each Seller shall pay to
Purchaser by wire transfer of immediately available funds to an account
designated by Purchaser, its pro rata share of the value, as of Closing, equal
to ninety percent (90%) of all estimated earned vacation pay of all employees of
Sellers who accept employment to continue working at the Facilities after
Closing ("TRANSITIONED EMPLOYEES") as set forth on Schedule 4.16 attached hereto
(the "ESTIMATED EARNED VACATION AMOUNT") in accordance with Sellers' employee
benefit plans and policies in effect as of the Effective Date. Thirty (30) days
following the Effective Date, Sellers shall pay the difference between the
Estimated Earned Vacation Amount and the actual amount of all earned vacation
pay in respect of Transitioned Employees plus any amounts due in respect of
taxes that may be payable on the actual amount of earned vacation pay (together
with the Estimated Earned Vacation Amount, the "EARNED VACATION AMOUNT").
Sellers shall deliver to Purchaser an updated schedule on or before Closing
which shall include all earned vacation pay as of the Closing Date.

         4.17     Intentionally omitted.

         4.18     No Solicitation. Sellers agree that they shall not, after the
date hereof and before the Closing Date, directly or indirectly, through any
officer, director, employee, agent or otherwise solicit, initiate or encourage
submission of proposals or offers from any person relating to any acquisition of
all or a substantial portion of the Purchased Assets, or any equity interest in
a Seller or any business combination involving a Seller, or furnish to any other
person any

                                       18
<PAGE>

information with respect to, or otherwise cooperate in any way with, or assist
or participate in, facilitate or encourage, any effort or attempt by any other
person to do or seek any of the foregoing. Notwithstanding anything to the
contrary in this Section 4.18 or elsewhere in this Agreement: (i) each Seller
shall have the unrestricted right and option to sell to any party all or any
portion of its stock or (general or limited) partnership interests, as the case
may be, so long as (a) such sale is subject to all of such Seller's obligations
and Purchaser's rights under this Agreement, or (b) such sale is not consummated
until the consummation of the transactions contemplated by this Agreement or the
earlier termination of this Agreement; and (ii) nothing herein shall otherwise
prevent Sellers or any affiliate of Sellers from disposing of other assets that
do not constitute Purchased Assets, provided, however, that if at any time prior
to the Closing Date, the Board of Directors of MHC ("PARENT BOARD") determines
in good faith that it has received an Alternative Proposal (defined below) that
the Parent Board determines is reasonably likely to result in a Superior
Proposal (defined below), the Sellers and MHC may: (x) furnish information with
respect to the Sellers to the person making such Alternative Proposal pursuant
to a customary confidentiality agreement; and (y) participate in discussions and
negotiations with such person regarding such Alternative Proposal. For purposes
of this Agreement, "ALTERNATIVE PROPOSAL" means: (q) any proposal or offer from
any person relating to any direct or indirect acquisition or purchase of assets
or equity securities (or rights to purchase such securities), of Sellers, any
tender offer or exchange offer for any class of equity securities of MHC, or any
merger, consolidation, business combination, recapitalization, liquidation,
dissolution or similar transaction involving MHC or a majority of the Sellers;
or (r) any other transaction that is conditioned upon the termination of this
Agreement or that would be reasonably expected, if consummated, to frustrate the
completion of the transaction contemplated hereby. "SUPERIOR PROPOSAL" means any
bona fide, unsolicited written Alternative Proposal that did not result from a
breach of this Section 4.18 and that involves the payment of consideration and
other terms and conditions that, taken as a whole, the Parent Board determines
in good faith, taking into account all the terms and conditions of the
Alternative Proposal, including the nature and amount of the consideration to be
received, break-up fees, conditions to consummation and the likelihood of
completion, are more favorable and provide greater value to MHC than as provided
pursuant to this Agreement. MHC shall notify Purchaser promptly after receipt by
MHC (or any of its advisors) of any Alternative Proposal or any request for
access to the business, properties, assets, books or records of MHC or any of
the Sellers by any person that may be considering making, or has made, an
Alternative Proposal, which notice shall identify in reasonable detail the
person making, and the material terms and conditions of, any such Alternative
Proposal, indication or request. Prior to furnishing confidential information
to, or entering into discussions or negotiations with any person with respect to
an Alternative Proposal, MHC and Sellers, as appropriate, must obtain from such
other person an executed confidentiality agreement with terms no more favorable
to such person than those contained in the confidentiality agreement referred to
in Section 4.11 hereof.

         4.19     Intentionally omitted.

         4.20     Intentionally omitted.

         4.21     Section 2.8 Facilities. Seller's shall have until December 31,
2003 to take such action as shall be necessary to eliminate any Section 2.8
Encumbrance with respect to any Section 2.8 Facility specified in a Section 2.8
MOU. Upon the elimination of all of the Section 2.8 Encumbrances with respect to
any Section 2.8 Facility, Seller shall give Purchaser written

                                       19
<PAGE>

notice of the same and the transfer of fee simple title from Sellers to
Purchaser with respect to such Facility shall be consummated within twenty (20)
business days following the date of such notice (the "SECTION 2.8 FACILITY
DELAYED CLOSING DATE"). On the Section 2.8 Facility Delayed Closing Date (i)
Purchaser shall pay to Sellers by wire transfer of immediately available funds
to an account designated by Sellers an amount equal to the amount set forth on
Schedule 2.8(a) that was previously withheld from the cash portion of the
Purchase Price as a consequence of such Facility being a Section 2.8 Facility
and shall deliver an amended and restated Promissory Note reflecting an
appropriate increase in the principal amount thereof equal to the reduction
taken upon such Facility becoming a Section 2.8 Facility pursuant to Section 2.8
and as set forth in Schedule 2.8(a) and (ii) Sellers shall execute and deliver
such instruments of sale, assignment and transfer relating to the subject
Section 2.8 Facility as shall be necessary to transfer the same to Purchaser
together with any Personal Property, Personal Property Leases, Inventory,
Assumed Contracts, Business Records and other items that were classified on the
Closing Date as Excluded Assets pursuant to Schedule 1.1(c)(y) as a result of
such Facility being a Section 2.8 Facility. The obligations of the parties to
consummate a transaction on any one or more Section 2.8 Facility Delayed Closing
Date shall be subject only to those conditions to closing as are directly
relevant to the Facility then being conveyed and, in connection therewith,
Purchaser and Sellers shall make only those closing deliveries as are directly
relevant to the conveyance of the subject Facility. For purposes of determining
whether the Weighted Average Occupancy requirement pertaining to any Section 2.8
Facility that is to be conveyed to Purchaser on a Section 2.8 Facility Delayed
Closing Date has been met, (i) the Average Resident Days for such Facility for
the seven calendar day period ending on and including the date that is ten (10)
days prior to the Section 2.8 Facility Delayed Closing Date shall be determined
and then (ii) the Weighted Average Occupancy for the Non-Withdrawn Facilities
determined as of the Closing Date pursuant to Section 8.9 will be recalculated
to include the Average Resident Days and the Licensed Beds attributable to such
Section 2.8 Facility. Sellers will be deemed to have satisfied the condition set
forth in Section 8.9 hereof with respect to the subject section 2.8 Facility if
the Weighted Average Occupancy for the Non-Withdrawn Facilities as supplemented
by the subject Section 2.8 Facility continues to be at least eighty-eight
percent (88%). For the avoidance of doubt, in making the foregoing calculation,
the Average Resident Days and Licensed Beds attributable to the Non-Withdrawn
Facilities determined for the seven calendar day period ending on and including
the Measurement Date in connection with the Closing shall not change. The
representations and warranties of the various parties hereto contained in this
Agreement shall only be given as of the then applicable Section 2.8 Facility
Delayed Closing Date as they relate to the subject Facility. The survival period
for any representations and warranties given on the Section 2.8 Facility Delayed
Closing Date shall be as set forth in Section 7.1 of this Agreement, except that
references in such section to the "Closing Date" shall be deemed to be
references to the Section 2.8 Facility Delayed Closing Date.

         4.22     Mariner Health of Tampa. Subject to Seller's right to make the
Tampa Facility Delayed Closing Election (defined below), on or before the
Closing Date, Sellers shall use commercially reasonable efforts to obtain fee
simple title to Mariner Health of Tampa and provide Purchaser evidence of the
same. Any reasonable cost or expense incurred in obtaining fee simple title to
Mariner Health of Tampa shall be paid by the Sellers. If Sellers obtain fee
simple title, to Mariner Health of Tampa, Sellers shall convey fee simple title
to the Mariner Health of Tampa Facility to Purchaser at the Closing. If Sellers
cannot obtain and transfer to Purchaser at Closing fee simple title to Mariner
Health of Tampa in accordance with the requirements of Section 2.8 of this
Agreement, the Purchase Price shall be reduced by the

                                       20
<PAGE>

amount set forth on Schedule 2.8(a) with such reduction allocated on a pro rata
basis between cash and the principal amount of the Promissory Note as set forth
on Schedule 2.8(a) and Sellers shall have the option of electing to delay the
Closing (the "TAMPA FACILITY DELAYED CLOSING ELECTION") with respect to such
facility until December 31, 2003 (the "DELAY PERIOD") by providing Purchaser
with written notice of such election no later than the Measurement Date (as
defined below). During the Delay Period, Sellers shall continue to use
commercially reasonable efforts to obtain fee simple title to Mariner Health of
Tampa on the same basis as described above in this paragraph. If Sellers are
unable to obtain fee simple title to Mariner Health of Tampa by the end of the
Delay Period, then either Sellers or Purchaser may withdraw Mariner Health of
Tampa from this Agreement. If Sellers exercise the Tampa Facility Delayed
Closing Election and are thereafter able to obtain fee simple title to Mariner
Health of Tampa prior to December 31, 2003, Sellers shall give Purchaser written
notice of such event and the consummation of the transfer of fee simple title to
Mariner Health of Tampa from Sellers to Purchaser shall be completed no later
than twenty (20) business days following the date of such notice (the "TAMPA
FACILITY DELAYED CLOSING DATE"). On the Tampa Facility Delayed Closing Date
Purchaser shall (i) pay to Sellers by wire transfer of immediately available
funds to an account designated by Sellers cash in an amount equal to the amount
that was previously withheld from the cash portion of the Purchase Price as a
consequence of the inability to deliver fee simple title to Mariner Health of
Tampa and deliver an amended and restated Promissory Note reflecting an
appropriate increase in the principal amount thereof equal to the reduction
previously taken upon the inability to deliver fee simple title to Mariner
Health of Tampa and (ii) Sellers shall execute and deliver such instruments of
sale, assignment and transfer relating to Mariner Health of Tampa as shall be
necessary to transfer the same to Purchaser together with any Personal Property,
Personal Property Leases, Inventory, Assumed Contracts, Business Records and
other items that were classified on the Closing Date as Excluded Assets pursuant
to Schedule 1.1(c)(y) as a result of the exercise by Sellers of the Tampa
Facility Delayed Closing Election. The obligations of the parties to consummate
the transactions on the Tampa Facility Delayed Closing Date shall be subject
only to those conditions to closing as are directly relevant to the Mariner
Health of Tampa Facility and, in connection therewith, Purchaser and Sellers
shall make only those closing deliveries as are directly relevant to the
transfer of fee simple title to Mariner Health of Tampa Facility. For purposes
of determining whether the Weighted Average Occupancy requirement pertaining to
Mariner Health of Tampa has been met, (i) the Average Resident Days for Mariner
Health of Tampa for the seven calendar day period ending on and including the
date that is ten (10) days prior to Tampa Facility Delayed Closing Date shall be
determined and then (ii) the Weighted Average Occupancy for the Non-Withdrawn
Facilities determined as of the Closing Date pursuant to Section 8.9 will be
recalculated to include the Average Resident Days and the Licensed Beds
attributable to the Mariner Health of Tampa Facility. Sellers will be deemed to
have satisfied the condition set forth in Section 8.9 hereof with respect to the
Mariner Health of Tampa Facility if the Weighted Average Occupancy for the
Non-Withdrawn Facilities as supplemented by the Mariner Health of Tampa Facility
continues to be at least eighty-eight percent (88%). For the avoidance of doubt,
in making the foregoing calculation, the Average Resident Days and Licensed Beds
attributable to the Non-Withdrawn Facilities determined for the seven calendar
day period ending on and including the Measurement Date in connection with the
Closing shall not change. The representations and warranties of the various
parties hereto contained in this Agreement shall only be given as of the Tampa
Facility Delayed Closing Date as they directly relate to the Mariner Health of
Tampa Facility. The survival period for any representations and warranties given
on the Tampa Facility Delayed Closing Date shall be as set forth in Section 7.1
of this Agreement, except that

                                       21
<PAGE>

references in such section to the "Closing Date" shall be deemed to be
references to the Tampa Facility Delayed Closing Date.

         4.23     Mariner Health of St. Augustine. Subject to Seller's right to
make the St. Augustine Facility Delayed Closing Election (defined below), on or
before the Closing Date, Sellers shall use commercially reasonable efforts to
obtain a consent to assignment of the Real Property Lease of Mariner Health of
St. Augustine and provide Purchaser evidence of the same. In the event the
Sellers are unsuccessful in obtaining the consent required by the prior
sentence, Sellers shall use commercially reasonable efforts to obtain a sublease
on or before the Closing Date and provide Purchaser evidence of the same. If
Sellers cannot obtain any of the foregoing prior to the Closing Date and Sellers
do not make the St. Augustine Facility Delayed Closing Election, either Sellers
or Purchaser may withdraw Mariner Health of St. Augustine from this Agreement.
The Purchase Price shall not be reduced or increased by the exclusion or
inclusion of Mariner Health of St. Augustine as a Purchased Asset. Sellers shall
have the option of electing to delay the Closing (the "ST. AUGUSTINE FACILITY
DELAYED CLOSING ELECTION") with respect to the Mariner Health of St. Augustine
Facility through the Delay Period by providing Purchaser with written notice of
such election no later than the Measurement Date. During the Delay Period,
Sellers shall continue to use commercially reasonable efforts to obtain a
consent to assignment of the Real Property Lease of the Mariner Health of St.
Augustine Facility on the same basis as described above in this paragraph. In
the event that during the Delay Period Sellers determine that they cannot obtain
a consent to such assignment on or before the end of the Delay Period, Purchaser
and Sellers shall enter into a sublease with respect to the Mariner Health of
St. Augustine Facility. If Sellers are unable to (i) obtain any of the foregoing
by the end of the Delay Period or (ii) resolve any UST Remediated Conditions
that exist at Mariner Health of St. Augustine where the estimated cost to
remediate exceeds $100,000, then either Sellers or Purchaser may withdraw
Mariner Health of St. Augustine from this Agreement. If Sellers exercise the St.
Augustine Facility Delayed Closing Election and they are able to obtain one of
the alternatives described above prior to December 31, 2003 and resolve any UST
Remediated Conditions as contemplated by Section 6.2(b) hereof, Sellers shall
give Purchaser written notice of such event specifying which alternative has
been obtained and the assignment of the relevant lease, or entering into a
sublease, shall be completed no later than twenty (20) business days following
the date of such notice (the "ST. AUGUSTINE FACILITY DELAYED CLOSING DATE"). At
the St. Augustine Facility Delayed Closing Date, Purchaser and Sellers shall
enter into an amendment of this Agreement as appropriate to reflect the
alternative obtained by Sellers and Sellers shall execute and deliver such
instruments of sale, assignment and transfer relating to Mariner Health of St.
Augustine Facility as shall be necessary to transfer the same to Purchaser
together with any Personal Property, Personal Property Leases, Inventory,
Assumed Contracts, Business Records and other items that were classified on the
Closing Date as Excluded Assets pursuant to Schedule 1.1(c)(y) as a result of
the exercise by Sellers of the St. Augustine Facility Delayed Closing Election.
In the event that Sellers are assigning the relevant lease or entering into a
sublease with Purchaser, Purchaser shall accept assignment of the relevant lease
or enter into a sublease with Sellers, as applicable. The obligations of the
parties to consummate the transactions on the St. Augustine Facility Delayed
Closing Date shall be subject only to those conditions as are directly relevant
to the Mariner Health of St. Augustine Facility and the specific alternative
obtained by Purchaser. Similarly, Purchaser and Sellers shall make only those
closing deliveries as are directly relevant to the Mariner Health of St.
Augustine Facility and the alternative obtained. For purposes of determining
whether the Weighted Average Occupancy requirement pertaining to Mariner Health
of St. Augustine has been met, (i) the Average Resident Days for Mariner Health

                                       22
<PAGE>

of St. Augustine for the seven calendar day period ending on and including the
date that is ten (10) days prior to St. Augustine Facility Delayed Closing Date
shall be determined and then (ii) the Weighted Average Occupancy for the
Non-Withdrawn Facilities determined as of the Closing Date pursuant to Section
8.9 will be recalculated to include the Average Resident Days and the Licensed
Beds attributable to the Mariner Health of St. Augustine Facility. Sellers will
be deemed to have satisfied the condition set forth in Section 8.9 hereof with
respect to the Mariner Health of St. Augustine Facility if the Weighted Average
Occupancy for the Non-Withdrawn Facilities as supplemented by the Mariner Health
of St. Augustine Facility continues to be at least eighty-eight percent (88%).
For the avoidance of doubt, in making the foregoing calculation, the Average
Resident Days and Licensed Beds attributable to the Non-Withdrawn Facilities
determined for the seven calendar day period ending on and including the
Measurement Date in connection with the Closing shall not change. The
representations and warranties contained in this Agreement shall only be given
as of such date as they directly relate to the Mariner Health of St. Augustine
Facility and with regard to such facility only. The survival period for any
representations and warranties given on the St. Augustine Facility Delayed
Closing Date shall be as set forth in Section 7.1 of this Agreement, except that
references in such section to the "Closing Date" shall be deemed to be
references to the St. Augustine Facility Delayed Closing Date.

         4.24     Section 2.9 Facilities. Sellers shall have until December 31,
2003 to take such action as shall be necessary to eliminate any UST Remediated
Condition with respect to any Section 2.9 Facility. Upon the elimination of the
UST Remediated Condition with respect to any Section 2.9 Facility, Seller shall
give Purchaser written notice of the same and the transfer of fee simple title
from Sellers to Purchaser with respect to such Facility shall be consummated
within twenty (20) business days following the date of such notice (the "SECTION
2.9 FACILITY DELAYED CLOSING DATE"). On the Section 2.9 Facility Delayed Closing
Date (i) Purchaser shall pay to Sellers by wire transfer of immediately
available funds to an account designated by Sellers an amount equal to the
amount set forth on Schedule 2.8(a) that was previously withheld from the cash
portion of the Purchase Price as a consequence of such Facility being a Section
2.9 Facility and shall deliver an amended and restated Promissory Note
reflecting an appropriate increase in the principal amount thereof equal to the
reduction taken upon such Facility becoming a Section 2.9 Facility and as set
forth in Schedule 2.8(a) and (ii) Sellers shall execute and deliver such
instruments of sale, assignment and transfer relating to the subject Section 2.9
Facility as shall be necessary to transfer the same to Purchaser together with
any Personal Property, Personal Property Leases, Inventory, Assumed Contracts,
Business Records and other items that were classified on the Closing Date as
Excluded Assets pursuant to Schedule 1.1(c)(y) as a result of such Facility
being a Section 2.9 Facility. The obligations of the parties to consummate a
transaction on any one or more Section 2.9 Facility Delayed Closing Date shall
be subject only to those conditions to closing as are directly relevant to the
Section 2.9 Facility then being conveyed and, in connection therewith, Purchaser
and Sellers shall make only those closing deliveries as are directly relevant to
the conveyance of the subject Facility. For purposes of determining whether the
Weighted Average Occupancy requirement pertaining to any Section 2.9 Facility
that is to be conveyed to Purchaser on a Section 2.9 Facility Delayed Closing
Date has been met, (i) the Average Resident Days for such Facility for the seven
calendar day period ending on and including the date that is ten (10) days prior
to the Section 2.9 Facility Delayed Closing Date shall be determined and then
(ii) the Weighted Average Occupancy for the Non-Withdrawn Facilities determined
as of the Closing Date pursuant to Section 8.9 will be recalculated to include
the Average Resident Days and the Licensed Beds attributable to such

                                       23
<PAGE>

Section 2.9 Facility. Sellers will be deemed to have satisfied the condition set
forth in Section 8.9 hereof with respect to the subject Section 2.9 Facility if
the Weighted Average Occupancy for the Non-Withdrawn Facilities as supplemented
by the subject Section 2.9 Facility continues to be at least eighty-eight
percent (88%). For the avoidance of doubt, in making the foregoing calculation,
the Average Resident Days and Licensed Beds attributable to the Non-Withdrawn
Facilities determined for the seven calendar day period ending on and including
the Measurement Date in connection with the Closing shall not change. The
representations and warranties of the various parties hereto contained in this
Agreement shall only be given as of the then applicable Section 2.9 Facility
Delayed Closing Date as they relate to the subject Facility. The survival period
for any representations and warranties given on the Section 2.9 Facility Delayed
Closing Date shall be as set forth in Section 7.1 of this Agreement, except that
references in such section to the "Closing Date" shall be deemed to be
references to the Section 2.9 Facility Delayed Closing Date.

         4.25     OIG Confirmation. Sellers shall use commercially reasonable
efforts to secure evidence reasonably acceptable to Purchaser from the Office of
Inspector General, Department of Health and Human Services ("OIG") that
Purchaser will not be subject to the terms of the Civil and Administrative
Settlement Agreement dated March 25, 2002 between The United States of America,
acting through the United States Department of Justice and on behalf of the OIG
and Mariner Post-Acute Network, Inc., Mariner Health Group, Inc. and affiliated
debtors ("CIA") with respect to the Facilities.

         4.26     Intentionally omitted.

         4.27     Intentionally omitted.

         4.28     Cooperation. Sellers shall cooperate with any commercially
reasonable request of the operator of the Facilities to furnish all requested
documentation and to execute all documents and consents reasonably necessary for
the operator of the Facilities to obtain all licenses, agreements, certificates
and consents contemplated by this Agreement from third parties and government
program agencies, including, without limitation, Medicare, and Medicaid provider
agreements entered into with the State of Florida and the United States federal
government.

         4.29     Subordination Agreement. Sellers shall enter into a
subordination agreement with Purchaser's senior lenders containing such terms
and conditions as are typically found in connection with transactions of this
type.

         4.30     Promissory Note Assignment Option. MHC shall give Purchaser
ten (10) business days prior written notice of its intention to assign the
Promissory Note to a third party (the "PROMISSORY NOTE ASSIGNMENT NOTICE"). At
such time following the delivery of the Promissory Note Assignment Notice as MHC
shall reach an agreement (which may be an oral understanding or in the form of a
non-binding term sheet), MHC shall supplement the Promissory Note Assignment
Notice (the "Second Note Assignment Notice") to provide in reasonable detail the
material terms of the proposed assignment, including, without limitation, price
and the nature of the consideration to be received by MHC and, if available, a
copy of any written term sheet or other document setting forth the terms of the
proposed sale and assignment of the Promissory Note. Purchaser shall have five
(5) business days following its receipt of the Second Note Assignment Notice to
elect to have the Promissory Note assigned to them on the

                                       24
<PAGE>

same terms as are set forth in the Second Note Assignment Notice (the
"PROMISSORY NOTE ASSIGNMENT OPTION"). If Purchaser exercises the Promissory Note
Assignment Option, then Purchaser or its assignee shall be obligated to accept
assignment and MHC shall assign the Promissory Note on the date specified in the
Second Note Assignment Notice and MHC shall receive the consideration specified
in the Second Note Assignment Notice in the manner specified in the Promissory
Note Assignment Notice. If Purchaser declines to exercise the Promissory Note
Assignment Option or fails to respond in the time period provided above, then
MHC shall be free to sell, assign, transfer and deliver to such third party that
has submitted the offer that was the subject of the Second Note Assignment
Notice, provided that such sale, assignment and transfer shall be on terms no
less favorable to MHC than were set forth in the Second Note Assignment Notice.

                                    ARTICLE V
                        COVENANTS OF PURCHASER AND PARENT

         Purchaser covenants and agrees with Sellers that:

         5.1      Confidentiality. Nothing herein shall otherwise modify the
obligations of Purchaser pursuant to a certain confidentiality agreement with
Sellers dated March 10, 2003 and Purchaser agrees to continue its obligations
under such agreement for a period of three (3) years following the Closing.
Notwithstanding the foregoing, Purchaser agrees to fashion with Sellers a
mutually acceptable press release concerning: (i) the execution and delivery of
this Agreement; and (ii) the Closing hereunder.

         5.2      Compliance with Laws. Purchaser and Parent shall comply in all
material respects with all applicable laws, and with all applicable rules and
regulations of all governmental authorities, in conjunction with the execution,
delivery and performance of this Agreement and the transactions contemplated
hereby. Purchaser and Parent will, at its expense comply with all applicable
federal, state and local laws, statutes, rules, regulations, ordinances or
policies in conducting any inspection or testing of the Purchased Assets.

         5.3      Assumption of and Compliance with the Assumed Contracts. As of
the Closing, Purchaser shall assume and be solely responsible for performance of
Sellers, obligations under the Assumed Liabilities, including, without
limitation, the Assumed Contracts and Personal Property Leases, in accordance
with the form of assignment and assumption agreement mutually agreed upon by the
parties ("ASSIGNMENT AND ASSUMPTION AGREEMENT"). As of the Closing, if
applicable, Purchaser shall assume and be solely responsible for the Real
Property Leases, the assignment of which shall be in a form mutually acceptable
to Purchaser and Sellers. Assumed Contract payments, Personal Property Lease
payments and Real Property Lease payments shall be prorated through the Closing
Date.

         5.4      Parent Action. Parent will take or cause to be taken all such
limited liability company action that is necessary or desirable to cause
Purchaser to fulfill its obligations under this Agreement.

         5.5      Intentionally omitted.

                                       25
<PAGE>

         5.6      Consents, Etc. As promptly as practicable after the date
hereof, Purchaser, Parent and their respective designees and affiliates shall
cooperate with Sellers to make all filings with, and give all notices to, all
governmental bodies and other regulatory authorities having jurisdiction with
respect to the facilities or the transactions contemplated hereby, and to give
all notices to all third parties required to consummate the transactions
contemplated by this Agreement.

         5.7      Further Documentation. For a reasonable period of time
following the Closing Date, upon request by Sellers, each of Purchaser and
Parent will do, execute, acknowledge, and deliver, or cause to be done,
executed, acknowledged, and delivered, all such further acts, deeds,
assignments, transfers, conveyances and assurances as may be reasonably
required, without enlarging or extending any liability of Purchaser or Parent
beyond what is otherwise contemplated by this Agreement, in order to relieve
Sellers, or their respective successors and assigns of the Assumed Liabilities
to be assumed by Purchaser pursuant to this Agreement.

         5.8      Intentionally omitted.

         5.9      Regulatory Inspections; Surveys. Purchaser shall be
responsible for and shall bear all costs and expense incurred in connection with
any requirements of regulatory inspections or surveys conducted after the
Closing Date and implementing any plans of correction relating to such surveys
or inspections. Subject to the requirements of applicable law, Purchaser agrees
that it shall not request any regulatory inspection or survey of any Facility by
any regulatory authority until after the Closing Date.

         5.10     Purchaser Financial Information. Purchaser shall be obligated
to deliver to Sellers in sufficient time to permit MHC to make any timely filing
that MHC is required to make pursuant to the Securities and Exchange Act of
1934, as amended, GAAP compliant financial statements pertaining to Purchaser's
operations, including a balance sheet, statement of cash flows and statement of
stockholders' equity. Purchaser shall also provide Sellers with copies of any
compliance documents provided by Purchaser to its senior lenders.

         5.11     Notice of Changes to Capital Structure. Purchaser shall
provide Sellers reasonable prior written notice of any proposed change in
Purchaser's capital structure.

         5.12     Subordination of Additional Rent. Purchaser agrees to take all
such commercially reasonable actions as are necessary to cause the operator of
the Facilities or other third party to subordinate any payment by the operator
of the Facilities of rent other than Minimum Rent under the Master Lease and
Security Agreement ("MASTER LEASE") to payments owed to Sellers under the
Administrative Services Agreement (the "ADMINISTRATIVE SERVICES AGREEMENT," a
copy of which is attached hereto as Exhibit 10.2(a)(xix)).

         5.13     Internal Controls. If Seller is required at any point in the
future to include in its consolidated financial statements the financial
position and results of operations of Purchaser as a result of a change in the
corporate or capital structure of Purchaser or Parent or in the relationship
between Purchaser and the operator of any Facility, Purchaser will use
commercially reasonable efforts at Purchaser's sole cost and expense to
implement such internal controls as may be necessary or desirable in order to
allow Sellers to meet the requirements of any then applicable laws, rules or
regulations governing the preparation of Sellers' financial statements.

                                       26
<PAGE>

         5.14     Mariner Designated Operator. As long as MHC Management is a
party to the Administrative Services Agreement, Purchaser shall provide Mariner
with written notice of its intent to terminate the lease between Purchaser and
the operator of the Facilities. If the lease between Purchaser and the operator
of the Facilities is validly and properly terminated pursuant to the terms of
the Master Transaction Agreement (as defined below), Purchaser shall have no
further obligation under this Section 5.14 and MHC Management shall not have any
right to designate an operator as set forth herein. Provided that the subject
lease termination is not pursuant to the terms of the Master Transaction
Agreement (as defined below), MHC Management shall have thirty (30) days from
the date of its receipt of such notice to identify an operator (the "MARINER
DESIGNATED OPERATOR"), reasonably satisfactory to Purchaser, who will enter into
a lease and a master transaction agreement with Purchaser (both of which shall
be placed in escrow pending completion of the CHOW Applications (defined below))
on substantially the same terms as the lease and the master transaction
agreement then being terminated (the "REPLACEMENT DOCUMENTS") and to cause such
operator to file any change of ownership applications as may then be required by
the State of Florida in connection with the transition of the operations of the
Facilities to the Mariner Designated Operator (the "CHOW APPLICATIONS"). The
Mariner Designated Operator shall have ninety (90) days following the filing of
the CHOW Applications to receive approval of such applications. If the Mariner
Designated Operator receives such regulatory approval then the Replacement
Documents shall be released from escrow and shall be valid and binding
agreements between the Mariner Designated Operator and Purchaser. If MHC
Management fails to identify a Mariner Designated Operator within the time
period set forth herein, the Mariner Designated Operator is not reasonably
satisfactory to Purchaser or the CHOW Applications are not approved within the
time period set forth above, Purchaser shall have no further obligation and MHC
Management shall have no further rights pursuant to this Section 5.14.

                                   ARTICLE VI
                                 OTHER COVENANTS

         6.1      HSR Filing. Promptly upon execution and delivery of this
Agreement, if applicable, each party will prepare and file, or cause to be
prepared and filed, with the Federal Trade Commission and the Department of
Justice, a notification with respect to the transactions contemplated by this
Agreement pursuant to the HSR Act. Each party will promptly provide all
additional information requested, and take all other actions necessary or
appropriate, to comply with notification requirements under the HSR Act and to
cause the expiration of all waiting periods under the HSR Act. Each party will
be responsible for its own costs of preparing such documents and filings as may
be required pursuant to the HSR Act and the costs of otherwise complying with
the HSR Act. Notwithstanding the above, the filing fee for all filings required
by the HSR Act shall be paid solely by Purchaser.

         6.2      Escrowed Remediation Funds.

                  (a)      Subject to the terms set forth below, Sellers agree
to bear the costs incurred to resolve the conditions listed on Schedule 6.2 (the
"REMEDIATED CONDITIONS") in an amount up to Six Hundred Fifty Thousand Dollars
($650,000) (the "REMEDIATION FUND"). Following the Effective Date and prior to
Closing, Sellers at their option may take such actions as are necessary to
resolve any of the Remediated Conditions to the reasonable satisfaction of
Purchaser and its senior lenders. Sellers will provide Purchaser notice when
they have resolved any of the

                                       27
<PAGE>

Remediated Conditions and will provide Purchaser with documentation
demonstrating the amount expended in connection with resolving such Remediated
Condition (the "REMEDIATION EXPENSES"). On the Closing Date, Sellers shall
deposit with an escrow agent designated by Purchaser the amount of the
Remediation Fund reduced by all reasonable Remediation Expenses incurred by
Sellers prior to the Closing Date (the "ESCROWED REMEDIATION FUND"). Subject to
the terms set forth below, Purchaser shall use the Escrowed Remediation Fund to
resolve any Remediated Conditions not previously resolved by Sellers. Purchaser
also covenants to use the Escrowed Remediation Fund solely for the purpose of
remedying the Remediated Conditions and to act in good faith to ensure that any
amounts expended from the Escrowed Remediation Fund are used efficiently and
shall consult with Sellers in connection therewith to minimize the amount of any
such expenditure. Purchaser shall provide Sellers with five (5) business days
prior notice to review any proposed expenditure of monies from the Escrowed
Remediation Fund in excess of $10,000. Purchaser waives any right to assert the
breach or inaccuracy of any representation or warranty contained in this
Agreement or to seek indemnification in connection with any claim that is
directly or indirectly related to any of the Remediated Conditions. Any unused
portion of the Remediation Fund shall be promptly returned to Sellers on the
first anniversary of the Closing Date (the "REMEDIATION FUND RELEASE DATE"). If
Purchaser withdraws any of the Remediated Conditions (the "WITHDRAWN REMEDIATED
CONDITIONS") without incurring any Remediation Expense in connection therewith,
then on the Remediation Fund Release Date Purchaser shall be entitled to retain
out of the remaining Escrowed Remediation Fund an amount equal to 50% of the
cost allocated to such Withdrawn Remediated Conditions.

                  (b)      Subject to the terms set forth below, Sellers agree
to bear the costs incurred to resolve the conditions listed on Schedule 2.9
relating solely to the underground storage tanks at Mariner Health at Bonifay,
Mariner Health Care of Pinellas Point and Mariner Health of St. Augustine (each
a "SECTION 2.9 FACILITY" and such conditions referred to herein as the "UST
REMEDIATED CONDITIONS") in an amount up to One Hundred Thousand Dollars per
Section 2.9 Facility (the "UST REMEDIATION FUND"). Following the Effective Date
and prior to Closing, Purchaser will obtain Phase II environmental surveys of
the underground storage tanks at Mariner Health at Bonifay and Mariner Health
Care of Pinellas Point and will make the results of such surveys available to
Sellers (the "PHASE II SURVEYS"). Notwithstanding the foregoing, Purchaser will
not obtain a Phase II Survey and will not take any other action with respect to
the underground storage tank located at Mariner Health of St. Augustine until
such time as Sellers shall have provided notice to Purchaser (i) no later than
ten business days prior to the Closing Date, that Mariner Health of St.
Augustine will be a Purchased Asset as of the Closing Date or (ii) subsequent to
the Closing Date, pursuant to Section 4.23 hereof establishing the St. Augustine
Facility Delayed Closing Date. On the Closing Date, if any UST Remediated
Conditions then exist at any Section 2.9 Facilities included in the Purchased
Assets and the estimated cost to resolve such UST Remediated Conditions as
established by the applicable Phase II Surveys does not exceed $100,000 per
Section 2.9 Facility, Sellers shall deposit with an escrow agent designated by
Purchaser an amount equal to the estimated cost established by such applicable
Phase II Survey to remediate the UST Remediated Conditions applicable to the
Section 2.9 Facilities then being conveyed to Purchaser (the "ESCROWED UST
REMEDIATION FUND"). Subject to the terms set forth below, Purchaser shall use
the Escrowed UST Remediation Fund solely for the purpose of remedying the UST
Remediated Conditions and will act in good faith to ensure that any amounts
expended from the Escrowed UST Remediation Fund are used efficiently and shall
consult with Sellers in connection therewith to minimize the

                                       28
<PAGE>

amount of any such expenditure. Purchaser shall provide Sellers with five (5)
business days prior notice to review any proposed expenditure of monies monies
from the Escrowed UST Remediation Fund in excess of $10,000. Purchaser waives
any right to assert the breach or inaccuracy of any representation or warranty
contained in this Agreement or to seek indemnification in connection with any
claim that is directly or indirectly related to any of the UST Remediated
Conditions relating to a Section 2.9 Facility that has been conveyed to
Purchaser and Sellers' sole obligation with respect to any such Section 2.9
Facility shall be limited to the Escrowed UST Remediation Fund. Any portion of
the Escrowed UST Remediation Fund that is not specifically allocated to an
expense in connection with the resolution of the UST Remediated Conditions by
the Remediation Fund Release Date shall be promptly returned to Sellers. In the
event that the estimated cost established by the applicable Phase II Survey to
remediate the UST Remediated Conditions applicable to any Section 2.9 Facility
exceeds $100,000, Purchaser may elect to accept from Sellers $100,000 in the
Escrowed UST Remediation Fund and consummate the Closing pursuant to the
provisions of this Section 6.2(b) or declare that such Section 2.9 Facility
shall be excluded from the Purchased Assets until such time as the UST
Remediated Conditions affecting such Facility have been resolved to Purchaser's
satisfaction at which time such Facility will be conveyed to Purchaser pursuant
to Section 4.24 hereof and the Purchase Price (allocated on a pro rata basis
between cash and the Promissory Note) shall be reduced by the amount set forth
in Schedule 2.8(a) and any such Section 2.9 Facility shall thereafter be subject
to the provisions of Section 4.24 (with Mariner Health of St. Augustine being
subject to the provisions of Section 4.23).

         6.3      Risk of Loss. All risk of loss of, or damage to, or
destruction of, the Purchased Assets shall belong to and be borne by the Sellers
up to the Closing Date. In the event that any Purchased Asset suffers a material
loss or damage or any Purchased Asset is destroyed such that such loss, damage
or destruction would materially impair Purchaser's ability to operate a Facility
as presently operated and the Sellers fail or are unable to repair or replace
such asset in a manner reasonably satisfactory to Purchaser prior to the Closing
Date, then Purchaser shall be entitled to receive the insurance proceeds with
respect to such asset and shall close the transactions contemplated herein
notwithstanding such loss, damage or destruction.

         6.4      Mutual Cooperation. Each party shall promptly furnish to the
other all information and documentation that is not otherwise available to the
other party and that such party may reasonably request in connection with any
filing with a governmental or regulatory body or with any third party in
connection with consummating the transactions contemplated hereby. Subject to
Section 5.2, if there is a cost that must be incurred prior to Closing to
resolve any conditions relating to the Real Property or the Personal Property
that is required by governmental authorities as a result of a change of
ownership survey and/or re-licensing based upon an inspection by a governmental
authority, then Seller shall pay the reasonable cost of same.

                                   ARTICLE VII
                                 INDEMNIFICATION

         7.1      Survival of Representations and Warranties. Except for
Sections 2.4, 2.14, 2.21 and 2.22 and the indemnification rights associated
therewith, all of which shall survive for a period equal to the term of the
longest statute of limitations applicable thereto, all warranties and
representations, and the indemnification rights associated therewith, in this
Agreement and any

                                       29
<PAGE>

certificates delivered pursuant to Sections 8.1 and 9.1 shall survive the
Closing and execution of the documents contemplated by this Agreement for a
period of eighteen (18) months from and after the Closing Date (the "SURVIVAL
PERIOD"). The parties hereto in executing and in carrying out the provisions of
this Agreement are relying solely on the representations, warranties and
agreements contained in this Agreement or in any writing delivered pursuant to
provisions of this Agreement or at the Closing of the transactions herein
provided for and not upon any representation, warranty, agreement, promise or
information, written or oral, made by any person other than as specifically set
forth herein or therein.

         7.2      Agreement to Defend. In the event any action, suit, proceeding
or investigation of the nature specified in Section 7.3 or Section 7.4 hereof is
commenced, whether before or after the Closing, all of the parties hereto agree
to cooperate and use their best reasonable efforts to defend against and respond
thereto.

         7.3      Indemnification by MHC.

                  (a)      Subject to the limitations set forth in this Article
VII, MHC shall indemnify, exculpate and hold Purchaser and Parent and their
respective partners, directors, officers, employees and agents (collectively,
"PURCHASER INDEMNIFIED PARTIES") harmless from and against, and agree promptly
to defend Purchaser Indemnified Parties from and reimburse Purchaser Indemnified
Parties for, any and all losses, damages, costs, expenses, liabilities,
obligations and claims of any kind (including, without limitation, costs of
investigation, reasonable attorneys' fees and other reasonable legal costs and
expenses actually incurred) ("PURCHASER INDEMNIFIED LOSSES") which Purchaser
Indemnified Parties may at any time suffer or incur, or become subject to, as a
result of or in connection with:

                           (i)      Any and all obligations of Sellers other
than the Assumed Liabilities relating to the Real Property, the Personal
Property, the Facilities or the operation thereof, and pertaining to the period
prior to the Closing Date;

                           (ii)     Any misrepresentation or inaccuracy in or
any breach of any of the representations or warranties made by a Seller in or
pursuant to this Agreement or in any instrument, certificate or affidavit
delivered by a Seller at the Closing except to the extent such breach shall have
been waived in writing by Purchaser;

                           (iii)    Any failure by a Seller to carry out,
perform, satisfy and discharge any of its covenants, agreements, undertakings,
liabilities or obligations under this Agreement or in any instrument,
certificate or affidavit delivered by a Seller at the Closing;

                           (iv)     Intentionally omitted.

                           (v)      Any and all liability or loss arising out of
or relating to any failure in connection with the transactions contemplated
herein to comply with the requirements of any laws or regulations relating to
bulk sales or transfers; and

                           (vi)     Any and all claims, including any suit,
action, or other proceeding brought by applicable governmental or
quasi-governmental authorities against Purchaser, the Purchased Assets or the
Facilities: (a) arising from the ownership and operation thereof by a

                                       30
<PAGE>

Seller prior to the Closing Date; or (b) as to any overpayments made to a Seller
by third parties including, without limitation, overpayments made with respect
to Government Programs, if applicable, relating to any period prior to the
Closing Date.

                  (b)      Sellers shall not be responsible for lost profits or
consequential damages; provided, however, Medicaid and Medicare recapture
payments relating to periods prior to the Closing Date and realized through the
adjustments in Medicare and Medicaid reimbursement rates shall not be deemed
lost profits or consequential damages.

                  (c)      If and to the extent any liabilities for which
indemnification is sought by Purchaser Indemnified Parties is related to events
or circumstances occurring both prior to and after the Closing Date or are from
both a cause that is indemnified and one that is not so indemnified, the
Sellers' obligations hereunder shall extend only to liabilities attributable to
events or circumstances prior to the Closing Date or the indemnified event,
circumstance or cause.

                  (d)      Except for the matters addressed in Section 7.1
hereof, which shall survive as set forth therein, the Sellers shall not be
responsible for any claim that is asserted after the applicable Survival Period,
except for claims relating to liabilities that are not Assumed Liabilities,
which shall survive for a period equal to the term of the longest statute of
limitations applicable thereto. Any claim to be timely asserted against Sellers
must be asserted in writing and with reasonable specificity as to the facts
forming a basis for such claim.

                  (e)      Notwithstanding the foregoing, Sellers shall have no
liability to indemnify Purchaser for any claim based on the condition of the
Real Property, Leased Property, or Personal Property of which Purchaser had
knowledge and nonetheless elected to consummate the transactions contemplated by
this Agreement. For purposes of this provision, in addition to the matters
covered in Section 12.21 hereof, Purchaser's knowledge shall also be deemed to
include all matters pertaining to the condition of the Real Property, Leased
Property or Personal Property contained in any schedule to this Agreement or in
any documents reviewed by, or made available to, Purchaser as part of its due
diligence review undertaken in connection with the transactions contemplated by
this Agreement (the "PURCHASER'S DUE DILIGENCE REVIEW") or any matter that
should have been revealed as a result of the inspections actually completed by
or on behalf of Purchaser in connection with the Purchaser's Due Diligence
Review..

         7.4      Indemnification by Purchaser and Parent.

                  (a)      Subject to the limitations set forth in this Article
VII, Purchaser and Parent, jointly and severally, shall indemnify, exculpate and
hold Sellers, and their respective stockholders, partners, directors, officers,
employees and agents (collectively, "SELLER INDEMNIFIED PARTIES") harmless from
and against, and agree promptly to defend Seller Indemnified Parties from and
reimburse Seller Indemnified Parties for, any and all losses, damages, costs,
expenses, liabilities, obligations and claims of any kind (including, without
limitation, costs of investigation, reasonable attorneys' fees and other
reasonable legal costs and expenses actually incurred) ("SELLER INDEMNIFIED
LOSSES") which Seller Indemnified Parties may at any time suffer or incur, or
become subject to, as a result of or in connection with:

                                       31
<PAGE>

                           (i)      Any and all of the respective obligations of
Purchaser and Parent relating to the Real Property, the Personal Property, the
Assumed Liabilities, the Facilities or the operation thereof pertaining to the
period after the Closing Date;

                           (ii)     Any misrepresentation or inaccuracy in or
any breach of any of the representations or warranties made by Purchaser or
Parent in or pursuant to this Agreement or in any instrument, certificate or
affidavit delivered by Purchaser or Parent at the Closing except to the extent
such breach shall have been waived in writing by Sellers;

                           (iii)    Any failure by Purchaser or Parent to carry
out, perform, satisfy and discharge the Assumed Liabilities or any of its other
covenants, agreements, undertakings, liabilities or obligations under this
Agreement or in any instrument, certificate or affidavit delivered by Purchaser
or Parent at the Closing;

                           (iv)     Any and all claims, including any suit,
action, or other proceeding brought by applicable governmental or
quasi-governmental authorities against a Seller, (a) arising from the ownership
and operation of the Facilities by Purchaser or any operator selected by
Purchaser after the Closing Date; or (b) as to any overpayments made to
Purchaser by third parties including, without limitation, overpayments made with
respect to Government Programs, if applicable, relating to periods after the
Closing Date; and

                           (v)      Any and all claims against a Seller by a
person as to whom Purchaser received a payment for earned vacation pay for such
person pursuant to Section 4.16 hereof, and as to whom Purchaser or any operator
selected by Purchaser failed to provide the amount of earned vacation pay
benefit for which it received payment.

                  (b)      Purchaser and Parent shall not be responsible for
lost profits or consequential damages; provided, however, Medicaid and Medicare
recipient payments relating to periods prior to the Closing Date and realized
through the adjustments in Medicare and Medicaid, reimbursement rates shall not
be deemed lost profit, or consequential damages.

                  (c)      If and to the extent any liabilities for which
indemnification is sought by Seller Indemnified Parties is related to events or
circumstances occurring both prior to and after the Closing Date or are from
both a cause that is indemnified and one that is not so indemnified, the
Purchaser's and Parent's obligations hereunder shall extend only to liabilities
attributable to events or circumstances subsequent to the Closing Date or the
indemnified event, circumstance or cause.

                  (d)      Except for the matters set forth below, Purchaser and
Parent shall not be responsible for any claim that is asserted after the
applicable Survival Period. Purchaser and Parent shall be responsible for claims
made in connection with or pursuant to 4.16 and 12.5 or Sections 7.4(a)(i),
7.4(a)(iv) and 7.4(a)(v), for a period equal to the term of the longest statute
of limitations applicable thereto. Any claim to be timely asserted against
Purchaser and Parent must be asserted in writing and with reasonable specificity
as to the facts forming the basis of the claim. Claims made pursuant to Section
4.4(b) shall survive as set forth therein.

                                       32
<PAGE>

         7.5      Notification of Claims.

                  (a)      A party entitled to be indemnified pursuant to
Section 7.3 or 7.4 (the "INDEMNIFIED PARTY") shall notify the party liable for
such indemnification (the "INDEMNIFYING PARTY") in writing of any claim or
demand which the Indemnified Party has determined, has given or could give rise
to a right of indemnification under this Agreement, as soon as possible after
the Indemnified Party becomes aware of such claim or demand; provided, however,
that the Indemnified Party's failure to give such notice to the Indemnifying
Party in a timely fashion shall not result in the loss of the Indemnified
Party's rights with respect thereto except to the extent the Indemnified Party
is prejudiced by the delay. The Indemnifying Party shall provide the Indemnified
Party notice of its intention to take up the defense of a claim for which
indemnification is sought within fourteen (14) days after the receipt of written
notice thereon from the Indemnified Party.

                  (b)      If the Indemnified Party shall notify the
Indemnifying Party of any claim or demand pursuant to Section 7.5(a), and if
such claim or demand relates to a claim or demand asserted by a third party
against the Indemnified Party which the Indemnifying Party acknowledges is a
claim or demand for which it must indemnify or hold harmless the Indemnified
Party under Sections 7.3 or 7.4, the Indemnifying Party shall have the right to
either (i) pay such claim or demand or (ii) employ counsel reasonably acceptable
to the Indemnified Party to defend any such claim or demand asserted against the
Indemnified Party. The Indemnified Party shall have the right to participate in
the defense of any such claim or demand at its own expense. So long as the
Indemnifying Party is defending in good faith any such claim or demand asserted
by a third party against the Indemnified Party, the Indemnified Party shall not
settle or compromise such claim or demand. The Indemnified Party shall make
available to the Indemnifying Party or its agents all records and other
materials in the Indemnified Party's possession reasonably required by it for
its use in defending any third party claim or demand. Whether or not the
Indemnifying Party elects to defend any such claim or demand, the Indemnified
Party shall have no obligations to do so.

                  (c)      No Indemnified Party may settle or compromise any
claim or consent to the entry of any judgment with respect to which
indemnification is being sought hereunder without the prior written consent of
the Indemnifying Party, unless the Indemnifying Party fails to assume and
maintain the defense of such claim pursuant to Section 7.5(b) hereof. An
Indemnifying Party may not, without the prior written consent of the Indemnified
Party, settle or compromise any claim or consent to the entry of any judgment
with respect to which indemnification is being sought hereunder unless such
settlement, compromise or consent includes an unconditional release of the
Indemnified Party from all liability arising out of such claim and does not
result in any financial obligation on the part of the Indemnified Party,
contingent or otherwise, or contain any equitable order, judgment or term which
in any manner affects, restrains or interferes with the business of the
Indemnified Party or any of the Indemnified Party's affiliates.

         7.6      Limitations on Amount/Basket and Cap - MHC.

                  (a)      MHC shall have no liability (indemnification or
otherwise) with respect to matters described in Section 7.3 until the total
amount of Purchaser Indemnified Losses exceeds Two Hundred Thousand Dollars
($200,000), and Sellers shall only be responsible for amounts in

                                       33
<PAGE>

excess of this threshold, except that any liability for breaches of the
representations and warranties set forth in Sections 2.4, 2.14, 2.21, 2.22 and
liability under Section 12.5 and Sections 7.3(a)(i) and 7.3(a)(vi) shall not be
subject to this limitation.

                  (b)      Sellers' maximum aggregate liability for Purchaser
Indemnified Losses shall be limited to Four Million Dollars ($4,000,000), except
that any liability for breaches of the representations and warranties set forth
in Sections 2.4, 2.14, 2.21, 2.22 and liability under Section 12.5 and Sections
7.3(a)(i) and 7.3(a)(vi) shall be unlimited and otherwise not subject to this
limitation.

         7.7      Limitations on Amount/Basket and Cap - Purchaser/Parent.

                  (a)      Purchaser and Parent shall have no liability (for
indemnification or otherwise) with respect to matters described in Section 7.4
until the total amount of Seller Indemnified Losses exceeds Two Hundred Thousand
Dollars ($200,000), and shall only be responsible for amounts in excess of this
threshold, except that any liability for Purchaser's or Parent's indemnification
obligations under Sections 4.4(b), 4.16 and 12.5 or liability under Sections
7.4(a)(i), 7.4(a)(iv) or 7.4(a)(v) shall be unlimited and not otherwise subject
to this limitation.

                  (b)      Purchaser's and Parent's maximum aggregate liability
for Seller Indemnified Losses shall be limited to Four Million Dollars
($4,000,000), except that any liability for Purchaser's and Parent's
indemnification obligations under Sections 4.4(b), 4.16 and 12.5 or liability
under Sections 7.4(a)(i), 7.4(a)(iv) or 7.4(a)(v) shall be unlimited and not
otherwise subject to this limitation.

         7.8      Exclusive Remedy. Except with respect to any liabilities,
obligations, losses, damages, claims, activities or expenses which are
conclusively shown to involve either fraud or intentional and knowing
misrepresentation by a party hereto from whom indemnification is sought and
except for the remedies set forth in Sections 11.3 and 11.4 of this Agreement,
the rights of indemnification contained in this Agreement shall be the sole and
exclusive remedy of the parties with regard to any and all liabilities,
obligations, losses, damages, claims, activities and expenses (including,
without limitation, attorneys' fees and court costs) that result from or arise
out of any breach or inaccuracy of any representations, warranties, statements,
certificates, agreements or covenants made by any party contained in, or related
to, this Agreement or any agreements, certificates or other documents entered
into in connection with this Agreement by Sellers and Purchasers.

                                  ARTICLE VIII
              CONDITIONS TO THE OBLIGATIONS OF PURCHASER AND PARENT

         Each and every obligation of Purchaser and Parent under this Agreement,
except for the obligations of Purchaser and Parent to be fulfilled prior to the
Closing and obligations that survive termination of this Agreement, shall be
subject to the satisfaction, on or before the Closing, of each of the following
conditions unless waived in writing by Purchaser and Parent or as otherwise
provided herein:

                                       34
<PAGE>

         8.1      Representations, Warranties; Performance. The representations
and warranties made by Sellers herein and in the Related Documents, as
supplemented by Sellers, prior to the Closing Date, shall be true and correct in
all material respects at and as of the Closing, with the same effect as though
made on such date except to the extent the same specifically relate to the
Effective Date hereof or another specified date in which case such
representations and warranties shall be true and correct as of the date so made,
and except for changes as permitted or contemplated by this Agreement or as
contemplated by Section 6.2 hereof. Sellers shall have performed and complied
with all covenants required by this Agreement and the Related Documents to be
performed and complied with by Sellers prior to the Closing in all material
respects. Sellers shall deliver to Purchaser at Closing a certificate of each
Seller executed by an officer of each Seller certifying to such compliance and
completion.

         8.2      Consents and Approvals.

                  (a)      The operator of the Facilities shall have obtained
all material approvals for all licenses, agreements, certificates and other
consents from third parties and Government Program agencies necessary for the
operation of the Facilities, including, without limitation, Medicare and
Medicaid provider agreements entered into with the State of Florida, the United
States, if any, and any municipality, or other governmental agency or
administrative body that authorizes Sellers to conduct their business at the
Facilities as presently operated (individually and collectively, "GOVERNMENTAL
APPROVAL").

                  (b)      With respect to the Leased Facilities, the Sellers
shall have obtained the Lessor Consent and Estoppel, if and to the extent that
such are required to be obtained from the Lessor; provided, however, that this
condition shall not apply to the extent that either Purchaser or Sellers have
exercised their rights under Section 4.22 and Section 4.23 to remove one or both
of the Leased Facilities from the transactions contemplated by this Agreement.

                  (c)      Sellers shall have obtained the Third Party Consents.

                  (d)      Sellers shall have obtained for the benefit of
Purchaser or its designee either the assignment to Purchaser of the Omnicare
Contract or a new contract from Omnicare on terms substantially the same as the
existing Omnicare Contract but for a term not less than ten (10) years.

         8.3      Intentionally omitted.

         8.4      No Destruction of Property. The Facilities shall not have
suffered material damage, destruction or loss for which insurance is not
available to compensate for the entire damage, destruction or loss as
contemplated by Section 6.3 hereof. For the purposes of this Section, "MATERIAL
DAMAGE, DESTRUCTION OR LOSS," shall be uninsured damage (excluding any amount
attributable to self insured retention, deductible or similar items) to any one
or more of the Facilities in excess of One Hundred Thousand Dollars ($100,000)
for any one Facility or One Million Five Hundred Thousand Dollars ($1,500,000)
in the aggregate.

         8.5      No Proceeding or Litigation. No injunction, judgment, order,
decree, ruling, or charge shall be in effect under any action, suit or
proceeding before any court or quasi-judicial or administrative agency of any
federal, state, local, or foreign jurisdiction or before any arbitrator

                                       35
<PAGE>

that: (i) prevents consummation of any of the transactions contemplated by this
Agreement; or (ii) would cause any of the transactions contemplated by this
Agreement to be rescinded following consummation, provided that Purchaser has
not directly or indirectly initiated, solicited or encouraged any such action,
suit or proceeding.

         8.6      Intentionally omitted.

         8.7      Material Adverse Change. There shall have been no "MATERIAL
ADVERSE CHANGE". For purposes hereof, the term "MATERIAL ADVERSE CHANGE" shall
mean any change, event or effect that is materially adverse to the business,
financial condition or prospects of the Facilities taken as a whole, except for
any such change, event or effect resulting from or arising out of: (i) the
negotiation, announcement, execution, delivery, consummation or anticipation of
the transactions contemplated by, or compliance with, this Agreement and the
transactions contemplated hereby; or (ii) changes, events or developments that
have a negative impact on the long-term care industry as a whole nationally or
in the State of Florida and not a disproportionate impact on the Facilities
taken as a whole and which are not otherwise addressed by the provisions of this
Agreement or the Related Documents.

         8.8      Noncompetition Agreement. Sellers shall have executed and
delivered at Closing a Noncompetition Agreement in substantially the form set
forth as Exhibit 8.8 attached hereto ("NONCOMPETITION AGREEMENT").

         8.9      Occupancy Requirement.

                  (a)      Definitions.

                           (i)      "AVERAGE RESIDENT DAYS" shall mean the
quotient obtained by dividing (A) the number of all residents and patients in
the Non-Withdrawn Facilities pursuant to agreements and arrangements with the
applicable Seller entered into in the ordinary course of such Seller's business
and determined in a manner consistent with Seller's established practice for
each of the seven calendar days in the period ending on and including the
Measurement Date by (B) seven.

                           (ii)     "WEIGHTED AVERAGE OCCUPANCY" shall mean the
quotient obtained by dividing (A) the Average Resident Days by (B) the total
number of Licensed Beds .

                           (iii)    "MEASUREMENT DATE" shall mean that date
which is ten (10) calendar days before Closing Date.

                           (iv)     "NON-WITHDRAWN FACILITIES" shall mean those
Facilities that are conveyed, transferred and assigned to Purchaser on the
Closing Date.

                  (b)      "REQUIREMENT". The Weighted Average Occupancy for the
Non-Withdrawn Facilities in the aggregate shall be at least eighty-eight percent
(88%).

                                       36
<PAGE>

         8.10     Related Documents.

                  (a)      Purchaser and the operator of the Facilities shall
have entered into the Master Lease and Master Transaction Agreement ("MASTER
TRANSACTION AGREEMENT").

                  (b)      Sellers and the operator of the Facilities shall have
entered into the Operations Transfer Agreement ("OTA") in the form attached to
and made a part of this Agreement as Exhibit 8.10.

         8.11     Insurable Title. At Closing, Purchaser shall receive from the
Title Company a policy or policies insuring Purchaser's title to the Facilities
in the form and in accordance with the representations and warranties set forth
in Section 2.8(a).

                                   ARTICLE IX
                    CONDITIONS TO THE OBLIGATIONS OF SELLERS

         Each and every obligation of Sellers under this Agreement, except for
the obligations to be fulfilled prior to the Closing and obligations that
survive termination of this Agreement, shall be subject to the satisfaction, on
or before the Closing, of each of the following conditions unless waived in
writing by Sellers or otherwise provided herein:

         9.1      Representations and Warranties; Performance. The
representations and warranties made by Purchaser and Parent herein and in all
agreements, instruments and documents executed and delivered by Purchaser and
Parent in connection with the transactions contemplated herein, as supplemented
by Purchaser and Parent prior to the Closing, shall be true and correct in all
material respects at and as of the Closing, with the same effect as though made
on such date, except to the extent the same specifically relate to the Effective
Date or another specified date in which case such representations and warranties
shall be true and correct as of the date so made, and except for changes as
permitted or contemplated by this Agreement. Purchaser and Parent shall have
performed and complied with all covenants required by this Agreement and in all
agreements, instruments and documents executed by Purchaser and Parent in
connection with the transactions contemplated herein to be performed and
complied with by Purchaser and Parent prior to the Closing in all material
respects. Purchaser and Parent shall deliver to Sellers at Closing a certificate
of Purchaser and Parent executed by an officer of Purchaser and Parent
certifying to such compliance and completion.

         9.2      Intentionally omitted.

         9.3      Consents and Approvals. The operator of the Facilities shall
have obtained the approvals for all licenses, agreements, certificates and other
consents necessary for the operation of the Facilities from third parties and
the Government Approvals.

         9.4      No Proceeding or Litigation. No injunction, judgment, order,
decree, ruling or charge shall be in effect under any action, suit or proceeding
before any court or quasi-judicial or administrative agency of any federal,
state, local or foreign jurisdiction or before any arbitrator that (i) prevents
consummation of any of the transactions contemplated by this Agreement or (ii)
would cause any of the transactions contemplated by this Agreement to be
rescinded

                                       37
<PAGE>

following consummation, provided that Sellers have not solicited or encouraged
any such action, suit or proceeding.

         9.5      Consent of Lenders and Noteholders. Sellers shall have
received all consents from Sellers' lenders and noteholders necessary to enable
Sellers to consummate the transaction contemplated by this Agreement.

         9.6      Operations Transfer Agreement, Master Lease, Master
Transaction Agreement and Administrative Services Agreement. Purchaser and
operator of the Facilities shall have entered into the OTA, the Administrative
Services Agreement, the Master Transaction Agreement and the Master Lease, as
applicable.

         9.7      Intentionally omitted.

                                    ARTICLE X
                                     CLOSING

         10.1     Possession. Possession of all Purchased Assets sold hereunder
shall be delivered to Purchaser on the Closing Date, and Sellers shall provide
notices, in form provided by Purchaser and reasonably acceptable to Sellers, to
tenants and residents of such possession change, if requested by Purchaser.

         10.2     Transfer Documents.

                  (a)      Sellers shall deliver to Purchaser on the Closing
Date:

                           (i)      duly executed Assignment and Assumption
Agreement as required by Section 5.3;

                           (ii)     duly executed Special Warranty Deeds in the
form attached hereto as Exhibit 10.2(a)(ii), subject to the Permitted Liens;

                           (iii)    duly executed Bills of Sale in the form
attached hereto as Exhibit 10.2(a)(iii);

                           (iv)     subject to Section 4.23 hereof, the
Assignment and Assumption of Real Property Lease for each Leased Facility, in a
form mutually satisfactory to Sellers and Purchaser, subject to the Permitted
Liens;

                           (v)      such additional bills of sale and other
appropriate instruments of assignment and conveyance, as to the Personal
Property, in form mutually but reasonably satisfactory to Purchaser and Sellers,
dated as of the Closing, as may be necessary to convey title to the Purchased
Assets not covered by clause (ii) above, subject to the Permitted Liens;

                           (vi)     an assignment of any intangible property to
be transferred to Purchaser pursuant to this Agreement;

                                       38
<PAGE>

                           (vii)    the duly executed Noncompetition Agreement
in the form attached hereto as Exhibit 8.8;

                           (viii)   subject to Section 4.22 and Section 4.23
hereof, the Lessor Consent and Estoppel for each Leased Facility;

                           (ix)     to the extent not already delivered by
Sellers, and to the extent available, originals of all of the Real Property
Leases, Personal Property Leases, Assumed Contracts, Patient Care Contracts,
licenses and permits that constitute the Purchased Assets;

                           (x)      evidence of the authority of Sellers to
execute and deliver the applicable documents necessary in order to effectuate
the Closing;

                           (xi)     an affidavit in form reasonably satisfactory
to the Title Company to remove the standard preprinted title exceptions for
mechanic's or materialmen's liens, and taxes other than for the current year and
thereafter not yet due and payable, and parties in possession other than those
in possession under Patient Care Contracts and other assumed Leases, subject to
the Permitted Liens;

                           (xii)    employee records relating to Transitioned
Employees shall remain at the respective Facility;

                           (xiii)   a closing statement setting forth in
reasonable detail the financial transactions contemplated by this Agreement,
including, without limitation the Purchase Price, all prorations, and the
allocation of costs specified herein;

                           (xiv)    a bring-down certificate reaffirming that
the representations and warranties are true and correct as of the Closing Date
as required by Section 8.1;

                           (xv)     the duly executed Subordination Agreement as
required by Section 4.29;

                           (xvi)    any other documents reasonably required by
the Title Company;

                           (xvii)   certificate of non-foreign status in the
form attached hereto as Exhibit 10.2(a)(xvii);

                           (xviii)  a duly executed OTA;

                           (xix)    a duly executed Administrative Services
Agreement in the form attached hereto as Exhibit 10.2(a)(xix);

                           (xx)     Certificate of Secretary or Assistant
Secretary of each Seller certifying the (a) articles or certification of
incorporation, bylaws or limited partnership agreement of each Seller, (b)
incumbency and signatures of officers of each Seller and (c) resolutions
authorizing the transactions contemplated by this Agreement;

                                       39
<PAGE>

                           (xxi)    Certificates of Good Standing for each
Seller from the Secretary of State for their respective state of incorporation
as of a recent date;

                           (xxii)   Certificates of the Secretary of State of
the State of Florida certifying each Seller's qualification and good standing as
a foreign corporation, as applicable; and

                           (xxiii)  The confirmation letter from OIG described
in Section 4.25 of this Agreement.

                  (b)      Parent and Purchaser shall deliver to Sellers on the
Closing Date, in addition to the items set forth in Section 1.5 hereof, the
following:

                           (i)      duly executed Assignment and Assumption
Agreement in respect of the Assumed Contracts and leases described in Schedule
2.10 hereto;

                           (ii)     Assignment and Assumption of Real Property
Lease for each Leased Facility;

                           (iii)    the Purchase Price including the Promissory
Note;

                           (iv)     Intentionally omitted;

                           (v)      a bring-down certificate reaffirming that
the representations and warranties are true and correct as of the Closing Date
as required by Section 9.1;

                           (vi)     a closing statement setting forth in
reasonable detail the financial transactions contemplated by this Agreement,
including, without limitation, the Purchase Price, all prorations, and the
allocation of costs specified herein;

                           (vii)    any other documents reasonably required by
the Title Company;

                           (viii)   such other instruments of assignment and
assumption as to the Assumed Liabilities, in the form mutually but reasonably
satisfactory to Purchaser and Sellers, dated as of the Closing Date, as may be
necessary for Purchaser to assume the Assumed Liabilities;

                           (ix)     evidence of the authority of Purchaser and
Parent to execute and deliver the applicable documents in order to effectuate
the Closing;

                           (x)      an OTA duly executed by Purchaser and the
operator of the Facilities;

                           (xi)     Intentionally omitted;

                           (xii)    Intentionally omitted;

                                       40
<PAGE>

                           (xiii)   Certificate of the Secretary or Assistant
Secretary of each of Parent and Purchaser certifying the: (a) certificate of
formation and operating agreement of each of Parent and Purchaser, (b)
incumbency and signatures of officers of each of Parent and Purchaser and (c)
resolutions of each of Parent and Purchaser authorizing the transactions
contemplated hereby;

                           (xiv)    Certificates of Good Standing for each of
Parent and Purchaser from the Secretary of State of Delaware as of a recent
date;

                           (xv)     Certificate of the Secretary of State of the
State of Florida certifying Purchaser's qualification and good standing as a
foreign corporation;

                           (xvi)    a duly executed Noncompetition Agreement in
the form attached hereto as Exhibit 8.8;

                           (xvii)   Allocation of Purchase Price among the
Purchased Assets as contemplated by Section 1.7 hereof;

                           (xviii)  a valid Florida sales tax resale exemption
certificate duly executed by a representative of Purchaser; and

                           (xix)    a Master Transaction Agreement duly executed
by Purchaser and the operator of the Facilities, as applicable, together with
all exhibits and schedules thereto.

         10.3     Intentionally omitted.

         10.4     Prorations; Other Closing Adjustments. Prorations shall be
made as of the Closing Date with Sellers to be entitled to all proceeds and
subject to all obligations prior to the Closing Date, and with Purchaser to be
entitled to all proceeds and subject to all obligations from and after the
Closing Date.

                  (a)      Earned Vacation Pay. In accordance with Section 4.16
and Schedule 4.16, Sellers shall pay in immediately available funds an amount
equal to the Estimated Earned Vacation Amount for all Transitioned Employees.
Purchaser shall in turn pay or credit to the operator of the Facilities an
amount equal to the amount Purchaser receives pursuant to the prior sentence.
Furthermore, Purchaser shall in turn pay or credit to the operator of the
Facilities an amount equal to difference between the Estimated Earned Vacation
Amount and the Earned Vacation Amount as soon as practicable after receiving
such amount pursuant to Section 4.16 hereof.

                  (b)      Real Estate and Personal Property Taxes; Prorations.
Real and personal property taxes and assessments shall be prorated as of the
Closing Date. Said prorations shall be made on an accrual basis, shall be based
on the tax year of the municipality in which the Real Property and the Personal
Property are located and shall be based on the most recent available bill.

                                       41
<PAGE>

                  (c)      Other Prorations. Charges for water, fuel, gas, oil,
heat, electricity and other utilities, operating charges and prepaid service
contracts, shall be prorated as of the Closing Date.

         10.5     Closing Costs.

                  (a)      Sellers shall pay:

                           (i)      All costs of preparing the documents
required of Sellers pursuant to Section 10 of this Agreement (which shall not
include any costs incurred by Purchaser in connection with having their counsel
review such agreements);

                           (ii)     All costs associated with obtaining an
owner's base title insurance policy, sales tax or transfer fees relating to the
sale of the Personal Property and Real Property;

                           (iii)    Intentionally omitted;

                           (iv)     Any fee, cost, charge or expense incurred by
Sellers in connection with the negotiation, examination and consummation of this
Agreement other than as expressly set forth herein;

                           (v)      Intentionally omitted;

                           (vi)     Intentionally omitted.

                  (b)      Purchaser shall pay:

                           (i)      Any escrow or closing charges of Title
Company other than the premium for the Title Policy set forth in Section
10.5(a)(ii);

                           (ii)     The cost of preparing the environmental
reports with respect to the Real Property;

                           (iii)    The cost of preparing the property
inspection reports with respect to the Real Property;

                           (iv)     The premium for any special endorsements to
the base Title Policy;

                           (v)      Any fee, cost, charge or expense incurred by
Purchaser in connection with the negotiation, examination and consummation of
this Agreement, other than as expressly set forth herein;

                           (vi)     Any premium, escrow or closing charges owed
to the Title Company other than the owner's base Title Policy;

                                       42
<PAGE>

                           (vii)    The cost of preparing the ALTA/ACSM Land
Title surveys with respect to the Facilities and preliminary reports on title
for each of the Facilities issued by the Title Company.

                                   ARTICLE XI
                           TERMINATION AND ABANDONMENT

         11.1     Method of Termination. This Agreement may be terminated and
the transactions herein contemplated may be abandoned at any time on or before
the Closing:

                  (a)      by mutual written consent of all of the parties
hereto;

                  (b)      Intentionally omitted;

                  (c)      Intentionally omitted;

                  (d)      automatically, at 11:59 p.m., Eastern Standard Time,
on December 1, 2003, unless the Closing has occurred (the "TERMINATION DATE"),
unless extended by the mutual written agreement of the parties hereto; provided,
however, that the right to terminate this Agreement under this Section 11.1(d)
shall not be available to any party whose action or failure to act constitutes a
material breach of this Agreement;

                  (e)      by Purchaser, if Purchaser is not then in material
breach of this Agreement and Sellers are then in material breach of this
Agreement, and such breach remains uncured for more than ten (10) days after
Sellers' receipt of written notice thereof from Purchaser specifying in
reasonable detail the nature of such breach; provided, however, that no
opportunity to cure shall extend beyond the Termination Date unless specifically
agreed to by the non-breaching party;

                  (f)      by Sellers, if Sellers are not then in material
breach of this Agreement and Purchaser is then in material breach of this
Agreement, and such breach remains uncured for more than ten (10) days after
Purchaser's receipt of written notice thereof from Sellers specifying in
reasonable detail the nature of such breach; provided, however, that no
opportunity to cure shall extend beyond the Termination Date unless specifically
agreed to by the non-breaching party;

                  (g)      by Sellers if (i) the Parent Board shall have
authorized MHC or a majority of the Sellers, as appropriate, to enter into an
agreement with respect to a Superior Proposal and MHC shall have complied with
its obligations under Section 4.18 and (ii) Purchaser shall not have made,
within five (5) business days of receipt of MHC's notification of its intention
to enter into an agreement with respect to a Superior Proposal, an offer that
the Parent Board determines in good faith, is at least as favorable, from a
financial point of view, to MHC as such Superior Proposal; and

                  (h)      Intentionally omitted.

         11.2     Procedure Upon Termination. In the event of termination and
abandonment pursuant to Section 11.1(a) and (d) hereof, this Agreement shall
terminate and shall be

                                       43
<PAGE>

abandoned, without further action by any of the parties hereto. If this
Agreement is terminated for any reason:

                  (a)      each of the parties will redeliver all documents and
other material of any other party relating to the transactions contemplated
hereby to the party furnishing the same;

                  (b)      all information received by any party hereto with
respect to the business of any other party (other than information which is a
matter of public knowledge or which has heretofore been or is hereafter
published in any publication for public distribution or filed as public
information with any governmental authority) shall not at any time be used for
the advantage of, or disclosed to third parties by such party to the detriment
of the party furnishing such information;

                  (c)      no party hereto shall have any liability or further
obligation to any other party to this Agreement other than under the provisions
of Sections 4.4(b), 4.11, 5.1 and 12.5 hereof and other than on the basis of a
breach of this Agreement prior to its termination.

         11.3     Sellers' Remedies Upon Termination. In the event of the
termination of this agreement by Sellers as a result of (i) the breach of
Section 3.2; (ii) the breach of a covenant of Purchaser, not remedied pursuant
to Section 11.1(f); or (iii) Purchaser's failure to make any closing delivery
not requiring (but expressly excluding Purchaser's obligation to deliver the
Purchase Price) any third party action, consent or signature, then the following
provision shall apply:

         SELLERS' SOLE REMEDY SHALL BE TO TERMINATE THIS AGREEMENT AND TO
         RECEIVE THE DEPOSIT TOGETHER WITH ANY INTEREST ACCRUED THEREON AS FULL
         AND COMPLETE LIQUIDATED DAMAGES.

         11.4     Purchaser's Remedies upon Termination.

                  (a)      Sellers shall pay (by wire transfer of immediately
available funds) to Purchaser the Break-Up Fee, together with any interest
accrued thereon, in the event the Agreement is terminated by Purchaser as a
result of: (i) a breach of Sections 2.2(a) and (c); (ii) a breach of Sections
2.21(a)(i), (iv) or (v); (iii) a breach of Section 2.21(b); (iv) any breach of a
covenant of Sellers, not remedied pursuant to Section 11.1(e); (v) the failure
of the condition precedent to Sellers' obligations contained in Section 9.5; or
(vi) Sellers' failure to make any closing delivery not requiring any third party
action, consent or signature. In the event this Agreement is terminated by
Sellers pursuant to Section 11.1(g) or Sellers sell, transfer, lease, enter into
a management agreement or otherwise convey (or enter into an agreement to sell,
transfer, lease, enter into a management agreement or otherwise convey) any or
all of the Facilities to a third party unrelated to Purchaser within the twelve
(12) month period following either the wrongful termination of this Agreement by
Sellers or the termination of this Agreement by Purchaser as a result of a
breach of Section 11.1(e), then in addition to the Break-Up Fee, Sellers will
pay all of Purchaser's documented expenses associated with the transactions
contemplated by this Agreement up to an amount not to exceed One Million Five
Hundred Thousand Dollars ($1,500,000).

                                       44
<PAGE>

                  (b)      The parties hereto acknowledge that the actual
         damages sustained by either Purchaser or Sellers resulting from the
         events set forth in Section 11.1 above are difficult to ascertain, that
         the liquidated damages set forth in Section 11.3 and Section 11.4 are a
         reasonable and fair estimate of the amount of damages either Purchaser
         or Sellers will suffer in connection with the termination of this
         Agreement as set forth in Section 11.3 and Section 11.4 above. The
         foregoing payment shall be Purchaser's and Sellers' sole and exclusive
         remedy for such breach. Under no circumstances shall Purchaser or
         Sellers be entitled to payment of special, punitive or consequential
         damages under this Agreement.

         11.5     Other Terminations. Except as expressly provided in Sections
11.3 and 11.4 above, no fee or payment shall be required of either party in the
event of the termination of this Agreement and each party shall be responsible
for the costs in connection with the transactions contemplated by this
Agreement.

                                   ARTICLE XII
                            MISCELLANEOUS PROVISIONS

         12.1     Amendment and Modification. This Agreement may be amended,
modified and supplemented only by written agreement of all the parties hereto at
any time prior to the Closing with respect to any of the terms contained herein.

         12.2     Waiver of Compliance; Consent. Any failure of a Seller on the
one hand, or Purchaser, on the other hand, to comply with any obligation,
covenant, agreement or condition herein may be waived in writing by Purchaser or
a Seller, as the case may be, but such waiver or failure to insist upon strict
compliance with such obligation, covenant, agreement or condition shall not
operate as a waiver of, or estoppel with respect to, any subsequent or other
failure. Whenever this Agreement requires or permits consent by or on behalf of
any party hereto, such consent shall be given in writing in a manner consistent
with the requirements for a waiver of compliance as set forth in this Section
12.2.

         12.3     Intentionally omitted.

         12.4     Notices. All notices, requests, demands and other
communications required or permitted hereunder shall be in writing and shall be
personally delivered, or sent by facsimile transmission (provided a copy is
thereafter promptly mailed as hereinafter provided), or sent by overnight
commercial delivery service (provided a receipt is available with respect to
such delivery), or mailed by first-class registered or certified mail, return
receipt requested, postage prepaid (and shall be effective when received, if
sent by personal delivery or by facsimile transmission or by overnight delivery
service, or on the third (3rd) day after mailing, if mailed):

                  (a)      If to Sellers, to:
                           Mariner Health Care, Inc.
                           One Ravinia Drive, Suite 1500
                           Atlanta, GA 30346
                           Attention:  Chris Winkle, President and CEO

                                       45
<PAGE>

                        with copies to both (which shall not constitute notice):

                        Mariner Health Care, Inc.
                        One Ravinia Drive, Suite 1500
                        Atlanta, GA 30346
                        Attention:   Stefano M. Miele, Esq.
                                     Senior Vice President and General Counsel

                        Powell, Goldstein, Frazer & Murphy LLP
                        191 Peachtree Street, N.E.
                        16th Floor
                        Atlanta, Georgia  30303
                        Attention:  Richard H. Miller, Esq.

                        If to Purchaser or Parent, to:
                        Formation Properties III, LLC
                        1035 Powers Place
                        Alpharetta, GA  30004
                        Attention:  Christopher Sertich, COO

                        with a copy (which shall not constitute notice) to:

                        Williams Mullen
                        222 Central Park Avenue, Suite #1700
                        Virginia Beach, VA 23462-3035
                        Attention:  Lawrence R. Siegel, Esq.

or to such other person or address as any party hereto shall furnish to the
other parties hereto in writing pursuant to this Section 12.4.

         12.5     Brokers and Finders; Expenses. The parties hereto represent
and warrant to each other that none of them has retained any broker or finder in
connection with this transaction other than Retirement Property Services, Inc.
("BROKER"), and CIBC World Markets, as financial consultant ("CIBC"). Pursuant
to a separate agreement: (a) Purchaser shall pay the fee due to Broker and shall
indemnify Sellers with respect thereto, and (b) Sellers shall pay the fee due to
CIBC and shall indemnify Purchaser with respect thereto. Sellers on the one
hand, and Purchaser, on the other, each agrees to indemnify the other for any
losses incurred with respect to a breach of this Section 12.5.

         12.6     Attorney's Fees. In the event any proceeding or suit is
brought to enforce this Agreement, the prevailing party shall be entitled to all
reasonable costs and expenses (including reasonable attorneys' fees) actually
incurred by such party in connection with any action, suit or proceeding to
enforce the other's obligations under this Agreement.

         12.7     Intentionally omitted.

         12.8     Assignment. This Agreement and all the provisions hereof shall
be binding upon and inure to the benefit of the parties hereto and their
respective heirs, successors and permitted

                                       46
<PAGE>

assigns. This Agreement may not be assigned or otherwise transferred by Sellers,
on one hand, or Purchaser, on the other hand, without the prior written consent
of Purchaser (in the case of the former) or of Sellers (in the case of the
latter), as the case may be, which consent as to Sellers may be withheld by
Sellers in their sole and absolute discretion. Notwithstanding the foregoing,
Purchaser may assign the Agreement to an affiliate that is controlled by
Purchaser or the shareholders of Purchaser, without the prior written consent of
Sellers, provided that Purchaser shall remain jointly and severally liable with
such assignee for all obligations of Purchaser under this Agreement and
Purchaser shall promptly provide Sellers with written notice thereof.

         12.9     Governing Law. This Agreement shall be governed by the laws of
the State of Georgia as to, including, but not limited to, matters of validity,
construction, effect and performance but exclusive of its conflicts of laws
provisions.

         12.10    Jurisdiction. Each party hereto consents to the jurisdiction
of the courts of State of Georgia, DeKalb County, or if it can acquire
jurisdiction, in the United States District Court for the Northern District of
Georgia as to claims arising under or brought in connection with this Agreement
and the transactions contemplated herein.

         12.11    Counterparts. This Agreement may be executed in two (2) or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.

         12.12    Headings. The Article and Section headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.

         12.13    Entire Agreement. This Agreement, which term as used
throughout includes the Exhibits and Schedules hereto, and any Closing
deliveries made pursuant to Section 10 hereof embodies the entire agreement and
understanding of the parties hereto in respect of the subject matter contained
herein. There are no restrictions, promises, representations, warranties,
covenants or undertakings, other than those expressly set forth or referred to
herein. This Agreement supersedes all prior agreements and understandings among
the parties hereto with respect to such subject matter.

         12.14    Intentionally omitted.

         12.15    Schedules. Any fact or item disclosed on any Schedule to this
Agreement shall be deemed disclosed on all other Schedules to this Agreement to
which such fact or item may reasonably apply so long as such disclosure is in
sufficient detail to enable a party hereto to identify the facts or items to
which it applies. Any fact or item disclosed on any Schedule hereto shall not
solely by reason of such inclusion be deemed to be material and shall not be
employed as a point of reference in determining any standard of materiality
under this Agreement.

         12.16    Compliance with Bulk Sales Law. Subject to the indemnification
of Purchaser by Sellers hereunder, Purchaser hereby waives compliance by Sellers
with any applicable bulk sales law and any other similar laws with respect to
the transactions contemplated by this Agreement.

                                       47
<PAGE>

         12.17    Publicity. Except as may be required to be disclosed by law,
in which case the parties agree to make reasonable efforts to cooperate and
coordinate with each other in connection therewith, all pre-Closing publicity
concerning the transactions contemplated by this Agreement and all notices
respecting publicity shall be jointly planned, coordinated and released by and
between Purchaser and Sellers.

         12.18    Waiver of Jury Trial. EACH OF THE PARTIES HEREBY KNOWINGLY,
VOLUNTARILY AND INTENTIONALLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW,
ANY RIGHT TO TRIAL BY JURY IN ANY LEGAL ACTION BROUGHT ON OR WITH RESPECT TO
THIS AGREEMENT, INCLUDING TO ENFORCE OR DEFEND ANY RIGHTS HEREUNDER, AND AGREES
THAT ANY SUCH ACTION SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY.

         12.19    Seller's Liability. Each of the Sellers is severally and not
jointly liable for its obligations hereunder. Each representation and warranty
by the Sellers shall be deemed to be made by each Seller on behalf of itself
only and not on behalf of any other Seller.

         12.20    Survival of Obligations. Any obligations or covenants of
either party which by their nature survive the Closing, shall be deemed to
survive for the period of time necessary for such obligations or covenants to be
fulfilled in accordance with the terms of this Agreement.

         12.21    Construction. This Agreement shall not be construed more
strictly against one party than against another party merely by virtue of the
fact that this Agreement may have been physically prepared by such party, or
such parties' counsel, it being agreed that all parties, and their respective
counsel have mutually participated in the negotiation and preparation of this
Agreement. Unless the context of this Agreement otherwise clearly requires, (i)
words of any gender include each other gender and the neuter; (ii) words using
the singular or plural number also include the plural or singular number,
respectively; (iii) the terms "hereof," "herein," "hereby," "hereto" and
derivative or similar words refer to this entire Agreement as a whole and not to
any particular Article, Section or other subdivision; (iv) the terms "Article"
or "Section" or other subdivision refer to the specified Article, Section or
other subdivision of the body of this Agreement; (v) the words "includes" and
"including" shall be deemed to be followed by the phrase "without limitation"
except when preceded by a negative predicate; and (vi) when a reference is made
in this Agreement to a Schedule or Exhibit, such reference shall be to a
Schedule or Exhibit to this Agreement unless otherwise indicated. All accounting
terms used herein and not expressly defined herein shall have the meanings given
to them under GAAP. The terms "party" or "parties" (but not the term "third
party") when used herein refer to Purchaser, on the one hand, and Sellers, on
the other. When used herein, the phrase, "to the knowledge of" any person, "to
the best knowledge of" any person, "known to" any person or any similar phrase,
means, in the case of Purchaser, the actual knowledge of Arnold M. Whitman,
Christopher M. Sertich and Mr. Steve Fishman and, in the case of Sellers, the
actual knowledge of C. Christian Winkle, Boyd P. Gentry, Stefano M. Miele and
Darrel Hager. In this Agreement, any reference to a party conducting its
business or other affairs or taking any action in the "ordinary course of
business" and "ordinary course of business consistent with past practice" refers
to the business and practice of the Sellers relating to the operation of the
Facilities, as heretofore conducted to the extent: (a) such action is consistent
with such party's past practices and is taken in the ordinary course of such
party's normal day-to-day operations; and (b) such action is not required to be
authorized by such party's shareholders, such party's board of

                                       48
<PAGE>

directors or any committee of such party's board of directors and does not
require any other separate or special authorization of any nature.

         12.22    Miscellaneous. Purchaser, Parent and Sellers expressly
acknowledge and agree that all schedules and exhibits that are attached hereto,
including, without limitation, the forms of Promissory Note, OTA, and Escrow
Agreement are final. The parties hereto will execute such amendments as shall be
necessary or desirable to cure any typographical and similar obvious errors.

                            {Signature page follows}

                                       49
<PAGE>

         IN WITNESS WHEREOF, the parties hereto have executed or have caused
their duly authorized officers to execute this Agreement as of the date first
written above.

                                    FORMATION PROPERTIES III, LLC,
                                    A DELAWARE LIMITED LIABILITY COMPANY

                                    BY:  FC MANAGER III, LLC, A DELAWARE
                                         LIMITED LIABILITY COMPANY

                                    By:  /s/ Christopher M. Sertich
                                         Christopher M. Sertich
                                         Managing Member

                                    FC PROPERTIES III, LLC,
                                    A DELAWARE LIMITED LIABILITY COMPANY

                                    BY:  FC INVESTORS III, LLC, A DELAWARE
                                         LIMITED LIABILITY COMPANY, ITS MANAGER

                                    By:  /s/ Christopher M. Sertich
                                         Christopher M. Sertich
                                         Manager

<PAGE>

                                    MARINER HEALTH CARE, INC.,
                                    A DELAWARE CORPORATION

                                    By:  /s/ C. Christian Winkle
                                         C. Christian Winkle
                                         President and Chief Executive Officer

                                    MARINER HEALTH CARE MANAGEMENT COMPANY,
                                    A DELAWARE CORPORATION

                                    By:  /s/ C. Christian Winkle
                                         C. Christian Winkle
                                         President and Chief Executive Officer

<PAGE>

MARINER HEALTH CENTRAL, INC.,      MARINER HEALTH OF FLORIDA, INC.,
A DELAWARE CORPORATION             A DELAWARE CORPORATION,
                                   TAMPA MEDICAL ASSOCIATES, INC.,
By: /s/ Boyd P. Gentry             A FLORIDA CORPORATION,
    Boyd P. Gentry                 MHC/LCA FLORIDA, INC.,
    President and Treasurer        MARINER HEALTH CARE OF ORANGE CITY, INC.,
                                   A DELAWARE CORPORATION,
                                   MARINER HEALTH CARE OF PORT ORANGE, INC.,
                                   A DELAWARE CORPORATION,
                                   MARINER HEALTH CARE OF PALM CITY, INC.,
                                   A DELAWARE CORPORATION,
                                   MARINER HEALTH CARE OF LAKE WORTH, INC.,
                                   A DELAWARE CORPORATION,
                                   MARINER HEALTH CARE OF PINELLAS POINT, INC.,
                                   A DELAWARE CORPORATION,
                                   MHC/CSI FLORIDA, INC.,
                                   A DELAWARE CORPORATION,
                                   MARINER HEALTH CARE OF TUSKAWILLA, INC.,
                                   A DELAWARE CORPORATION,
                                   MARINER HEALTH CARE OF METROWEST, INC.,
                                   A DELAWARE CORPORATION,
                                   MARINER HEALTH CARE OF INVERNESS, INC.,
                                   A DELAWARE CORPORATION,
                                   MARINER HEALTH CARE OF MACCLENNY, INC.,
                                   A DELAWARE CORPORATION,
                                   MARINER HEALTH PROPERTIES IV, LTD.,
                                   A FLORIDA LIMITED PARTNERSHIP,
                                           BY:   MARINER HEALTH OF FLORIDA, INC.
                                           ITS:  GENERAL PARTNER
                                   MARINER HEALTH AT BONIFAY, INC.,
                                   A DELAWARE CORPORATION,
                                   MARINER HEALTH CARE OF ATLANTIC SHORES, INC.,
                                   A DELAWARE CORPORATION,
                                   MARINER HEALTH OF ORLANDO, INC.,
                                   A DELAWARE CORPORATION,
                                   MARINER HEALTH OF PALMETTO, INC.,
                                   A DELAWARE CORPORATION,
                                   MARINER HEALTH OF JACKSONVILLE, INC.,
                                   A DELAWARE CORPORATION

                                   By:  /s/ Boyd P. Gentry
                                        Boyd P. Gentry
                                        Vice President and Treasurer

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