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                                                                    EXHIBIT 10.7

                              EMPLOYMENT AGREEMENT

         This Employment Agreement (this "Agreement"), dated as of May 13, 2002,
is between David F. Polakoff (the "Executive") and Mariner Health Care
Management Company, a Delaware corporation (the "Company").

         WHEREAS, the Company has employed the Executive as SVP, Chief Medical
Officer and wishes to redefine the terms of the Executive's employment with the
Company and the Executive desires to accept such employment, for the term and
upon the other conditions hereinafter set forth; and

         WHEREAS, as a condition of entering into this Agreement, the Executive
agrees to waive the Executive's rights, if any, against the Company and any
predecessor company or any affiliate of the foregoing under any employment
agreement between the Executive and the Company or any such predecessor company
or affiliate; and

         WHEREAS, the parties desire to enter into this Agreement setting forth
the terms and conditions of the employment relationship of the Executive with
the Company;

         NOW, THEREFORE, the parties agree as follows:

         1.       Employment. This Agreement shall constitute a binding
agreement between the parties as of the date hereof (the "Effective Date").

         2.       Term. Subject to the provisions of Section 10 of this
Agreement, this Agreement shall commence on the Effective Date and shall
continue until the third anniversary of the Effective Date (the "Term");
provided, however, that commencing on the first day following the third
anniversary of the Effective Date and on each anniversary thereafter (each an
"Extension Date"), the Term shall be automatically extended for an additional
one-year period, unless the Company or the Executive provides the other party
hereto ninety (90) days prior written notice before the next Extension Date that
the Term shall not be so extended; and provided, further, that notwithstanding
anything else herein contained, in the event of a Change of Control, the Term
shall not end prior to the first anniversary of such Change of Control and
shall, to the extent necessary, be automatically extended for such period.

         3.       Position. During the Term, the Executive shall serve as SVP,
Chief Medical Officer of the Company or in such other executive position in the
Company as the Executive shall approve.

         4.       Duties and Reporting Relationship. During the Term, the
Executive shall, on a full time basis, use the Executive's skills and render
services to the best of the Executive's abilities in supervising and conducting
the operations of the Company and shall not engage in any other business
activities except with the prior written approval of the Board of Directors of
the Company (the "Board") or its duly authorized designee. The Executive shall
also perform such other executive and administrative duties (not inconsistent
with the position of SVP, Chief Medical Officer) as the Executive may reasonably
be expected to be capable of performing on

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behalf of the Company, as may from time to time be authorized or directed by the
Board or the Chief Executive Officer. The Executive agrees to be employed by the
Company in all such capacities for the Term, subject to all the covenants and
conditions hereinafter set forth.

         5.       Salary and Annual Bonus.

                  (a)      Base Salary. The Executive's base salary hereunder
         shall be $350,000 a year, payable no less frequently than monthly and
         prorated for any partial year of employment. The Board shall review
         such base salary at least annually and may increase, but not decease,
         such base salary as it may deem advisable.

                  (b)      Annual Bonus. The Company shall provide the Executive
         with an opportunity to earn upon achievement of target performance
         goals, an annual bonus equal to fifty percent (50%) of the Executive's
         base salary (the "Target Bonus").

         6.       Vacation, Holidays and Sick Leave. During the Term, the
Executive shall be entitled to paid vacation, paid holidays and sick leave in
accordance with the Company's standard policies for its senior executive
officers.

         7.       Business Expenses. The Executive shall be reimbursed for all
ordinary and necessary business expenses incurred by the Executive in connection
with the Executive's employment upon timely submission by the Executive of
receipts and other documentation as required by the Internal Revenue Code and in
conformance with the Company's normal procedures.

         8.       Pension and Welfare Benefits. During the Term, the Executive
shall be eligible to participate fully in all health benefits, insurance
programs, pension and retirement plans and other employee benefit and
compensation arrangements, as in effect from time to time, available to senior
executive officers of the Company generally.

         9.       Stock Options On the Effective Date, the Company shall cause
Mariner Health Care, Inc. (the "Parent") to grant to the Executive, pursuant to
the terms of the Mariner Health Care, Inc. 2002 Stock Incentive Plan (the "2002
Plan"), options to purchase 40,000 shares of common stock of the Parent, all of
which shall have such terms and be subject to such conditions as are set forth
in the form of Stock Option Agreement promulgated under the 2002 Plan.
Thereafter, the Board of Directors of the Parent or the Compensation Committee
thereof, may grant to the Executive such other and additional awards under the
2002 Plan as may from time to time be deemed appropriate.

         10.      Termination of Employment.

                  (a)      General. The Executive's employment hereunder may be
         terminated without any breach of this Agreement only under the
         following circumstances.

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                  (b)      Death or Disability.

                           (i)      The Executive's employment hereunder shall
                  automatically terminate upon the death of the Executive.

                           (ii)     If, as a result of the Executive's
                  incapacity due to physical or mental illness, the Executive is
                  unable to perform the essential functions of his or her job
                  for one hundred eighty (180) days (whether or not consecutive)
                  during any period of eighteen (18) consecutive months, and no
                  reasonable accommodation can be made that will allow Executive
                  to perform his or her essential functions, the Company may
                  terminate the Executive's employment hereunder for any such
                  incapacity (a "Disability").

                  (c)      Termination by the Company. The Company may terminate
         the Executive's employment hereunder at any time, whether or not for
         Cause. For purposes of this Agreement, "Cause" shall mean (i) continued
         failure by the Executive to substantially perform the duties
         contemplated by Section 4 hereof, which failure is not remedied within
         twenty (20) days after a written notice of such failure is delivered to
         the Executive by the Company, which notice identifies with
         particularity the manner in which the Company believes that the
         Executive has failed to perform his duties under Section 4 of this
         Agreement; (ii) the conviction (after exhausting all appeals) of the
         Executive of, or the entering of a plea of nolo contendere by, the
         Executive with respect to a felony (iii) Executive's willful
         malfeasance or willful misconduct in connection with Executive's duties
         hereunder or any willful act or willful omission which is materially
         injurious to the financial condition or business reputation of the
         Company or any significant subsidiary; or (iv) Executive's breach of
         the provisions of Section 14 of this Agreement.

                  Action or inaction by Executive shall not be considered
         "willful" unless done or omitted by Executive intentionally and without
         Executive's reasonable belief that Executive's action or inaction was
         in the best interests of the Company, and shall not include failure to
         act by reason of total or partial incapacity due to physical or mental
         illness.

                  (d)      Termination by the Executive. The Executive shall be
         entitled to terminate his or her employment hereunder (A) upon sixty
         (60) days' prior written notice, for Good Reason or (B) if his or her
         health should become impaired to an extent that makes his or her
         continued performance of his or her duties hereunder hazardous to his
         or her physical or mental health, provided that the Executive shall
         have furnished the Company with a written statement from a qualified
         doctor to such effect and provided, further, that, at the Company's
         request, the Executive shall submit to an examination by a doctor
         selected by the Company and such doctor shall have concurred in the
         conclusion of the Executive's doctor.

                  For purposes of this Agreement, "Good Reason" shall mean any
         one of the following acts by the Company, or failures by the Company to
         act, occurring during a

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         Potential Change of Control or on or within one year following a Change
         of Control, unless, in the case of any act or failure to act described
         below, such act or failure to act is corrected prior to the Date of
         Termination specified in the Notice of Termination given in respect
         thereof:

                           (i)      any material diminution in the Executive's
                  authorities or responsibilities (including reporting
                  responsibilities) or from his or her title or position without
                  the Executive's express written consent to accept any such
                  change; the assignment to him or her of any duties or work
                  responsibilities which are inconsistent with such status,
                  title, position or work responsibilities; or any removal of
                  the Executive from, or failure to reappoint or reelect him or
                  her to any of such positions, except if any such changes are
                  because of Disability, resignation, death or termination by
                  the Company with Cause;

                           (ii)     the relocation of the Executive's office at
                  which the Executive is to perform the Executive's duties, to a
                  location more than fifty (50) miles from the location at which
                  the Executive previously performed the Executive's duties,
                  except for required travel on the Company's business to an
                  extent substantially consistent with the Executive's business
                  travel obligations prior to the Effective Date;

                           (iii)    the failure by the Company to continue to
                  provide the Executive with benefits substantially similar in
                  value to the Executive in the aggregate to those enjoyed by
                  the Executive under any of the Company's pension, life
                  insurance, medical, health and accident, or disability plans
                  in which the Executive was participating immediately prior to
                  the Effective Date, unless the Executive participates after
                  the Effective Date in employee benefit plans generally
                  available to senior executives of the Company;

                           (iv)     without the Executive's express written
                  consent, any failure by the Company to comply with any
                  material provision of this Agreement, which failure has not
                  been cured within twenty (20) days after notice of such
                  noncompliance has been given by the Executive to the Company;

                           (v)      the failure of the Company to have the right
                  through management agreements to manage the operations of at
                  least seventy (70%) percent of the facilities operated by the
                  operating subsidiaries of Mariner Health Care, Inc. unless the
                  Executive's authority, duties and responsibilities over such
                  operations remain undiminished through other means; or

                           (vi)     any purported termination of the Executive's
                  employment which is not effected pursuant to a Notice of
                  Termination satisfying the requirements of Section 10(f)
                  below; for purposes of this Agreement, no such purported
                  termination shall be effective.

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         The Executive's continued employment for ninety (90) days following any
         act or failure to act constituting Good Reason hereunder without the
         delivery of a Notice of Termination shall constitute consent to, and a
         waiver of rights with respect to, such act or failure to act.

                  (e)      Voluntary Resignation. Should the Executive wish to
         resign from his or her position with the Company or terminate his or
         her employment for other than Good Reason during the Term, the
         Executive shall give sixty (60) days written notice to the Company
         ("Notice Period"), specifying the date as of which his or her
         resignation is to become effective. During the Notice Period, the
         Executive shall cooperate fully with the Company in achieving a smooth
         transition of the Executive's duties and responsibilities to such
         person(s) as may be designated by the Company. The Company reserves the
         right to accelerate the Date of Termination by giving the Executive
         prior written notice

                  (f)      Notice of Termination. Any purported termination of
         the Executive's employment by the Company or by the Executive shall be
         communicated by written Notice of Termination to the other party hereto
         in accordance with Section 17. "Notice of Termination" shall mean a
         notice that shall indicate the specific termination provision in this
         Agreement relied upon and shall set forth in reasonable detail the
         facts and circumstances claimed to provide a basis for termination of
         the Executive's employment under the provision so indicated.

                  (g)      Date of Termination. "Date of Termination" shall mean
         (i) if the Executive's employment is terminated because of death, the
         date of the Executive's death, (ii) if the Executive's employment is
         terminated for Disability or termination by the Company for Cause, the
         date Notice of Termination is given, (iii) if the Executive's
         employment is terminated pursuant to Subsection (d) or (e) hereof or
         for any other reason (other than death, Disability or by the Company
         for Cause), the date specified in the Notice of Termination which shall
         not be less than sixty (60) days from the date such Notice of
         Termination is given.

                  (h)      Change in Control. For purposes of this Agreement, a
         Change in Control of the Company shall have occurred if:

                           (i)      any "Person" (as defined in Section 3(a)(9)
                  of the Securities Exchange Act of 1934 (the "Exchange Act") as
                  modified and used in Sections 13(d) and 14(d) of the Exchange
                  Act) other than (1) Mariner Health Care, Inc. (the "Parent"),
                  the Company or any of its subsidiaries, (2) any trustee or
                  other fiduciary holding securities under an employee benefit
                  plan of the Parent or any of its subsidiaries, (3) an
                  underwriter temporarily holding securities pursuant to an
                  offering of such securities, (4) any corporation owned,
                  directly or indirectly, by the stockholders of the Parent in
                  substantially the same proportions as their ownership of the
                  Parent's common stock) or (5) any of Oaktree Capital
                  Management, LLC, Goldman Sachs Credit Partners, LP, Foothill
                  Partners, LP, Highland Capital Management, LP or their
                  respective affiliates (each a "Bank Permitted Holder" and (1)
                  through (5), collectively, the "Permitted Holders"), is

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                  or becomes the "beneficial owner" (as defined in Rule 13d-3
                  under the Exchange Act), directly or indirectly, of securities
                  of the Parent representing more than 25% of the combined
                  voting power of the Parent's then outstanding voting
                  securities;

                           (ii)     during any period of not more than two (2)
                  consecutive years, not including any period prior to the
                  Effective Date, individuals who at the beginning of such
                  period constitute the Board of Directors of the Parent (the
                  "Parent Board"), and any new director (other than a director
                  designated by a person who has entered into an agreement with
                  the Parent to effect a transaction described in clause (i),
                  (iii), or (iv) of this Section 10(h)) whose election by the
                  Parent Board or nomination for election by the Parent's
                  stockholders was approved by a vote of at least a majority of
                  the directors then still in office who either were directors
                  at the beginning of the period or whose election or nomination
                  for election was previously so approved, cease for any reason
                  to constitute at least a majority thereof;

                           (iii)    the consummation of a merger or
                  consolidation of the Parent with any other corporation, other
                  than (A) a merger or consolidation which would result in the
                  voting securities of the Parent outstanding immediately prior
                  thereto continuing to represent (either by remaining
                  outstanding or by being converted into voting securities of
                  the surviving or parent entity) 50% or more of the combined
                  voting power of the voting securities of the Parent or such
                  surviving or parent entity outstanding immediately after such
                  merger or consolidation or (B) a merger or consolidation in
                  which no persons (other than the Permitted Holders) acquire
                  25% or more of the combined voting power of the Parent's or
                  such surviving or parent entity's then outstanding securities;

                           (iv)     the consummation of a plan of complete
                  liquidation of the Parent or an agreement for the sale or
                  disposition by the Parent of at least a majority of the assets
                  of the Parent and its operating subsidiaries, taken as a whole
                  (or any transaction having a similar effect) or the Board, the
                  Board of Directors of the Parent or the Board of Directors of
                  one or more of its subsidiaries approve the entering into of
                  an agreement with one or more unrelated third parties under
                  which such one or more unrelated third parties are given the
                  power to control the management or operations of at least a
                  majority of the assets of the Parent and its subsidiaries,
                  taken as a whole;

                           (v)      the Parent fails to own outstanding
                  securities of the Company representing at least 51% of the
                  voting power and value of the Company; or

                           (vi)     in the event of the occurrence of a
                  Potential Change of Control described in Section 11(f)(5) or
                  (6), the subsequent occurrence at any time thereafter of any
                  of the following events:

                                    (A)      the consummation of a merger or
                           consolidation of the Company, Parent or any of their
                           respective affiliates with any other

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                           Competitive Business (as defined in Section 14
                           hereof) having gross revenues in excess of 50% of the
                           gross revenues of the Parent and following such
                           merger or consolidation, a Bank Permitted Holder
                           whose acquisition of securities triggered a Potential
                           Change of Control pursuant to Section 11(f)(5) or (6)
                           hereof, owns at least 25% of the outstanding voting
                           securities of the entity resulting from such
                           combination; or

                                    (B)      the acquisition by the Company,
                           Parent or their affiliates of substantially all of
                           the assets or securities of any Competitive Business
                           (as defined in Section 14 hereof) having gross
                           revenues in excess of 50% of the gross revenues of
                           Parent and (i) in the case of an acquisition of
                           securities, the securities acquired represent more
                           than 50% of the combined voting power of the
                           Competitive Business's then outstanding voting
                           securities and (ii) following such acquisition, a
                           Bank Permitted Holder whose acquisition of securities
                           triggered a Potential Change of Control pursuant to
                           Section 11(f)(5) or (6) hereof, owns at least 25% of
                           the outstanding voting securities of the Company or
                           Parent.

         11.      Compensation During Disability; Death or Upon Termination.
Notwithstanding any other provision of this Agreement, the provisions of this
Section 11 shall exclusively govern Executive's rights upon termination of
employment with the Company and its affiliates.

                  (a)      During any period that the Executive fails to perform
         his or her duties hereunder as a result of incapacity due to a
         Disability ("Disability Period"), the Executive shall continue to
         receive his or her base salary at the rate then in effect for such
         period until his or her employment is terminated pursuant to Section
         10(b)(ii) hereof, provided that payments so made to the Executive
         during the Disability Period shall be reduced by the sum of the
         amounts, if any, payable to the Executive with respect to such period
         under disability benefit plans of the Company or under the Social
         Security disability insurance program, and which amounts were not
         previously applied to reduce any such payment.

                  (b)      If the Executive's employment is terminated by his or
         her death or Disability, the Company shall pay (i) any base salary due
         to the Executive under Section 5(a) through the date of such
         termination and (ii) an amount equal to the Target Bonus he or she
         would have received for the fiscal year that ends on or immediately
         after the Date of Termination, assuming the Company achieved the target
         level for which a bonus is paid under the plan described in Section
         5(b), prorated for the period beginning on the first day of the fiscal
         year in which occurs the Date of Termination through the Date of
         Termination.

                  (c)      If the Executive's employment is terminated by the
         Company for Cause or by the Executive for other than Good Reason, the
         Company shall pay the Executive his or her base salary through the Date
         of Termination at the rate in effect at the time Notice of Termination
         is given, and the Company shall have no further obligations to the
         Executive under this Agreement. Notwithstanding the foregoing, in the
         event the Executive terminates his employment for other than Good
         Reason, the Company, at its sole option

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         and its sole discretion and at any time within thirty (30) days of the
         Termination Date, may cause Executive to be obligated to comply with
         the covenants contained in Section 14(c)(ii) hereof for a period of one
         (1) year following the Date of Termination by giving notice to the
         Executive at any time within thirty (30) days of the Date of
         Termination of its intent to exercise the option herein described and
         by continuing to pay the Executive the Executive's base salary in
         effect as of the date the Notice of Termination is given for a period
         of one (1) year from the Date of Termination; provided further however,
         that the Company may cease such payments in the event that the
         Executive violates the provisions of Section 14 hereof during such one
         year period (provided, however, that such cessation shall not relieve
         the Executive of his or her obligations under Section 14 hereof).

                  (d)      If within one (1) year following a Change in Control
         the Company terminates the Executive's employment without Cause, or the
         Executive terminates his or her employment for Good Reason, then

                           (i)      the Company shall pay the Executive his or
                  her base salary through the Date of Termination at the rate in
                  effect at the time Notice of Termination is given and all
                  other unpaid amounts, if any, to which the Executive is
                  entitled as of the Date of Termination under any compensation
                  plan or program of the Company, at the time such payments are
                  due;

                           (ii)     in lieu of any further salary payments to
                  the Executive for periods subsequent to the Date of
                  Termination, the Company shall pay as liquidated damages to
                  the Executive an aggregate amount equal to the product of (A)
                  the sum of (1) the Executive's base salary at the rate in
                  effect of the Date of Termination and (2) the greater of (I)
                  the average of the annual bonuses actually paid to the
                  Executive by the Company with respect to the two (2) fiscal
                  years which immediately precede the year in which the Date of
                  Termination occurs (provided if there was a bonus paid to the
                  Executive with respect only to one fiscal year that
                  immediately precedes the year in which the Date of Termination
                  occurs, then such single year's bonus shall be utilized in the
                  calculation pursuant to this subclause (I)) and (II) the bonus
                  the Executive would earn based on the target level of bonus
                  applicable for the year of termination and (B) the number one
                  and one-half (1.5);

                           (iii)    the Company shall pay the Executive an
                  amount equal to the prorated Target Bonus that would have been
                  paid for the period beginning on the first day of the fiscal
                  year in which the Date of Termination occurs;

                           (iv)     the Company shall continue coverage for the
                  Executive, on the same terms and conditions as would be
                  applicable if the Executive were an active Employee, under the
                  Company's life insurance, medical, health and similar welfare
                  benefit plans (other then group disability benefits) for a
                  period of twenty-four (24) months. Benefits otherwise
                  receivable by the Executive pursuant to this Section 11(d)(iv)
                  shall be reduced to the extent comparable benefits are
                  actually

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                  received by the Executive from a subsequent employer during
                  the period during which the Company is required to provide
                  such benefits, and the Executive shall report to the Company
                  any such benefits actually received by him or her;

                           (v)      all options, shares of restricted stock,
                  performance shares and any other equity based awards shall be
                  and become fully vested as of the Date of Termination; and

                           (vi)     the payments provided for in this Section
                  11(d) (other than Section 11(d)(iv)) shall be made not later
                  than the thirtieth (30th) day following the Date of
                  Termination.

                  (e)      Except as provided in Subsection (f) hereof, if
         either prior to or following the first anniversary of a Change of
         Control, the Company terminates the Executive's employment without
         Cause, then

                           (i)      the Company shall pay the Executive his or
                  her base salary through the Date of Termination at the rate in
                  effect at the time Notice of Termination is given and all
                  other unpaid amounts, if any, to which the Executive is
                  entitled as of the Date of Termination under any compensation
                  plan or program of the Company, at the time such payments are
                  due;

                           (ii)     subject to the Executive's continued
                  compliance with Section 14 of this Agreement, in lieu of any
                  further salary payments to the Executive for periods
                  subsequent to the Date of Termination, the Executive shall,
                  for a period of one and one-half (1 1/2) years from the Date
                  of Termination (the "Severance Period"), be entitled to
                  continued payment of the Executive's base salary at the rate
                  in effect as of the Date of Termination; provided, however,
                  that in the event that the Executive engages in a Competitive
                  Business, provides services for pay (including, without
                  limitation, deferred compensation, equity awards or other
                  property) to a Competitive Business or obtains a financial
                  interest in a Competitive Business from the date Executive's
                  employment hereunder is terminated until the end of the
                  Severance Period, the Executive shall no longer be entitled to
                  any further payments of Executive's base salary;

                           (iii)    the Company shall pay the Executive his or
                  her Target Bonus prorated for the period beginning on the
                  first day of the fiscal year in which occurs the Date of
                  Termination through the Date of Termination;

                           (iv)     the Company shall continue coverage for the
                  Executive, on the same terms and conditions as would be
                  applicable if the Executive were an active employee, under the
                  Company's life insurance, medical, health, and similar welfare
                  benefit plans (other then group disability) for a period not
                  to exceed the number of months the Executive will be paid
                  under Section 11(e)(ii) beginning on the Date of Termination;
                  and

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                           (v)      benefits otherwise receivable by the
                  Executive pursuant to clause (iv) of this Section 11(e) shall
                  be reduced to the extent comparable benefits are actually
                  received by the Executive from a subsequent employer during
                  the period which the Company is required to provide such
                  benefits, and the Executive shall report to the Company any
                  such benefits actually received by him or her.

                  (f)      If during the Term, the Company (i) terminates the
         Executive's employment other than for Cause, or the Executive
         terminates his or her employment for Good Reason and (ii) the Date of
         Termination occurs during the pendency of a Potential Change of
         Control, and if a Change of Control occurs before the expiration of the
         pendency of the Potential Change of Control during which the Date of
         Termination occurred, the Executive shall be entitled to upon such
         Change of Control to:

                           (i)      the cash payments that would have been made
                  under Section 11(d) hereof as if the Date of Termination had
                  occurred immediately on the date of the Change of Control,
                  reduced by any other severance, salary continuation or similar
                  payments previously made to the Executive under Section 11(e)
                  hereof or otherwise, if any;

                           (ii)     benefit continuation provided for under
                  Section 11(d) in excess of the benefit continuation to which
                  he was otherwise entitled; and

                           (iii)    if such termination results in a forfeiture
                  of any of the Executive's stock options awards under any of
                  the Company's plans, a cash payment equal to the difference
                  between the exercise price of such stock options and the value
                  of the Company's stock subject to such options immediately
                  prior to such Change of Control.

                  The payments provided for in this Section 11(f) shall be made
         not later than the thirtieth (30th) day following the date of the
         Change of Control.

                  As used in this Subsection (f), a "Potential Change of
         Control" shall be deemed to have occurred if:

                           (1)      the commencement of a tender or exchange
                  offer by any third person (other than a tender or exchange
                  offer which, if consummated, would not result in a Change of
                  Control) for twenty percent (20%) or more of the then
                  outstanding shares of common stock or combined voting power of
                  the Parent's then outstanding voting securities;

                           (2)      the execution of an agreement by the Parent
                  or Company, the consummation of which would result in the
                  occurrence of a Change of Control;

                           (3)      the public announcement by any person
                  (including the Parent or Company) of an intention to take or
                  to consider taking actions which if

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                  consummated would constitute a Change of Control other than
                  through a contested election for directors of the Parent;

                           (4)      the adoption by the Board, as a result of
                  other circumstances, including circumstances similar or
                  related to the foregoing, of a resolution to the effect that,
                  for purposes of this Agreement, a Potential Change of Control
                  has occurred; or

                           (5)      the acquisition by a Bank Permitted Holder
                  of securities of the Company or Parent representing more than
                  30% of the combined voting power of the Company's or Parent's
                  then outstanding voting securities; or

                           (6)      the consummation of a merger or
                  consolidation of the Company or Parent with any other
                  corporation which is not a Change of Control, but in which a
                  Bank Permitted Holder acquires 30% or more of the combined
                  voting power of the Company's, Parent's or such surviving
                  entity's then outstanding securities.

          A Potential Change of Control will be deemed to be pending from the
          occurrence of the event giving rise to the Potential Change of Control
          until the earlier of the first anniversary thereof or the date the
          Board of Directors of the Company determines in good faith that such
          events will not result in the occurrence of a Change of Control.
          Notwithstanding the foregoing, a Potential Change of Control described
          in Subsections (5) or (6) hereof will not end earlier than two (2)
          years from the occurrence of the event giving rise to the Potential
          Change of Control. It is understood and expressly agreed that a
          Potential Change of Control described in Subsections (5) and (6)
          hereof will be applicable and given effect only if such Potential
          Change of Control is followed by an event described in Section
          10(h)(vi) hereof.

                  (g)      If the Executive shall terminate his or her
         employment under clause (B) of Section 10(d) or under Section 10(e)
         hereof, the Company shall pay the Executive his or her base salary
         through the Date of Termination at the rate in effect at the time
         Notice of Termination is given, and the Company shall have no further
         obligations to the Executive under this Agreement.

                  (h)      The Executive shall not be required to mitigate the
         amount of any payment provided for in this Section 11 by seeking other
         employment or otherwise, and, except as provided in Sections 11(e)
         hereof, the amount of any payment or benefit provided for in this
         Section 11 shall not be reduced by any compensation earned by the
         Executive as the result of employment by another employer or by
         retirement benefits.

                  (i)      Release. Prior to making any payment pursuant to
         Sections 11(e)(ii) and 11(e)(iii), the Company shall have the right to
         require the Executive to sign, and the Executive hereby agrees to sign,
         an agreement to be bound by the terms of Section 14 of this Agreement
         and a waiver of all claims the Executive may have (including any claims
         under the Age Discrimination in Employment Act), and the Company may
         withhold

                                       11
<PAGE>

         payment of such amount until the period during which the Executive may
         revoke such waiver (normally seven days) has elapsed.

         12.      Representations and Covenants.

                  (a)      The Company represents and warrants that this
         Agreement has been authorized by all necessary corporate action of the
         Company and is a valid and binding agreement of the Company enforceable
         against it in accordance with its terms.

                  (b)      The Executive represents and warrants that he or she
         is not a party to any agreement or instrument which would prevent him
         or her from entering into or performing his or her duties in any way
         under this Agreement. The Executive agrees and covenants that he or she
         will obtain, and submit to, such physical examinations as may be
         necessary to facilitate the Company obtaining an insurance policy for
         its benefit insuring the life of the Executive.

         13.      Successors: Binding Agreement.

                  (a)      This Agreement shall not be assignable by Executive.
         This Agreement may be assigned by the Company to a person or entity
         which is an affiliate or a successor in interest to substantially all
         of the business operations of the Company.

                  (b)      This Agreement is a personal contract and the rights
         and interests of the Executive hereunder may not be sold, transferred,
         assigned, pledged, encumbered, or hypothecated by him or her, except as
         otherwise expressly permitted by the provisions of this Agreement. This
         Agreement shall inure to the benefit of and be enforceable by the
         Executive and his or her personal or legal representatives, executors,
         administrators, successors, heirs, distributees, devisees and legatees.
         If the Executive should die while any amount would still be payable to
         him or her hereunder had the Executive continued to live, all such
         amounts, unless otherwise provided herein, shall be paid in accordance
         with the terms of this Agreement to his or her devisee, legatee or
         other designee or, if there is no such designee, to his or her estate.

                                       12
<PAGE>

         14.      Confidentiality and Non-Competition Covenants.

                  (a)      Executive will not (whether during or after
         Executive's employment with the Company) disclose, retain, or use for
         Executive's own benefit, purposes or account or the benefit, purposes
         or account of any other person, firm, partnership, joint venture,
         association, corporation or other business organization, entity or
         enterprise other than the Company and any of its subsidiaries or
         affiliates, any trade secrets, Company know-how, software developments,
         inventions, formulae, technology, designs and drawings or other works
         of authorship, or any Company property or confidential information
         relating to research, operations, finances, current and proposed
         products and services, vendors, customers, advertising, costs,
         marketing, trading, investment, sales activities, promotion,
         manufacturing processes, or the business and affairs of the Company
         generally, or of any subsidiary or affiliate of the Company
         ("Confidential Information") without the written authorization of the
         Board; provided that the foregoing obligation (i) shall not apply to
         information which is not unique to the Company or which is generally
         known to the industry or the public other than as a result of
         Executive's breach of this covenant or the wrongful acts of others who
         were under confidentiality obligations to the Company as to the item or
         items involved and (ii) shall survive the termination of Executive's
         employment for a period of three years with respect to Confidential
         Information that does not qualify as a trade secret and, with respect
         to trade secrets, for so long as the information qualifies as a trade
         secret. Executive agrees that upon termination of Executive's
         employment with the Company for any reason, he will return to the
         Company immediately all memoranda, books, papers, plans, information,
         letters and other data, and all copies thereof or therefrom, in any way
         relating to the business of the Company, its affiliates and
         subsidiaries, except that he may retain only those portions of personal
         notes, notebooks and diaries that do not contain Confidential
         Information of the type described in the preceding sentence. Executive
         further agrees that he will not retain or use for Executive's own
         benefit, purposes or account or the benefit, purposes or account of any
         other person, firm, partnership, joint venture, association,
         corporation or other business designation, entity or enterprise, other
         than the Company and any of its subsidiaries or affiliates, at any time
         any trade names, trademark, service mark, other proprietary business
         designation, patent, or other intellectual property used or owned in
         connection with the business of the Company or its affiliates.

                  (b)      The Executive covenants and agrees that any
         Confidential Information, including any confidential or proprietary
         materials, ideas, discoveries, inventions, techniques or programs
         developed or discovered by the Executive in connection with the
         performance of his duties hereunder shall remain the sole and exclusive
         property of the Company and Executive hereby assigns all of his right,
         title and interest in and to any such Confidential Information.

                  (c)      Executive acknowledges and recognizes the highly
         competitive nature of the businesses of the Company and its affiliates
         and accordingly agrees as follows:

                                       13
<PAGE>

                           (i)      During the Term and, for a period of two (2)
                  years following the date Executive ceases to be employed by
                  the Company for any reason (the "Restricted Period"),
                  Executive will not, whether on Executive's own behalf or on
                  behalf of or in conjunction with any person, company, business
                  entity or other organization whatsoever, directly or
                  indirectly solicit or assist in soliciting in competition with
                  the Company, the business of any client or prospective client:

                                    (A)      with whom Executive had personal
                           contact or dealings on behalf of the Company during
                           the one (1) year period preceding Executive's
                           termination of employment; or

                                    (B)      with whom employees reporting
                           directly to Executive have had personal contact or
                           dealings on behalf of the Company during the one year
                           immediately preceding the Executive's termination of
                           employment;

                           (ii)     During the Term and if the Company exercises
                  its option under Section 11(c) hereof, for a period of one (1)
                  year following the date the Executive ceases to be employed by
                  the Company due to the Executive's resignation without Good
                  Reason, Executive will not directly or indirectly:

                                    (A)      engage in a capacity that involves
                           duties and responsibilities similar to those duties
                           and responsibilities performed by Executive on behalf
                           of the Company or its subsidiaries, in any business
                           that competes with the business of the Company or its
                           subsidiaries in any geographical area that is within
                           15 miles of any geographical area where the Company
                           or its subsidiaries provide their products or
                           services (a "Competitive Business");

                                    (B)      acquire a financial interest in any
                           Competitive Business, as an individual, partner,
                           shareholder, officer, director, principal, agent,
                           trustee or consultant; or

                                    (C)      interfere with, or attempt to
                           interfere with, business relationships (whether
                           formed before, on or after the date of this
                           Agreement) between the Company or any of its
                           affiliates and customers, clients, suppliers or
                           investors.

                           (iii)    Notwithstanding anything to the contrary in
                  this Agreement, Executive may, directly or indirectly own,
                  solely as an investment, securities of any person engaged in
                  the business of the Company or its affiliates which are
                  publicly traded on a national or regional stock exchange or on
                  the over-the-counter market if Executive (i) is not a
                  controlling person of, or a member of a group which controls,
                  such person and (ii) does not, directly or indirectly, own 5%
                  or more of any class of securities of such person.

                                       14
<PAGE>

                           (iv)     During the Restricted Period, Executive will
                  not, whether on Executive's own behalf or on behalf of or in
                  conjunction with any person, company, business entity or other
                  organization whatsoever, directly or indirectly:

                                    (A)      solicit or encourage any employee
                           (other than employees below the administrator level)
                           of the Company or its affiliates to leave the
                           employment of the Company or its affiliates; or

                                    (B)      hire any such employee who was
                           employed by the Company or its affiliates as of the
                           date of Executive's termination of employment with
                           the Company or who left the employment of the Company
                           or its affiliates coincident with, or within one year
                           prior to or after, the termination of Executive's
                           employment with the Company.

                  (d)      It is expressly understood and agreed that although
         Executive and the Company consider the restrictions contained in this
         Section 14 to be reasonable, if a final judicial determination is made
         by a court of competent jurisdiction that the time or territory or any
         other restriction contained in this Agreement is an unenforceable
         restriction against Executive, the provisions of this Agreement shall
         not be rendered void but shall be deemed amended to apply as to such
         maximum time and territory and to such maximum extent as such court may
         judicially determine or indicate to be enforceable. Alternatively, if
         any court of competent jurisdiction finds that any restriction
         contained in this Agreement is unenforceable, and such restriction
         cannot be amended so as to make it enforceable, such finding shall not
         affect the enforceability of any of the other restrictions contained
         herein.

                  (e)      Executive acknowledges and agrees that the Company's
         remedies at law for a breach or threatened breach of any of the
         provisions of Section 14 would be inadequate and the Company would
         suffer irreparable damages as a result of such breach or threatened
         breach. In recognition of this fact, Executive agrees that, in the
         event of such a breach or threatened breach, in addition to any
         remedies at law, the Company, without posting any bond, shall be
         entitled to cease making any payments or providing any benefit
         otherwise required by this Agreement and obtain equitable relief in the
         form of specific performance, temporary restraining order, temporary or
         permanent injunction or any other equitable remedy which may then be
         available.

         15.      Entire Agreement. This Agreement contains all the
understandings between the parties hereto pertaining to the matters referred to
herein, and on the Effective Date shall supersede all undertakings and
agreements, whether oral or in writing, previously entered into by them with
respect thereto. The Executive represents that, in executing this Agreement, he
or she does not rely and has not relied upon any representation or statement not
set forth herein made by the Company with regard to the subject matter, bases or
effect of this Agreement or otherwise.

         16.      Amendment or Modification. Waiver. No provision of this
Agreement may be amended or waived unless such amendment or waiver is agreed to
in writing, signed by the

                                       15
<PAGE>

Executive and by a duly authorized officer of the Company. No waiver by any
party hereto of any breach by another party hereto of any condition or provision
of this Agreement to be performed by such other party shall be deemed a waiver
of a similar or dissimilar condition or provision at the same time, any prior
time or any subsequent time.

         17.      Notices. Any notice to be given hereunder shall be in writing
and shall be deemed given when delivered personally, sent by courier or telecopy
or registered or certified mail, postage prepaid, return receipt requested,
addressed to the party concerned at the address indicated below or to such other
address as such party may subsequently give notice of hereunder in writing:

                  To Executive at:
                                          --------------------------------------
                                          --------------------------------------
                                          --------------------------------------
                                          --------------------------------------

                  To the Company at:      Mariner Health Care Management Company
                                          One Ravinia Drive, Suite 1500
                                          Atlanta, Georgia 30346
                                          Attn: General Counsel

                  Any notice delivered personally or by courier under this
Section 17 shall be deemed given on the date delivered and any notice sent by
telecopy or registered or certified mail, postage prepaid, return receipt
requested, shall be deemed given on the date telecopied or mailed.

         18.      Severability. If any provision of this Agreement or the
application of any such provision to any party or circumstances shall be
determined by any court of competent jurisdiction to be invalid and
unenforceable to any extent, the remainder of this Agreement or the application
of such provision to such person or circumstances other than those to which it
is so determined to be invalid and unenforceable, shall not be affected thereby,
and each provision hereof shall be validated and shall be enforced to the
fullest extent permitted by law.

         19.      Survivorship. The respective rights and obligations of the
parties hereunder shall survive any termination of this Agreement to the extent
necessary to the intended preservation of such rights and obligations.

         20.      Governing Law: This Agreement will be governed by and
construed in accordance with the laws of the State of Delaware, without regard
to its conflicts of laws principles.

         21.      Dispute Resolution. The Executive and the Company shall not
initiate legal proceedings relating in any way to this Agreement or to the
Executive's employment or termination from employment with the Company until
thirty (30) days after the party against whom the claim is made ("respondent")
receives written notice from the claiming party of the specific nature of any
purported claims and the amount of any purported damages attributable to

                                       16
<PAGE>

each such claim. The Executive and the Company further agree that if respondent
submits the claiming party's claim to the CPR Institute for Dispute Resolution,
JAMS/Endispute, or other local dispute resolution service for nonbinding
mediation prior to the expiration of such thirty (30) day period, the claiming
party may not institute arbitration or other legal proceedings against
respondent until the earlier of: (a) the completion of good-faith mediation
efforts or (b) 90 days after the date on which the respondent received written
notice of the claimant's claim(s); provided, however, that nothing in this
Section 21 shall prohibit the Company from pursuing injunctive or other
equitable relief against the Executive prior to, contemporaneous with, or
subsequent to invoking or participating in these dispute resolution processes.
The Company shall pay the cost of the mediator.

         22.      Headings. All descriptive headings of sections and paragraphs
in this Agreement are intended solely for convenience, and no provision of this
Agreement is to be construed by reference to the heading of any section or
paragraph.

         23.      Withholdings. All payments to the Executive under this
Agreement shall be reduced by all applicable withholding required by federal,
state or local tax laws.

         24.      Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.

         25.      Release of Prior Employment Agreement. The Executive hereby
releases the Company and any predecessor company (including Mariner Post-Acute
Network, Inc., GranCare, Inc., Living Centers of America, Inc. and Paragon
Health Network, Inc.) from all obligations under any employment agreement
entered into by the Executive and the Company, including any obligation to pay
severance or other post-termination benefits, which shall be upon the execution
hereof terminated and of no further force or effect; provided, however, that in
no event shall this release affect the Executive's rights under any grant or
award under any stock option or stock award plans of the Company and any
predecessor company (including Mariner Post-Acute Network, Inc., GranCare, Inc.,
Living Centers of America, Inc. and Paragon Health Network, Inc.).

                                       17
<PAGE>

         IN WITNESS WHEREOF, the parties hereto have executed this Employment
Agreement as of the date first above written.

                                          MARINER HEALTH CARE MANAGEMENT COMPANY

                                          BY:
                                             -----------------------------------
                                          NAME:
                                               ---------------------------------
                                          TITLE:
                                                --------------------------------

                                          EXECUTIVE

                                          --------------------------------------

                                       18
<PAGE>

                      UNCONDITIONAL GUARANTY OF PERFORMANCE

         Mariner Health Care, Inc., a Delaware corporation, does hereby
guarantee the prompt performance of all obligations of the Company under this
Agreement and the payment of all amounts owed to the Executive under Section 11
of this Agreement.

                                          MARINER HEALTH CARE, INC.

                                          BY:
                                             -----------------------------------
                                          TITLE
                                               ---------------------------------

                                       19<PAGE>
                                                                    Exhibit 10.8

                  CIVIL AND ADMINISTRATIVE SETTLEMENT AGREEMENT

                                 BY AND BETWEEN

                  THE UNITED STATES OF AMERICA, ACTING THROUGH
                    THE UNITED STATES DEPARTMENT OF JUSTICE,
                    AND ON BEHALF OF THE OFFICE OF INSPECTOR
              GENERAL OF THE DEPARTMENT OF HEALTH & HUMAN SERVICES

                                       AND

                        MARINER POST-ACUTE NETWORK, INC.
                           MARINER HEALTH GROUP, INC.
                             AND AFFILIATED DEBTORS

                                 MARCH 25, 2002

<PAGE>

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                                                         PAGE
                                                                                                                         ----
<S>      <C>      <C>      <C>                                                                                           <C>
CIVIL AND ADMINISTRATIVE SETTLEMENT AGREEMENT.....................................................................         1

         I.  THE PARTIES..........................................................................................         1

                  A...............................................................................................         1

                  B...............................................................................................         1

                  C...............................................................................................         1

                           1......................................................................................         1

                           2......................................................................................         2

                           3......................................................................................         2

                           4......................................................................................         2

                           5......................................................................................         2

                           6......................................................................................         2

                           7......................................................................................         3

         II.  PREAMBLE............................................................................................         3

                  A.  Debtors.....................................................................................         3

                  B.  Debtors' Claims Against the United States...................................................         4

                  C.  CMS' Claims Against Debtors.................................................................         4

                  D.  False Claims Act Claims Against Debtors.....................................................         4

                  E.  Proofs of Claim.............................................................................         5

                  F.  Debtors' Participation in Medicare/Medicaid.................................................         5

                  G.  The Covered Conduct.........................................................................         5

                           1.  Roberts............................................................................         6

                           2.  Rutledge...........................................................................         6

                           3.  Rivera.............................................................................         6

                           4.  Carroll............................................................................         6

                           5.  Nelius.............................................................................         7

                           6.  Powell.............................................................................         7

                           7.  Weatherford........................................................................         8

                           8.  Cambridge East, Sunny Hill and Catonsville.........................................         8

                           9.  Rehabilitation Therapy.............................................................         8
</TABLE>

                                      -i-

<PAGE>

<TABLE>
         <S>      <C>      <C>                                                                                            <C>
                  H. Agreement Not an Admission...................................................................         9

                  I. Corporate Integrity Agreement................................................................         9

                  J. Effective Date...............................................................................         9

         III.  TERMS AND CONDITIONS...............................................................................         9

                  A.  Bankruptcy Treatment of Medicare Provider Agreements........................................         9

                           1.  Assumed Agreements.................................................................        10

                           2.  Rejected Agreements................................................................        10

                           3.  Suppliers..........................................................................        10

                           4.  Scope..............................................................................        10

                  B.  Treatment of CMS Claims.....................................................................        10

                           1.  Cure of Defaults in Provider Agreements............................................        10

                                    a.   CMS Offset...............................................................        10

                                    b. Net Amount Due to Debtors..................................................        10

                           2.  Mutual Release.....................................................................        11

                                    a.  Scope of Release..........................................................        11

                                    b. Release of Claims Under Prudent Buyer Settlement...........................        11

                           3.  Treatment of CMS Overpayment Claims................................................        11

                                    a.  Closure of Pre-petition Cost Years........................................        12

                                    b.  Treatment of Cost Years that Span the Petition Date.......................        12

                                    c.  Overpayments Arising After the Petition Date..............................        12

                                    d.  Reopening.................................................................        12

                           4.  Treatment of CMS CMP Claims........................................................        13

                                    a.  Preservation of Findings Relating to Quality of Care......................        13

                                    b.  Accrual of CMPs...........................................................        13

                                    c.  Treatment of Post-petition CMPs...........................................        13

                                    d.  Treatment of CMPs That Span the Petition Date.............................        14

                           5.  Dismissal of Appeals...............................................................        14

                           6.   Collection of Post-petition CMS Claims............................................        14

                           7.  Claims under Rejected Provider Agreements..........................................        15

                           8. Claims Relating to Suppliers........................................................        15

                           9.  Corporate Reorganization...........................................................        15
</TABLE>

<PAGE>

<TABLE>
                  <S>      <C>      <C>                                                                                   <C>
                  C.  United States False Claims Act Claims.......................................................        15

                           1.  False Claims Act Payment...........................................................        15

                           2.  Release of Debtors' Claims Against the United States Relating to the False
                                    Claims Act....................................................................        15

                           3.  Release of United States False Claims Act Claims Against the Debtors
                                    Relating to the False Claims Act..............................................        16

                           4.  Dismissal of Qui Tam Actions.......................................................        16

                                    a.............................................................................        16

                                    b.............................................................................        16

                           5.  Reservations.......................................................................        17

                                    a.............................................................................        17

                                    b.............................................................................        17

                                    c.............................................................................        17

                                    d.............................................................................        17

                                    e.............................................................................        17

                                    f.............................................................................        17

                                    g.............................................................................        17

                                    h.............................................................................        17

                                    i.............................................................................        17

                  D.  OIG Permissive Exclusion Release............................................................        18

                  E.  Release By The Relators as to Debtors.......................................................        18

                  F.  Release of Beneficiaries and Authorized Representatives.....................................        20

                  G.  Waiver of Certain Defenses..................................................................        20

                  H.  Payment By CMS..............................................................................        20

                  I.  Unallowable Costs Defined...................................................................        21

                              1...................................................................................        21

                              2...................................................................................        21

                              3...................................................................................        21

                              4...................................................................................        21

                              5...................................................................................        21

                              6...................................................................................        21
</TABLE>

<PAGE>

<TABLE>
<S>               <C>                                                                                                     <C>
                  J.  Unallowable Costs in Post-petition Cost Reports.............................................        22

                  K.  No Third Party Beneficiaries................................................................        22

                  L.  Allowance of Proofs of Claim................................................................        23

                  M.  Cooperation.................................................................................        23

                  N.  Fairness of Agreement.......................................................................        23

                  O.  Defense of Agreement........................................................................        23

                  P.  Each Party to Bear Its Own Costs............................................................        23

                  Q.  Federal Law Governs.........................................................................        24

                  R.  No Amendment Except in Writing..............................................................        24

                  S.  Qui Tam Actions Treated as Unsecured Claims If Not Dismissed................................        24

                  T.  Incorporation of Prior Stipulations and Orders..............................................        25

                  U.  Authority to Execute........................................................................        25

                  V.  Execution in Counterparts...................................................................        25

                  W.  Binding on Successors.......................................................................        25

                  X.  Approval by the Bankruptcy Court............................................................        25

                  Y.  Discharge...................................................................................        25

THE UNITED STATES OF AMERICA......................................................................................        26

DEBTORS...........................................................................................................        27

RELATORS..........................................................................................................        27
</TABLE>

<PAGE>

                  CIVIL AND ADMINISTRATIVE SETTLEMENT AGREEMENT
                                 I. THE PARTIES

         This Civil and Administrative Settlement Agreement ("Agreement") is
entered into between the following through their authorized representatives:

         A. The United States of America, acting through the United States
Department of Justice and on behalf of the Office of Inspector General
("OIG-HHS") of the Department of Health and Human Services ("HHS"), and the
Centers for Medicare & Medicaid Services ("CMS") (formerly the Health Care
Financing Administration), of HHS; (collectively the "United States"); and

         B. Mariner Post-Acute Network, Inc. ("MPAN"), Mariner Health Group,
Inc. ("MHG"), and affiliated debtors as defined in paragraph II.A. below,
(collectively "the Debtors"). The Parties agree that the Debtors' facilities and
the Medicare provider agreements (each identified by a Medicare provider
number), specified in Exhibits A, B, and C, and the Debtors' suppliers
(identified by a Medicare supplier number), specified in Exhibit D, are the
exclusive and all-inclusive listing of Debtors' Medicare providers and suppliers
which are subject to this Agreement; and

         C. The following individuals and entities (collectively hereinafter
"the Relators") (collectively, the complaints identified below are hereinafter
"the Qui Tam Actions"):

                  1. Lewis Wesley Roberts, who has filed a qui tam complaint
styled United States ex rel. Lewis Wesley Roberts v. Vencor, Inc., Vencare,
Inc., Beverly Enterprises-Kansas, Inc., Living Centers of America, Chartwell
Health Care, Inc., DSJ Health Care, Inc., Baker-Brame Skilled Nursing, Texas
Health Enterprises, Kelly Bailey, Ann Nipp, and W. Bruce Lunsford,

                                      -1-

<PAGE>

Civil Action No. 3:97CV-349-J (W.D. Ky.) ("the Roberts qui tam");

                  2. Cindy Lee Anderson Rutledge and Partnership for Fraud
Analysis, who together have filed a qui tam complaint styled United States ex
rel. Cindy Lee Anderson Rutledge and Partnership for Fraud Analysis ex rel.
Paragon Health Network, Inc., ARA Group, Inc., ARA Living Centers, Inc., and
Living Centers of America, Inc., Civil Action No. 97-6801 NS (E.D. Pa.)("the
Rutledge qui tam");

                  3. Rafael Rivera, who has filed a qui tam complaint styled
United States ex rel. Raphael Rivera v. Restore Respiratory Care, Inc., Avante
Group, Inc. and Mariner Health Group, Inc., Civil Action No. 1:98-cv-2960-HTW
(N.D. Ga.)("the Rivera qui tam");

                  4. Terri D. Carroll, who has filed a qui tam complaint styled
United States ex rel. Terri D. Carroll v. Living Centers of America, Inc.,
American Pharmaceutical Services, Inc., Provider Affiliated Services, Unicare
Health Facilities, Inc., and Unicare Homes, Inc., Civil Action No.
97-2600-CIV-T-17B (M.D. Fla.)("the Carroll qui tam");

                  5. Edvin A. Nelius, Rose Marie Dickey, Deborah Lowman,
Patricia Rocha and Helen Spence, who together have filed a qui tam complaint
styled United States ex rel. Edvin A. Nelius, Rose Marie Dickey, Deborah Lowman,
Patricia Rocha and Helen Spence v. Mariner Post-Acute Network, Inc., Mariner
Health Group, Inc., Convalescent Services, Inc., Paragon Health Network, Inc.,
and Living Centers of America, Inc., Civil Action No. H-98-3851 (S.D. Tex.)("the
Nelius qui tam");

                  6. Teri S. Powell, who has filed a qui tam complaint styled
United States ex rel. Teri S. Powell v. Paragon Health Network, Inc., Therapy
Management Innovations, Inc. and Rehability Hospital Services, Inc., Civil
Action No. CV-98-P-0630-S (N.D. Ala.)("the Powellqui tam"), and;

                                      -2-

<PAGE>

                  7. Deborah J. Weatherford, who has filed a qui tam complaint
styled United States ex rel. Deborah J. Weatherford v. Forum Health Investors of
Georgia, Inc., Southwest Medical Center, Inc., Summit Institute of Pulmonary
Medicine and Rehabilitation, Inc., Robert Cribb and Michael Fitzgerald, Civil
Action No. 1:01-cv-0593-JOF (N.D. Ga.)("the Weatherford qui tam").

         The United States, the Debtors and the Relators are collectively "the
Parties."

                                  II. PREAMBLE

         As a preamble to this Agreement, the Parties agree to the following:

         A. Debtors. MPAN, a Delaware corporation, and certain of its direct and
indirect subsidiaries and affiliated partnerships (collectively with MPAN, "MPAN
Debtors") are debtors and debtors in possession in jointly-administered chapter
11 cases (case nos. 00-00113(MFW) through 00-00214 (MFW) inclusive) that are
pending in the United States Bankruptcy Court for the District of Delaware
("Bankruptcy Court"). MHG, a Delaware corporation and a wholly-owned subsidiary
of MPAN, and certain of its direct and indirect subsidiaries and affiliated
partnerships (collectively with MHG, "MHG Debtors") also are debtors and debtors
in possession in jointly-administered chapter 11 cases (case nos. 00-00215(MFW)
through 00-00301(MFW) inclusive) that are pending in the Bankruptcy Court. The
Debtors commenced their respective chapter 11 cases by filing voluntary
petitions in the Bankruptcy Court on January 18, 2000 ("Petition Date"). The
Debtors operate or have operated skilled nursing facilities, assisted living
facilities, long-term acute-care hospitals, rehabilitation therapy providers,
home health agencies, and institutional pharmacy providers.

                                      -3-

<PAGE>

         B. Debtors' Claims Against the United States The Debtors contend that
they have claims or causes of action against CMS for services rendered or
products supplied to beneficiaries under Medicare up to and including the
Petition Date, including but not limited to determined underpayments now in
administrative freeze, claims on appeal and claims for services to Medicare
beneficiaries disallowed under the "Prudent Buyer" principle and detailed in a
separate settlement agreement at Exhibit E (the "Prudent Buyer Settlement"). The
Prudent Buyer Settlement is incorporated herein by reference. Debtors may also
have claims or causes of action against the United States relating to the Qui
Tam Actions or the Covered Conduct (defined in paragraph II.G., below).

         C. CMS' Claims Against Debtors. CMS contends that it has (i) made
determined, and may have made additional undetermined, administrative
overpayments to the Debtors for services rendered or products supplied to
beneficiaries under Medicare up to and including the Petition Date (the "CMS
Overpayment Claims"), and (ii) determined civil monetary penalties which accrued
up to and including the Petition Date pursuant to 42 U.S.C.
ss.1395i-3(h)(2)(B)(ii) and 42 U.S.C. ss. 1396r(h)(2)(A)(ii) (the "CMS CMP
Claims," and, collectively with the CMS Overpayment Claims, the "CMS Claims.")

         D. False Claims Act Claims Against Debtors. The United States further
contends that it has claims or causes of action against Debtors asserted by or
on behalf of the United States, or its agencies, departments, officers, agents,
or by the Relators under 31 U.S.C. ss. 3730(b) or (d) (including any and all qui
tam claims) seeking payments, damages, offsets, recoupments, penalties, costs,
expenses of any kind, or other remedies of any kind: (i) under the False Claims
Act, 31 U.S.C. ss.ss. 3729-3733, the Program Fraud Civil Remedies Act, 31 U.S.C.
ss.ss. 3801-3812;

                                      -4-

<PAGE>

and/or other statutory or common law doctrines of payment by mistake, unjust
enrichment, breach of contract, or fraud; (ii) for civil monetary penalties
imposed pursuant to the Civil Monetary Penalties Law, 42 U.S.C. ss. 1320a-7a
(not including CMPs imposed by CMS pursuant to 42 U.S.C. ss.ss.
1395i-3(H)(2)(B)(ii) or 1396r(h)(2)(A)(ii)); and (iii) for permissive exclusion
from Medicare, Medicaid, and other federal health programs pursuant to the Civil
Monetary Penalties Law, 42 U.S.C. ss. 1320a-7(b) (collectively, the "United
States False Claims Act Claims").

         E. Proofs of Claim. The United States False Claims Act Claims include,
but are not limited to, all claims asserted in the proofs of claim filed in the
Debtors' chapter 11 cases by the United States with respect to the United States
False Claims Act Claims, relating to Medicare and/or Medicaid (federal portion
only). The CMS Claims include, but are not limited to, all claims asserted in
the proofs of claim filed in the Debtors' chapter 11 cases by CMS with respect
to the CMS Claims. The proofs of claim referred to in this paragraph II.E. are,
collectively, the "United States Proofs of Claim." The United States False
Claims Act Claims, the United States Proofs of Claim and the CMS Claims are
collectively the "United States Claims."

         F. Debtors' Participation in Medicare/Medicaid. Debtors submitted or
caused to be submitted claims for payment to the Medicare Program, Title XVIII
of the Social Security Act, 42 U.S.C.ss.ss.1395-1395ggg, and the Medicaid
Program, Title XIX of the Social Security Act, 42 U.S.C.ss.ss.1396-1396v
(collectively "the Medicare/Medicaid Programs").

         G. The Covered Conduct The United States False Claims Act Claims and
the Relators' claims allege the following conduct (hereinafter referred to as
the "Covered Conduct"):

                  1. Roberts. As alleged in the Roberts qui tam, for fraudulent
claims to Medicare

                                      -5-

<PAGE>

and Medicaid submitted during the years 1993 through 1996 by Living Centers of
America, Inc., on behalf of the following skilled nursing facilities in the
Dallas-Fort Worth area of Texas: Progressive Care Center, Pavilion Nursing
Center, Gainesville Convalescent Center, Care Inn of Sanger and Care Inn of
Abilene. These claims were false in that Medicare and Medicaid were billed for
respiratory therapy supplies and services which were not medically necessary;

                  2. Rutledge. As alleged in the Rutledge qui tam, for
fraudulent claims to Medicare and Medicaid submitted by Debtors during the years
1992 through 1999 which were false in that claims were submitted for Medicare
and Medicaid services provided to patients when nursing facilities and/or
skilled nursing facilities owned and operated by the Debtors were not in
compliance with applicable federal and state regulations concerning the training
and certification of nurse aides employed at the nursing facilities and/or
skilled nursing facilities;

                  3. Rivera. As alleged in the Rivera qui tam, for maintaining
false or fraudulent documentation of respiratory care services and for
fraudulent claims to Medicare and Medicaid submitted by MHG during the years
1992 through 1999 which were false in that Medicare and Medicaid were
over-billed for respiratory therapy services provided by Restore Respiratory
Care, Inc;

                  4. Carroll. As alleged in the Carroll qui tam, for fraudulent
claims to Medicare and Medicaid submitted by Living Centers of America, Inc. and
Brian Centers Corp. during the years 1992 through 1999 which were false in that
(1) Medicare and Medicaid were billed for medical supplies known as incontinent
kits which were not medically unnecessary; (2) some items in the incontinent
kits were not charged to the purchaser of the kit, and under the circumstances,
this constituted an illegal kickback, and; (3) Living Centers of America, Inc.
and

                                      -6-

<PAGE>

Brian Centers Corp. automatically waived the patient's co-insurance payment for
Medicare claims for supplies;

                  5. Nelius. As alleged in the Nelius qui tam, for maintaining
false or fraudulent documentation and for fraudulent claims to Medicare and
Medicaid submitted by all of the Debtors' skilled nursing facilities from 1995
through 1999 which were false in that nurse and other nursing facility staff
time was improperly allocated to Medicare cost centers when in fact the time so
allocated was spent caring for non-Medicare or non-Medicaid patients. In
addition, for fraudulent claims to Medicare and Medicaid submitted by all of the
Debtors' skilled nursing facilities from 1995 through 1999 which were false in
that (1) claims were submitted for Medicare and Medicaid skilled nursing
services that were unnecessary, improper or incompletely performed, and
fraudulent or false charts were maintained to support the cost of these
services; (2) skilled nursing facilities were chronically understaffed resulting
in sub-standard quality of care; (3) Medicare patients at skilled nursing
facilities were improperly and unnecessarily provided physical and occupational
therapy; (4) prescription drugs were inappropriately prescribed and billed to
Medicare for patients at skilled nursing facilities; and (5) patients were
unnecessarily referred to acute care hospitals in order to qualify them for
Medicare extended care benefits;

                  6. Powell. As alleged in the Powell qui tam, for fraudulent
claims to Medicare and Medicaid submitted by Paragon Health Network, Inc., d/b/a
Fairview Nursing Home, in Leeds, Alabama, and Rehability Hospital Services,
Inc., between February and May 1997, which were false in that they (1)
represented that services had been provided to Medicare and Medicaid
beneficiaries, when in fact such services had not been rendered; (2) were for
services which were

                                      -7-

<PAGE>

not medically necessary, and; (3) were for therapy equipment that was improperly
billed to Medicare Part A;

                  7. Weatherford. As alleged in the Weatherford qui tam, for
fraudulent claims for reimbursement made on Medicare and Medicaid cost reports
submitted for cost report years ending between 1992 and 1996 on behalf of Summit
Institute of Pulmonary Medicine by Forum Health Investors, Inc., which falsely
represented that payments of principal and interest had been made on a
promissory note to American Medical International, Inc., when in fact no such
payments were made;

                  8. Cambridge East, Sunny Hill and Catonsville. As discovered
during other ongoing investigations conducted by the Department of Justice or
HHS-OIG, for fraudulent claims submitted to Medicare and Medicaid by the
Debtors' Cambridge East, Sunny Hill, and Catonsville skilled nursing facilities
from 1997 until 2001, which were false in that they billed for services which
were not rendered, or were deficient, inadequate, substandard, and were of a
quality which failed to meet professionally recognized standards of healthcare;
and

                  9. Rehabilitation Therapy. As discovered during other ongoing
investigations conducted by the Department of Justice or OIG-HHS, for fraudulent
claims to Medicare and Medicaid submitted by Debtors' Rehability subsidiary
between 1996 and 1998, which were false in that they (1) were for services which
were not medically necessary, and; (2) were for bad debts which were improperly
claimed on cost reports filed by the Debtors' Rehability subsidiary from 1996
until 2000.

         H. Agreement Not an Admission. This Agreement does not constitute
evidence or an admission by the Parties of any liability or wrongful conduct
with respect to the Covered

                                      -8-

<PAGE>

Conduct, the allegations in the Qui Tam Actions and in the United States Claims,
or any issue of law or fact. The Debtors deny the allegations of the United
States as set forth in paragraph II.G., specifically including, without
limitation, all of the allegations set out in the Qui Tam Actions identified in
paragraphs II.G.1. through II.G.7.

         I. Corporate Integrity Agreement. The Debtors and OIG-HHS have executed
a separate Corporate Integrity Agreement ("CIA"), which is incorporated herein
by reference as Exhibit F.

         J Effective Date. The Parties agree that, except for the provisions of
III.X., which shall become effective immediately upon execution by all of the
Parties of this Agreement, the effectiveness of this Agreement will require the
approval of the Bankruptcy Court. The date upon which the Bankruptcy Court
enters an order approving this Agreement, including the CIA, shall constitute
the effective date ("Effective Date") of this Agreement.

         To avoid the delay, uncertainty, inconvenience, and expense of
protracted litigation of the claims set forth above, the Parties hereby reach a
full and final settlement of the respective claims pursuant to the Terms and
Conditions set forth below.

                            III. TERMS AND CONDITIONS

         NOW, THEREFORE, in reliance upon the representations contained herein,
in consideration of the mutual promises, covenants, and obligations set forth
below, and for good and valuable consideration as stated herein, the Parties
agree as follows:

         A. Bankruptcy Treatment of Medicare Provider Agreements.

                  1. Assumed Agreements. Upon the Effective Date, Debtors shall
assume the Medicare provider agreements of the facilities specified in Exhibit
A. With the consent of the United States, Debtors have already assumed the
provider agreements for the facilities specified in Exhibit B.

                                      -9-

<PAGE>

                  2. Rejected Agreements. Upon the Effective Date, the Debtors
will reject the Medicare provider agreements for the facilities specified in
Exhibit C. The Debtors covenant not to acquire or contract to acquire the
Medicare providers associated with these rejected provider agreements for a
period of two (2) years after the Effective Date.

                  3. Suppliers. The suppliers listed on Exhibit D shall neither
assume nor reject any agreement with CMS.

                  4. Scope. This Agreement, including but not limited to the
releases and reservations herein, shall apply equally to all facilities on
Exhibits A, B, C and D, except where otherwise specified.

         B. Treatment of CMS Claims.

                  1. Cure of Defaults in Provider Agreements

                           a. CMS Offset. The Debtors agree that CMS may apply
any claim which the Debtors release against CMS in this Agreement (including but
not limited to pre-petition underpayments, amounts due under the Prudent Buyer
Settlement (Exhibit E), except as specified in paragraph III.B.2.b., below, and
administrative appeal claims) against any CMS Claim, even if the claims are not
mutual as required by 11 U.S.C. ss. 553.

                           b. Net Amount Due to Debtors. CMS and Debtors agree,
for settlement purposes only, that CMS owes Debtors $29,290,363.00 net for
pre-petition cost periods, after completing all offsets permitted by paragraph
III.B.1.a., above. Such agreement may not be used against the United States or
the Debtors for any other purpose or in any other litigation or forum.

                                      -10-

<PAGE>

                  2. Mutual Release.

                           a. Scope of Release. Debtors and the United States
(on behalf of CMS) mutually release each other from all claims and causes of
action in connection with services rendered to beneficiaries under Medicare for
all fiscal periods, including partial fiscal periods, ending on or before the
Petition Date or products supplied to beneficiaries before the Petition Date;
provided, however, that the Debtors reserve as against CMS the right to collect
$29,390,363 from such claims and causes of action, which CMS shall distribute as
set forth in paragraphs III.C.1 and III.H.

                           b. Release of Debtors' Claims Under Prudent Buyer
Settlement. The Debtors also release all claims and causes of action arising
under the Prudent Buyer Settlement (Exhibit E), for all fiscal periods, whether
pre-petition or post-petition, except as set forth in this paragraph III.B.2.b.
For purposes of determining the Debtors' skilled nursing facility prospective
payment system ("PPS") rates for cost reporting periods ending 12/31/2001 and
thereafter, the Debtors' Medicare allowable fiscal year 1995 costs shall be
deemed to include all costs previously removed through prudent buyer
disallowances, as set forth in Exhibit E. Thus, the Debtors' PPS rates, for cost
reporting periods ending 12/31/2001 and thereafter, shall be computed as set
forth in Exhibit E, as if all prudent buyer disallowances of speech therapy and
occupational therapy costs for fiscal year 1995 were reversed in their entirety.

                  3. Treatment of CMS Overpayment Claims.

                           a. Closure of Pre-petition Cost Years. All Medicare
fiscal years ending before the Petition Date shall be closed with no further
audit, appeal or reopening (except as otherwise provided in III.B.3.d., below).
The Debtors shall, however, file all cost reports

                                      -11-

<PAGE>

required under Medicare, including for periods administratively closed pursuant
to this Agreement.

                           b. Treatment of Cost Years that Span the Petition
Date. With respect to fiscal periods which span the Petition Date, the CMS
Overpayment Claim shall be determined by pro-rating the total overpayment
(determined via final settlement by a Medicare fiscal intermediary) according to
the number of days in the fiscal year occurring before and after the Petition
Date. The pre-petition portion is a CMS Overpayment Claim and shall be cured and
released pursuant to this Agreement and shall not be subject to audit, appeal or
reopening (except as provided in III.B.3.d., below).

                           c. Overpayments Arising After the Petition Date.
Debtors and CMS (except as specified in III.B.2.b., above) remain liable for any
claims arising after the Petition Date (including the pro-rated post-petition
amount of a fiscal period which spans the Petition Date) and reserve any rights
(whether of appeal or otherwise) and defenses with respect thereto. The Debtors
shall be entitled to seek reimbursement for the costs of preparing, submitting
and processing their Medicare cost reports described in this section in
accordance with applicable statutes and regulations.

                           d. Reopening. CMS shall be entitled to reopen the
Debtors' Medicare cost reports for fiscal periods ending prior to the Petition
Date solely for the purpose of complying with any Act of Congress requiring CMS
to rely upon settled cost reports for these years as a basis for adjusting
federal payment rates to providers participating in Medicare; provided, however,
that neither CMS nor the debtors shall use such adjustments to seek any further
payments for periods prior to the Petition Date, and the CMS shall only use such
adjustments to

                                      -12-

<PAGE>

adjust payment rates to the Debtors for post-petition fiscal periods (including
partial periods) as part of adjustments in federal payment rates applicable to
all similarly situated providers participating in Medicare.

                  4. Treatment of CMS CMP Claims.

                           a. Preservation of Findings Relating to Quality of
Care. With respect to CMS CMP Claims which accrue in full before the Petition
Date, Debtors shall remain bound by any findings on a HCFA Form 2567, Statement
of Deficiencies (or successor form) relating to such claims (except as provided
for in any prior settlement agreement entered into by CMS and the Debtors on
such findings).

                           b. Accrual of CMPs. For the purposes of this
Agreement, a CMP accrues on the date that a per instance violation occurs or, in
the case of a per diem penalty, on each day that the facility is not in
substantial compliance. Thus, for a per diem CMP that spans the Petition Date,
the per diem penalty multiplied by the number of days out of compliance
occurring before the Petition Date shall be treated as a pre-petition penalty
(and is therefore a CMS CMP Claim), and the per diem penalty multiplied by the
number of days out of compliance occurring on or after the Petition Date shall
be treated as a post-petition penalty (and is therefore not a CMS CMP claim).

                           c. Treatment of Post-petition CMPs. The Debtors shall
remain obligated to CMS, and shall not be released from or receive a discharge
for, any CMP accruing in whole or in part after the Petition Date (except as
provided for in paragraph III.B.4.d.). Debtors and CMS reserve any rights
(whether of appeal or otherwise) and defenses with respect thereto.

                           d. Treatment of CMPs That Span the Petition Date.
With respect to

                                      -13-

<PAGE>

CMPs which span the Petition Date, the Debtors remain liable for the
post-petition portion of such CMPs, and the pre-petition portion is released
pursuant to paragraph III.B.2.a.

                  5. Dismissal of Appeals. Within thirty (30) days following the
Effective Date, the Debtors shall request dismissal with prejudice or withdraw
with prejudice all challenges and appeals, in any fora, relating to the CMS
Claims and claims under the Prudent Buyer Settlement released in this Agreement;
provided, however, that Debtors may appeal CMS Claims which span the Petition
Date; provided, further, however, that Debtors shall be entitled collect or
reduce only the post-petition portion of such an appealed claim if their appeal
succeeds. This Agreement shall not limit Debtors' right to pursue a timely and
properly filed appeal or to challenge any overpayment arising or CMP accruing
after the Petition Date.

                  6. Collection of Post-petition CMS Claims CMS reserves the
right to collect post-petition overpayments and CMPs in accordance with
applicable non-bankruptcy law, including but not limited to the rights to recoup
or offset such claims, which rights shall not be impaired or affected by
Debtors' Plan of Reorganization in the chapter 11 cases (the "Plan"). CMS's
post-petition claims which accrue and are due prior to the Confirmation Date,
and would otherwise be payable at that time had the Debtors not filed their
chapter 11 cases, shall be paid as administrative expense claims in Debtors'
chapter 11 cases; provided, however, that CMS may collect in accordance with
applicable non-bankruptcy law any accrued post-petition CMP or post-petition
overpayment that is not paid by the Effective Date of the Plan.

                  7. Claims under Rejected Provider Agreements. CMS's offset
rights as set forth in paragraph III.B.1.a. shall constitute the sole recovery
under the Plan for the CMS Claims relating to the rejected provider agreements;
all pre-petition claims relating to the rejected

                                      -14-

<PAGE>

providers are mutually released herein, as set forth in paragraph III.B.2.a.

                  8. Claims Relating to Suppliers. CMS's offset rights as set
forth in paragraph III.B.1.a. shall constitute the sole recovery under the Plan
for the CMS Claims relating to the suppliers; all pre-petition claims relating
to the suppliers are mutually released herein, as set forth in paragraph
III.B.2.a.

                  9. Corporate Reorganization. CMS shall process in accordance
with applicable Medicare law and procedure any change of ownership applications
in connection with the transfer of any Medicare provider between the Debtors'
legal entities under the Plan or any change of ownership as a result of a change
of control of the Debtors under any such Plan. Terminating and short cost
reports shall not be required on changes of ownership pursuant to this Paragraph
which take place within twenty-four (24) months of the effective date of the
Plan.

         C. United States False Claims Act Claims.

                  1. False Claims Act Payment. In consideration of the United
States' release of the False Claims Act Claims in III.C.3., below, Debtors'
agree that $26,290,363.00 of the claims it reserved as against CMS (as specified
in paragraph III.B.2.a., above) shall be transferred by CMS to the Department of
Justice on the Debtors' behalf (the "False Claims Act Payment"). Debtors' waive
all further rights to this sum.

                  2. Release of Debtors' Claims Against the United States
Relating to the False Claims Act. In further consideration of the releases set
forth in paragraph III.C.3., below, the Debtors release the United States and
each of its agencies, officers, agents, employees and contractors from all
claims and causes of action (including attorneys fees, costs and expenses),
adjustments, and set-offs of any kind relating to the Covered Conduct, including
the

                                      -15-

<PAGE>

investigation of the Covered Conduct, as of the Effective Date.

                  3. Release of United States False Claims Act Claims Against
the Debtors. In consideration of the False Claims Act Payment and the release in
paragraph III.C.2., above, and subject to the exceptions set forth in paragraph
III.C.5., below, the United States, on behalf of itself, its officers, agents,
agencies and departments, agrees to release the Debtors from any civil or
administrative monetary claim the United States has or may have for the Covered
Conduct under the False Claims Act, 31 U.S.C. SS.SS. 3729-3733; the Civil
Monetary Penalties Law, 42 U.S.C. ss. 1320a-7a (not including CMPs imposed by
CMS pursuant to 42 U.S.C. ss.ss. 1395i-3(H)(2)(B)(ii) or 1396r(h)(2)(A)(ii));
the Program Fraud Civil Remedies Act, 31 U.S.C. ss.ss. 3801-3812; or the common
law doctrines of payment by mistake, unjust enrichment, breach of contract and
fraud.

                  4. Dismissal of Qui Tam Actions. With respect to the Qui Tam
Actions, the United States agrees:

                           a. to move to dismiss as against the Debtors with
prejudice to the United States for the Covered Conduct; and

                           b. to move to dismiss with prejudice as to the
Relators for any and all claims in their entirety against any and all of the
Debtors. Such motions shall be made within thirty (30) days after the Effective
Date.

                  5. Reservations. Notwithstanding any term of this Agreement,
specifically reserved and excluded from the scope and terms of this Agreement as
to any entity or person, are any and all of the following:

                           a. Any civil, criminal or administrative claims
arising under Title 26,

                                      -16-

<PAGE>

U.S. Code (Internal Revenue Code);

                           b. Any criminal liability;

                           c. Except as explicitly stated in this Agreement, any
administrative liability, including mandatory exclusion from Federal Health Care
Programs (as defined in 42 U.S.C.ss. 1320a-7b(f));

                           d. Any liability to the United States (or its
agencies) for any conduct other than the Covered Conduct, except as expressly
provided in paragraph III.B. and III.D. of this Agreement;

                           e. Any claims based upon such obligations as are
created by this Agreement or by the CIA;

                           f. Any express or implied warranty claims or other
claims for defective or deficient products or services, including quality of
goods and services, provided by the Debtors except as expressly set forth in the
Covered Conduct;

                           g. Any claims for personal injury or property damage
or for other consequential damages arising from the Covered Conduct;

                           h. Any claims based on a failure to deliver items or
services due, except as expressly set forth in the Covered Conduct; and

                           i. Any claims against any individuals, including
directors, officers and employees, except as otherwise provided in paragraph
III.E. below.

         D. OIG Permissive Exclusion Release. OIG-HHS agrees to refrain from
instituting, directing or maintaining any administrative claim or action seeking
exclusion from Medicare/Medicaid or other Federal Health Care Programs (as
defined in 42 U.S.C. ss. 1320a-

                                      -17-

<PAGE>

7b(f)) against the Debtors under 42 U.S.C. ss. 1320a-7a (Civil Monetary
Penalties Law, except for CMPs imposed by CMS pursuant to 42 U.S.C. ss.ss.
1395i-3(H)(2)(B)(ii) or 1396r(h)(2)(A)(ii)), or 42 U.S.C. ss. 1320a-7(b)
(permissive exclusion), for the Covered Conduct, as of the Effective Date. The
Debtors acknowledge and agree that OIG-HHS expressly reserves all rights to
comply with any statutory obligations to exclude the Debtors from
Medicare/Medicaid or other Federal Health Care Programs (as defined in 42 U.S.C.
ss. 1320a-7b(f)) under 42 U.S.C. Section 1320a-7(a) (mandatory exclusion) based
on the Covered Conduct. Nothing in this Paragraph precludes OIG-HHS from taking
action against entities or persons, or for conduct and practices, for which
civil claims have been reserved in Paragraph III.C.5., above.

         E. Release By The Relators as to Debtors. In consideration of the
obligations of the Debtors set forth in this Agreement, the Relators for
themselves and for their heirs, successors, attorneys, agents, and assigns agree
to release the Debtors and each of their current and former officers, directors,
employees, agents, shareholders and attorneys from any and all civil claims they
have from the filing of the Qui Tam Actions, or could have advanced under the
False Claims Act, 31 U.S.C. ss.ss. 3729-3733, for expenses or attorneys' fees
and costs under 31 U.S.C. ss. 3730(h), or under 31 U.S.C. ss. 3730(h) for
employment decisions by Debtors and/or other statutory or common law doctrines
of payment by mistake, unjust enrichment, breach of contract, fraud, or the
like, and Relators covenant not to sue with respect to, and release, acquit,
waive, and forever discharge Debtors, their current and former officers and
directors, employees, agents, attorneys and shareholders from any and all
rights, claims, expenses, debts, liabilities, demands, obligations, costs,
damages, injuries, actions and causes of action of every nature,

                                      -18-

<PAGE>

whether known or unknown, suspected or unsuspected, in law or in equity,
including those for attorneys' fees and costs arising prior to the effective
date of the Plan.

         Within 30 days of the Effective Date, Relators, with respect to any
state false claims act claim, shall dismiss with prejudice as to Debtors, their
current and former officers, directors, employees, agents, attorneys and
shareholders, any and all claims that Relators have filed in any state or
federal court, and, as necessary, obtain such approval of any state authorities
to do so.

         Relators agree that upon Bankruptcy Court approval of this settlement,
any and all proofs of claim filed by Relators shall be deemed withdrawn, with
prejudice (except proofs of claim for attorney's fees and costs arising under 31
U.S.C. ss. 3730(d)(1)), and that Relators shall file no other or further proofs
of claim against any of the Debtors. To effectuate the foregoing, Relators shall
execute and deliver to the Debtors a Withdrawal of Claim in the form attached
hereto as Exhibit G.

         The Relators also agree to accept the terms and conditions of this
Agreement as set forth in paragraph III.A. through III.X., including the amount
of the False Claims Act Payment (defined in paragraph III.C.1., above), as being
a fair, adequate and reasonable compromise of the United States False Claims Act
Claims pursuant to 31 U.S.C. ss. 3730, and as a full and final settlement of any
and all claims they may have or could have advanced against the Debtors. Payment
of reasonable attorneys fees and costs, as provided for by 31 U.S.C. ss.
3730(d)(1), is not included in this Agreement, but will be the subject of
separate agreements to be reached between the Debtors and some or all of the
Relators, or resolved in separate proceedings and the Debtors reserve all of
their rights and defenses with respect thereto.

         F. Release of Beneficiaries and Authorized Representatives. The Debtors
will not seek

                                      -19-

<PAGE>

payment for any of the Medicare/Medicaid claims released by this Agreement from
any Medicare or Medicaid beneficiaries or their authorized representatives. The
Debtors waive any causes of action against these beneficiaries or their
authorized representatives based on the claims released under this Agreement.

         G. Waiver of Certain Defenses. The Debtors waive and will not assert
any defenses they may have to any criminal prosecution or administrative action
relating to the United States Claims, to the extent such defenses are based in
whole or in part on a contention that, under the Double Jeopardy Clause in the
Fifth Amendment of the Constitution, or under the Excessive Fines Clause in the
Eighth Amendment of the Constitution, this Agreement bars a remedy sought in any
such criminal prosecution or administrative action. The Debtors agree that this
Agreement is not punitive in purpose or effect. Nothing in this paragraph or any
other provision of this Agreement constitutes an agreement by the United States
concerning the characterization of this Agreement for purposes of the Internal
Revenue Laws, Title 26 of the United States Code.

         H. Payment By CMS. CMS will pay the Debtors $3 million by electronic
funds transfer in accordance with payment instructions provided by the Debtors
within sixty (60) days following the Effective Date, which represents the
difference between the $29,290,363 which CMS has agreed, for purposes of
settlement, is due to the Debtors for the cost periods released and resolved
herein (see paragraph III.B.1.b.), and the $26,290,363 which is the False Claims
Act Payment (see paragraph III.C.1.).

         I. Unallowable Costs Defined. The Debtors acknowledge and agree that
all costs (as defined in the Federal Acquisition Regulations ("FAR") 48
C.F.R.ss.31.205-47 and in Titles

                                      -20-

<PAGE>

XVIII and XIX of the Social Security Act, 42 U.S.C.ss.ss.1395-1395ggg and
1396-1396v, and the regulations promulgated thereunder) incurred by or on behalf
of the Debtors, their present or former officers, directors, employees,
shareholders, and agents in connection with:

                  1. The matters covered by this Agreement, including, the costs
of negotiation of the CIA;

                  2. The United States' audit(s) and any civil and criminal
investigation(s) of the matters covered by this Agreement;

                  3. The investigation, defense, and corrective actions
undertaken in response to the United States' audit(s) and any civil or criminal
investigation(s) in connection with the matters covered by this Agreement
(including attorney's fees);

                  4. Obligations undertaken pursuant to the CIA to: (i) retain
an independent review organization to perform annual reviews as described in
Section III.D.2. of the CIA; (ii) retain and pay expenses and fees for the third
party monitor pursuant to Section III.D.1. of the CIA; and (iii) prepare and
submit reports to the OIG;

                  5. The negotiation and implementation of this Agreement; and

                  6. Any payments that the Debtors may make to Relators'
attorneys; are unallowable costs on Government contracts and under the Medicare
Program, Medicaid Program, TRICARE Program, and Federal Employees Health
Benefits Program ("FEHBP") (collectively, the "Unallowable Costs"). The Debtors
shall separately determine and account for these Unallowable Costs in a
nonreimbursable cost center and shall neither charge such costs, directly, or
indirectly, to any contracts with the United States or any state Medicaid
program, nor seek payment for such Unallowable Costs through any cost report,
cost statement, information

                                      -21-

<PAGE>

statement, or payment request submitted by the Debtors that includes
postpetition periods to the Medicare, Medicaid, TRICARE, or FEHBP Programs
(collectively, the "Post-petition Cost Reports"). Nothing in this paragraph I
affects the allowability of costs not expressly enumerated herein.

         J. Unallowable Costs in Post-petition Cost Reports. The Debtors further
agree that within sixty days (60) of the Effective Date, the Debtors shall
identify to applicable Medicare fiscal intermediaries, carriers and/or
contractors, and Medicaid fiscal agents, any Unallowable Costs included in the
Post-petition Cost Reports, and will request, and agree, that the Post-petition
Cost Reports, even if already settled, be adjusted to account for the effect of
the inclusion of the Unallowable Costs. The Debtors agree that the United States
will be entitled to recoup any overpayment as the result of the inclusion of
such Unallowable Costs on the Post-petition Cost Reports. Any payment due as a
result of the adjustments, after the adjustments have been made, shall be paid
to the United States pursuant to the direction of the Department of Justice,
and/or the affected agencies. The United States reserves its rights to disagree
with any of the Debtors' calculations submitted on the effect of inclusion of
Unallowable Costs on the Post-petition Cost Reports.

         K. No Third Party Beneficiaries. This Agreement is intended to be for
the benefit of the Parties and by this instrument the Parties do not release any
claims against any other person or entity.

         L. Allowance of Proofs of Claim. As of the Effective Date, all of the
United States Proofs of Claim shall be deemed to have been allowed and satisfied
via the mutual consideration and covenants set forth in this Agreement.

                                      -22-

<PAGE>

         M. Cooperation. The Debtors shall cooperate fully and truthfully with
the United States' investigation of individuals and entities not specifically
released by the United States pursuant to this Agreement. In this regard, upon
reasonable notice, the Debtors will make reasonable efforts to identify,
facilitate access to, and encourage the cooperation of, their directors,
officers, employees, and other witnesses for interviews and testimony,
consistent with the rights and privileges of such individuals, and will make
available to the United States, upon reasonable requests, all nonprivileged
documents and records in its possession, custody or control relating to the
United States Claims.

         N. Fairness of Agreement. Pursuant to Bankruptcy Rule 9019, and any
applicable federal, non-bankruptcy and state law, including, but not limited to
31 U.S.C. ss. 3730(c)(2)(B), this Agreement constitutes a good faith compromise
and full and final monetary settlement of the United States Claims, which
compromise and settlement is in the best interests of the Debtors, and this
Agreement and each enumerated settlement amount are fair, adequate and
reasonable under the circumstances.

         O. Defense of Agreement. Should this Agreement be challenged by any
Relator, the United States and the Debtors agree that they will take all
reasonable and necessary steps to resolve the challenge in a manner consistent
with this Agreement.

         P. Each Party to Bear Its Own Costs. The United States and the Debtors
will each bear their own legal and other costs incurred in connection with this
matter, including the preparation and performance of this Agreement. Payment of
reasonable Relators' attorneys fees and costs by the Debtors, as provided for by
31 U.S.C. ss. 3730(d)(1), is not included in this Agreement, and may be the
subject of separate agreements between the Debtors and some or all of the
Relators.

                                      -23-

<PAGE>

         Q. Federal Law Governs. This Agreement is governed by the laws of the
United States. The Parties agree that, except as specified below, the exclusive
jurisdiction and venue for any dispute regarding interpretation or enforcement
of this agreement arising between and among the Parties under this Agreement
will be the United States Bankruptcy Court for the District of Delaware. The
Parties further agree that the jurisdiction and venue for any dispute arising as
to any of the Qui Tam actions under the FCA may also be in an appropriate United
States District Court or, if applicable, another Federal Court of competent
jurisdiction. Disputes arising under the CIA shall be resolved exclusively under
the dispute resolution provision in the CIA.

         R. No Amendment Except in Writing. This Agreement may not be amended
except by written consent of the Parties, provided, however, that only the
Debtors and OIG-HHS must agree in writing to any modification of the CIA.

         S. Qui Tam Actions Treated as Unsecured Claims If Not Dismissed. In the
event that any of the Qui Tam Actions is not dismissed with prejudice against
the Debtors by the Relators, and with prejudice against the United States, by a
final order of a United States District Court, the United States acknowledges
that any claim asserted or judgment obtained by a Relator in such action shall
be treated as a non-priority, prepetition general unsecured claim under the
Plan. The subsequent resolution of any such Qui Tam Action not dismissed with
prejudice against the United States shall have no effect on the obligations of
the debtor hereunder.

         T. Incorporation of Prior Stipulations and Orders. The stipulation
between the United States and Debtors approved by the Bankruptcy Court on
January 18, 2000, and the stipulations and/or orders permitting the assumption
of Medicare provider agreements for the facilities listed on Exhibit C, are
hereby incorporated by reference; provided, however, that to the extent that

                                      -24-

<PAGE>

such stipulations and/or orders are inconsistent with this Agreement, this
Agreement shall supersede them and shall govern the rights of the United States
and the Debtors, and without limiting the foregoing, nothing contained in any
such stipulation or order shall limit or otherwise modify the scope of any of
the releases provided in this Agreement.

         U. Authority to Execute. The undersigned individuals signing this
Agreement on behalf of the Debtors represent and warrant that they are
authorized by the Debtors to execute this Agreement. The undersigned United
States signatories represent that they are signing this Agreement in their
official capacities and that they are authorized to execute this Agreement.

         V. Execution in Counterparts. This Agreement may be executed in
counterparts, each of which constitutes an original and all of which constitute
one and the same agreement.

         W. Binding on Successors. This Agreement is binding on, and shall inure
to the benefit of, those who succeed the Debtors or take transfer of or accept
assignment of the Debtors' rights on or after the Effective Date.

         X. Approval by the Bankruptcy Court. The Parties shall cooperate in
seeking the approval of this Agreement by the Bankruptcy Court.

         Y. Discharge. Nothing contained in this Agreement shall be deemed to
limit or modify the Debtors' right to a discharge or the scope and effect of the
discharge under the Plan; provided, however, that the discharge shall not apply
to the obligations which the Debtors have undertaken under this Agreement, and
the Plan shall not release any individuals for any liability relating to the
Covered Conduct.

                                      -25-

<PAGE>

                          THE UNITED STATES OF AMERICA

                                       ROBERT D. McCALLUM, JR.
                                       Acting Assistant Attorney General

                                       COLM F. CONNOLLY
                                       United States Attorney

                                       ELLEN W. SLIGHTS
                                       Assistant U.S. Attorney

DATED:                                 BY:
      --------------------------          --------------------------------------
                                          J. CHRISTOPHER KOHN
                                          JAMES G. BRUEN, JR.
                                          JEANNINE LESPERANCE
                                               Commercial Litigation Branch
                                               Civil Division
                                               United States Department of
                                               Justice
                                               Tel: (202) 616-2236
                                               Fax: (202) 514-9163

DATED:                                 BY:
      --------------------------          --------------------------------------
                                          LEWIS MORRIS
                                               Assistant Inspector General
                                               Office of Counsel to the
                                                 Inspector General
                                               Office of Inspector General
                                               United States Department of
                                                 Health and Human Services

                                     DEBTORS

                                      -26-

<PAGE>

DATED:                                 BY:
      --------------------------          --------------------------------------
                                          SUSAN THOMAS WHITTLE
                                          General Counsel and Executive Vice-
                                             President
                                          Mariner Post-Acute Network, Inc.
                                          Mariner Health Group, Inc.

DATED:                                 BY:
      --------------------------          --------------------------------------
                                          THOMAS C. FOX
                                          Reed Smith LLP
                                          Counsel for Mariner Post-Acute
                                             Network, Inc.
                                          Counsel for Mariner Health Group, Inc.

DATED:                                 BY:
      --------------------------          --------------------------------------
                                          SCOT T. HASSELMAN
                                          Reed Smith LLP
                                          Counsel for Mariner Post-Acute
                                             Network, Inc.
                                          Counsel for Mariner Health Group, Inc.

                                    RELATORS

                              LEWIS WESLEY ROBERTS

DATED:                                 By:
      --------------------------          --------------------------------------
                                          LEWIS WESLEY ROBERTS

DATED:                                 By:
      --------------------------          --------------------------------------
                                          Counsel for Lewis Wesley Roberts

         CINDY LEE ANDERSON RUTLEDGE AND PARTNERSHIP FOR FRAUD ANALYSIS

DATED:                                 By:
      --------------------------          --------------------------------------
                                          CINDY LEE ANDERSON
                                             RUTLEDGE

                                      -27-

<PAGE>

DATED:                                 By:
      --------------------------          --------------------------------------
                                          PARTNERSHIP FOR FRAUD
                                             ANALYSIS

DATED:                                 By:
      --------------------------          --------------------------------------
                                          Counsel for Cindy Lee Anderson
                                          Rutledge and Partnership for Fraud
                                          Analysis

DATED:                                 By:
      --------------------------          --------------------------------------
                                          Counsel for Cindy Lee Anderson
                                          Rutledge and Partnership for Fraud
                                          Analysis

                                  RAFAEL RIVERA

DATED:                                 By:
      --------------------------          --------------------------------------
                                          RAFAEL RIVERA

DATED:                                 By:
      --------------------------          --------------------------------------
                                          Counsel for Rafael Rivera

                                TERRI D. CARROLL

DATED:                                 By:
      --------------------------          --------------------------------------
                                          TERRI D. CARROLL

DATED:                                 By:
      --------------------------          --------------------------------------
                                          Counsel for Terri D. Carroll

                                      -28-

<PAGE>

                        EDVIN A. NELIUS ROSE MARIE DICKEY
                                 DEBORAH LOWMAN
                                 PATRICIA ROCHA
                                  HELEN SPENCE

DATED:                                 By:
      --------------------------          --------------------------------------
                                          EDVIN A. NELIUS

                                          --------------------------------------
                                          ROSE MARIE DICKEY

                                          --------------------------------------
                                          DEBORAH LOWMAN

                                          --------------------------------------
                                          PATRICIA ROCHA

                                          --------------------------------------
                                          HELEN SPENCE

DATED:                                 By:
      --------------------------          --------------------------------------
                                          Counsel for Edvin A. Nelius, Rose
                                          Marie Dickey, Deborah Lowman,
                                          Patricia Rocha and Helen Spence

                                 TERI S. POWELL

DATED:                                 By:
      --------------------------          --------------------------------------
                                          TERI S. POWELL

DATED:                                 By:
      --------------------------          --------------------------------------
                                          Counsel for Teri S. Powell

                             DEBORAH J. WEATHERFORD

DATED:                                 By:
      --------------------------          --------------------------------------
                                          DEBORAH J. WEATHERFORD

DATED:                                 By:
      --------------------------          --------------------------------------
                                          Counsel for Deborah J. Weatherford

                                      -29-

<PAGE>

EXHIBIT A
ASSUMED/RETAINED PROVIDERS

<TABLE>
<CAPTION>
                                                                       Provider    Fiscal
      Mariner Subsidiary          Name of Provider             State    Number     Interm.
      ------------------          ----------------             -----   --------    -------
<S>                            <C>                              <C>    <C>         <C>
MPAN ASSUMED/RETAINED PROVIDERS:
Living Ctrs East Inc.          Montrose Bay HCC                 Alab.   01-5011      MofO
Living Ctrs East Inc.          Woodley Manor Nurs. H            Alab.   01-5037      MofO
Living Ctrs East Inc.          South Haven Manor NH             Alab.   01-5043      MofO
Living Ctrs East Inc.          Warren Manor Nurs. H             Alab.   01-5119      MofO
Living Ctrs East Inc.          Cedar Crest Nursing Home         Alab.   01-5228      MofO
Living Ctrs East Inc.          Fairview Nursing Home            Alab.   01-5303      MofO
Summit Hosp. of SE Ariz. Inc.  Summit Hosp. of SE Ariz.         Ariz.   03-2004      MofO
Summit Hosp. of SE Ariz. Inc.  Summit Hosp. of SE Ariz.         Ariz.   03-3031      MofO
GranCare of Northern Cal. Inc. Creekside HCC                    Cal.    05-5099     BC-CA
GranCare Inc.                  Driftwood HCC-Santa Cruz         Cal.    05-5109      MofO
AMS Properties Inc.            Flagship HCC                     Cal.    05-5121      MofO
GranCare Inc.                  Pine Crest                       Cal.    05-5130      MofO
GranCare Inc.                  Autumn Hills HCC                 Cal.    05-5288      MofO
GranCare Inc.                  Skyline HCC-San Jose             Cal.    05-5318      MofO
GranCare of Northern Cal. Inc. Hayward Conv. Hosp.              Cal.    05-5338      MofO
American-Cal Med. Serv. Inc.   Inglewood HCC                    Cal.    05-5526      MofO
American-Cal Med. Serv. Inc.   Santa Monica HCC                 Cal.    05-5540      MofO
GranCare of Northern Cal. Inc. Pine Ridge Care Ctr.             Cal.    05-5850      MofO
GranCare Inc.                  Verdugo Vista HCC                Cal.    05-5960      MofO
GranCare Inc.                  Parkview HCC                     Cal.    05-6052      MofO
GranCare Inc.                  Almaden H & R                    Cal.    05-6058      MofO
AMS Properties Inc.            Tarzana H&R                      Cal.    05-6124      MofO
HMI Conval. Care Inc.          Excell HCC                       Cal.    05-6170      MofO
GranCare Inc.                  Florin HCC                       Cal.    05-6177      MofO
AMS Properties Inc.            Palm Springs HCC                 Cal.    05-6229      MofO
GranCare of Northern Cal. Inc. Mission Carmichael               Cal.    05-6304   BC-CA,MofO
HostMasters Inc.               Vale HCC                         Cal.    05-6389      MofO
GranCare Inc.                  Fremont HCC                      Cal.    05-6422      MofO
GranCare Inc.                  Hayward Hills HCC                Cal.    05-6447      MofO
Living Ctrs Rocky Mtn Inc      Sierra Vista Nursing H           Col.    06-5165     TrailB
Living Ctrs Rocky Mtn Inc      Fort Collins HCC                 Col.    06-5166     TrailB
Living Ctrs Rocky Mtn Inc      Aspen Living Ctr                 Col.    06-5168     TrailB
Living Ctrs Rocky Mtn Inc      Belmont Lodge                    Col.    06-5169     TrailB
Living Ctrs Rocky Mtn Inc      Sunset Manor                     Col.    06-5170     TrailB
Living Ctrs Rocky Mtn Inc      Terrace Gardens HCC              Col.    06-5172     TrailB
Living Ctrs Rocky Mtn Inc      Sterling Living Ctr/Rose Arbor   Col.    06-5174     TrailB
Living Ctrs Rocky Mtn Inc      Cedarwood HCC                    Col.    06-5175     TrailB
GCI Camelia Care Ctr Inc       Camellia HCC                     Col.    06-5176     TrailB
Living Ctrs Rocky Mtn Inc      Alpine Living Center             Col.    06-5193     TrailB
Living Ctrs Rocky Mtn Inc      San Juan Living Ctr              Col.    06-5195     TrailB
Living Ctrs Rocky Mtn Inc      Cherry Park Progressive Care     Col.    06-5208     TrailB
Living Ctrs Rocky Mtn Inc      Centennial HCC                   Col.    06-5212     TrailB
</TABLE>

<PAGE>

<TABLE>
<S>                                 <C>                                <C>       <C>         <C>
Living Ctrs Rocky Mtn Inc           Kenton Manor                       Col.      06-5219       TrailB
Living Ctrs Rocky Mtn Inc           Spring Creek HCC                   Col.      06-5221       TrailB
Living Ctrs Rocky Mtn Inc           Boulder Manor/Liv. Ctr. Amer.      Col.      06-5222       TrailB
Living Ctrs Rocky Mtn Inc           Colonial Columns Nurs. Ctr         Col.      06-5225       TrailB
Living Ctrs Rocky Mtn Inc           Applewood Living Ctr               Col.      06-5226       TrailB
Living Ctrs Rocky Mtn Inc           Palisades Living Ctr               Col.      06-5228       TrailB
Living Ctrs Rocky Mtn Inc           Minnequa Medicenter                Col.      06-5229       TrailB
GCI Bella Vita Inc.                 Red Rocks HCC/Bella Vita           Col.      06-5230       TrailB
Living Ctrs Rocky Mtn Inc           Four Corners HCC                   Col.      06-5243       TrailB
Living Ctrs Rocky Mtn Inc           Yuma Life Care Ctr                 Col.      06-5263       TrailB
Living Ctrs Rocky Mtn Inc           Berthoud Living Ctr                Col.      06-5265       TrailB
Living Ctrs Rocky Mtn Inc           Valley View Manor                  Col.      06-5270       TrailB
Living Ctrs Rocky Mtn Inc           Windsor HCC                        Col.      06-5278       TrailB
Living Ctrs East Inc.               Boulevard Manor Nurs. Ctr          Fla.      10-5067        MofO
Living Ctrs East Inc.               Medicana Nurs. Ctr                 Fla.      10-5259        MofO
Brian Ctr Nurs. Cr Austell Inc      Brian Ctr Nurs. Care Austell       Geor.     11-5145       BC-NC
EH Acquisition Corp. III            Lafayette HC                       Geor.     11-5304        MofO
Brian Ctr Nurs. Cr Austell Inc      Brian Ctr Nurs. Care LaGrange      Geor.     11-5354       BC-NC
Brian Ctr Nurs. Cr Austell Inc      Brian Ctr Nurs. Cr Lumber City     Geor.     11-5404       BC-NC
Brian Ctr Nurs. Cr Austell Inc      Brian Ctr Nrs. Cr Jeffersonville   Geor.     11-5413       BC-NC
Brian Ctr Nurs. Cr Austell Inc      Brian Ctr of Thomasville           Geor.     11-5427       BC-NC
Brian Ctr Nurs. Cr Austell Inc      Brian Ctr Nurs. Care Canton        Geor.     11-5508       BC-NC
Brian Ctr Nurs. Cr Pdr Spgs Inc     Brian Ctr Nrs. Cr Powder Spgs      Geor.     11-5538       BC-NC
Living Ctrs - Southeast Inc.        Brian Ctr. Nrs. Cr St. Simons      Geor.     11-5582       BC-NC
Evergreen HC Ltd LP                 Litchfield HCC                     Illinois  14-5276      Astar-KY
Evergreen HC Ltd LP                 LaSalle HCC                        Illinois  14-5394      Astar-KY
National Heritage Realty Inc.       Montebello HCC                     Illinois  14-5471      Astar-KY
EH Acquisition Corp.                Odin HCC                           Illinois  14-5649      Astar-IL
EH Acquisition Corp. III            Flora HCC                          Illinois  14-5692      Astar-IL
EH Acquisition Corp. III            Parkway HCC                        Illinois  14-5693      Astar-IL
EH Acquisition Corp. III            Dixon HCC                          Illinois  14-5747      Astar-KY
                                    Southwest Medical Ctr              Louis.    19-0189        MofO
                                    Summit Inst. of Pulmonary Med.     Louis.    19-2006        MofO
                                    Summit Inst of SouthWest LA        LA        19-2013      Trispan
Living Ctrs East Inc.               Waldon HCC                         Louis.    19-5203        MofO
Living Ctrs East Inc.               Jefferson HCC                      Louis.    19-5272        MofO
Living Ctrs East Inc.               Metairie HCC                       Louis.    19-5278        MofO
PHCMI/Cambridge East Inc.           Cambridge East HCC                 Mich.     23-5187        UGS
PHCMI/Cambridge North Inc.          Cambridge North HCC                Mich.     23-5214        UGS
PHCMI/Cambridge South Inc.          Cambridge South HCC                Mich.     23-5251        UGS
PHCMI/Nightingale E. N.C. Inc.      Nightingale HCC                    Mich.     23-5259        UGS
PHCMI/Crestmont HC Inc.             Crestmont HCC                      Mich.     23-5348        UGS
PHCMI/Heritage Nurs. H Inc.         Heritage Manor HCC                 Mich.     23-5363        UGS
PHCMI/Clintonaire Nurs. H. Inc.     Clinton-Aire HCC                   Mich.     23-5405        UGS
PHCMI/Cambridge Bedford Inc.        Bedford Villa HCC                  Mich.     23-5497        UGS
National Heritage Realty Inc.       Yazoo City H & R Ctr               Missi.    25-5146      TriSpan
National Heritage Realty Inc.       Clinton H & R Ctr                  Missi.    25-5148      TriSpan
National Heritage Realty Inc.       Greenwood H & R Ctr                Missi.    25-5154      TriSpan
National Heritage Realty Inc.       Grenada H & R Ctr                  Missi.    25-5156      TriSpan
</TABLE>

<PAGE>

<TABLE>
<S>                                 <C>                                <C>       <C>        <C>
Living Ctrs East Inc.               Country Brook Living Ctr           Missi.    25-5162      TriSpan
National Heritage Realty Inc.       Indianola H & R Ctr                Missi.    25-5185      TriSpan
National Heritage Realty Inc.       Trace Haven HCC                    Missi.    25-5226      TriSpan
National Heritage Realty Inc.       Columbia H & R Ctr                 Missi.    25-5227      TriSpan
National Heritage Realty Inc.       Boliver H & Rehab Ctr              Missi.    25-5228      TriSpan
National Heritage Realty Inc.       Holly Springs H & R Ctr            Missi.    25-5229      TriSpan
National Heritage Realty Inc.       Heritage HCC - Corinth             Missi.    25-5232      TriSpan
Living Ctrs Rocky Mtn Inc           Arbor Manor                        Neb.      28-5103       TrailB
Living Ctrs Rocky Mtn Inc           Pierce Manor                       Neb.      28-5139        MofO
Living Ctrs Rocky Mtn Inc           Pawnee Manor                       Neb.      28-5157        MofO
Living Ctrs Rocky Mtn Inc           West Point Living Ctr              Neb.      28-5158        MofO
Living Ctrs Rocky Mtn Inc           Haven Home                         Neb.      28-5166        MofO
Living Ctrs Rocky Mtn Inc           Crete Manor                        Neb.      28-5170        MofO
Living Ctrs Southeast Inc           Brian Ctr Nurs. Care Lexington     No. C.    34-5011A      BC-NC
Brian Ctr. Nrs. Care Hickory Inc    Brian Ctr Ns. Hickory Viewmont     No. C.    34-5080       BC-NC
Living Ctrs Southeast Inc           Brian Ctr H&R - Salisbury          No. C.    34-5115A      BC-NC
Living Ctrs Southeast Inc           Brian Ctr H&R - Stateville         No. C.    34-5128A      BC-NC
AMS Properties Inc.                 Brian Ctr H&R - Winston-Salem      No. C.    34-5149A      BC-NC
Brian Ctr. of Asheboro Inc.         Brian Ctr H&R - Asheboro           No. C.    34-5155       BC-NC
Living Ctrs Southeast Inc           Brian Ctr H&R - Gastonia           No. C.    34-5169A      BC-NC
Living Ctrs Southeast Inc           Brian Ctr H&R - Mooresville        No. C.    34-5179A      BC-NC
Living Ctrs Southeast Inc           Brian Ctr H&R - Brevard            No. C.    34-5208A      BC-NC
Living Ctrs Southeast Inc           Brian Ctr H&R - Weaverville        No. C.    34-5221A      BC-NC
Living Ctrs Southeast Inc           Brian Ctr H&R - Hickory East       No. C.    34-5232A      BC-NC
Living Ctrs Southeast Inc           Brian Ctr H&R - Eden               No. C.    34-5241A      BC-NC
Living Ctrs Southeast Inc           Brian Ctr H&R - Charlotte          No. C.    34-5243A      BC-NC
Living Ctrs Southeast Inc           Brian Ctr H&R - Lincolnton         No. C.    34-5250A      BC-NC
Living Ctrs Southeast Inc           Brian Ctr H&R - Hertford           No. C.    34-5262A      BC-NC
Living Ctrs Southeast Inc           Brian Ctr Nurs. Yanceyville        No. C.    34-5265A      BC-NC
Living Ctrs Southeast Inc           Brian Ctr H&R - Spruce Pine        No. C.    34-5270A      BC-NC
Living Ctrs Southeast Inc           Brian Ctr Nurs. Care Shamrock      No. C.    34-5304A      BC-NC
Living Ctrs Southeast Inc           Brian Ctr H&R - Hendersonville     No. C.    34-5312A      BC-NC
Living Ctrs Southeast Inc           Brian Ctr H&R - Clayton            No. C.    34-5317A      BC-NC
Brian Ctr. H&R Wallace Inc.         Brian Ctr H&R - Wallace            No. C.    34-5323       BC-NC
Living Ctrs Southeast Inc           Brian Ctr H&R - Wilson             No. C.    34-5332       BC-NC
Living Ctrs Southeast Inc           Brian Ctr H&R - Windsor            No. C.    34-5339A      BC-NC
Living Ctrs Southeast Inc           Maple Leaf Health Care             No. C.    34-5340A      BC-NC
Living Ctrs Southeast Inc           Brian Ctr H&R - Goldsboro          No. C.    34-5343B      BC-NC
Living Ctrs Southeast Inc           Brian Ctr H&R - Monroe             No. C.    34-5345A      BC-NC
AMS Properties Inc.                 Brian Ctr H&R - Cabarrus           No. C.    34-5362A      BC-NC
Living Ctrs Southeast Inc           Brian Ctr H&R - Durham             No. C.    34-5408A      BC-NC
Living Ctrs Southeast Inc           Brian Ctr H&R - Waynesville        No. C.    34-5411       BC-NC
GCI Faith Nurs. Home Inc.           Faith HCC                          So. C.    42-5009      Palmetto
                                    Brian Ctr of Central Columbia      So. C.    42-5013       BC-NC
GCI Jolley Acres Inc.               Jolley Acres HCC                   So. C.    42-5055    Palmetto,MO
GranCare South Carolina Inc.        Brookview HCC                      So. C.    42-5062      Palmetto
GranCare South Carolina Inc.        St. George HCC                     So. C.    42-5143      Palmetto
GranCare Inc. Village Green Inc     Lake City-Scranton HCC             So. C.    42-5149      Palmetto
GranCare South Carolina Inc.        Oakbrook HCC                       So. C.    42-5156      Palmetto
</TABLE>

<PAGE>

<TABLE>
<S>                                 <C>                                <C>       <C>        <C>
GCI Springdale Village Inc.         Springdale Village HCC             So. C.    42-5169      Palmetto
GCI Prince George Inc.              Prince George HCC                  So. C.    42-5295      Palmetto
GranCare South Carolina Inc.        Hallmark HCC                       So. C.    42-5326      Palmetto
National Heritage Realty Inc.       Collierville H& R Ctr              Tenn.     44-5282     Riverbend
National Heritage Realty Inc.       High Pointe H & R Ctr              Tenn.     44-5283     Riverbend
Cornerstone H Mngt Co               Specialty Hosp. of Houston         Tex.      45-2032        MofO
                                    Specialty Hosp. of Austin          Tex.      45-2034        MofO
                                    Summit Hosp. of Austin             Tex.      45-2053        MofO
                                    Summit Hosp. of SE Texas           Tex.      45-3077        MofO
Living Ctrs of Texas, Inc.          Crestview Manor Nurs. Ctr          Tex.      45-5497        MofO
Living Ctrs of Texas, Inc.          Retama Manor West Laredo           Tex.      45-5528        MofO
Living Ctrs of Texas, Inc.          Retama Manor NC Jourdanton         Tex.      45-5549        MofO
Living Ctrs of Texas, Inc.          Northway HCC                       Tex.      45-5553        MofO
Living Ctrs of Texas, Inc.          Weatherford HCC                    Tex.      45-5574        MofO
Living Ctrs of Texas, Inc.          Retama Manor NC Corp. Christi      Tex.      45-5575        MofO
Living Ctrs of Texas, Inc.          Bay Villa HCC                      Tex.      45-5582        MofO
Living Ctrs of Texas, Inc.          Kountze Nurs. Ctr                  Tex.      45-5594        MofO
Living Ctrs of Texas, Inc.          Memorial Medical Nurs. Ctr         Tex.      45-5597        MofO
Living Ctrs of Texas, Inc.          Hilltop Village                    Tex.      45-5628        MofO
Living Ctrs of Texas, Inc.          Greenview Manor                    Tex.      45-5638        MofO
Living Ctrs of Texas, Inc.          Autumn Years Lodge                 Tex.      45-5651        MofO
Living Ctrs of Texas, Inc.          Silver Creek Manor                 Tex.      45-5652        MofO
Living Ctrs of Texas, Inc.          Retama Manor NC McAllen            Tex.      45-5662        MofO
Living Ctrs of Texas, Inc.          Holiday Lodge                      Tex.      45-5664        MofO
Living Ctrs of Texas, Inc.          Southfield HCC                     Tex.      45-5722        MofO
Living Ctrs of Texas, Inc.          Edgewater Care Ctr                 Tex.      45-5724        MofO
Living Ctrs of Texas, Inc.          Retama Manor South (Victoria)      Tex.      45-5726        MofO
Living Ctrs of Texas, Inc.          Mulberry Manor                     Tex.      45-5744        MofO
Living Ctrs of Texas, Inc.          The Village HCC                    Tex.      45-5809        MofO
Living Ctrs of Texas, Inc.          Retama Man. NC N-San Antonio       Tex.      45-5817        MofO
Living Ctrs of Texas, Inc.          Retama Manor NC Harlingen          Tex.      45-5822        MofO
Living Ctrs of Texas, Inc.          Retama Manor NC N-Robstown         Tex.      45-5838        MofO
Living Ctrs of Texas, Inc.          Deer Creek Nurs. Ctr               Tex.      45-5917        MofO
MPAN                                MPAN - Home Office                 Tex.      45-9024        MofO
Living Ctrs Southeast Inc           Brian Ctr. H & R Lawrenceville     Vir.      49-5192       BC-NC
Living Ctrs Southeast Inc           Brian Ctr. H & R Weber City        Vir.      49-5208       BC-NC
Living Ctrs Southeast Inc           Park Manor HCC- Milwaukee          Wis.      52-5349        UGS
GCI Wisconsin Prop. Inc.            Ashland H & R Ctr                  Wis.      52-5386        UGS
GCI Wisconsin Prop. Inc.            Southpoint HCC                     Wis.      52-5604        UGS
AMS Properties Inc.                 Virginia Highlands                 Wis.      52-5653        UGS
Living Ctrs Rocky Mtn Inc           Poplar Living Ctr                  Wyo.      53-5024       BC-WY
Living Ctrs Rocky Mtn Inc           Cheyenne HCC                       Wyo.      53-5025       BC-WY
Living Ctrs Rocky Mtn Inc           Sheridan Manor                     Wyo.      53-5026       BC-WY
GranCare Inc.                       El Rancho Vista HCC                Cal.      55-5112        MofO
GranCare Inc.                       Driftwood HCC-Torrance             Cal.      55-5114        MofO
GranCare Inc.                       Skyline HCC-Los Angeles            Cal.      55-5117        MofO
GranCare of Northern Cal. Inc.      Diamond Ridge H&R                  Cal.      55-5287        MofO
GranCare Inc.                       Fruitvale HCC                      Cal.      55-5358        MofO
GCI Palm Court Inc.                 Monterey Palms HCC                 Cal.      55-5403        MofO
</TABLE>

<PAGE>

<TABLE>
<S>                                 <C>                                <C>       <C>            <C>
GranCare Inc.                       Driftwood HCC-Hayward              Cal.      55-5533        MofO
GranCare of Northern Cal. Inc.      Courtyard Care-San Jose            Cal.      55-5635        MofO
GranCare of Northern Cal. Inc.      Menlo Park Place                   Cal.      55-5714        MofO
Living Ctrs of Texas, Inc.          Retama Manor W. San Antonio        Tex.      67-5002        MofO
Living Ctrs of Texas, Inc.          Care Inn of Llano                  Tex.      67-5076        MofO
Living Ctrs of Texas, Inc.          Stoneybrook HCC                    Tex.      67-5078        MofO
Living Ctrs of Texas, Inc.          La Paloma Nurs. Ctr                Tex.      67-5170        MofO
Living Ctrs of Texas, Inc.          N. McKinney Nurs. & Rehab          Tex.      67-5196        MofO
Living Ctrs of Texas, Inc.          Jacinto City HCC                   Tex.      67-5231        MofO
Living Ctrs of Texas, Inc.          Woodlake Nurs. Home                Tex.      67-5234        MofO
Living Ctrs of Texas, Inc.          Green Acres Parkdale               Tex.      67-5243        MofO
Living Ctrs of Texas, Inc.          Care Inn of La Grange              Tex.      67-5277        MofO
Living Ctrs of Texas, Inc.          Retama Manor Nurs. Ctr Alice       Tex.      67-5309        MofO
Living Ctrs of Texas, Inc.          Faith Memorial Nurs. Home          Tex.      67-5321        MofO
Living Ctrs of Texas, Inc.          Care Inn of Sanger                 Tex.      67-5322        MofO
Living Ctrs of Texas, Inc.          Pampa Nurs. Ctr                    Tex.      67-5327        MofO
Living Ctrs of Texas, Inc.          Levelland Nurs. Home               Tex.      67-5329        MofO
Living Ctrs of Texas, Inc.          Winchester Lodge Nurs. Home        Tex.      67-5332        MofO
Living Ctrs of Texas, Inc.          Care Inn of Shamrock               Tex.      67-5335        MofO
Living Ctrs of Texas, Inc.          Spring Branch HCC                  Tex.      67-5343        MofO
Living Ctrs of Texas, Inc.          Sweeney House                      Tex.      67-5344        MofO
Living Ctrs of Texas, Inc.          Care Inn of Abilene                Tex.      67-5350        MofO
Living Ctrs of Texas, Inc.          Bastrop Nurs. Ctr                  Tex.      67-5356        MofO
Living Ctrs of Texas, Inc.          Wharton Manor                      Tex.      67-5361        MofO
Living Ctrs of Texas, Inc.          Retama Manor NC Weslaco            Tex.      67-5363        MofO
Living Ctrs of Texas, Inc.          Bangs Nurs. Home                   Tex.      67-5377        MofO
Living Ctrs of Texas, Inc.          Lynn Lodge Nurs. Ctr               Tex.      67-5379        MofO
Living Ctrs of Texas, Inc.          Care Inn of Seguin                 Tex.      67-5380        MofO
Living Ctrs of Texas, Inc.          Care Inn of Gladewater             Tex.      67-5385        MofO
Living Ctrs of Texas, Inc.          Hillview Manor                     Tex.      67-5388        MofO
Living Ctrs of Texas, Inc.          Pine Arbor                         Tex.      67-5391        MofO
Living Ctrs of Texas, Inc.          Retama Manor Del Rio               Tex.      67-5395        MofO
Living Ctrs of Texas, Inc.          Retama Manor Laredo South          Tex.      67-5396        MofO
Living Ctrs of Texas, Inc.          Golden Years Rest Home             Tex.      67-5406        MofO
Living Ctrs of Texas, Inc.          Retama Manor NC Edinburg           Tex.      67-5414        MofO
Living Ctrs of Texas, Inc.          Las Palmas HCC                     Tex.      67-5415        MofO
Living Ctrs of Texas, Inc.          Brazosview HCC                     Tex.      67-5420        MofO
Living Ctrs of Texas, Inc.          Retama Manor NC Rio Grande         Tex.      67-5421        MofO
Living Ctrs of Texas, Inc.          Retama Manor NC S-Pleasanton       Tex.      67-5428        MofO
Living Ctrs of Texas, Inc.          Lake Shore Village HCC             Tex.      67-5438        MofO
Living Ctrs of Texas, Inc.          Park Highlands Nurs. Ctr           Tex.      67-5460        MofO
Living Ctrs of Texas, Inc.          Retama Manor NC Raymondville       Tex.      67-5475        MofO
Living Ctrs of Texas, Inc.          Alpine Terrace Ret. & Conv. Ctr.   Tex.      67-5506        MofO
                                    Specialty Hosp. of Austin          Tex.      67-5698        MofO
                                    Specialty Hosp of Houston SNF      TX        67-5735        MofO
Living Ctrs of Texas, Inc.          Linwood Place                      Tex.      67-5766        MofO
</TABLE>

MHG ASSUMED/RETAINED PROVIDERS

<PAGE>

<TABLE>
<S>                                 <C>                                <C>       <C>         <C>
Mariner HC of Nashville Inc.        Mariner H. of Greenwood Vill.      Col.      06-5259       Empire
Mariner HC of Nashville Inc.        Mariner Health of Denver           Col.      06-5290       Empire
Pendleton Nurs. & R Ctr Inc         Mariner Health at Pendleton        Conn.     07-5341       Empire
Bride Brook N& R Inc                Mariner Health at Bride Brook      Conn.     07-5375       Empire
Mariner HC of Nashville Inc.        MH of Clearwater - Home Hlth       Fla.      10-3110      Palmetto
Mariner HC of Deland Inc.           Mariner Health of Deland           Fla.      10-5406       Empire
Mariner HC of Nashville Inc.        Mariner Health of Port Charlotte   Fla.      10-5524       Empire
Mariner Health of Florida Inc       Mariner Health of St Augustine     Fla.      10-5548     Emp., MofO
Mariner HC of Nashville Inc.        Mariner Health of Tallahassee      Fla.      10-5563       Empire
Mariner Health of Palmetto Inc.     Mariner Health of Palmetto         Fla.      10-5603       Empire
Mariner Health at Bonifay Inc       Mariner Health of Bonifay          Fla.      10-5624       Empire
Mariner HC of Nashville Inc.        Mariner Health of Melbourne        Fla.      10-5635       Empire
Mariner HC of Nashville Inc.        Mariner Health of Belleair         Fla.      10-5636       Empire
Tampa Medical Assoc. Inc.           MH of Tampa (Bay to Bay)           Fla.      10-5650       Empire
Mariner Health of Tampa, Inc.       Mariner Health of Tampa (Bay)      Fla.      10-5650       Empire
Mariner HC of Nashville Inc.        Mariner Health of Clearwater       Fla.      10-5697       Empire
Mariner HC of Inverness Inc.        Mariner Health of Inverness        Fla.      10-5703       Empire
Mariner Hth of Jacksonville Inc     Mariner Health of Jacksonville     Fla.      10-5710       Empire
Mariner HC of Nashville Inc.        Mariner Health of Winter Haven     Fla.      10-5730       Empire
Mariner HC of Orange City Inc.      Mariner Health of Orange City      Fla.      10-5735     Emp., MofO
Mariner HC of MacClenny Inc.        Mariner Health of MacClenny        Fla.      10-5737       Empire
Mariner HC of Nashville Inc.        Mariner H. of Conway Lakes         Fla.      10-5754       Empire
Mariner HC of Port Orange Inc       Mariner Health of Port Orange      Fla.      10-5776       Empire
Mariner Health Prop. IV, Ltd        Mariner Health of Titusville       Fla.      10-5793       Empire
Mariner HC of Nashville Inc.        Mariner Health of Port St. Lucie   Fla.      10-5819       Empire
Mariner HC of Palm City Inc         Mariner Health of Palm City        Fla.      10-5831       Empire
Mariner HC of Lake Worth, Inc       Mariner of Boynton Beach           Fla.      10-5837       Empire
Mariner HC of Metrowest Inc.        Mariner Health of Metrowest        Fla.      10-5868       Empire
Mariner HC of Tuskawilla Inc.       Mariner Health of Tuskawilla       Fla.      10-5872       Empire
Mariner HC of Pinellas Pt, Inc      Mariner Health of Pinellas Point   Fla.      10-5878       Empire
Mariner HC of Atl. Shores Inc.      Mariner H. of Atlantic Shores      Fla.      10-5904       Empire
Mariner Health of Orlando, Inc.     Mariner H. at Hunter's Creek       Fla.      10-5987       Empire
Mariner HC of Nashville Inc.        MH of NE Atlanta (Knollwood)       Geor.     11-5504     Emp., MofO
Mariner HC of Nashville Inc.        Mariner Health of Westchester      Illinois  14-5660       Empire
Mariner H of Maryland, Inc          Mariner Health of Silver Spring    Mary.     21-5014     Emp., MofO
Mariner H of Maryland, Inc          Mariner Health of Catonsville      Mary.     21-5018       Empire
Mariner H of Maryland, Inc          Mariner Health of Kensington       Mary.     21-5043     Emp., MofO
                                    Mariner Health of Forest Hill      MD        21-5104       Empire
Mariner HC of Greater Laurel Inc    Mariner H of Greater Laurel        Mary.     21-5141       Empire
Mariner H of Maryland, Inc          Mariner Health of Mt Clare         Mary.     21-5183     Emp., MofO
Allegis Health Serv. Inc.           Mariner Health of Bethesda         Mary.     21-5187     Emp., MofO
Mariner H of Maryland, Inc          Mariner Health of Circle Manor     Mary.     21-5205     Emp., MofO
Mariner H of Maryland, Inc          Mariner Health of Overlea          Mary.     21-5209     Emp., MofO
                                    Mariner Health of Bel Air          MD        21-5312       Empire
Mariner Health Resources Inc        CareMatrix of Silver Spring        Mary.     21-5213       Empire
                                    Mariner Health of North Arundal    MD        21-5316       Empire
Mariner H of Maryland, Inc          Mariner Health of Southern Md      Mary.     21-5231     Emp., MofO
Mariner H of Maryland, Inc          Mariner Health of Baltimore        Mary.     21-5249        MofO
</TABLE>

<PAGE>

<TABLE>
<S>                                 <C>                                <C>       <C>         <C>
Mariner H of Maryland, Inc          Mariner Health of Glen Burnie      Mary.     21-5266     Emp., MofO
Mystic Nurs. & Reh. Ctr. Inc.       Mariner H of North Central MA      Mass.     22-5039       Empire
Sassaquin N&R Ctr. Inc.             Mariner H of Southeastn Ma         Mass.     22-5314       Empire
Longwood Rehab. Ctr. Inc.           Mariner Health of Longwood         Mass.     22-5316       Empire
Merrimac Vall. N&R Ctr. Inc.        Mariner H of Merrimack Valley      Mass.     22-5318       Empire
Methuen N&R Ctr. Inc.               Mariner Health of Methuen          Mass.     22-5333       Empire
Mariner Health Resources Inc        Mariner Health of Wilmington       No. C.    34-5236       Empire
Mariner HC of Toledo, Inc.          Mariner Health of Toledo           Ohio      36-5070       Empire
Mariner HC of West Hills, Inc.      Mariner Health of West Hills       Penn.     39-5620       Empire
Mariner HC of North Hills, Inc.     Mariner Health of North Hills      Penn.     39-5903       Empire
Cypress Nurs. Facility Inc.         Mariner Health of Sumter East      So. C.    42-5107       Empire
Cypress Nurs. Facility Inc.         Mariner Health of Sumter West      So. C.    42-5108       Empire
Pinnacle Care Corp at Seneca        Mariner Health of Seneca           So. C.    42-5139       Empire
Mariner Health of Florida Inc       Mariner Health of Newport          Tenn.     44-5176       Empire
Pinnacle Care Corp of Nashville     Mariner Health of Nashville        Tenn.     44-5267       Empire
Pinnacle Care Corp of Nashville     Mariner Health of Lebanon          Tenn.     44-5268       Empire
Mariner Health of Florida Inc       Mariner Health of Norris           Tenn.     44-5303       Empire
IHS Rehab Partnership Ltd           North Dallas Rehab Hosp.           Tex.      45-3032       Empire
Mariner HC of Nashville Inc.        Mariner Health of North Dallas     Tex.      45-5463     Emp., MofO
Mariner HC of Nashville Inc.        Mariner Health of NW Houston       Tex.      45-5714     Emp., MofO
Mariner HC of Nashville Inc.        Mariner Health of SW Houston       Tex.      45-5800       Empire
Mariner HC of Nashville Inc.        Mariner Health of San Antonio      Tex.      45-5804       Empire
Mariner HC of Nashville Inc.        Mariner Health of First Colony     Tex.      45-5812     Emp., MofO
Mariner HC of Nashville Inc.        Mariner Health of Cypresswood      Tex.      45-5815     Emp., MofO
Mariner HC of Nashville Inc.        Mariner Health of Fort Worth       Tex.      45-5819       Empire
Mariner HC of Nashville Inc.        Mariner Health of Arlington        Tex.      45-5835       Empire
Mariner HC of Nashville Inc.        MHHC at Woodwind Lake              Tex.      45-9005       Empire
17th St. Assoc. Ltd. Part.          Mariner Health of Huntington       W. Vir.   51-5007       Empire
Mariner HC of Nashville Inc.        MH of Williams Bay                 Wis.      52-5346     Emp & UGS
Mariner HC of Nashville Inc.        Mariner H at Woodwind Lakes        Tex.      67-5085     Emp., MofO
Mariner HC of Nashville Inc.        Westbury Place                     Tex.      67-5612       Empire
Mariner HC of Nashville Inc.        MHHC of North Dallas               Tex.      67-8472       Empire
</TABLE>

<PAGE>

EXHIBIT B
MPAN PROVIDERS ASSUMED AND ASSIGNED TO NEW OPERATORS:

<TABLE>
<CAPTION>
                                                                                 Provider      Fiscal
Mariner Subsidiary                           Name of Provider           State     Number       Interm.
------------------                           ----------------           -----    --------      -------
<S>                                     <C>                             <C>      <C>           <C>
Living Ctrs Rocky Mtn Inc               Desert Terrace Nursing Ctr.     Ariz.     03-5014       BC-AZ
Living Ctrs Rocky Mtn Inc                   Monterey Nurs. Ctr          Ariz.     03-5059       BC-AZ
GCI East Valley Med & Rehab              East Valley Med. & Rehab       Ariz.     03-5060       BC-AZ
Living Ctrs Rocky Mtn Inc                Desert Haven Nursing Ctr       Ariz.     03-5062       BC-AZ
Living Ctrs Rocky Mtn Inc                 Las Flores Nursing Ctr        Ariz.     03-5071       BC-AZ
Living Ctrs Rocky Mtn Inc                Highland Manor Nurs. Home      Ariz.     03-5088       BC-AZ
GCI Colter Village Inc                     Desert Sky HC & Rehab        Ariz.     03-5092       BC-AZ
GCI Healthcare Ctrs Inc                  Village Green HCC-Phoenix      Ariz.     03-5104       BC-AZ
HostMasters Inc.                           Grancare HCC-Phoenix         Ariz.     03-5125       BC-AZ
Living Ctrs Rocky Mtn Inc                 Hearthstone of Sun City       Ariz.     03-5128       BC-AZ
Living Ctrs Rocky Mtn Inc                   Hearthstone of Mesa         Ariz.     03-5129       BC-AZ
GCI Healthcare Ctrs Inc                      La Mesa HCC-Yuma           Ariz.     03-5197       BC-AZ
AMS Properties Inc.                            Lancaster HCC            Cal.      05-5307        MofO
AMS Properties Inc.                          Thousand Oaks HCC          Cal.      05-5342        MofO
GCI Healthcare Ctrs Inc                       La Salette H&R            Cal.      05-5833        MofO
GranCare of Northern Cal. Inc.            Sutter Oaks Nurs.-Arden       Cal.      05-5855        MofO
AMS Properties Inc.                             Cedars HCC              Col.      06-5202       TrailB
AMS Properties Inc.                         Cherrelyn Manor HCC         Col.      06-5203       TrailB
EH Acquisition Corp.                           Community HCC           Illinois   14-5358      Astar-IL
EH Acquisition Corp.                         Springfield Manor         Illinois   14-5716      Astar-IL
EH Acquisition Corp.                            Havana HCC             Illinois   14-5774      Astar-IL
EH Acquisition Corp. II                      Rochelle West HCC         Illinois   14-5979      Astar-IL
Connerwood HC Inc.                            New Castle HCC            Ind.      15-5160      Astar-IN
Connerwood HC Inc.                              Wabash HCC              Ind.      15-5162      Astar-IN
Connerwood HC Inc.                            East Pointe HCC           Ind.      15-5225      Astar-IN
Frenchtown Nurs. Home Inc.               Frenchtown Nurs. Care Ctr      Mich.     23-5225        UGS
PHCMI/Middlebelt-Hope NH Inc.                    Hope HCC               Mich.     23-5228        UGS
St. Anthony Nurs. Home Inc.                   St. Anthony HCC           Mich.     23-5408        UGS
PHCMI/Madonna Nurs. H. Inc.                     Madonna HCC             Mich.     23-5492        UGS
GranCare Inc.                             Premier (Lake Waccamaw)      No. C.     34-5185       BC-NC
National Heritage Realty Inc.                  Rosegate HCC             Ohio      36-5929      Astar-OH
Living Ctrs of Texas, Inc.                      Coastal HCC             Tex.      45-5999        MofO
AMS Properties Inc.                        River Hills West HCC         Wis.      52-5040        UGS
AMS Properties Inc.                           Sunny Hill HCC            Wis.      52-5041        UGS
AMS Properties Inc.                       Christopher East H & R        Wis.      52-5226        UGS
AMS Properties Inc.                     Greentree H&R Clintonville      Wis.      52-5348        UGS
AMS Properties Inc.                            Northwest HCC            Wis.      52-5356        UGS
AMS Properties Inc.                            Woodland HCC             Wis.      52-5424        UGS
AMS Properties Inc.                          The Virginia HCC           Wis.      52-5490        UGS
AMS Properties Inc.                           Pine Manor HCC            Wis.      52-5497        UGS
Living Ctrs Rocky Mtn Inc                   Canyon Hills Manor          Wyo.      53-5051       BC-WY
GranCare of Northern Cal. Inc.           Sutter Oaks Alzheimer Ctr      Cal.      55-5400     BC-CA, MO
AMS Properties Inc.                            Van Nuys HCC             Cal.      55-5519        MofO
</TABLE>

<PAGE>

<TABLE>
<S>                                  <C>                                <C>       <C>            <C>
Living Ctrs of Texas, Inc.                    Beechnut Manor            Tex.      67-5000        MofO
Living Ctrs of Texas, Inc.                    Allenbrook HCC            Tex.      67-5079        MofO
Living Ctrs of Texas, Inc.                 Care Inn of Gonzales         Tex.      67-5124        MofO
Living Ctrs of Texas, Inc.             Green Acres Conv. Ctr Humble     Tex.      67-5127        MofO
Living Ctrs of Texas, Inc.              Green Acres Cv. Ctr Baytown     Tex.      67-5225        MofO
Living Ctrs of Texas, Inc.                     Castle Manor             Tex.      67-5305        MofO
Living Ctrs of Texas, Inc.                 Care Inn of Plainview        Tex.      67-5324        MofO
Living Ctrs of Texas, Inc.                 Oak Manor Nurs. Home         Tex.      67-5328        MofO
Living Ctrs of Texas, Inc.                    Heritage House            Tex.      67-5333        MofO
Living Ctrs of Texas, Inc.                 San Antonio Conv. Ctr        Tex.      67-5339        MofO
Living Ctrs of Texas, Inc.              Brazos Valley Geriatric Ctr     Tex.      67-5366        MofO
Living Ctrs of Texas, Inc.                 Green Acres Conv. Ctr        Tex.      67-5398        MofO
Living Ctrs of Texas, Inc.                   Ralls Nurs. Home           Tex.      67-5407        MofO
Living Ctrs of Texas, Inc.            Green Acres Cv. Ctr Huntsville    Tex.      67-5433        MofO
Living Ctrs of Texas, Inc.               Broadway Lodge Conv. Ctr       Tex.      67-5437        MofO
Living Ctrs of Texas, Inc.                   Care Inn of Waco           Tex.      67-5442        MofO
</TABLE>

MHG Providers Assumed and Assigned to New Operators:

<TABLE>
<S>                                     <C>                             <C>       <C>           <C>
Mariner H of S. Conn. Inc.              Mariner Health of S. Conn.      Conn.     07-5392       Empire
Prism Rehab Systems Inc                  Prism Rehab Systems Inc.       Mass.     22-7443       BC-ME
Prism Home Care, Inc.                     Prism HHA - Chelmsford        Mass.     22-7464       BC-ME
Prism Home Care, Inc.                       Prism HHA - Dedham          Mass.     22-7465       BC-ME
</TABLE>
<PAGE>
EXHIBIT C
REJECTED/TERMINATED PROVIDERS

MPAN REJECTED/TERMINATED PROVIDERS:

<TABLE>
<CAPTION>
                                                                                Provider       Fiscal
Mariner Subsidiary                 Name of Provider                 State        Number       Interm.
------------------                 ----------------                 -----       --------      -------
<S>                                <C>                              <C>         <C>          <C>          <C>
GranCare Inc.                      Quail Ridge                        Cal.       05-5782        MofO      Divested
GranCare Inc.                      Oakview                            Cal.       05-6079        MofO      Divested
GranCare Inc.                      Ambassador                         Cal.       05-6228        MofO      Divested
GranCare Inc.                      Glen Terrace                       Cal.       05-6418        MofO      Divested
Living Ctrs Rocky Mtn Inc          Four Seasons HCC                   Col.       06-5192       TrailB     Divested
National Heritage Realty Inc.      Altoona HCC                        Iowa       16-5162        MofO      Divested
National Heritage Realty Inc.      Polk City HCC                      Iowa       16-5170        MofO      Divested
National Heritage Realty Inc.      Heritage HCC/S. Des Moines         Iowa       16-5175        MofO      Divested
National Heritage Realty Inc.      Norwalk Manor HCC                  Iowa       16-5179        MofO      Divested
National Heritage Realty Inc.      Granger HCC                        Iowa       16-5208        MofO      Divested
National Heritage Realty Inc.      Carroll HCC                        Iowa       16-5231        MofO      Divested
National Heritage Realty Inc.      Jefferson HCC                      Iowa       16-5233        MofO      Divested
Living Ctrs East Inc.              Chateau Living Ctr                Louis.      19-5184        MofO      Divested
Living Ctrs East Inc.              Alexandria North HCC              Louis.      19-5270        MofO      Divested
National Heritage Realty Inc.      Heritage HCC/Hammond              Louis.      19-5299        MofO      Divested
National Heritage Realty Inc.      Heritage HCC/ Crowley             Louis.      19-5394        MofO      Divested
National Heritage Realty Inc.      Heritage Healthcare               Louis.      19-5419        MofO      Divested
PHCMI/Cambridge West Inc.          Cambridge West                     Mich.      23-5126        UGS       Divested
PHCMI/Cambridge Inc.               Cambridge                          Mich.      23-5321        UGS       Divested
PHCMI/Marian Manor Inc.            Marian Manor                       Mich.      23-5376        UGS       Divested
PHCMI/Bay Shores                   Bay Shores                         Mich.      23-5388        UGS       Divested
PHCMI/Middlebelt Nurs. H. Inc.     Middlebelt HCC                     Mich.      23-5479        UGS       Divested
Living Ctrs of Texas, Inc.         Hearthstone of Round Rock          Tex.       45-5771        MofO      Divested
Brian Ctr. H&R Bastion Inc.        George B. Kegley Manor             Vir.       49-5191       BC-NC      Divested
Living Ctrs Southeast Inc          Brian Ctr Nurs. Care Fincastle     Vir.       49-5218       BC-NC      Divested
Brian Ctr H&R Alleghany, Inc.      Brian Ctr. H & R Alleghany         Vir.       49-5221       BC-NC      Divested
Renaissance Men. H. Ctr. Inc.      Renaissance Mental Health          Wis.       52-4600        UGS       Divested
                                   Milwaukee Subacute Ctr             Wis.       52-5569        UGS       Divested
Living Ctrs Rocky Mtn Inc          Michael Manor                      Wyo.       53-5040       BC-WY      Divested
GranCare of Northern Cal. Inc.     Hillsdale Extended Care            Cal.       55-5482        MofO      Divested
GranCare Inc.                      Courtyard                          Cal.       55-5622        MofO      Divested
Living Ctrs of Texas, Inc.         Gainesville Conv. Ctr              Tex.       67-5067        MofO      Divested
Living Ctrs of Texas, Inc.         Ret. Manor Cuero W.                Tex.       67-5134        MofO      Divested
Living Ctrs of Texas, Inc.         Ret. Manor San Antonio S.          Tex.       67-5409        MofO      Divested
Living Ctrs of Texas, Inc.         Robinson Nurs. Ctr.                Tex.       67-5524        MofO      Divested
Living Ctrs Southeast Inc          Brian Ctr H&R - Raleigh           No. C.      34-5202       BC-NC      Terminated
GCI Wisconsin Prop. Inc.           Hillside HCC                       Wis.       52-5446        UGS       Terminated
GranCare Inc.                      Laurelwood HCC                     Cal.       55-5012        MofO      Terminated
Living Ctrs of Texas, Inc.         Progressive                        Tex.       67-5381        MofO      Terminated
Living Ctrs of Texas, Inc.         Ret. Manor Pleasanton N.           Tex.       67-5502        MofO      Terminated
                                   Rehability - Georgia                GA        11-6537        MofO
                                   Rehability - Iowa                   IA        16-6518        MofO
</TABLE>

<PAGE>

<TABLE>
<S>                                <C>                                <C>       <C>          <C>
                                   Rehability - Kentucky               KY       18-6518        Ad-Ky
                                   Rehability - Mississippi            MS       25-6529       Trispan
                                   Rehability - Greenville             MS       25-6533       Trispan
                                   Rehability - Greenville             SC       42-6553       Palmetto
                                   MedTherapy Rehab                    NC       34-6544
                                   Rehability - Virginia               VR       49-6608        Trigon
                                   Rehability Home Office              TN       44-9109      Riverbend
                                   Texas Home Health                   TX       67-8017       Palmetto
                                   Midwest Medical Homecare, LP       Wis.      52-4106         UGS
                                   GranCare Home Office                GA        45310
</TABLE>

MHG REJECTED/TERMINATED PROVIDERS

<TABLE>
<S>                                <C>                              <C>         <C>         <C>           <C>
Mariner HC of Nashville Inc.       Mariner H of Bethany Village       Okla       37-5096     Emp., MofO   Divested
                                   Mariner Health of Worcester        Mass.      22-5305       Empire     Divested
Mariner HC of Nashville Inc.       MH of Olathe                       Kan.       17-5213       Empire     Divested
Aid & Assistance Inc.              Ocean HH (Aid & Assistance)        Conn.      07-7127       BC-ME
Prism Care Center, Inc.            PCC Florida (Rehab)                Fla.       10-5711       BC-FL
Pinnacle Care Corporation          MHC Rehab Services                 Fla.       10-6711       Empire
Prism Rehab Systems Inc            Advanced Rehab Solutions           Fla.       10-6728       BC-FL
MedRehab, Inc.                     MedRehab FL                        Fla.       10-6768       Aetna
Mariner HC of Nashville Inc.       MHHC of Melbourne - HHA            Fla.       10-7383       Empire
Mariner HC of Tuskawilla Inc.      MHHC of Tuskawilla- HHA            Fla.       10-7442      Palmetto
Mariner HC of Orange City Inc.     MH of Orange City- Home Hlth       Fla.       10-7557      Palmetto
Mariner HC of Nashville Inc.       MH of Winter Haven - HHA           Fla.       10-7565      Palmetto
Mariner HC of Nashville Inc.       MH of Port St. Lucie- HHA          Fla.       10-7586      Palmetto
Mariner HC of Metrowest Inc.       MH of Metro West - HHA             Fla.       10-7589      Palmetto
Prism Rehab Systems Inc            Prism Rehab Systems                Geor.      11-6537        MofO
Prism Care Center, Inc.            PCC Georgia (Rehab)                Geor.      11-6559       Empire
MedRehab, Inc.                     MedRehab Illinois                Illinois     14-6591    Emp., Ad-IL
Mariner HC of Nashville Inc.       MH of Fort Wayne                   Ind.       15-5369       Empire
MedRehab, Inc.                     MedRehab Indiana                   Ind.       15-6568       BC-IN
Prism Rehab Systems Inc            Prism Rehab Systems                Iowa       16-6518        MofO
Prism Care Center, Inc.            PCC Kansas (Rehab)                 Kan.       17-6541       Empire
Prism Care Center, Inc.            PCC Kentucky (Rehab)               Ken.       18-6520       Empire
Prism Care Center, Inc.            PCC Texas (Rehab Solutions)        Mary.      21-6594       Empire
Compass Phar. Serv. Inc.           Mar. Med. HHA (Compass Ph.)        Mass.      22-7416       BC-ME
Prism Home Care, Inc.              Prism HHA - Falmouth               Mass.      22-7442       BC-ME
Prism Care Center, Inc.            PCC Missouri (Rehab)              Misso.      26-6519       Empire
MedRehab of Missouri, Inc.         MedRehab MO/N. Cty Clinic         Misso.      26-6548       Empire
Prism Rehab Systems Inc            Prism Reh. Sys. at Mill Run        Penn.      39-6725       Empire
Prism Care Center, Inc.            PCC Tennessee (Rehab)              Tenn.      44-6508       Empire
Pinnacle Rehabilitation, Inc.      Pinnacle Rehab                     Vir.       49-6648       Empire
MedRehab, Inc.                     MedRehab Wisconsin                 Wis.       52-6502       Empire
MedRehab, Inc.                     Medrehab Home Office               Wis.       99-0078       Empire
Mariner Health Group               Home Office Cost Report             CT        07-1116
Mariner Health Group               Home Office Cost Report                       HO-0014
</TABLE>

<PAGE>
EXHIBIT D

                        PART B MEDICARE SUPPLIER NUMBERS

<TABLE>
<CAPTION>

APS LOCATION                          SUPPLIER NUMBER
------------                          ---------------
<S>                                   <C>                     <C>             <C>
BEAUMONT, TX                            0272710012
CORPUS CHRISTI, TX                      0272710004                            REGION A
FT WORTH, TX                            0272710020                            UNITED HEALTHCARE
EDISON, NJ                              0272710006
HICKORY, NC                             0272710005
HOUSTON, TX                             0272710002                            REGION B
LAKE CHARLES                            0272710019                            ADMINASTAR FEDERAL
LONGWOOD, FL                            0812030001
MANSFIELD, TX                           0272710007            Inactive
MARLBORO, MA                            0507370001                            REGION C
METAIRIE, LA                            0272710017                            PALMETTO GBA
MONTGOMERY, AL                          0272710015
NAPERVILLE, IL                          0272710001
NASHVILLE, TN                           0681810001                            REGION D
NEW LONDON, CT                          0376710001                            CIGNA HEALTHCARE
PANAMA CITY                             0272710018
PENSACOLA, FL                           0272710010
PERRY, FL                               0272710011
PHARR, TX                               0272710014            Inactive
PHOENIX, AZ                             0272710008
SAN ANTONIO, TX                         0272710003
TALLAHASSEE, FL                         0272710009            (after 4/25/97)
WACO, TX                                0272710016            Inactive
WHEAT RIDGE, CO                         0272710013

                                        APS PHARMACY MANAGEMENT, INC

FT. LAUDERDALE, FL                      1136410003            (after 4/18/97) Inactive
FT. WALTON BEACH, FL                    1136410002            (2/28/97-6/1/98)Inactive
TALLAHASSEE, FL                         1136410001
PENSACOLA, FL                           0475100001            Dalton HomeCare Inactive
FT. WALTON BEACH, FL                    0320860001            Physicians HomeCare (1/93-5/5/96) - Inactive
FT. WALTON BEACH, FL                    0637690002            Allied Pharmacy (5/6/96-2/27/97) - Inactive
FT. LAUDERDALE, FL                      0477140001            Allied Rx dba Sun Rise System (prior to 4/18/97) - Inactive

                                        APS SUMMIT CARE PHARMACY, LLC

AUSTIN, TX                              1158460001

<CAPTION>
                                           DMERC(S) (DURABLE MEDICAL EQUIPMENT REGIONAL CARRIERS)
APS LOCATION                                     ADDRESS         CITY, STATE, ZIP                       PHONE
------------                                     -------         ----------------                       -----
<S>                                              <C>             <C>                                    <C>
BEAUMONT, TX
CORPUS CHRISTI, TX                               PO BOX 6800     WILKES BARRE, PA 18773-6800            PHONE: 717-735-9445
FT WORTH, TX
EDISON, NJ
HICKORY, NC
HOUSTON, TX                                      PO BOX 7078     INDIANAPOLIS, IN 46207-7078            PHONE: 317-577-5722
LAKE CHARLES                                                                                            EDI: 800-470-9630
LONGWOOD, FL
MANSFIELD, TX
MARLBORO, MA                                     PO BO 100141    COLUMBIA, SC 29202-3141                PHONE: 803-691-4300
METAIRIE, LA
MONTGOMERY, AL
NAPERVILLE, IL
NASHVILLE, TN                                    PO BOX 690      NASHVILLE, TN 37202                    PHONE: 615-251-8182
NEW LONDON, CT
PANAMA CITY
PENSACOLA, FL
PERRY, FL
PHARR, TX
PHOENIX, AZ
SAN ANTONIO, TX
TALLAHASSEE, FL
WACO, TX
WHEAT RIDGE, CO
</TABLE>

Updated as of 11/15/99

<PAGE>

                     AMERICAN PHARMACEUTICAL SERVICES, INC.
                            MEDICAID PROVIDER NUMBERS

<TABLE>
<CAPTION>
STATE MEDICAID                        AGENCY               ADDRESS                          CITY, STATE, ZIP
--------------                        ------               -------                          ----------------
<S>                 <C>               <C>                  <C>                              <C>
ALABAMA             EDS                                    PO Box 7600                      Montgomery, AL 36107

ARIZONA             AHCCS                                  801 E. Jefferson                 Phoenix, AZ 85002

ARKANSAS            N/A                                    PO Box 8059, Slot 402            Little Rock, AR 72203

CALIFORNIA          EDS                                    PO Box 13029                     Sacramento, CA 95813-4029

COLORADO            CONSULTEC                              PO Box 173360                    Denver, CO 80217

CONNECTICUT         EDS                                    PO Box 5007                      Hartford, CT 06104

FLORIDA             UNISYS                                 2727 Mahan Drive                 Tallahassee, FL 32308

GEORGIA             EDS                                    PO Box 105029                    Tucker, GA 30085-5029

HAWAII              HMSA                                   PO Box 339                       Hononlulu, HI 96809-0339

ILLINOIS            IDPA                                   201 S. Grand Ave. E.             Springfield, IL 62763-0001

INDIANA             EDS                                    PO Box 68420                     Indianapolis, IN 46268-0420

IOWA                CONSULTEC                              7755 Office Plaza Dr, Ste 145    West Des Moines, IA 50266

KANSAS              BC/BS KANSAS                           PO Box 3571                      Topeka, KS 66601-3571

LOUISIANA           Dept. of Health & Hospital (Unisys)    PO Box 91030                     Baton Rouge, LA 70821-9030

MARYLAND            Dept. of Health                        201 W. Preston Street            Baltimore, MD 21201

MASSACHUSETTS       Unisys                                 600 Washington Street            Boston, MA 02111

MICHIGAN            Michigan Health & Welfare              400 S. Pine, PO Box 30479        Lansing, MI 48909-7979

MISSISSIPPI         EDS                                    111 E. Capitol St., Ste. 400     Jackson, MS 39201-2121

MISSOURI            GTE Data Svcs.                         PO Box 6500                      Jefferson City, MO 65102-6500

NEBRASKA            Dept. of Health & Human Svcs.          PO Box 95026                     Lincoln, NE 68509-5026

NEW JERSEY          Unisys                                 PO Box 4804                      Trenton, NJ 08650

NEW MEXICO          Consultec                              PO Box 2348                      Santa Fe, NM 87504-2348

NEW YORK            CSC Health Care Systems                150 Broadway, 4th Floor          Albany, NY 12204-2719

NORTH CAROLINA      EDS                                    PO Box 29529                     Raleigh, NC 27626-0529

NORTH DAKOTA        Dept. of Human Services                600 E. Boulevard Ave             Bismarck, ND 58505-0250

OHIO                Dept. of Human Services                30 E. Broad Street               Columbus, OH 43266-0423

OKLAHOMA            Unisys                                 4545 N. Lincoln Blvd, Ste. 124   Oklahoma City, OK 73105

PENNSYLVANIA        Dept of Public Welfare                 PO Box 2675                      Harrisburg, PA 17105

SOUTH CAROLINA      Dept of Health & Human Svcs            PO Box 8206                      Columbia, SC 29202-8206

TENNESSEE           Dept of Health                         729 Church Street                Nashville, TN 37247-6501

TEXAS               NHIC                                   1100 W. 49th Street              Austin, TX 78756-3199

VIRGINIA            First Health                           4461 Cox Road, Ste. 102          Glen Allen, VA 23060-3331

WASHINGTON, DC      Doesn't Pay                            2100 MLK Drive Ave SE, Ste 304   Washington, DC 20020

WEST VIRGINIA       Doesn't Pay

WISCONSIN           EDS                                    1 W. Wilson Street, PO Box 309   Madison, WI 53701-0309

WYOMING             Consultec                              6101 Yellowstone Road, RM 259B   Cheyenne, WY 82002

<CAPTION>
STATE MEDICAID          PHONE                     PART B MCD PROVIDER #                      RX LOCATION           RX MCD PROVIDER #
--------------          -----                     ---------------------                      -----------           -----------------
<S>                  <C>                        <C>                                        <C>                    <C>
ALABAMA              334-834-3330                       009300300                            Montgomery                100002594

ARIZONA              602-417-4000                        432261                                Phoenix                  356677

ARKANSAS             501-682-8292                       APPLYING                                 n/a                      n/a

CALIFORNIA           916-324-0999               XDMEO1175 - Out of State                     San Leandro               applying
                                                  PHA354270 - In State                         Burbank                 applying

COLORADO             800-443-5747                       98001035                               Denver                  03350105
                                                                                               Pueblo                  03002417

CONNECTICUT          860-832-9259                       003097947                            New London                004138310

FLORIDA              850-922-7341                       950508300                          Ft. Lauderdale              104005700
                                         Tallahassee DME 950508302                          Jacksonville               103572000
                                         Tallahassee HC Aids Waiver  675215201                Longwood                 103303400
                                         Pensacola DME 950508303                             Palm Harbor               103545200
                                         Pensacola HC Aids Waiver  675215200                 Panama City               103954700
                                         Pensacola HCS Aged, Disabled Waiver 675215202       Tallahassee               103952100
                                         Fort Walton DME 103955501                         West Palm Beach        106561100 (retail)
                                         Fort Lauderdale DME 104005701                                             106560200 (inst)
                                         Fort Lauderdale HCS Aids Waiver 675090700
                                         Tallahassee Florida MCD PCA # 825252

GEORGIA              800-766-4456                       00590741X                              Augusta                 00426159A
                                                                                               Tucker                  00678895A

HAWAII               808-944-2386                        0584-3                                  n/a                      n/a

ILLINOIS             217-524-7306                     941736287-001                           Glenview               941736287002

INDIANA              800-577-1278                      100015130A                              Marion                FR100296090 A

IOWA                 800-338-7909                        0989541                                 n/a                      n/a

KANSAS               800-933-6593                      7586182401                                n/a                      n/a

LOUISIANA            504-342-9454                        1376175                            Lake Charles                1260967
                                                                                             Baton Rouge                1264016

MARYLAND             410-767-5344                       602201400                              Lanham               7564805/0902110

MASSACHUSETTS        800-325-5231                1533053 / 1534645 (DME)                     Marlborough               00441457

MICHIGAN             517-335-5492                        3513206                             Garden City                3513206

MISSISSIPPI          601-960-2800                        0440540                              Richland                  0330442

MISSOURI             573-751-2617                       623008604                                n/a                      n/a

NEBRASKA             800-332-0265                     941736287-54                               n/a                      n/a
                    or 402-471-3121

NEW JERSEY           800-776-6334                        7009500                               Edison                   6988300

NEW MEXICO           505-246-0710                         T0195                                  n/a                      n/a

NEW YORK             518-486-9440                       01731837                               Edison                  01659998

NORTH CAROLINA       919-857-4017                        7700664                               Hickory                  185967
                                                                                            Winston-Salem               346643

NORTH DAKOTA         701-328-4030                         58419                                  n/a                      n/a

OHIO                 614-644-9000                        0823872                                 n/a                      n/a

OKLAHOMA             405-525-1091                      S9417362878                               n/a                      n/a

PENNSYLVANIA         717-772-6338                        1259729                                 n/a                      n/a

SOUTH CAROLINA       803-898-2876                        DM0609                                Augusta                  767190
                                                                                               Hickory                  7N5996

TENNESSEE            615-741-0192                        4582081                              Nashville                 9449675

TEXAS                512-343-4900                       X9W951465                              Austin                   350091
                                                        HYP304356                             Beaumont                  350026
                                                                                           Corpus Christi               350068
                                                                                              Ft. Worth                 350034
                                                                                               Houston                  350025
                                                                                               Lubbock                  350104
                                                                                                Pharr                   350074
                                                                                             San Antonio                350039
                                                                                               Sherman                  350028
                                                                                                Tyler                   350115
                                                                                                Waco                    350065

VIRGINIA             804-270-5105                       91-0558-1                              Hickory                  8508950
                                                                                            Winston-Salem               8507384

WASHINGTON, DC       202-727-1005                          n/a                                   n/a                      n/a

WEST VIRGINIA        304-926-1765                          n/a                                   n/a                      n/a
                    or 304-926-1740

WISCONSIN            608-221-9883                       41668500                             Brookfield            33237600(RT/DME)

WYOMING              800-251-1268                       110669400                                n/a                      n/a
</TABLE>

<PAGE>
EXHIBIT E

                          UNITED STATES DISTRICT COURT
                          FOR THE DISTRICT OF COLUMBIA

MARINER HEALTH CARE OF NASHVILLE,    )
INC., et al.                         )
                                     )
                      Plaintiffs,    )
                                     )
           v.                        )            CASE NUMBER 1:98CV02134 (WBB)
                                     )
DONNA E. SHALALA, Secretary,         )
Department of Health and Human       )
Services,                            )
                                     )
                       Defendant.    )
------------------------------------

                     STIPULATION OF SETTLEMENT AND DISMISSAL

         THIS STIPULATION OF SETTLEMENT AND DISMISSAL is made this _____ day of
_______, 2000, between Donna E. Shalala, the Secretary of Health and Human
Services (the "Secretary"); Plaintiff Mariner Health Care of Nashville, Inc.
d/b/a Mariner Health of Arlington, Mariner Health of Bethany, Mariner Health of
Northeast Atlanta, and Mariner Health of Cypresswood; Plaintiff Fort Worth
Medical Investors, Ltd. d/b/a Haltom Convalescent Center ("Haltom"); Plaintiff
Mariner Health Care of Florida, Inc. d/b/a Mariner Health of St. Augustine;
Plaintiff Mariner Health Care of Orange City, Inc. d/b/a Mariner Health of
Orange City; Plaintiff Blue Ridge Nursing Center of Martinsville and Henry
County, Inc. d/b/a Blue Ridge Rehabilitation; Mariner Post-Acute Network, Inc.
("MPAN"); Mariner Health Group, Inc. ("MHG"); Liberty Health Care, Inc.; the
MPAN Providers (as set forth in Attachment A hereto); the MHG Providers (as set
forth in Attachment B hereto); Sun City Center

                                      -1-
<PAGE>

Associates Ltd. (L.P.) d/b/a Sun Terrace Health Care Center ("Sun Terrace"); and
the Liberty Providers (as set forth in Attachment C hereto). All of the
foregoing shall be referred to collectively herein as the "Parties." The MPAN
Providers, the MHG Providers, the Liberty Providers, Haltom, and Sun Terrace
will be referred collectively herein as the "Providers."

                                    RECITALS

         WHEREAS, Plaintiffs have brought suit in the Federal District Court of
the District of Columbia, Civil Action No. 1:98CV02134 (WBB) (the "Action"),
challenging the Secretary's final decision upholding prudent buyer disallowances
for Medicare reimbursement purposes of speech therapy ("ST") and occupational
therapy ("OT") costs incurred by the Plaintiffs.

         WHEREAS, Plaintiffs Mariner Health Care of Nashville, Inc., Fort Worth
Medical Investors, Ltd., Mariner Health Care of Florida, Inc., and Mariner
Health of Orange City, Inc. are (or were, during the relevant time periods)
under the common ownership, control, or management of operating subsidiaries of
MPAN or MHG or their predecessors.

         WHEREAS, Plaintiff Blue Ridge Nursing Center of Martinsville and Henry
County, Inc. is (or was, during the relevant time periods) under the common
ownership, control, or management of Liberty Health Care, Inc. ("Liberty") or
its affiliates.

                                      -2-
<PAGE>

         WHEREAS, the Providers have appealed prudent buyer disallowances
similar to those at issue in the Action, such appeals (the "Appeals") being
listed in Attachment D hereto.

         WHEREAS, Plaintiffs contend that the OT and ST costs at issue in the
Action and the Appeals were reimbursable in their entirety. WHEREAS, the
Secretary denies any liability to the Plaintiffs and the Providers. WHEREAS, the
Parties wish to resolve the disputes which are the subject of the Action without
the expense and commitment of resources that may be associated with protracted
litigation.

         WHEREAS, the Parties wish to resolve the properly pending Appeals with
no jurisdictional defects, on the same basis as the resolution of the Action.

         WHEREAS, the Parties also wish to resolve issues relating to the
potential application of prudent buyer disallowances to OT and ST costs included
in open cost reports other than and in addition to the cost reports that are the
subject of the Action or Appeals, including cost reports for MPAN Providers, MHG
Providers, and Liberty Providers that are not Plaintiffs.

         WHEREAS, on January 18, 2000, the MPAN and MHG Providers filed for
protection under chapter 11 of title 11 of the United States Code in the United
States Bankruptcy Court for the District of Delaware in cases numbered 00-113
and 00-215.

                                      -3-
<PAGE>

         NOW THEREFORE, the Parties, intending to be legally bound, hereby enter
into the following Stipulation of Settlement and Dismissal (the "Stipulation"),
which the Court hereby enters:

         1. As used in this Stipulation, the term, "prudent buyer
disallowance(s)," shall refer to any Medicare reimbursement disallowance of OT
or ST costs (together with any corresponding allocation of General Service costs
to such OT or ST costs) on the basis of the "prudent buyer" principle, as set
forth in 42 C.F.R. ss. 413.106 or in any manual provisions or directives
implementing that regulation; or on the basis that the costs incurred by the
provider were nonallowable under 42 C.F.R. ss. 413.9(c)(2) or any manual
provisions or directives implementing that regulation; or on the basis that the
process, criteria, or method by which the provider selected suppliers of OT or
ST services were noncompliant with ss. 2103 of HCFA Pub. 151 or otherwise
deficient or improper under that provision; or on the basis that the OT or ST
services could or should have been provided by in-house salaried therapists; or
on the basis that the provider could or should have attempted to hire inhouse
therapists; or on the basis that the costs exceeded (or may have exceeded) the
amounts that might have been paid to in-house salaried therapists; or on the
basis that the provider otherwise failed to act as a prudent and cost conscious
buyer of OT or ST services.

                                      -4-
<PAGE>

         2. The Secretary shall pay the Liberty Providers, and place in
administrative freeze for the MPAN and MHG Providers, in accordance with the
January 18, 2000 Stipulation in the bankruptcy cases the respective amounts set
forth in the final column of Attachment D ,without interest. The aggregate total
of such amounts shall be collectively referred to herein as the "Payments". The
Payments equal the Medicare reimbursement effect of an eighty five percent (85%)
reversal of the prudent buyer disallowances of OT and ST costs at issue in the
Action and the Appeals (the "85% Computation"), plus an amount equal to the
interest paid by the Providers pursuant to 42 C.F.R. ss. 405.378 on the basis of
overpayment determinations resulting from prudent buyer disallowances. Except as
provided in Paragraph 3 of this Stipulation, the Payments shall be in full and
final satisfaction of the Action and the Appeals filed by the Providers.

         3. The Parties acknowledge that notices of program reimbursement
("NPRs") may be or may have been issued that contain prudent buyer disallowances
for which the time to file an appeal had not yet expired as of the Effective
Date, defined in paragraph 15, of this Stipulation. The Providers shall advise
their intermediaries in writing of such NPRs, with a copy to the Office of
General Counsel of the Department of Health and Human Services, before the
deadline for filing an appeal from the NPR has expired. If there would be no
jurisdictional impediments to an appeal from

                                      -5-
<PAGE>

the NPR, the intermediary shall make payment to the affected Liberty Provider,
or place an amount in administrative freeze with respect to the affected MPAN or
MHG provider in accordance with the January 18, 2000 Stipulation in the
bankruptcy cases, based upon the 85% Computation, without interest. Such
payment or freeze shall be made within seventy-five (75) days of the
intermediary's receipt of notice of the NPR.

         4. The Parties acknowledge that certain of the Providers may have
existing obligations to repay actual or alleged Medicare overpayments. The
Secretary may recoup or offset, without being required to move for relief from
the automatic stay at 11 U.S.C. ss. 362, any portion of such overpayments from
the portion of the Payments that is attributable to such a Provider; that is,
the Secretary may credit the portion of the Payment due to the Provider toward
the overpayment obligation. For purposes of this Stipulation, Providers shall be
distinguished by their Medicare provider numbers.

         5. The Secretary may also: 1) recoup or offset overpayment obligations
of any MHG Provider from the Payments due to other MHG Providers, without being
required to move for relief from the automatic stay at 11 U.S.C. ss. 362; and 2)
recoup or offset overpayment obligations of any MPAN Provider from the Payments
due to other MPAN Providers, without being required to move for relief from the
automatic stay at 11 U.S.C. ss. 362.

                                      -6-
<PAGE>

         6. Neither the Secretary nor her agents or intermediaries shall reopen
or revise cost reports of the Providers for which a notice of program
reimbursement was issued prior to the date of entry of this Stipulation to
disallow OT or ST costs, on the basis of the "prudent buyer" principle, as
described in paragraph 1 above. Nothing in this agreement shall be construed to
prevent the Secretary from effecting a reopening or revision on the basis of
fraud or similar fault.

         7. Within thirty (30) days of receipt of the Payments (or
administrative recordation), the Providers shall dismiss the Appeals to the
extent that they involve prudent buyer disallowances of the Providers' ST or OT
costs that were the subject of the 85% Computation. The Appeals may proceed with
respect to issues other than such prudent buyer disallowances of ST or OT costs
and with respect to other providers involved in those proceedings.

         8. Effective upon receipt of the Payments by the Liberty Providers, and
upon administrative recordation of the Payments for MPAN and MHG Providers in
accordance with the January 18, 2000 Stipulation in the bankruptcy cases, the
Providers release the Secretary and her agents from all Medicare reimbursement
claims arising from the prudent buyer disallowances of ST and OT costs that were
the subject of the 85% Computation.

         9. The Secretary shall make the Payments to the Liberty providers
within thirty (30) days after the receipt by the

                                      -7-
<PAGE>

undersigned agency counsel of the District Court's approval of this Stipulation.
The Secretary shall administratively record the Payments to the MPAN and MHG
providers within thirty (30) days after the undersigned agency counsel has
received both the District Court's approval and the Bankruptcy Court's approval
of this Stipulation.

         10. Neither the Secretary nor her agents or intermediaries shall make
any further prudent buyer disallowances of ST or OT costs to the Providers'
Medicare cost reports for any cost reporting period beginning before July 1,
1998. Further, any prudent buyer disallowances of ST and OT costs reflected in
NPRs for such cost reporting periods issued after the date this Stipulation is
executed shall be reversed in their entirety and any monies recouped and
interest paid relating to prudent buyer disallowances pursuant to such NPRs
shall be refunded to the affected Providers (or placed in administrative freeze
in accordance with the bankruptcy Stipulation if it is still effective) within
thirty (30) days after the date such disallowance is brought to the attention of
the intermediary, without interest.

         11. For purposes of determining the facility-specific portions of
the Providers' rates during the transition period described in 42 C.F.R. ss.
413.340, the Providers' Medicare allowable fiscal year 1995 costs shall be
deemed to include all costs previously removed through prudent buyer
disallowances. Thus, the

                                      -8-
<PAGE>

facility-specific portions of the Providers' transition period rates shall be
computed as if all prudent buyer disallowances of ST and OT costs for fiscal
year 1995 were reversed in their entirety. Adjustment of the Providers'
transition period rates pursuant to this paragraph shall be retroactive to the
beginning of each Provider's first cost reporting period beginning on or after
July 1, 1998. The reimbursement due to the LIBERTY Providers pursuant to these
retroactive adjustments shall be paid to the Liberty Providers within ninety
(90) days after the receipt by the undersigned agency counsel of the DISTRICT
Court's approval of this Stipulation without interest. The reimbursement due to
the MPAN and MHG providers shall be recorded in administrative freeze without
interest in accordance with the January 18, 2000 stipulation in the bankruptcy
cases within ninety (90) days after the undersigned agency counsel has received
both the District Court's approval and the Bankruptcy Court's approval of this
Stipulation.

         12. The Plaintiffs waive any entitlement that they may have to recover
interest pursuant to 42 U.S.C. ss. 1395oo(f).

         13. This Stipulation does not constitute an admission of fact or law by
any of the Parties and shall not affect any rights, claims, duties or
obligations the Parties may have with respect to any other issues not covered by
this Stipulation.

                                      -9-
<PAGE>

         14. The Parties shall bear their own costs and attorneys' fees.

         15. This Stipulation shall be effective on the date (the "Effective
Date") on which both of the following are satisfied: (1) the Stipulation has
been approved by the United States District Court for the District of Columbia;
and, only with respect to the MPAN and MHG Providers, (2) the Stipulation has
been approved by a final and non-appealable order of the United States
Bankruptcy Court for the District of Delaware in cases numbered 00-113 and
00-215. Execution of this Stipulation by the undersigned counsel for the
Plaintiffs shall constitute a dismissal of the Action with prejudice, effective
upon the Effective Date, pursuant to Federal Rules of Civil Procedure
41(a)(1)(ii), except that the Parties to this Stipulation shall retain the right
to bring or prosecute fully an action in this Court for breach of this
Stipulation, or to enforce the terms of this Stipulation. In addition, the MPAN
and MGH providers shall retain the right to reinstate this action, only with
respect to the claims brought by those providers, in the event that this
Stipulation is not approved by the United State Bankruptcy Court for the
District of Delaware in cases 00-113 and 00-215.

         16. The provisions of this Stipulation shall inure to the benefit of
and shall be binding on the heirs, executors, administrators, assigns, or
successors in interest of the Parties.

                                      -10-
<PAGE>

         17. MPAN represents and warrants that it has the authority to execute
this Stipulation and to bind the MPAN Providers. MHG represents and warrants
that it has the authority to execute this Stipulation and to bind the MHG
Providers. Liberty represents and warrants that it has the authority to execute
this Stipulation and to bind Plaintiff Blue Ridge Nursing Center of Martinsville
and Henry County, Inc., Liberty, and the Liberty Providers. The general partner
of Sun Terrace and Haltom represents and warrants that he has the authority to
execute this Stipulation and to bind those Providers. The undersigned counsel
for the Defendant represent and warrant they have the authority to execute this
Stipulation and to bind the Department of Health and Human Services, including
the Health Care Financing Administration and all Medicare intermediaries.

                                          Respectfully submitted,

-------------------------------------     -------------------------------------
MICHAEL H. COOK                           WILMA A. LEWIS
Unified Bar No. 281097                    D.C. Bar No. 358637
NIKOLAUS F. SCHANDLBAUER                  United States Attorney
Unified Bar No. 434314
JENKENS & GILCHRIST
a Professional Corporation
1919 Pennsylvania Avenue, N.W.
Suite 600                                 -------------------------------------
Washington, D.C. 20006-3404               MARK E. NAGLE
(202) 326-1500                            D.C. Bar No. 416364
Counsel for Plaintiffs                    Assistant United States Attorney

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<PAGE>

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GLENN P. HENDRIX                          LAWRENCE J. HARDER
Georgia Bar No. 346590                    Health Care Financing Division
ASHLEY M. STEINER                         Office of the General Counsel
Georgia Bar No. 678211                    United States Department of
ARNALL GOLDEN & GREGORY, LLP                 Health and Human Services
1201 W. Peachtree Street                  C2-03-25, Central Bldg.
Suite 2800                                7500 Security Boulevard
Atlanta, Georgia 30309-3450               Baltimore, Maryland 21244-1850
(404) 873-8500                            (410) 786-8080
Counsel for Plaintiffs                    SONIA M. ORFIELD
                                          Health Care Financing Division
                                          Office of the General Counsel
                                          United States Department of
                                             Health and Human Services
                                          330 Independence Ave., S.W.
                                          Room 5309, Cohen Building
                                          Washington, D.C. 20201
                                          (202) 401-7417
                                          Counsel for the Secretary

Mariner Health Group, Inc.

By:
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Its:
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Mariner Post-Acute Network, Inc.

By:
   ----------------------------------

Its:
    ---------------------------------

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<PAGE>

Liberty Health Care, Inc.

By:
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Its:
    ---------------------------------

Fort Worth Medical Investors, Ltd.

By:
   ----------------------------------

Its:
    ---------------------------------

Sun City Center Associates Ltd. (L.P.)

By:
   ----------------------------------

Its:
    ---------------------------------

         This Stipulation of Settlement and Dismissal is hereby APPROVED this
______ day of ________________.

                                          United States District Judge

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