Document:

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                                                                   EXHIBIT 10.89

                         ACKNOWLEDGMENT AND AMENDMENT

          ACKNOWLEDGMENT AND AMENDMENT, dated as of August 16, 1999 (this
"Acknowledgment and Amendment"), to the Credit Agreement, dated as of November
 ----------------------------
4, 1997 (as amended by the First Amendment, dated as of July 8, 1998, the Second
Amendment, dated as of December 22, 1998, the Third Amendment, dated as of May
11, 1999, and as may be further amended, supplemented or otherwise modified from
time to time, the "Credit Agreement"), among MARINER POST-ACUTE NETWORK, INC.
                   ----------------
(formerly known as Paragon Health Network, Inc.), a Delaware corporation (the
"Borrower"), the several banks and other financial institutions or entities from
 ---------
time to time parties thereto (the "Lenders"), BANK OF AMERICA, N.A. (formerly
                                   -------
known as NationsBank, N.A., "BofA"), as documentation agent (in such capacity,
                             ----
the "Documentation Agent"), and THE CHASE MANHATTAN BANK, as Administrative
     -------------------
agent (in such capacity, the "Administrative Agent").
                              --------------------

                                  WITNESSETH
                                  ----------

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

          WHEREAS, the Borrower and BofA are party to the Amended and Restated
Confirmation for U.S. Dollar Total Return Swap Transaction, dated as of
September 21, 1998, as amended and restated as of March, 1999 (the "BofA Swap"),
                                                                    ---------
under that certain ISDA Master Agreement, dated as of October 31, 1997, among
the Borrower and BofA;

          WHEREAS, the Borrower is obligated to BofA in respect of the BofA Swap
in an aggregate amount equal to $26,485,562.79, net of the application of
termination payments and collateral held in respect of the BofA Swap (the "BofA
                                                                           ----
Swap Obligation");
---------------

          WHEREAS, the Borrower has requested, and, upon this Acknowledgment and
Amendment becoming effective, the Lenders have agreed, that certain provisions
of the Credit Agreement be amended to permit the restructuring of the BofA Swap
Obligation and to provide that such restructured obligation be secured on a pari
passu basis with the Lenders in the Collateral, all in the manner provided for
in this Acknowledgment and Amendment; and

          WHEREAS, Chase Securities Inc. has agreed to act as the lead arranger
and book manager in arranging the consents necessary for the effectiveness of
this Acknowledgment and Amendment;

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

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                                                                               2

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

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

          "BofA": Bank of America, N.A., a national banking association.
           ----

          "BofA Swap": the Amended and Restated Confirmation for U.S. Dollar
           ---------
     Total Return Swap Transaction, dated as of September 21, 1998, as amended
     and restated as of March, 1999, under that certain ISDA Master Agreement,
     dated as of October 31, 1997, among the Borrower BofA.

          "Deficiency Note": the promissory note dated August 16, 1999, by the
           ---------------
     Borrower in favor of BofA in an aggregate principal amount equal to
     $26,485,562.79 which, among other things (i) provides for the payment of
     interest thereon at a rate equal to the interest rate from time to time in
     effect with respect to the Revolving Credit Loans, (ii) has a tenor equal
     to that of the Revolving Credit Loans, (iii) provides that the loans
     thereunder may only be accelerated by BofA (A) upon a failure to pay
     principal and interest due thereon or (B) if the Loans are declared to be,
     or automatically become, due and payable in accordance with Section 8, (iv)
     does not contain any financial or operating covenants with respect to the
     Borrower or any of its Subsidiaries, (v) is not assignable by BofA unless
     contemporaneous with any assignment thereof BofA shall assign all of the
     remaining Loans and Commitments held by it at such time to the assignee of
     the Deficiency Note, (vi) provides that any amendments, supplements,
     modifications, extensions or forebearances of the Revolving Credit Loans or
     the Revolving Credit Commitments shall be equally and automatically
     applicable to the loans thereunder mutatis mutandis without any further
     consent of BofA thereunder, (vii) provides that any permanent reduction of
     the Revolving Credit Commitments resulting in a prepayment of the Revolving
     Credit Loans will be accompanied by a prepayment of the loans under the
     Deficiency Note, ratably based on the amount of the prepayment of the
     Revolving Credit Loans, (viii) acknowledges that BofA shall not be entitled
     to be treated as a class separate from the Lenders with respect to the
     obligations thereunder in any bankruptcy, insolvency or reorganization
     proceedings of the Borrower and (ix) is on other terms and conditions
     reasonably satisfactory to the Administrative Agent."

          2.   Amendment to Section 7.2. Section 7.2 of the Credit Agreement is
               ------------------------
hereby amended by (a) deleting the word "and" at the end of paragraph (j), (b)
deleting the period at the end of paragraph (k) and substituting in lieu
thereof, "and" and (c) inserting the following new paragraph (1):

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                                                                               3

               "(l) Indebtedness in respect of the Deficiency Note."

          3.   Acknowledgment. The parties hereto acknowledge and agree that,
               --------------
solely with respect to the Collateral, the obligations of the Borrower under the
Deficiency Note shall be (i) treated as "Borrower Obligations" as defined in the
Guarantee and Collateral Agreement and (ii) entitled to the benefits of the
collateral security provided under the Mortgages on a pari passu basis with the
Lenders.

          4.   Conditions to Effectiveness. The acknowledgments and amendments
               ---------------------------
provided for herein shall become effective upon the satisfaction of the
following conditions precedent and shall be deemed to be effective as of the
date hereof:

               (a) The Administrative Agent shall have received counterparts of
          this Acknowledgment and Amendment duly executed and delivered by the
          Borrower and the Required Lenders.

               (b) The swap transaction evidenced by the BofA Swap shall have
          been terminated and the obligations in respect thereof shall have been
          restructured in the form of the Deficiency Note (it being understood
          that the guarantee of Mariner and certain of its Subsidiaries in
          respect thereof shall remain in full force and effect).

               (c) All other matters in connection with the termination of the
          swap transaction evidenced by the BofA Swap shall be in form and
          substance reasonably satisfactory to the Administrative Agent.

The execution and delivery of this Acknowledgment and Amendment by any Lender
shall be binding upon each of its successors and assigns (including Transferees
of its commitments and Loans in whole or in part prior to effectiveness hereof)
and binding in respect of all of its Commitments and Loans, including any
acquired subsequent to its execution and delivery hereof and prior to the
effectiveness hereof.

          5.   Representations and Warranties. The Borrower as of the date
               ------------------------------
hereof and after giving effect to the acknowledgments and amendments contained
herein, hereby confirms, reaffirms and restates that representations and
warranties made by it in Section 4 of the Credit Agreement (other than the last
sentence of Section 4.7 and other than with respect to any matters previously
disclosed in writing to the Lenders or disclosed in any of the Borrower's public
filings, including, without limitation, matters disclosed in its financial
statements); provided, that each reference to the Credit Agreement therein shall
             --------
be deemed to be a reference to the Credit Agreement after giving effect to this
Acknowledgment and Amendment.
<PAGE>

                                                                               4

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

     7.   Reference to and Effect on the Loan Documents: Limited Effect. On and
          -------------------------------------------------------------
after the date hereof and the satisfaction of the conditions contained in
paragraph 4 of this Acknowledgment and Amendment, each reference in the Credit
Agreement to "this Agreement", "hereunder", "hereof" or words of like import
referring to the Credit Agreement, and each reference in the other Loan
Documents to "the Credit Agreement", "thereunder", "thereof" or words of like
import referring to the Credit Agreement, shall mean and be a reference to the
Credit Agreement as amended hereby. The execution, delivery and effectiveness of
this Acknowledgment and Amendment shall not, except as expressly provided
herein, operate as a waiver of any right, power or remedy of any Lender or any
Agent under any of the Loan Documents, nor constitute a waiver of any provisions
of any of the Loan Documents. Except as expressly amended or waived herein, all
of the provisions and covenants of the Credit Agreement and the other Loan
Documents are and shall continue to remain in full force and effect in
accordance with the terms thereof and are hereby in all respects ratified and
confirmed.

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

     9.   GOVERNING LAW. THIS ACKNOWLEDGMENT AND AMENDMENT AND THE RIGHTS AND
          -------------
OBLIGATIONS OF THE PARTIES HERETO SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.

<PAGE>

                                                                               5

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

                                        MARINER POST-ACUTE NETWORK, INC.

                                        By: ____________________________
                                            Name:
                                            Title:

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

                                        By: /s/ Agnes L. Levy
                                            ----------------------------
                                            Name: Agnes L. Levy
                                            Title: Vice President

                                        BANK OF AMERICA, N.A.

                                        /s/ F. A. Zagar
                                        -------------------------------
                                        By: F. A. Zagar
                                        Title: Managing Director<PAGE>

                                                                   EXHIBIT 10.90

                                PROMISSORY NOTE

$26,485,562.79                                            New York, New York
                                                             August 16, 1999

     FOR VALUE RECEIVED, the undersigned, MARINER POST-ACUTE NETWORK, INC.
(f/k/a Paragon Health Network, Inc.), a Delaware corporation (the "Maker"),
                                                                   -----
hereby unconditionally promises to pay to the order of BANK OF AMERICA, N.A.
(formerly known as NationsBank, N.A.), a national banking association (the

"Holder"), at the office of Bank of America, N.A. located at 101 N. Tryon
 ------
Street, NC1-001-15-03, Charlotte, North Carolina 28255, in lawful money of the
United States of America and in immediately available funds on the Revolving
Credit Termination Date, the principal amount of TWENTY-SIX MILLION FOUR HUNDRED
EIGHTY-FIVE THOUSAND FIVE HUNDRED SIXTY-TWO AND 79/100 DOLLARS ($26,485,562.79).
The Maker further agrees to pay interest in like money at such office on the
unpaid principal amount hereof from time to time outstanding at the rates and on
the dates hereinafter set forth.

     Capitalized terms used in this Note and not otherwise defined herein shall
have the meanings ascribed to such capitalized terms in that certain Credit
Agreement, dated as of November 4, 1997 (as amended, modified, supplemented,
extended, restated or replaced from time to time, the "Credit Agreement"), among
                                                       ----------------
the Maker, as borrower, the Holder, as a lender thereunder, the several other
banks and financial institutions from time to time parties thereto (together
with the Holder, the "Lenders"), The Chase Manhattan Bank, as Administrative
                      -------
Agent (the "Administrative Agent"), and Bank of America, N.A. (f/k/a
            --------------------
NationsBank, N.A.), as Documentation Agent.

     Interest shall accrue on the outstanding principal amount hereof from and
including the date hereof to, but excluding, the date of payment in full of the
principal amount of this Note, at the rate or rates from time to time applicable
to the Revolving Credit Loans under the Credit Agreement; provided, however,
that the interest set forth in Section 2.14(c) of the Credit Agreement shall
only be applicable to the outstanding principal amount hereof if the Revolving
Credit Lenders are then charging such interest on the Revolving Credit Loans.
For any period during which the Revolving Credit Loans include multiple
Eurodollar Tranches, or one or more Eurodollar Tranches and ABR Loans, (a) a
portion of the outstanding principal amount hereof corresponding to the
percentage of the Revolving Credit Loans represented by each Eurodollar Tranche
shall bear interest at a rate (the "Deficiency Note Eurodollar Rate") equal to
                                    -------------------------------
the sum of (i) the Eurodollar Base Rate applicable to such Eurodollar Tranche,
plus (ii) the Applicable Margin pertaining to the Revolving Credit Loans, and
(b) a portion of the outstanding principal amount hereof corresponding to the
percentage of the Revolving Credit Loans representing ABR Loans shall bear
interest at a rate (the "Deficiency Note Base Rate") equal to the sum of (i) the
                         -------------------------
ABR, plus (ii) the Applicable Margin pertaining to the Revolving Credit Loans.
If all or a portion of the principal amount hereof or any interest payment
hereon shall not be paid when due (whether at the stated maturity, by
acceleration as herein provided, or otherwise), the entire
<PAGE>

outstanding principal amount hereof (whether or not then overdue) shall, if the
Revolving Credit Loans are then bearing interest at the rate set forth in
Section 2.14(c) of the Credit Agreement, bear interest at a rate which is two
(2) percentage points in excess of the interest rate otherwise applicable
pursuant to the foregoing clauses (a) and (b) of this paragraph. To the extent
the indebtedness evidenced by this Note is bearing interest at the rate
specified in the immediately preceding sentence, such interest shall be payable
on demand, provided that the Holder shall not make such demand unless the
Revolving Credit Lenders have demanded the payment of default rate interest on
the Revolving Credit Loans pursuant to Section 2.14(d) of the Credit Agreement.

     To the extent any portion of this Note bears interest at a Deficiency Note
Eurodollar Rate, such interest shall be due and payable, in arrears, on each
Interest Payment Date that relates to the corresponding Eurodollar Tranche(s) of
the Revolving Credit Loans on which the interest rate applicable to such portion
of this Note is based.  Interest accruing hereon at the Deficiency Note Base
Rate shall be due and payable, in arrears, on each Interest Payment Date
applicable to Revolving Credit Loans that constitute ABR Loans.

     Interest hereon shall be calculated on the basis of a 360-day year for the
actual number of days elapsed, except that, with respect to any portion of this
Note bearing interest at a rate determined by reference to Revolving Credit
Loans constituting ABR Loans whose rate of interest, in turn, is calculated by
reference to the Prime Rate, the interest on such portion of this Note shall be
calculated on the basis of a 365-day year (or a 366-day year, as the case may
be), for the actual number of days elapsed.

     In the event there shall be any optional or mandatory prepayment, in whole
or in part, of the Revolving Credit Loans as a result of a permanent reduction
of the Revolving Credit Commitments under the Credit Agreement, whether such
prepayment results from asset sales, the application of the proceeds of
Collateral, or otherwise, the Maker agrees to make a corresponding prepayment of
principal hereunder contemporaneously therewith in an amount equal to the
product of the then outstanding principal amount hereof multiplied by a
fraction, the numerator of which shall be equal to the principal amount of the
Revolving Credit Loans being so prepaid, and the denominator of which shall be
equal to the aggregate Revolving Credit Commitments of the Revolving Credit
Lenders under the Credit Agreement immediately prior to such prepayment.

     The Holder may accelerate the maturity of this Note solely upon the
occurrence of any of the following events:

          (a) upon the acceleration (including, without limitation, automatic
     acceleration) of the Revolving Credit Loans pursuant to Section 8 of the
     Credit Agreement;

          (b) upon the failure of the Maker to pay any principal amount due
     hereunder as and when due and payable;

          (c) upon the failure of the Maker to pay any installment of interest
     due hereon within five (5) days after the due date thereof; or

                                      -2-
<PAGE>

          (d) upon the failure of the Required Lenders under the Credit
     Agreement to have approved the Chase Amendment (as defined in the
     Settlement Agreement hereinafter referred to) by no later than September
     16, 1999.

     Notwithstanding anything to the contrary contained herein, the Holder may
only pursue its remedies in respect of an acceleration of this Note arising
under clause (a) above, if and so long as the Administrative Agent or the
Collateral Agent are pursuing remedies against the Maker in connection with the
obligations arising under the Credit Agreement.  The Maker agrees to pay or
reimburse the Holder for all of its out-of-pocket costs and expenses (including,
without limitation, reasonable legal fees and disbursements) incurred in
connection with the enforcement or preservation of any of its rights under this
Note or the Settlement Agreement.

     All amendments, modifications, supplementations, extensions, renewals,
consents, waivers and forbearances granted by the requisite Lenders under the
Credit Agreement and applicable to the Revolving Credit Loans and the Revolving
Credit Commitments shall be automatically binding upon the Holder with respect
to the obligations evidenced by the Settlement Agreement (as hereinafter
defined) and this Note, without the necessity of any further act or deed of the
Holder.

     It is the express intent of the Maker and the Holder that the obligations
of the Maker evidenced by this Note shall receive the same treatment in any in-
court or out-of-court restructuring of the Maker's debt as the Revolving Credit
Loans receive.  By its acceptance of this Note, the Holder acknowledges and
agrees that in any out-of-court restructuring of the Maker's debt under the
Credit Agreement, the Holder of this Note will not be entitled in such capacity
to vote on any such restructuring plan.  Nothing contained herein, however,
shall be construed to deprive the Holder of any vote on any such out-of-court
restructuring plan which the Holder may have with respect to its Revolving
Credit Loans and Revolving Credit Commitments.  Furthermore, in connection with
any in-court restructuring of the Maker's debt, the Maker agrees to include the
claim evidenced by this Note in the same creditor class as the Revolving Credit
Loans, including, without limitation, for purposes of voting on any such in-
court restructuring plan, and by its acceptance of this Note, the Holder agrees
to such inclusion.

     This Note may not be assigned by the Holder unless the Holder is no longer
(or after giving effect to any contemporaneous assignment of Loans and
Commitments under the Credit Agreement, will no longer be) the holder of any
Loans or Commitments under the Credit Agreement, and then this Note must be
assigned to the assignee of such Loans and Commitments under the Credit
Agreement.  This Note may not be pledged or encumbered by the Holder.   Any
assignment, pledge or encumbrance in violation of the provisions hereof shall be
null and void.

     All parties now or hereafter liable with respect to this Note, whether
maker, principal, surety, guarantor, endorser or otherwise, hereby waive
presentment, demand, protest and all other notices of any kind in connection
with this Note.

                                      -3-
<PAGE>

     THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE CONFLICT OF LAWS
PRINCIPLES THEREOF.

     This Note is being issued by the Maker pursuant to the provisions of that
certain Swap Settlement Agreement dated as of August 13, 1999 (as the same may
be amended from time to time, the "Settlement Agreement") by and among the
                                   --------------------
Holder, the Maker and Mariner Health Group, Inc., for itself and certain of its
subsidiaries.  The indebtedness evidenced by this Note represents the deficiency
owed by the Maker under that certain Amended and Restated Confirmation for U.S.
Dollar Total Return Swap Transaction to be Subject to 1992 Master Agreement,
dated as of September 21, 1998, and amended and restated as of March, 1999 (the
"LMS Confirmation"), entered into by the Maker and the Holder pursuant to that
 ----------------
certain 1992 ISDA Master Agreement dated October 31, 1997 between the Maker and
the Holder (as amended, the "Master Agreement").  Any assignment of this Note in
                             ----------------
compliance with the foregoing provisions of this Note shall automatically and
without any further act or deed constitute an assignment of the Holder's right,
title and interest in, to and under the Settlement Agreement, the Master
Agreement, the LMS Confirmation and the LMS Guaranty (as defined in the
Settlement Agreement), whether or not so specified.

     This Note and the Settlement Agreement together constitute a modification,
restructuring and restatement of the LMS Confirmation and the Master Agreement,
including, without limitation, the provisions of the LMS Confirmation and the
Master Agreement relating to the Maker's payment obligations thereunder and the
enforcement and remedial rights of the Holder in connection therewith.
Notwithstanding anything to the contrary contained in the LMS Confirmation or
the Master Agreement, the provisions of this Note and the Settlement Agreement
shall in all events control over any terms or provisions contained in the LMS
Confirmation or the Master Agreement, and by its acceptance hereof, the Holder
acknowledges and agrees that its shall have no right to enforce any provision of
the LMS Confirmation or the Master Agreement, except if and to the extent such
provisions are expressly set forth in this Note or in the Settlement Agreement.

     This Note shall be binding upon, and shall inure to the benefit of, the
Maker and the Holder and their respective successors and permitted assigns.

             [The Remainder of this Page Intentionally Left Blank]

                                      -4-
<PAGE>

     IN WITNESS WHEREOF, the Maker has caused this duly authorized officer to
execute and deliver this Note as of the day and year first-above written.

                    MARINER POST-ACUTE NETWORK, INC.

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

[Deficiency Note]

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