MARINER POST ACUTE NETWORK INC, DEF 14A, 1999-01-14

MARINER POST ACUTE NETWORK INC
DEF 14A, 1999-01-14
SKILLED NURSING CARE FACILITIES

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SCHEDULE 14A
(Rule 14a-101)

INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )

Filed by the Registrant [X]

Filed by a Party other than the Registrant [_]

Check the appropriate box:

[_] Preliminary Proxy Statement [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))

[X] Definitive Proxy Statement

[_] Definitive Additional Materials

[_] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12

Mariner Post-Acute Network, Inc.
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(Name of Registrant as Specified In Its Charter)

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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

[X] No fee required.

[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.

(1) Title of each class of securities to which transaction applies:

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(2) Aggregate number of securities to which transaction applies:

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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):

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(4) Proposed maximum aggregate value of transaction:

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(5) Total fee paid:

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[_] Fee paid previously with preliminary materials.

[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.

(1) Amount Previously Paid:

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(2) Form, Schedule or Registration Statement no.:

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(3) Filing Party:

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(4) Date Filed:

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MARINER POST-ACUTE NETWORK, INC.

NOTICE OF ANNUAL MEETING OF
STOCKHOLDERS
AND
PROXY STATEMENT

MEETING DATE
FEBRUARY 18, 1999

YOUR VOTE IS IMPORTANT!
PLEASE MARK, DATE AND SIGN THE ENCLOSED PROXY CARD AND
PROMPTLY RETURN IT TO THE COMPANY IN THE ENCLOSED ENVELOPE.

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<PAGE>

MARINER POST-ACUTE NETWORK, INC.

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
FEBRUARY 18, 1999

The annual meeting of stockholders of Mariner Post-Acute Network, Inc., a
Delaware corporation (the "Company"), will be held on Thursday, February 18,
1999, at 10:00 a.m., Atlanta time, at the Swissotel Atlanta, 3391 Peachtree
Road, N.E., Atlanta, Georgia 30326, or at such time or place or both as any of
the executive officers of the Company shall determine (the "Annual Meeting")
for the following purposes:

1. To elect 11 directors; and

2. To transact such other business as may properly come before the meeting
or any adjournment thereof.

The record date for voting at the meeting is December 30, 1998 (the "Record
Date"). Only holders of record of the Company's common stock, par value $0.01
per share, at the close of business on the Record Date shall be entitled to
notice of and to vote at the Annual Meeting.

Please sign, date and return your proxy card in the enclosed envelope so that
your shares may be voted at the Annual Meeting. If the shares stand in more
than one name, all holders of record should sign the enclosed proxy card.

By Order of the Board of Directors,

/s/ Keith B. Pitts
Keith B. Pitts
Chairman of the Board
and Chief Executive Officer

/s/ Susan Thomas Whittle
Susan Thomas Whittle
Senior Vice President, General Counsel
and Secretary

January 13, 1999
<PAGE>

MARINER POST-ACUTE NETWORK, INC.

PROXY STATEMENT

This statement is furnished in connection with the solicitation on behalf of
the Board of Directors of Mariner Post-Acute Network, Inc., a Delaware
corporation (the "Company"), of proxies for use at the annual meeting of
stockholders of the Company, to be held at the Swissotel Atlanta, 3391
Peachtree Road, N.E., Atlanta, Georgia 30326 on Thursday, February 18, 1999,
at 10:00 a.m., Atlanta time, and at any adjournment or postponement thereof
(the "Annual Meeting"). It is anticipated that the mailing to stockholders of
definitive copies of this Proxy Statement and the enclosed proxy card will
commence on or about January 13, 1999. The mailing address of the principal
executive offices of the Company is One Ravinia Drive, Suite 1500, Atlanta,
Georgia 30346.

SHARES ENTITLED TO VOTE

Each valid proxy given pursuant to this solicitation and received in time
for the Annual Meeting will be voted with respect to all shares represented by
it and will be voted in accordance with the instructions, if any, given in the
proxy. If instructions are not given in the proxy, it will be voted FOR the
election of the director nominees listed in this Proxy Statement and in
accordance with the best judgment of the proxy holders on any other matter
that may properly come before the Annual Meeting. The submission of a signed
proxy will not affect a stockholder's right to attend, and to vote in person
at, the Annual Meeting. Stockholders who execute a proxy may revoke it at any
time before it is voted by filing a written revocation with the Secretary of
the Company, executing a proxy bearing a later date or attending and voting in
person at the Annual Meeting.

Only stockholders of record as of the close of business on December 30, 1998
(the "Record Date") will be entitled to notice of and to vote at the Annual
Meeting. As of the close of business on the Record Date, there were 73,111,763
shares of the Company's Common Stock, par value $.01 per share (the "Common
Stock"), outstanding and entitled to vote and 158,784 shares of Common Stock
issuable upon the exchange of certificates for common stock of certain
acquired corporations, which shares are not entitled to vote until converted.
Each share of Common Stock is entitled to one vote on all matters presented
for stockholder vote.

According to the Second Amended and Restated Bylaws of the Company (the
"Bylaws"), the holders of a majority of shares of Common Stock issued and
outstanding and entitled to vote must be present in person or be represented
by proxy to constitute a quorum and to act upon proposed business. Failure to
obtain a quorum at the Annual Meeting will necessitate an adjournment and will
subject the Company to additional expense. When a quorum is present at the
Annual Meeting, the Bylaws provide that the affirmative vote of the holders
(whether present in person or represented by proxy) of a majority of the
shares of Common Stock having voting power with respect to a question brought
before the Annual Meeting will decide the corporate action taken unless a
different vote is required by Delaware law, the Company's Second Amended and
Restated Certificate of Incorporation (the "Certificate of Incorporation") or
Bylaws. The election of the director nominees requires a plurality of the
votes cast at the Annual Meeting.

All matters specified in this Proxy Statement that are to be voted on at the
Annual Meeting will be by written ballot. An inspector of elections will be
appointed to determine, among other things, the number of shares outstanding
and the voting power of each, the shares represented at the Annual Meeting,
the existence of a quorum, the authenticity, validity and effect of proxies,
to receive votes or ballots, to hear and determine all challenges and
questions in any way arising in connection with the right to vote, to count
and tabulate all votes and to determine the results. The inspector of
elections will treat shares represented by proxies that reflect abstentions as
shares that are present and entitled to vote for purposes of determining the
presence of a quorum and for purposes of determining the outcome of any matter
submitted to the stockholders for a vote. Abstentions, however, do not
constitute a vote "for" or "against" any matter and thus, will be disregarded
in the calculation of a plurality of "votes cast." Thus, abstentions will not
affect the outcome of the election of directors.
<PAGE>

The inspector of elections will treat shares referred to as "broker non-
votes" (i.e., shares held by brokers or nominees as to which instructions have
not been received from beneficial owners or persons entitled to vote that the
broker or nominee does not have discretionary power to vote on a particular
matter) as shares that are present for the purposes of determining the
presence of a quorum. If unvoted by the beneficial owner, brokers will have
the discretionary power to vote shares as to which no instructions have been
received on those proposals for which discretionary voting is permitted by the
rules of the New York Stock Exchange, including the proposal to elect director
nominees appearing herein. Shares as to which brokers have not executed this
discretionary authority are not counted for purposes of determining the number
of votes that must be cast in favor of a proposal in order for it to receive
approval. As a result, broker non-votes will have no effect on any matter
presented for approval.

PROPOSAL 1 -- ELECTION OF DIRECTORS

The Board of Directors of the Company consists of 11 members. The current
terms of all existing directors expire upon the election and qualification of
the directors to be selected at this Annual Meeting. The Board of Directors
has nominated the individuals indicated below for election to the Board of
Directors at the Annual Meeting, each to serve for a one-year term to expire
at the 2000 Annual Meeting. Pursuant to the terms of a certain Stockholders
Agreement dated November 4, 1997, as amended through the date hereof (the
"Amended Stockholders Agreement"), entered into between Apollo Management,
L.P. ("Apollo"), certain other purchasers of the Company's Common Stock
(together with Apollo, the "Apollo Investors") and the Company, the Apollo
Investors (who as of December 31, 1998, owned approximately 24% of the issued
and outstanding Common Stock of the Company) have agreed to vote their shares
of Common Stock so that the Board of Directors of the Company will consist of
11 members nominated by the Nominating Committee, of whom five members must be
nominated by Apollo. See "Certain Related Transactions and Agreements--
Agreements with Apollo."

The nominees have consented to being named herein and to serve if elected.
If any of them should become unavailable for election prior to the Annual
Meeting, the proxies will be voted for a substitute nominee or nominees
designated by Apollo or the Nominating Committee of the Board of Directors, as
the case may be, depending on whether the nominee in question was originally
designated by Apollo or the Nominating Committee. Stockholders may withhold
their votes from the entire slate of nominees by so indicating in the space
provided on the enclosed proxy card. Stockholders may withhold their votes
from any particular nominee by striking through that nominee's name on the
enclosed proxy card.

The following sets forth information concerning each of the nominees for
election to the Board of Directors, including his name, age as of December 1,
1998, principal occupation or employment during at least the past five years
and the period during which such person has served as a director of the
Company.

NOMINEES

Keith B. Pitts, age 41, serves as Chairman of the Board and Chief Executive
Officer of the Company and has served in such capacity since November 4, 1997.
In addition, Mr. Pitts served as President of the Company from November 4,
1997 to July 31, 1998. From August 1997 to November 4, 1997 Mr. Pitts served
as a consultant to Apollo in connection with the transactions pursuant to
which Apollo acquired its interest in the Company. From February 1997 to
August 1997 Mr. Pitts was a consultant to Tenet Healthcare Corp. Mr. Pitts
served as the Executive Vice President and Chief Financial Officer of OrNda
HealthCorp, a healthcare service provider in the United States, from August
1992 until its merger with Tenet Healthcare Corp. in January 1997. Prior to
joining OrNda HealthCorp, from July 1991 to August 1992, Mr. Pitts was a
partner in Ernst & Young LLP's Southeast Region Health Care Consulting Group,
and from January 1988 to July 1991 he was a partner and Regional Director of
Ernst & Young LLP's Western Region Health Care Consulting Group. Mr. Pitts is
a director of Sunburst Hospitality Corporation, a publicly traded corporation
engaged in the hotel business, as well as several private corporations.

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Arthur W. Stratton, Jr., M.D., age 52, is Vice Chairman of the Board,
President and Chief Operating Officer of the Company and has served in such
capacity since July 31, 1998. Dr. Stratton was Chairman of the Board and Chief
Executive Officer of Mariner Health Group, Inc. ("Mariner Health"), which was
acquired by the Company in a merger transaction on July 31, 1998 (the "Mariner
Merger"), serving in such capacities from 1988 to July 31, 1998. Dr. Stratton
was the founder of Mariner Health and also served as President of Mariner
Health from its inception to May 1994 and from February 1995 through July 31,
1998.

Laurence M. Berg, age 32, has served as a director of the Company since
November 4, 1997. Mr. Berg has been associated since 1992 and a principal
since 1995 with Apollo Advisors, L.P., which together with its affiliates,
acts as managing general partner of Apollo Investment Fund, L.P., AIF II,
L.P., Apollo Investment Fund III, L.P., and Apollo Investment Fund IV, L.P.,
private securities investment funds, and with Lion Advisors, L.P., which acts
as financial advisor to and representative for certain institutional investors
with respect to securities investments. Mr. Berg is a director of Berlitz
International, Inc., Continental Graphics Holdings, Inc., CWT Specialty
Stores, Inc. and Rent-A-Center Inc. Mr. Berg serves as one of Apollo's
designees on the Company's Board of Directors.

Gene E. Burleson, age 57, has served as a director of the Company since
November 4, 1997. Mr. Burleson currently serves as Chairman of the Board of
Argonne Properties, Inc., a private investment company. Prior to that, Mr.
Burleson served as the Chairman of the Board of GranCare, Inc., a Delaware
corporation, and its predecessor, GranCare, Inc., a California corporation
("GranCare-California") from 1988 to November 4, 1997. Additionally, Mr.
Burleson served as President and Chief Executive Officer of GranCare-
California from December 1990 to February 1997. Upon completion of the merger
between GranCare-California and Vitalink Pharmacy Services, Inc. ("Vitalink")
in February 1997, Mr. Burleson became Chief Executive Officer and a director
of Vitalink. Mr. Burleson resigned as Chief Executive Officer and as a
director of Vitalink in August 1997. Mr. Burleson currently serves on the
boards of directors of three other public companies: Alternative Living
Services, Inc. ("ALS"), a developer and manager of assisted living facilities;
Decker Outdoor Corp., a footwear manufacturer; and Walnut Financial Services,
Inc., a provider of small business financial and consulting services.

Peter P. Copses, age 40, has served as a director of the Company since
November 4, 1997. Mr. Copses has been a principal since 1990 of Apollo
Advisors, L.P., which, together with its affiliates, acts as managing general
partner of Apollo Investment Fund, L.P., AIF II, L.P., Apollo Investment Fund
III, L.P. and Apollo Investment Fund IV, L.P., private securities investment
funds, and of Lion Advisors, L.P., which acts as financial advisor to and
representative for certain institutional investors with respect to securities
investments. Mr. Copses is a director of Koo Koo Roo Enterprises, Inc., Rent-
A-Center Inc. and Zale Corporation. Mr. Copses serves as one of Apollo's
designees on the Company's Board of Directors.

Jay M. Gellert, age 44, has served as a director of the Company since
November 19, 1997. Mr. Gellert is currently President and Chief Executive
Officer of Foundation Health Systems, Inc., a company engaged in the
healthcare business. Prior to this, Mr. Gellert served as Vice President of
Shattuck Hammond Partners Inc., where he directed strategic advisory
engagements in the area of integrated delivery systems development, managed
care network formation and physician groups practice integration from 1994 to
1996. From 1991 through 1994, Mr. Gellert was an independent consultant in the
healthcare industry, and from 1988 through 1991, he served as Chief Executive
Officer of Bay Pacific Corporation, an HMO located in Northern California.
From 1985 through 1988, Mr. Gellert was a Senior Vice President and Chief
Operating Officer for the California Healthcare System. Mr. Gellert serves as
one of Apollo's designees to the Company's Board of Directors.

Joel S. Kanter, age 41, has served as a director of the Company since
November 4, 1997. From February 1995 to the present, Mr. Kanter has served as
the Chief Executive Officer of Walnut Financial Services, Inc., a provider of
small business financial and consulting services, including venture capital
and other financing. From 1986 to the present, Mr. Kanter has been the
President of Windy City, Inc., a private investment company, and from 1988 to
February 1995, he served as a consultant to Walnut Capital Corporation, a
closely-held investment management and advisory firm. Mr. Kanter also serves
on the boards of directors of four other publicly held

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companies: I-Flow Corporation, a home infusion pump manufacturer; Encore
Medical Corporation, a manufacturer of implant devices; Greystone Medical
Group, Inc., a manufacturer of orthotic and wound care products; and Walnut
Financial Services, Inc.

Samuel B. Kellett, age 53, has served as a director of the Company since
July 31, 1998. Prior to this, Mr. Kellett served as a director of Mariner
Health since July 21, 1997. Mr. Kellett has been owner and president of Samuel
B. Kellett Investments since January 1996. Mr. Kellett was President of
Convalescent Services, Inc., a company engaged in the long-term healthcare
business, from 1978 to January 1996.

John H. Kissick, age 56, has served as a director of the Company since
November 4, 1997. Mr. Kissick has been a principal since 1992 of Apollo
Advisors, L.P., which, together with its affiliates, acts as managing general
partner of Apollo Investment Fund, L.P., AIF II, L.P., Apollo Investment Fund
III, L.P. and Apollo Investment Fund IV, L.P., private securities investment
funds, and since 1997 of Ares Management, L.P., which manages Ares Leveraged
Investment Fund I and II, L.P., private securities investment funds investing
in primarily below investment-grade debt and equity securities. Mr. Kissick
serves as a director of Continental Graphics Holdings, Inc., Converse, Inc.,
Florsheim Group, Inc. and MTL Inc. Mr. Kissick serves as one of Apollo's
designees on the Company's Board of Directors.

William G. Petty, Jr., age 53, has served as a director of the Company since
November 4, 1997. Mr. Petty served as a director of GranCare from July 1995 by
virtue of GranCare's merger with Evergreen Healthcare, Inc., a publicly held
long-term care provider ("Evergreen"). Since July 1996, Mr. Petty has been a
Managing Director of Beecken, Petty & Company. Beecken Petty & Company is the
general partner of Healthcare Equity Partners, LP, a venture capital
partnership. Mr. Petty served as Chairman of the Board of Directors, President
and Chief Executive Officer of Evergreen from June 1993 to July 1995 and
served as President and Chief Executive Officer of Evergreen Healthcare Ltd.,
L.P., an affiliate of Evergreen, from 1988 to 1992. Mr. Petty also served as
Chairman of the Board, Chief Executive Officer and President of National
Heritage, Inc. from October 1992 to June 1993. Mr. Petty has been the Chairman
of the Board of Alternative Living Services, Inc. ("ALS") since 1993. Mr.
Petty also served as the Chief Executive Officer of ALS from 1993 until
February 1996.

Robert L. Rosen, age 52, has served as a director of the Company since
November 4, 1997. Mr. Rosen is Managing General Partner of RLR Partners, L.P.,
a private investment partnership founded in April 1987. Since 1987, Mr. Rosen
has been a director of the Municipal Advantage Fund, Inc., Municipal Partners
Fund, Inc., Municipal Partners Fund II, Inc., Samsonite Corporation and WMC
Finance Company. Mr. Rosen serves as one of Apollo's designees on the
Company's Board of Directors.

THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE IN FAVOR OF THE
ELECTION OF THE NOMINEES LISTED ABOVE.

COMPENSATION OF OUTSIDE DIRECTORS

Upon their election to the Board of Directors, non-employee directors
receive options to purchase 15,000 shares of Common Stock. In addition, on the
date of each subsequent annual meeting of stockholders, directors who were not
initially elected to the Board of Directors during the previous six months,
receive options to purchase an additional 6,000 shares of Common Stock. The
exercise price of the options is equal to the fair market value of the Common
Stock on the date of grant, and the options vest in 25% annual increments
beginning on the first anniversary of the date of grant. Accordingly, Messrs.
Berg, Burleson, Copses, Kanter, Kissick, Petty and Rosen were each granted
options to purchase 15,000 shares of Common Stock at an exercise price of
$16.35 per share on November 4, 1997, Mr. Gellert was granted options to
purchase 15,000 shares of Common Stock at an exercise price of $16.42 per
share on November 19, 1997, and Mr. Kellett was granted options to purchase
15,000 shares of Common Stock at an exercise price of $12.125 per share on
July 31, 1997.

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In addition to the option grants described above, each non-employee director
receives an annual retainer of $25,000, one-half of which is paid in Common
Stock at the first regularly scheduled meeting of the Board during the
calendar year based on the closing price of the Common Stock five business
days prior to the meeting date and the other half of which is paid in cash in
four quarterly installments. Committee chairmen receive an additional $5,000
per calendar year payable in Common Stock at the time they receive the Common
Stock component of their annual retainer. Non-employee directors also receive
$1,500 per Board meeting attended, $1,000 per committee meeting attended and
$500 for each telephonic meeting in which they participate.

BOARD MEETINGS AND COMMITTEES OF THE BOARD

The Board of Directors of the Company held 15 meetings during the 1998
fiscal year. The Company's Board of Directors has an Audit, Compliance and
Ethics Committee (the "Audit Committee"), a Quality Committee (the "Quality
Committee"), a Compensation Committee (the "Compensation Committee") and a
Nominating Committee (the "Nominating Committee"). With the exception of the
Nominating and Quality Committees, all current committees are composed
entirely of non-employee directors.

The Audit Committee makes recommendations to the Board of Directors as to
engagement or discharge of the independent public accountants, reviews the
Company's financial plan and budget, reviews the results of the auditing
engagement with the Company's independent public accountants, reviews the
scope and results of the Company's internal auditing controls and directs and
supervises investigations into matters within the scope of its duties. In
addition, the Audit Committee is responsible for supervising the Company's
ongoing corporate compliance program. The Audit Committee is composed Messrs.
Rosen (Chairman), Gellert, Kanter and Petty. The Audit Committee held three
meetings during the 1998 fiscal year.

The Quality Committee is a committee that assists the Board of Directors in
fulfilling its supervisory responsibilities with regard to the Company's
ongoing efforts to improve its management systems, communications, service
delivery practices, and the achievement of certain quality service benchmarks.
The Quality Committee is composed of Messrs. Burleson (Chairman), Berg and
Stratton. The Quality Committee held one meeting during the 1998 fiscal year.

The Compensation Committee approves remuneration and compensation
arrangements involving the Company's directors, executive officers and other
key employees. The Compensation Committee also administers the granting of
incentives under the Company's Long-Term Incentive Plan and the Annual
Incentive Plan. In addition, the Compensation Committee has general
supervisory authority over the Employee Stock Purchase Plan. The Compensation
Committee is composed of Messrs. Copses (Chairman), Berg and Kanter. The
Compensation Committee held three meetings during the 1998 fiscal year.

The Nominating Committee is responsible for selecting and nominating
individuals to fill vacancies on the Company's Board of Directors as well as
approving the nomination of the Company officers for election by the full
Board. Pursuant to the terms of the Amended Stockholders Agreement, the
Nominating Committee must consist of five members including the Chief
Executive Officer and two Apollo designees. Pursuant to the Amended
Stockholder's Agreement, the Nominating Committee must nominate as directors
the Chief Executive Officer and five individuals designated by Apollo. See
"Certain Related Transactions and Agreements--Agreements with Apollo." The
Nominating Committee is composed of Messrs. Pitts (Chairman), Copses, Kellett,
Kissick and Petty. The Nominating Committee held no meetings during the 1998
fiscal year.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

For the Company's fiscal year ended September 30, 1998, the Compensation
Committee was composed of Messrs. Copses (Chairman), Berg and Kanter. None of
such directors had any "interlock" relationship to report during the fiscal
year ended September 30, 1998.

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EXECUTIVE COMPENSATION

SUMMARY COMPENSATION TABLE

The following table sets forth certain summary information concerning
compensation earned during fiscal 1998 by the individuals serving as the Chief
Executive Officer of the Company during fiscal 1998 and the four other most
highly compensated executive officers of the Company serving at September 30,
1998 who earned over $100,000 in salary and bonus. See "--Employment and
Severance Agreements" below for a description of the employment and severance
agreements entered into with the executives named below.

<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION ($) COMPENSATION
----------------------------------------- ---------------
SECURITIES
NAME AND FISCAL OTHER ANNUAL UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION OPTIONS/SARS(#) COMPENSATION
- ------------------- ------ -------- -------- ------------- --------------- ------------
<S> <C> <C> <C> <C> <C> <C>
KEITH B. PITTS 1998(1) $641,154 $ -- $ -- (2) 1,715,500 $ 200,000(3)
Chairman of the Board
and 1997(1) -- -- -- -- --
Chief Executive Officer 1996(1) -- -- -- -- --
William R. Korslin 1998 $300,000 $ 22,500 $ -- (2) 165,000 $ 300,000(3)
President--
Pharmaceutical 1997 207,577 80,640 -- 3,750 --
Services Division 1996 188,301 99,940 -- 26,250 --
David L. Ward 1998 $239,235 $ -- $59,929(4) 90,000 $ --
President-- 1997 180,320 53,535 60,491(5) 3,750 --
Rehability Health 1996(6) 55,516 -- -- 26,250 --
Charles B. Carden 1998 $334,230 $ -- $55,685(7) 180,000 $ 350,000(3)
Executive Vice 1997(8) 231,480 120,540 40,671(9) 127,500 --
President and Chief 1996(8) -- -- -- -- --
Financial Officer
R. Jeffrey Taylor 1998(10) $271,741 $ -- $ -- (2) 185,000 $ 250,000(3)
Executive Vice 1997(10) -- -- -- -- --
President and Chief 1996(10) -- -- -- -- --
Development Officer
Edward L. Kuntz 1998(11) $132,785 $ -- $ -- (2) -- $2,575,000(12)
Chairman of the 1997 598,181 275,520 -- -- 24,484
Board and Chief 1996 482,990 193,050 -- 183,825 11,591
Executive Officer
</TABLE>
- --------
(1) Mr. Pitts' employment commenced November 4, 1997. Accordingly,
compensation information for fiscal 1998 reflects a partial year of
service and compensation information for fiscal 1997 and 1996 is not
reflected.
(2) Does not reflect non-cash compensation in the form of personal benefits
provided by the Company that may have value to the recipient. Although
such compensation cannot be determined precisely, the Company has
concluded that the aggregate value of such benefits awarded to this named
executive officer did not exceed the lesser of $50,000 or 10% of his
salary and bonus for any fiscal year to which such benefits pertain.
(3) Represents signing bonuses paid by the Company following the November 4,
1997 merger of an affiliate of Apollo with and into Living Centers of
America, Inc. ("LCA") and subsequent merger of GranCare, Inc. ("GranCare")
into a wholly-owned subsidiary of LCA (the "Apollo/LCA/GranCare Mergers").
(4) Includes $54,758 in relocation expenses and $5,171 in automobile
allowance.
(5) Includes $58,844 in relocation expenses and $1,647 in automobile
allowance.
(6) Mr. Ward's employment with the Company commenced in May 1996. Accordingly,
compensation information for fiscal 1996 reflects a partial year of
service.
(7) Represents $49,255 in relocation expenses and $6,430 in automobile
allowance.
(8) Mr. Carden's employment with the Company commenced on October 1, 1996.
Accordingly, compensation information for fiscal 1997 reflects a partial
year of service and compensation information for fiscal 1996 is not
reflected.
(9) Includes $38,044 in relocation expenses and $2,627 in automobile
allowance.
(10) Mr. Taylor's employment with the Company commenced on November 19, 1997.
Accordingly, compensation information for fiscal 1998 reflects a partial
year of service and compensation information for fiscal 1997 and 1996 is
not reflected.
(11) Mr. Kuntz resigned from all positions with the Company on November 4,
1997.
(12) Includes $2,375,000 paid to Mr. Kuntz in respect of a non-competition
agreement entered into following the Apollo/LCA/GranCare Mergers and
$200,000 in respect of consulting fees.

6
<PAGE>

OPTIONS GRANTS, EXERCISES AND YEAR-END VALUE TABLES

The following tables provide information on options to purchase Common Stock
that were granted during the fiscal year ended September 30, 1998 and
summarize the value of such options held at the end of such fiscal year.

OPTIONS/SAR GRANTS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
INDIVIDUAL GRANTS GRANT DATE VALUE
------------------------------------- --------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/SARS
UNDERLYING GRANTED TO EXERCISE OR
OPTIONS/SARS EMPLOYEES IN BASE PRICE GRANT DATE
NAME GRANTED FISCAL YEAR ($/SH) PRESENT VALUE ($)(1)
- ---- ------------ ------------ ----------- --------------------
<S> <C> <C> <C> <C>
Mr. Pitts................... 1,465,500 22.29% $16.350 $15,182,580.00
250,000 3.80% $12.125 $ 1,897,500.00
Mr. Korslin................. 135,000 2.05% $16.350 $ 1,398,600.00
30,000 .45% $12.125 $ 227,700.00
Mr. Ward.................... 75,000 1.14% $16.350 $ 777,000.00
15,000 .22% $12.125 $ 113,850.00
Mr. Carden.................. 150,000 2.28% $16.350 $ 1,554,000.00
30,000 .45% $12.125 $ 227,700.00
Mr. Taylor.................. 105,000 1.59% $16.420 $ 1,080,450.00
80,000 1.21% $12.125 $ 607,200.00
</TABLE>
- --------
(1) Calculated using the Black-Scholes option pricing model.

AGGREGATE OPTION/SAR EXERCISES DURING LAST FISCAL YEAR
AND VALUE OF OPTIONS/SARS AT FISCAL YEAR-END

<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED
SECURITIES UNDERLYING VALUE OF UNEXERCISED
OPTIONS/SARS AT FISCAL IN-THE-MONEY OPTIONS/SARS
SHARES YEAR-END AT FISCAL YEAR-END($)(1)
ACQUIRED ON VALUE -------------------------- -------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Mr. Pitts............... -- -- -- 1,715,500 (2) -- --
Mr. Korslin............. -- -- -- 165,000 (3) -- --
Mr. Ward................ -- -- -- 90,000 (4) -- --
Mr. Carden.............. -- -- -- 180,000 (5) -- --
Mr. Taylor.............. -- -- 18,297(6) 185,000 (7) -- --
</TABLE>
- --------
(1) As of September 30, 1998, the exercise prices of all options held by the
named executive officers were above the closing price of the Common Stock
on that date ($5.125).
(2) Includes options to purchase 1,465,500 and 250,000 shares of Common Stock
at exercise prices of $16.35 and $12.125, respectively.
(3) Includes options to purchase 135,000 and 30,000 shares of Common Stock at
exercise prices of $16.35 and $12.125, respectively.
(4) Includes options to purchase 75,000 and 15,000 shares of Common Stock at
exercise prices of $16.35 and $12.125, respectively.
(5) Includes options to purchase 150,000 and 30,000 shares of Common Stock at
exercise prices of $16.35 and $12.125, respectively.
(6) Represents options to purchase 18,297 shares of Common Stock at exercise
price of $11.73 that were granted to Mr. Taylor when he was an officer of
GranCare, Inc. and were assumed by the Company following the
Apollo/LCA/GranCare mergers.
(7) Includes options to purchase 105,000 and 80,000 shares of Common Stock at
exercise prices of $16.42 and $12.125, respectively.

EMPLOYMENT AND SEVERANCE AGREEMENTS

The Company has entered into employment and severance agreements with its
current Chief Executive Officer, Keith B. Pitts, and each of the executive
officers named in the Summary Compensation Table above. The material terms of
these agreements are set forth below.

7
<PAGE>

Keith B. Pitts. The Company entered into an employment agreement with Mr.
Pitts dated November 4, 1997, which was amended pursuant to an agreement dated
July 31, 1998 (the "July Amendment"). As amended, Mr. Pitts' employment
agreement provides for a term that commenced November 4, 1997 and continues
through the fourth anniversary of the consummation of the Mariner Merger (the
Mariner Merger was consummated on July 31, 1998 and such date is referred to
herein as the "Mariner Merger Date"). Following the fourth anniversary of the
Mariner Merger Date the agreement provides for annual automatic extensions of
the term for an additional year unless, not later than 90 days prior to any
such anniversary, either party notifies the other that such extension shall
not take effect. Prior to the July Amendment, the agreement provided for a
base salary of $700,000 per year, subject to annual increases as determined by
the Compensation Committee. In connection with the July Amendment, Mr. Pitts'
base salary was raised to $850,000. The agreement permits Mr. Pitts to earn an
annual bonus of between 50% and 150% of his annual base salary if certain
performance standards established by the Compensation Committee are achieved.
Upon execution of his employment agreement, Mr. Pitts received a $200,000
signing bonus. Additionally, pursuant to the July Amendment, the Company is
required to reimburse Mr. Pitts for all out-of-pocket expenses incurred by Mr.
Pitts in connection with his own health care or the health care of his
dependents through the later of the date of the termination of Mr. Pitts'
employment or November 4, 2004.

The agreement may be terminated at any time by Mr. Pitts for "good reason"
(consisting of certain actions or failures to act by the Company following a
"change in control" as defined in the agreement), or with 60 days' prior
written notice for any other reason. If, following a change in control, the
Company terminates Mr. Pitts' employment in breach of the agreement or Mr.
Pitts terminates his employment for "good reason," then the Company is
required to pay Mr. Pitts his full salary through the "date of termination"
(as defined in the agreement) and all other unpaid amounts due under any
compensation plan, together with liquidated damages equal to three times the
sum of his annual salary and his average bonus for the two previous fiscal
years. If, prior to a change in control, the Company terminates Mr. Pitts'
employment without cause or Mr. Pitts terminates his employment or resigns as
a result of the Company's failure to comply with a material provision of the
agreement, the Company is required to pay Mr. Pitts his full salary through
the date of termination and all other unpaid amounts due under any
compensation plan, together with liquidated damages equal to the product of
(A) the sum of his annual salary and his average bonus for the two previous
fiscal years and (B) the lesser of (x) the number three and (y) the greater of
the number of years remaining in the term of the agreement and the number two.

In addition, on November 4, 1997, pursuant to the terms of his employment
agreement, Mr. Pitts was granted options to purchase 1,465,500 shares of
Common Stock at an exercise price of $16.35 per share, representing the fair
market value of the Common Stock on the date of grant. The options vest in 25%
annual increments beginning on November 4, 1998 and become exercisable in full
following Mr. Pitts' termination of employment (i) by the Company following a
change of control or (ii) by Mr. Pitts for "good reason."

Charles B. Carden. The Company entered into an employment agreement with Mr.
Carden dated November 4, 1997. Mr. Carden's agreement provides for a three-
year term, with annual automatic extensions of the term for an additional year
unless, not later than 90 days prior to any such anniversary, either party
notifies the other that such extension shall not take effect. The agreement
provides for a base salary to Mr. Carden of $345,000 per year, subject to
annual increases and bonus opportunities as described in the "Compensation
Committee Report on Executive Compensation." Upon execution of his employment
agreement, Mr. Carden received a $350,000 signing bonus.

The agreement may be terminated at any time by Mr. Carden for "good reason"
(consisting of certain actions or failures to act by the Company following a
"change of control," as defined in the agreement), or with 60 days' prior
written notice for any other reason. If, following any change of control, the
Company terminates Mr. Carden's employment in breach of the agreement or Mr.
Carden terminates his employment for good reason, then the Company is required
to pay Mr. Carden his full salary through the "date of termination" (as
defined in the agreement) and all other unpaid amounts due under any other
compensation plan, together with liquidated damages which, subject to certain
limited exceptions, are equal to two and one-half times the sum of Mr.
Carden's annual salary and average bonuses for the two previous fiscal years.
In addition, the Company is also

8
<PAGE>

required to pay Mr. Carden a bonus (a "Separation Bonus") at a specified
target performance level, prorated to reflect the portion of the fiscal year
worked by Mr. Carden prior to termination of his employment. If, prior to a
change of control, the Company terminates Mr. Carden's employment without
cause or Mr. Carden resigns as a result of the Company's failure to comply
with a material provision of the agreement, the Company is required to pay Mr.
Carden his full salary through the date of termination and all other unpaid
amounts due under any compensation plan, together with liquidated damages
equal to the greater of either (A) the remaining amount of base salary owed
for the term of the agreement; or (B) an amount equal to the sum of (x) 12
months of Mr. Carden's base salary, plus (y) one additional month of Mr.
Carden's base salary at the aforementioned rate for each full year of service
beyond the first anniversary of his employment agreement, with a maximum of 24
months of base salary payments. In such event, the Company is also required to
pay Mr. Carden the Separation Bonus described above.

William R. Korslin. The Company entered into an employment agreement with
Mr. Korslin dated November 4, 1997 with the same term and automatic annual
extensions as are described above with respect to Mr. Carden's agreement. The
agreement provides for a base salary to Mr. Korslin of $300,000 per year,
subject to annual increases and bonus opportunities as described in the
"Compensation Committee Report on Executive Compensation." Upon executing his
agreement Mr. Korslin received a signing bonus of $300,000. Mr. Korslin's
agreement may be terminated on substantially the same terms as are described
above with respect to Mr. Carden's agreement.

R. Jeffrey Taylor. The Company entered into an employment agreement with Mr.
Taylor dated November 19, 1997. Mr. Taylor's agreement provides for a two-year
term, with annual automatic extensions of the term for an additional year
unless, not later than 90 days prior to any such anniversary, either party
notifies the other that such extension shall not take effect. The agreement
provides for a base salary to Mr. Taylor of $290,000 per year, subject to
annual increases and bonus opportunities as described in the "Compensation
Committee Report on Executive Compensation." The amount of Mr. Taylor's base
salary was increased to $350,000 on July 31, 1998 following the Mariner
Merger. Upon execution of his employment agreement, Mr. Taylor received a
$250,000 signing bonus.

The agreement may be terminated at any time by Mr. Taylor for "good reason"
(consisting of certain actions or failures to act by the Company following a
"change of control," as defined in the agreement), or with 60 days' prior
written notice for any other reason. If, following any change of control, the
Company terminates Mr. Taylor's employment in breach of the agreement or Mr.
Taylor terminates his employment for good reason, then the Company is required
to pay Mr. Taylor his full salary through the "date of termination" (as
defined in the agreement) and all other unpaid amounts due under any other
compensation plan, together with liquidated damages which, subject to certain
limited exceptions, are equal to two times the sum of Mr. Taylor's annual
salary and average bonuses for the two previous fiscal years. In addition, the
Company is also required to pay Mr. Taylor a bonus (a "Separation Bonus") at a
specified target performance level, prorated to reflect the portion of the
fiscal year worked by Mr. Taylor prior to termination of his employment. If,
prior to a change of control, the Company terminates Mr. Taylor's employment
without cause or Mr. Taylor resigns as a result of the Company's failure to
comply with a material provision of the agreement, the Company is required to
pay Mr. Taylor his full salary through the date of termination and all other
unpaid amounts due under any compensation plan, together with liquidated
damages equal to the greater of either (A) the remaining amount of base salary
owed for the term of the agreement; or (B) an amount equal to the sum of (x)
nine months of Mr. Taylor's base salary, plus (y) one additional month of Mr.
Taylor's base salary at the aforementioned rate for each full year of service
beyond the first anniversary of his employment agreement, with a maximum of 24
months of base salary payments. In such event, the Company is also required to
pay Mr. Taylor the Separation Bonus described above.

David L. Ward. The Company entered into an employment agreement with Mr.
Ward dated November 4, 1997 with the same term and automatic annual extensions
as are described above with respect to Mr. Taylor's agreement. The agreement
provides for a base salary to Mr. Ward of $250,000 per year, subject to annual
increases and bonus opportunities as described in the "Compensation Committee
Report on Executive Compensation." Under the terms of his employment
agreement, Mr. Ward is entitled to receive a $200,000

9
<PAGE>

bonus based on the performance of the Company's Rehability Health division for
the fiscal year ended September 30, 1998. The Company believes that this bonus
has been earned and plans on paying such bonus to Mr. Ward during fiscal 1999.
Mr. Ward's agreement may be terminated on substantially the same terms as are
described above with respect to Mr. Taylor's agreement

Edward L. Kuntz. The Company entered into an Agreement Respecting
Termination of Employee-Employer Relationship with Mr. Kuntz dated November 4,
1997. Under this agreement, in consideration of his waiver of the Company's
obligations under his former employment agreement, Mr. Kuntz received the
following: (i) $1,000,000 on November 4, 1997; (ii) title to an automobile;
(iii) $24,000 in lieu of the receipt of certain benefits due to Mr. Kuntz
under the terms of his former employment agreement; (iv) payment with respect
to all of Mr. Kuntz's outstanding options under the LCA 1992 Stock Option Plan
(the "1992 Plan"); and (v) reimbursement for certain excise taxes that were
paid by Mr. Kuntz in connection with payments received under this agreement.
The agreement also provides for a three-year consulting arrangement pursuant
to which Mr. Kuntz receives annual compensation of $100,000 per year. Mr.
Kuntz received, in exchange for certain covenants pertaining to non-
solicitation and use of confidential information, $1,800,000 on November 4,
1997, $575,000 on November 1, 1998, with a subsequent payment of $75,000 on
November 1, 1999.

CERTAIN RELATED TRANSACTIONS AND AGREEMENTS

Transactions Arising in Connection with the Apollo/LCA/GranCare Mergers

Certain Investments in the Company. Two private investment funds, Healthcare
Equity Partners, L.P. and Healthcare Equity QP Partners, L.P. (together, the
"Healthcare Funds"), that are affiliates of William G. Petty, Jr., a director
of the Company, made a $10 million equity investment in the Company as one of
the Apollo Investors as part of the Apollo/LCA/GranCare Mergers. Mr. Petty is
a managing director of Beecken Petty & Company, L.L.C., the general partner of
each of the Healthcare Funds, and indirectly owns less than 1% of the limited
partnership interests in the Healthcare Funds. The investment was made on
November 4, 1997.

In addition, Keith B. Pitts, the Chairman, Chief Executive Officer and a
director of the Company, made a $2 million equity investment in the Company on
November 4, 1997 as one of the Apollo Investors. Mr. Pitts served as a
consultant to Apollo in connection with the Apollo/LCA/GranCare Mergers. Mr.
Pitts was released from his obligations under the Stockholders Agreement and
the Proxy and Voting Agreement described below in connection with the July 31,
1998 acquisition by merger (the "Mariner Merger") of Mariner Health Group,
Inc. ("Mariner Health").

Walnut Growth Partners, L.P. ("Walnut Growth"), a private investment fund,
made a $1 million equity investment in the Company on November 4, 1997 as one
of the Apollo Investors. Joel S. Kanter, a director of the Company, is also
the Chief Executive Officer and a director of Walnut Financial Services, Inc.
("Walnut Financial"), which holds an indirect minority ownership position in
the company that manages Walnut Growth. Walnut Growth is 100% owned by a
pension fund and Mr. Kanter has no investment and no dispositive power with
respect to shares held by Walnut Growth. Gene E. Burleson, a director of the
Company, is also a director of Walnut Financial.

Agreements with Apollo. In connection with the Apollo/LCA/GranCare Mergers,
the Company and the Apollo Investors entered into a Stockholders Agreement
(the "Stockholders Agreement"), dated as of November 4, 1997, which was
amended on April 13, 1998 and effective July 31, 1998 (the "First Amendment")
and further amended on November 25, 1998 (the "Second Amendment," and as
amended and restated, the "Amended Stockholders Agreement"). The Amended
Stockholders Agreement, among other things, provides Apollo with the right to
designate five of the eleven nominees for election to the Board of Directors
of the Company (no more than four of whom can be Associates of Apollo), so
long as the Apollo Investors continue to beneficially own at least 66-2/3% of
the shares of the Common Stock of the Company acquired by them on November 4,
1997; provided that if at any time after July 31, 2003 the Apollo Investors
beneficially own less than 40% of the outstanding shares of the Company's
Common Stock, Apollo will only have the right to designate such number of
nominees as will be equal to its pro rata ownership of the issued and
outstanding shares of Company Common Stock. The Stockholders Agreement also
contains certain standstill provisions limiting (i) the aggregate amount of
the issued and outstanding Common Stock that the Apollo Investors may own to
49% and (ii) certain other activities that can be engaged in by the Apollo
Investors.

10
<PAGE>

The Amended Stockholders Agreement permits the Apollo Investors to transfer
their shares of Company Common Stock, provided that if the Apollo Investors
transfer more than one-third of the shares of the Common Stock acquired by
them on November 4, 1998, then Apollo's right to nominate directors will be
limited to four directors, and if the Apollo Investors transfer more than one-
half of such shares, then Apollo's right to nominate directors will be limited
to two. If the Apollo Investors transfer more than three-fourths of such
shares, Apollo will no longer have any right to nominate directors pursuant to
the Amended Stockholders Agreement. Furthermore, if the size of the Company's
Board of Directors is increased, Apollo has the right to nominate additional
members to the Company's Board to the extent necessary to make the number of
Apollo nominees as compared to the total number of directors not less than the
Apollo Investors' percentage ownership of the Company Common Stock outstanding
at such time. The Apollo nominees must approve any increase in the size of the
Company's Board. The Apollo Investors may transfer their rights to designate
directors in connection with the transfer of at least two-thirds of their
initial investment in the Common Stock, with the approval of a majority of the
directors who are not Apollo designees.

In connection with the negotiation of the Agreement and Plan of Merger dated
as of April 13, 1998 among the Company, Paragon Acquisition Sub, Inc. and
Mariner Health (the "Mariner Merger Agreement") Apollo and the Company entered
into the First Amendment. The First Amendment, among other things, reduced the
number of directors that Apollo is entitled to nominate from six to five,
extended the period during which Apollo is entitled to nominate five directors
from November 4, 2000 to July 31, 2003 and released Mr. Pitts from his rights
and obligations under the Stockholders Agreement. The Second Amendment was
entered into in order to cure certain deficiencies in the First Amendment and
in order to clarify certain issues. The Second Amendment (i) clarified that
the Apollo Investors may purchase up to 49% of the Company's Common Stock
issued and outstanding at anytime, (ii) conformed and clarified certain
affiliate definitions, (iii) liberalized the restrictions on loosely
affiliated "associates," and (iii) revised the standstill provisions to
provide for the termination of the agreement in the event of an unsolicited,
non Board approved offer to purchase 30% or more of the Company's voting
securities.

Proxy and Voting Agreement. Pursuant to a Proxy and Voting Agreement dated
as of November 4, 1997 (the "Proxy and Voting Agreement") entered into by the
Apollo Investors, voting control of all of the shares of Company Common Stock
beneficially owned by the Apollo Investors is held by Apollo for the period
ending on November 4, 2000. Apollo has agreed to vote the shares subject to
this agreement in favor of election of all nominees of the Company's
Nominating Committee and not to vote such shares for the removal of any such
nominee. Pursuant to the Amended Stockholders Agreement, Apollo has the right
select two of the five members of the Nominating Committee and has selected
Messrs. Kissick and Copses as its nominees. Because Apollo's nominees
represent greater than one-third of the Company's entire Board, Apollo may be
able to prevent certain actions from being taken that require a super-majority
vote of the Company's Board.

Registration Rights Agreement. Under the terms of an agreement between the
Company and the Apollo Investors (the "Apollo Registration Rights Agreement"),
the Apollo Investors are entitled to require the Company to register under the
Securities Act of 1933, as amended (the "Securities Act"), not less than 10%
of the shares of the Common Stock acquired by them in the Apollo/LCA/GranCare
Mergers (the "Registrable Shares"). The Apollo Registration Rights Agreement
also entitles the Apollo Investors, subject to certain exceptions, to include
the Registrable Shares in any registration of equity securities of the Company
under the Securities Act. However, the principal underwriter of any such
offering may exclude some or all of such Registrable Shares from such
registration. The Company is generally required to bear the expenses of all
such registrations, except underwriting discounts and commissions.

Transactions Arising in Connection with Mariner Merger

Stratton Employment Agreement. The Company has entered into an employment
agreement with Arthur W. Stratton, Jr., M.D. which became effective upon the
consummation of the Mariner Merger. Dr. Stratton's employment agreement
provides for substantially the same terms as Mr. Pitts' employment agreement.
See "Employment and Severance Agreements." Dr. Stratton also received options
to purchase one million shares of Common Stock upon joining the Company as
Vice-Chairman of the Board, President and Chief Operating

11
<PAGE>

Officer. In connection with the Mariner Merger, Dr. Stratton's employment
under his employment agreement with Mariner Health (the "Mariner Stratton
Employment Agreement") was deemed terminated without cause as of the effective
time of the Mariner Merger. As a result, Dr. Stratton received a payment of
approximately $9.9 million. Dr. Stratton also received an additional payment
(a "Gross-Up Payment") in an amount such that after payment by Dr. Stratton of
all taxes (including any interest or penalties imposed with respect to any
such taxes), including any excise tax imposed upon the Gross-Up Payment, Dr.
Stratton retained an amount of the Gross-Up Payment equal to any excise tax
imposed upon the payment. The amount of the Gross-Up Payment made to Dr.
Stratton was approximately $7.0 million. In addition, Mariner Health paid Dr.
Stratton's normal post-termination benefits and is obligated to provide
coverage for Dr. Stratton and his dependents under its health benefit plans
and arrangements until the seventh anniversary of such termination.

Cash-out of Mariner Health Options. In connection with the Mariner Merger,
the Company's Board of Directors desired to terminate those options to
purchase the common stock of Mariner Health as were permitted by their terms
to be canceled. Accordingly, prior to the Mariner Merger, the Company
requested that the outstanding options to purchase shares of Mariner Health
common stock be terminated in connection with the Mariner Merger in exchange
for cash payments. Under the terms of the Mariner Merger Agreement, each
option granted pursuant to the Mariner Health 1992 Stock Option Plan and
Mariner Health 1994 Stock Plan (referred to collectively herein as "Cash
Payment Options") was converted into the right to receive a cash payment equal
to the product of (i) $20 less the per share exercise price required by such
Cash Payment Option and (ii) the number of shares subject to such Cash Payment
Option. Additionally, under the terms of the Mariner Merger Agreement, options
issued pursuant to Mariner Health's 1995 Non-Employee Director Stock Option
Plan, the rights to acquire shares of Mariner Health common stock pursuant to
the 1993 Employee Stock Purchase Plan, and certain other options and warrants
to purchase the common stock of Mariner Health assumed or granted by Mariner
Health in connection with historical transactions or otherwise (referred to
collectively herein as "Assumed Options") were assumed by the Company. As a
result of the Mariner Merger, each Assumed Option was converted into an option
to acquire a number of shares of Common Stock equal to the number of shares of
the Mariner Health common stock subject to the applicable Assumed Option on
the same terms and conditions as were applicable under such option.

As a result of the Mariner Merger, Arthur W. Stratton, Jr., M.D. received a
cash payment of approximately $17.2 million in respect of the termination of
all of Dr. Stratton's outstanding options. All of the options held by Samuel
B. Kellett were Assumed Options

Certain Arrangements with the Kelletts and Their Affiliates

In January 1996, Mariner Health engaged in a merger transaction (the "CSI
Merger") with Convalescent Services, Inc. ("CSI"), an entity owned by Samuel
B. Kellett and Stiles A. Kellett, Jr. (collectively, the "Kelletts"). Samuel
B. Kellett is a member of the Company's Board of Directors. In addition to the
CSI Merger, Mariner Health acquired certain assets consisting of the skilled
nursing facilities known as Arlington Heights Nursing Center in Fort Worth,
Texas, and Randol Mill Manor in Arlington, Texas. Prior to the CSI Merger,
these facilities were leased by CSI from partnerships owned by the Kelletts.
As part of the aforementioned asset purchase transaction, Mariner Health made
interest-free loans to the partnerships that owned Arlington Heights Nursing
Center and Randol Mill Manor, in the principal amounts of $955,521 and
$663,256, respectively, which mature on May 24, 1999 and 2000, respectively.
The Kelletts have guaranteed the repayment of these loans.

Also in connection with the CSI Merger, Mariner Health entered into leases
for 14 skilled nursing facilities (collectively, the "Leased Facilities") from
partnerships owned or controlled by the Kelletts. Each of the leases for the
Leased Facilities (the "Leases"), certain of which were amended in connection
with the Mariner Merger as described below, has a base term of eight years and
four months from January 2, 1996 as well as a number of five-year renewal
terms at the option of Mariner Health, except that the Lease for Centerville
Care Center has a term of seven years and four months with no renewal terms.
Each Lease provides for a fixed rent, which will not increase over the base or
renewal terms of such Lease. The aggregate annual rent for the Leased
Facilities is approximately $8.0 million. In addition to paying scheduled rent
for each Leased Facility, Mariner Health is required to pay all utilities,
insurance and property taxes and to maintain the condition of the Leased
Facility.

12
<PAGE>

In addition, Mariner Health manages certain nursing facilities on behalf of
partnerships controlled by the Kelletts, for which Mariner Health earned an
aggregate amount of approximately $.9 million during the fiscal year ended
September 30, 1998. The owner of the managed facility is responsible for the
fees and expenses of the managed facility, which are generally paid by Mariner
Health and reimbursed by the owner. As of September 30, 1998, Mariner Health
believes that it was owed approximately $3.1 million in respect of these
working capital advances primarily related to repayments for units being
vacated in accordance with membership agreements and recoupment requirements
from a third party intermediary. Mariner Health and the relevant Kellett
partnership are currently having discussions regarding the actual amounts owed
to Mariner Health. Mariner Health also provided rehabilitation therapy
services to one of the managed facilities, for which Mariner Health received
an aggregate amount of approximately $.9 million during the fiscal year ended
September 30, 1998.

Mariner Merger. In connection with the Kellett's execution and delivery of a
Voting Agreement dated as of April 13, 1998 by and among the Company and
certain stockholders of Mariner Health (including the Kelletts), the Kelletts,
Mariner Health and the Company agreed to use commercially reasonable best
efforts to resolve certain previously existing issues between the Kelletts and
Mariner Health. Subsequently, the Company, Mariner Health, the Kelletts and
certain other parties entered into an Agreement Regarding Certain Kellett
Issues dated June 19, 1998 (the "Kellett Agreement") pursuant to which the
parties agreed to the following actions, which became effective as of the
effective time of the Mariner Merger:

(i) The previously existing stockholders agreement among Mariner Health and
the Kellett Group, relating, among other things, to the voting and disposition
of shares of Mariner Health common stock by the Kellett Group, was terminated.

(ii) Mariner Health was seeking contractual indemnification under the merger
agreement pertaining to the CSI Merger from the Kelletts and certain of their
affiliates arising from certain litigation matters that were not covered by
insurance. The Kelletts and their affiliates disputed certain aspects of
Mariner Health's claims, and the matter was submitted to arbitration prior to
the date of the Kellett Agreement. Under the terms of the Kellett Agreement,
the issues that were subject to arbitration were resolved in favor of the
Kelletts and their affiliates.

(iii) Mariner Health has fixed-price options to purchase 12 of the 14 Leased
Facilities. Currently, the aggregate purchase price for the 12 Leased
Facilities is approximately $53.0 million, and Mariner Health has previously
made deposits of approximately $13.2 million with the lessors of such
facilities in respect of such options. Each of these options currently
continues in full force and effect, regardless of whether Mariner Health
continues to lease the facility through the exercise date of the option. Under
the terms of the Kellett Agreement, the parties thereto have agreed that if
Mariner Health defaults under a lease by failing to pay any rent or other
amounts due under such lease and, as a result of such default, the lessor of
the facility leased under such lease terminates such lease in accordance with
it terms, then the option to purchase such facility will automatically
terminate. The termination of any such option, however, will not effect in any
way any of the other options.

(iv) Mariner Health extended the terms of the Leases on three of the 14
Leased Facilities. The lease for one facility was extended for 10 years, and
the leases for each of the other two facilities were extended for five years.
In addition, the exercise periods for the fixed price options to purchase
these facilities were delayed by a corresponding amount of time, and the
aggregate purchase price for these three facilities pursuant to the related
options were reduced from approximately $14.7 million to approximately $8.2
million.

(v) Effective as of the date on which Mariner Health's senior credit
facility is terminated and the indebtedness thereunder is repaid in full, the
obligations of the partnerships controlled by the Kelletts that lease the
facilities to Mariner Health to provide an intercreditor agreement to certain
of Mariner Health's lenders will be eased to require an intercreditor
agreement reasonably agreeable to the mortgage lender.

(vi) Effective as of the date on which Mariner Health's senior credit
facility is terminated and the indebtedness thereunder is repaid in full, the
Company will (A) assume Mariner Health's obligations under the existing lease
payment guarantees that Mariner Health has entered into to support the
obligations of its subsidiaries that lease skilled nursing facilities from
partnerships controlled by the Kelletts, and (B) if requested by any mortgage
lender to the partnerships controlled by the Kelletts that lease the
facilities to Mariner Health, provide a guaranty of the lessee's obligations
to pay rent under the applicable lease.

13
<PAGE>

COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION

The compensation of the Company's executive officers is determined and
administered by the Compensation Committee of the Board of Directors, which is
composed entirely of independent outside directors and consists of Messrs.
Copses (Chairman), Berg and Kanter. In addition to determining the
compensation of the Chief Executive Officer, the Compensation Committee
reviews and ratifies recommendations made by the Chief Executive Officer
regarding the compensation program for other executive officers of the Company
and administers the Company's Annual Incentive Plan and the Long-Term
Incentive Plan.

In formulating its compensation policy, the Compensation Committee's
objectives are to provide the Company's executives with a competitive total
compensation package and to link a significant portion of compensation to the
achievement of the long-term business objectives of the Company and the
enhancement of stockholder value. At the end of each fiscal year, the
Compensation Committee reviews the performance of the Company and its senior
executives and compares their performance to performance standards set during
the beginning of the fiscal year. The following compensation guidelines serve
as the principles upon which compensation decisions are made:

. Provide a base salary structure for each of the Company's executive
officers based upon the executive officer's position within the Company
and the ability of the executive officer to affect the performance goals
of the Company.

. Provide performance incentives as a significant portion of compensation
packages to increase corporate performance and stockholder value relative
to those of other companies in the long-term care industry.

. Provide a competitive total compensation package that enables the Company
to attract, motivate and retain key executives.

. Provide variable compensation rewards that are linked to the financial
performance of the Company and that align executive compensation with the
interests of stockholders.

Base Salary. The base salaries for the Company's executive officers were
independently negotiated with each of such officers upon their initial
employment by the Company. Ms. Whittle and Messrs. Carden, Korlsin, Taylor and
Ward, formerly officers of either LCA or GranCare and now executive officers
of the Company, had pre-existing employment agreements with either LCA or
GranCare and were required to surrender all rights to any benefits to which
such officer was entitled by virtue of the change in control provisions under
the pre-existing employment agreement as a condition for entering into new
employment agreements with the Company. As partial consideration for such
officers waiving the change in control payments to which they were entitled
under their pre-existing agreements, the Company paid signing bonuses to Ms.
Whittle and Messrs. Carden, Korslin and Taylor. Such payments were in amounts
less than the change in control payments to which such officers were otherwise
entitled and were made on the condition that the executive officer remain
employed by the Company for a period of at least one-year in order to ensure a
smooth transition following the Apollo/LCA/GranCare Mergers. Messrs. Stratton
and Dixon, formerly officers of Mariner Health and now executive officers of
the Company, were paid the benefits under their pre-existing employment
agreements with Mariner Health in connection with the Mariner Merger and
entered into new employment agreements with the Company, for which they did
not receive signing bonuses.

In ratifying employment arrangements for executive officers, the
Compensation Committee considers the position such officer will occupy in the
Company and such officer's potential future impact on the performance of the
Company and salary rates for comparable positions in comparably sized
companies in the long-term care industry. With respect to those executive
officers formerly employed by LCA, GranCare or Mariner Health, the Board also
considered the fact that the combined Company would be substantially larger
than any of the preexisting companies, the increased responsibility associated
therewith, the issues associated with the integration of the constituent
companies and the executive officer's impact thereon and the need for the
executive

14
<PAGE>

officer's services in order to effect a smooth transition. In this process,
all executive officers of LCA, GranCare and Mariner Health that became
executive officers of the Company, other than Dr. Stratton, received salary
increases.

Base salaries for the Company's executive officers are reviewed annually
with the objective that the salaries enable the Company to retain and attract
the best available executive officer candidates. In addition, individual
performance over time is taken into account in determining base salaries. In
this regard, certain of the executive officers received salary increases
during the 1998 fiscal year. The Chief Executive Officer's base salary rate is
set annually by the Compensation Committee and the base salary rate of the
Company's other executive officers are reviewed and approved by the
Compensation Committee based on recommendations made by the Chief Executive
Officer.

Annual Incentives. The Company's Annual Incentive Plan is intended to
promote the attainment of financial objectives and the realization of budgeted
performance improvements, reinforce a strong pay for performance relationship
and provide opportunities for above average annual incentive compensation for
operating results that meet or exceed the Company's high performance
standards. The performance measure for annual incentives for fiscal 1998 was
based upon the attainment by the Company or a division of a pre-determined
level of earnings before interest, taxes, depreciation and amortization
("EBITDA") as well as on net cash collections. For fiscal 1998, no bonuses
were paid at the corporate level and limited bonuses were paid at the
divisional level. For fiscal 1999, bonuses will be paid at the corporate and
divisional levels based on the attainment by the Company of a pre-determined
level of consolidated EBITDA and a portion based on the attainment by the
Company of a pre-determined level of working capital targets (cash flow) or
net cash collections.

Each year the Chief Executive Officer recommends, and the Compensation
Committee reviews, target goals which are used to determine if an annual
incentive has been earned. In establishing these pre-determined goals,
consideration is given to business plan goals, past performance, peer company
performance and investment community expectations. Each executive officer has
been assigned a target bonus ("Target Bonus"), stated as a percentage of base
salary (100% in the case of the Chief Executive Officer and the President and
Chief Operating Officer, 60% in the case of Executive Vice Presidents and
certain Divisional Presidents, 50% in the case of Senior Vice Presidents and
other Divisional Presidents and 40% in the case of Vice Presidents) that will
be payable upon the attainment by the Company of the pre-determined
performance criteria. An officer can earn from 50% to 150% of a Target Bonus
depending on the performance of the Company vis a vis the performance goals.
Target Bonuses are payable in cash as soon as practicable following the end of
the Company's fiscal year.

Long-Term Incentives. The long-term component of the Company's executive
compensation structure consists of the discretionary grant of stock options
under the Company's Long-Term Incentive Plan. Generally, the Chief Executive
Officer recommends option awards, which are then submitted to the Compensation
Committee for approval. Options are also generally granted to executive
officers and other qualified employees upon their initial employment by the
Company. Following the consummation of the Apollo/LCA/GranCare Mergers,
options to purchase Common Stock were granted to each of the Company's
executive officers. These option awards were at fair market value and the
number granted to each executive officer depended on the officer's seniority
and perceived ability to affect future operating results of the Company.
Similar option grants were made following the Mariner Merger to those Mariner
Health officers continuing their employment with the Company. Additional
option grants were also made following the Mariner Merger to the preexisting
Company officers in recognition of the fact that the price of the Company's
Common Stock following the Mariner Merger was significantly below the price of
the Common Stock at the time the initial option grants were made and in order
to make up part of the difference between the option grants of preexisting
executive officers with those of the new executive officers.

The Compensation Committee may, but is not required to, make option grants
to the Company's executive officers in the future. The Compensation Committee
expects that it will continue to make option awards to new executive officers
of the Company upon their initial employment with the Company. The Committee
is also in the process of examining alternative policies whereby officers of
the Company would receive annual grants of stock options based on the
officers' salary and level of responsibility.

15
<PAGE>

Compensation of Chief Executive Officer. Mr. Pitts was selected to be the
Chief Executive Officer of the Company following the Apollo/LCA/GranCare
Mergers by a committee consisting of representatives of LCA, GranCare and
Apollo. An agreement was negotiated with Mr. Pitts whereby Mr. Pitts initially
received $700,000 per year, subject to annual increases as determined by the
Compensation Committee. Mr. Pitts received a $200,000 signing bonus, the
ability to earn an annual bonus of between 50% and 150% of base salary and
options to purchase 1,465,500 shares of Common Stock at an exercise price of
$16.35 per share (as adjusted for the Stock Split). In ratifying Mr. Pitts'
employment agreement, the Compensation Committee considered Mr. Pitts'
extensive experience in the healthcare industry. The Company and Mr. Pitts
entered into the employment agreement on November 4, 1997. Following the
execution of his employment agreement, the Compensation Committee also granted
to Mr. Pitts the ability to earn a performance period bonus for the period
beginning on November 4, 1997 and ending on November 4, 2001. If the average
20 day closing price of the Common Stock ending on November 4, 2001 exceeds
$16.35, then Mr. Pitts will earn a performance period bonus equal to
approximately $4.2 million which may, at the discretion of the Compensation
Committee, be paid at a later date when Mr. Pitts exercises, in full or in
part, his original option grant. The percentage of the bonus paid at the time
of any original option exercise will be equal to the percentage of the total
original option grant exercised by Mr. Pitts.

As stated above, because the performance measures were not attained at the
corporate level, no annual incentive bonus was paid to Mr. Pitts for the 1998
fiscal year. Following the consummation of the Mariner Merger, Mr. Pitts
received an option to purchase an additional 250,000 shares of Common Stock at
$12.125 per share. This option award was made at the same time as the option
awards to the former officers of Mariner Health who continued their employment
with the Company. Additionally, because the Committee felt that it would be
inequitable for Mr. Pitts' base salary to be lower than Dr. Stratton's, Mr.
Pitts' base salary was raised to $850,000 following the Mariner Merger in
order to equalize Mr. Pitts' salary with Dr. Sratton's.

Summary. The Compensation Committee believes that the Company's executive
compensation program is competitive with compensation programs of similarly
situated companies and provides the Company's Chief Executive Officer and
other executive officers with the appropriate incentives to achieve the
Company's long-term goals.

Compensation Committee

Peter P. Copses (Chairman)
Laurence M. Berg
Joel S. Kanter

16
<PAGE>

STOCKHOLDER RETURN PERFORMANCE PRESENTATION

The line graph set forth below represents a comparison of the yearly
percentage change in the cumulative total stockholder return on the Company's
Common Stock for the period commencing September 30, 1993 and ending September
30, 1998 with: (i) the total return of the S&P 500 Index; (ii) the Company's
former industry peer group, consisting of Beverly Enterprises, Horizon
Healthcare Services, Inc. (acquired), Genesis Health Ventures, Inc., GranCare,
Inc. (acquired), Integrated Health Services, Inc., Health Care and Retirement
Corporation and Manor Care, Inc. (acquired) (the "Old Peer Group") and (iii) a
new industry peer group, consisting of Beverly Enterprises, Extendicare, Inc.,
Genesis Health Ventures, Inc., HCR Manor Care, Inc., Integrated Health
Services, Inc., Sun Healthcare Group, Inc. and Vencor, Inc. (the "New Peer
Group"). Because of the consolidation in the long-term care industry, the Old
Peer Group was reduced to four members. Accordingly, the Company has added
additional corporations to the New Peer Group. The line graph is based on the
assumption that the value of the investment in the Common Stock, the S&P
Index, the Old Peer Group and the New Peer Group was $100 on September 30,
1993 and that all dividends were reinvested. Through November 4, 1997, the
Common Stock was traded on the NYSE under the symbol "LCA"; from November 5,
1997 through July 31, 1998 the Common Stock was traded on the NYSE under the
symbol "PGN"; and from August 1, 1998 through the present the Common Stock has
traded on the NYSE under the symbol "MPN."

[LINE GRAPH APPEARS HERE]

The graph above was plotted using the following data:

<TABLE>
<S> <C> <C> <C> <C> <C> <C>
9/93 9/94 9/95 9/96 9/97 9/98
Common Stock 100.00 151.50 159.28 119.76 195.21 73.65
Old Peer Group 100.00 145.83 143.50 137.57 205.23 108.00
New Peer Group 100.00 154.31 144.83 141.93 202.98 76.67
S&P 500 100.00 103.69 134.53 161.89 227.37 247.93
</TABLE>

PURSUANT TO SEC RULES, THE COMPENSATION COMMITTEE REPORT ON EXECUTIVE
COMPENSATION AND THE STOCKHOLDER RETURN PERFORMANCE PRESENTATION ARE NOT
DEEMED "FILED" WITH THE SEC AND ARE NOT INCORPORATED BY REFERENCE INTO THE
COMPANY'S ANNUAL REPORT ON FORM 10-K.

17
<PAGE>

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth, as of December 31, 1998, the number and
percentage of shares of Common Stock beneficially owned (as defined in Rule
13d-4 adopted under the Securities Exchange Act of 1934) by (i) all persons
known to the Company to own beneficially more than 5% of the Common Stock of
the Company; (ii) each of the Company's directors; (iii) the Company's current
Chief Executive Officer and the executive officers named in the Summary
Compensation Table elsewhere in this Proxy Statement; and (iv) all current
directors and executive officers of the Company as a group.

<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE
BENEFICIAL OWNER SHARES OWNED OWNED
- ---------------- ------------ ----------
<S> <C> <C>
Keith B. Pitts...................................... 538,225 (1) *
Arthur W. Stratton, Jr., M.D........................ 197,444 (2) *
William R. Korslin.................................. 33,750 (3) *
Charles B. Carden................................... 62,316 (4) *
Laurence M. Berg.................................... 4,391 (5) *
Gene E. Burleson.................................... 634,798 (6) *
Peter P. Copses..................................... 4,647 (7) *
Thomas P. Dixon..................................... 76,302 *
Jay M. Gellert...................................... 4,391 (8) *
Joel S. Kanter...................................... 239,181 (9) *
John H. Kissick..................................... 4,391 (10) *
Samuel B. Kellett................................... 2,178,446 (11) 2.97
William G. Petty, Jr................................ 1,221,161 (12) 1.66
Robert L. Rosen..................................... 4,647 (13) *
R. Jeffrey Taylor................................... 64,781 (14) *
Susan Thomas Whittle................................ 20,350 (15) *
David Ward.......................................... 18,750 (16) *
Ann E. Weiser....................................... 18,750 (17) *
Apollo Management, L.P.............................. 17,627,778 (18) 24.05
All current directors and executive officers as a
group (18 persons)................................. 5,326,721 (19) 14.00
</TABLE>
- --------
* Represents less than one percent of the outstanding shares of Common Stock
at December 31, 1998
(1) Includes exercisable options to purchase 366,375 shares of Common Stock
and includes 5,000 shares held by each of Mr. Pitts' three minor children,
for whom Mr. Pitts serves as custodian.
(2) Includes 28,544 shares owned of record by Dr. Stratton's spouse.
(3) Represents exercisable options to purchase 33,750 shares of Common Stock.
(4) Includes 18,000 shares owned of record by Mr. Carden's spouse, and
includes exercisable options to purchase 33,750 shares of Common Stock.
(5) Includes exercisable options to purchase 3,750 shares of Common Stock.
(6) Includes exercisable options to purchase 221,754 shares of Common Stock.
(7) Includes exercisable options to purchase 3,750 shares of Common Stock.
(8) Includes exercisable options to purchase 3,750 shares of Common Stock.
(9) Includes 30,000 shares owned of record by the Kanter Family Foundation;
140,760 shares owned of record by Walnut Capital, over which Mr. Kanter
has sole voting power and sole dispositive power and as to which Mr.
Kanter disclaims beneficial ownership; 33,360 shares owned of record by
Windy City, Inc., over which Mr. Kanter has sole voting power and sole
dispositive power and as to which Mr. Kanter disclaims beneficial
ownership; 1,000 shares owned in Mr. Kanter's spouse's individual
retirement account; 750 shares owned of record by 21 Club Trust I, over
which Mr. Kanter has sole power and sole dispositive

18
<PAGE>

power and as to which Mr. Kanter disclaims beneficial ownership; 105
shares owned of record by 21 Club Trust II, over which Mr. Kanter has
sole voting power and sole dispositive power and as to which Mr. Kanter
disclaims beneficial ownership; and 105 shares owned of record by 21 Club
Trust III over which Mr. Kanter has sole voting power and sole
dispositive power and as to which Mr. Kanter disclaims beneficial
ownership. Also includes exercisable options to purchase 31,194 shares of
Common Stock.
(10) Includes exercisable options to purchase 3,750 shares of Common Stock.
(11) Includes exercisable options to purchase 5,000 shares of Common Stock,
and includes 18,750 shares held in an irrevocable trust for the benefit
of Margaret Smith, over which Mr. Kellett has sole voting power and sole
dispositive power and to as which Mr. Kellett disclaims beneficial
ownership.
(12) Mr. Petty is an affiliate of Healthcare Equity Partners, L.P. and
Healthcare Equity QP Partners, L.P. (collectively, the "Healthcare
Funds"), which collectively own 740,742 shares of Common Stock. Mr. Petty
is the principal of Beeken Petty & Company, L.L.C., the general partner
of each of the Healthcare Funds, which indirectly owns less than 1% of
the limited partnership interests in the Healthcare Funds. The Healthcare
Funds have no voting and sole dispositive power with respect to all such
shares. Also includes 288,942 shares owned of record by a trust of which
Mr. Petty is a beneficiary over which Mr. Petty has sole voting power and
sole dispositive power, 102,960 shares owned by his spouse and
exercisable options to purchase 87,315 shares of Common Stock.
(13) Includes exercisable options to purchase 3,750 shares of Common Stock.
(14) Includes exercisable options to purchase 44,547 shares of Common Stock,
1,000 shares owned of record by Mr. Taylor's spouse, and 1,000 shares
held on behalf of Mr. Taylor's child, over which Mr. Taylor has sole
voting power and sole dispositive power and to as which Mr. Taylor
disclaims beneficial ownership.
(15) Includes exercisable options to purchase 18,750 shares of Common Stock,
as well as 600 shares held in an estate over which Ms. Whittle has
beneficial ownership and as to which Ms. Whittle has sole voting power
and sole dispositive power.
(16) Represents exercisable options for 18,750 shares of Common Stock.
(17) Represents exercisable options for 18,750 shares of Common Stock.
(18) The business address for Apollo Management, L.P. and its affiliates is
1301 Avenue of the Americas, 38th Floor, New York, New York 10019.
Represents (i) shares owned by one or more entities managed by or
affiliated with Apollo Management, L.P. and (ii) shares owned by the
other Apollo Investors and voted by Apollo Management, L.P. Pursuant to a
Proxy and Voting Agreement entered into among Apollo Management, L.P. and
the Apollo Investors, Apollo Management, L.P. has sole voting power with
respect to all such shares and has no dispositive power with respect to
3,260,187 of such shares (as to which Apollo Management, L.P. disclaims
beneficial ownership). Apollo Management, L.P. has sole voting and
dispositive power over 14,367,591 shares of Common Stock, of which
592,593 shares are subject to a warrant in favor of Chase Venture
Partners L.P. to purchase such shares for nominal consideration, subject
to the satisfaction of certain bank regulatory requirements. The reported
number of shares exceeds the number of shares in which Apollo Management,
L.P. and its affiliates have a pecuniary interest. Messrs. Berg, Copses
and Kissick, each a director of the Company, are limited partners of the
general partner of certain of the Apollo entities and disclaim beneficial
ownership of the shares owned by each of such entities.
(19) Includes 902,435 shares subject to exercisable options.

19
<PAGE>

OTHER BUSINESS

As of the date of this Proxy Statement, management knows of no other
business that will be presented for consideration at the Annual Meeting.
However, if other matters are properly presented at the Annual Meeting, it is
the intention of the proxy holders named in the accompanying proxy to take
such action as shall be in accordance with their judgment on such matters. The
quorum requirement for convening the Annual Meeting is the holders of a
majority of the Common Stock issued and outstanding being present in person or
represented by proxy at the Annual Meeting.

SOLICITATION COSTS

The Company will pay the cost of preparing and mailing this Proxy Statement
and other costs of the proxy solicitation made by the Company's Board of
Directors. Certain of the Company's officers and employees may solicit the
submission of proxies authorizing the voting of shares in accordance with the
Board of Directors' recommendations, but no additional remuneration will be
paid by the Company for the solicitation of those proxies. Such solicitations
may be made by personal interview, telephone and telegram. Arrangements have
also been made with brokerage firms and others for the forwarding of proxy
solicitation materials to the beneficial owners of Common Stock, and the
Company will reimburse such firms for reasonable out-of-pocket expenses
incurred in connection therewith.

STOCKHOLDER PROPOSALS

A stockholder desiring to submit an otherwise eligible proposal for
inclusion in the Company's Proxy Statement for the 2000 annual meeting of
stockholders must deliver the proposal so that it is received by the Company
no later than November 22, 1999. The Company requests that all such proposals
be addressed to Susan Thomas Whittle, Senior Vice President, General Counsel
and Secretary, Mariner Post-Acute Network, Inc., One Ravinia Drive, Suite
1500, Atlanta, Georgia 30346, and mailed by certified mail, return receipt
requested. In addition, the Company's Bylaws require that notice of any
stockholder proposals and related information be received by the Secretary of
the Company not less than 30 nor more than 60 days before the annual meeting
of stockholders. In the event that notice of a stockholder proposal is
received by the Company less than 30 days prior to the annual meeting of
stockholders and the Company elects to waive its right to prevent such
proposal from coming before the annual meeting, the proxies solicited by the
Company for the 1999 annual meeting will grant the Company discretionary
authority to vote on any stockholder proposal received less than 30 days prior
to the 1999 annual meeting.

INDEPENDENT PUBLIC ACCOUNTANTS

Ernst & Young LLP audited the financial statements of the Company for the
years ended September 30, 1998 and 1997. The accountant's reports on the
financial statements for the two fiscal years ended September 30, 1998 did not
contain an adverse opinion or a disclaimer of opinion and were not qualified
or modified as to uncertainty, audit scope or accounting principles. In
connection with the audits of the Company's financial statements for each of
the two most recently ended fiscal years, there were no disagreements with
Ernst & Young LLP on any matters of accounting principles or practices,
financial statement disclosure, or auditing scope and procedures which
disagreements, if not resolved to the satisfaction of Ernst & Young LLP, would
have caused Ernst & Young LLP to make reference to the subject matter of the
disagreement in their report. The Company intends to continue to retain Ernst
& Young LLP as the Company's independent auditors for the 1999 fiscal year. A
representative of Ernst & Young LLP will attend the Annual Meeting and will be
given the opportunity to make a statement and answer questions.

20
<PAGE>

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Under the federal securities laws, the Company's directors and executive
officers, and any persons holding more than 10% of the Common Stock
outstanding, are required to report their initial ownership of Common Stock
and any subsequent changes in that ownership to the Securities and Exchange
Commission and the New York Stock Exchange. Specific due dates for these
reports have been established and the Company is required to disclose in this
Proxy Statement any failure to file by these dates during the Company's most
recent fiscal year. To the Company's knowledge, all of these filing
requirements were satisfied. In making these disclosures, the Company has
relied solely on its review of copies of the reports that have been submitted
to the Company with respect to its most recent fiscal year.

21
<PAGE>

REPORTS TO STOCKHOLDERS

The Company has mailed this Proxy Statement and a copy of its Annual Report
on Form 10-K for the fiscal year ended September 30, 1998 (the "Form 10-K") to
each stockholder entitled to vote at the Annual Meeting. Included in the Form
10-K are the Company's financial statements for the fiscal year ended September
30, 1998. The Form 10-K is not a part of the proxy solicitation material.

Supplemental copies of the Company's Form 10-K may be obtained by
stockholders without charge by sending a written request to Boyd P. Gentry,
Vice President and Treasurer, Mariner Post-Acute Network, Inc., One Ravinia
Drive, Suite 1500, Atlanta, Georgia 30346.

By Order of the Board of Directors,

/s/ Susan Thomas Whittle
Susan Thomas Whittle
Secretary

Atlanta, Georgia
January 13, 1999

22
<PAGE>

MARINER PORT-ACUTE NETWORK, INC.

Please Detach and Mail in the Envelope Provided
- ---------------------------------------------------------------------------------------------------------------------------------
Please mark your |
A [X] votes as in this
example.
<S> <C> <C> <C>
FOR all nominees listed at WITHHOLD NOMINEES:
right (with votes cast equally AUTHORITY to Keith B. Pitts
among nominees, except as vote for all nominees Laurence M. Berg
marked to the contrary) listed at right Gene E. Burleson 2. In their discretion, the proxies are
Peter P. Copses authorized to vote upon such other
1. ELECTION OF Jay M. Gellert business as may properly come before the
DIRECTORS: [_____] [_____] Joel S. Kanter meeting, either in person or by substitute,
Samuel B. Kellett and shall have and exercise all the powers
John H. Kissick of said proxies hereunder.
To withhold authority to vote for any individual nominee, William G. Petty, Jr.
strike a line through the nominee's name at right: Robert L. Rosen THIS PROXY WILL BE VOTED IN ACCORDANCE WITH
Arthur W. Stratton, THE CHOICES SPECIFIED BY THE UNDERSIGNED. IF
Jr., M.D. NO SPECIFICATIONS TO THE CONTRARY ARE INDICATED
HEREON, THIS PROXY WILL BE TREATED AS A GRANT
OF AUTHORITY TO VOTE FOR PROPOSAL 1.

PLEASE SIGN, DATE AND RETURN YOUR PROXY
PROMPTLY IN THE POSTAGE PREPAID ENVELOPE
PROVIDED.

Signature(s) Dated:
--------------------------------------------------------------------------- --------------------------------------

NOTE: Please sign exactly as your name appears hereon. Joint owners should each sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full title as such.
</TABLE>

<PAGE>

MARINER POST-ACUTE NETWORK, INC.

PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR ANNUAL MEETING OF STOCKHOLDERS - FEBRUARY 18, 1999

The undersigned stockholder of Mariner Post-Acute Network, Inc., a
Delaware corporation (the "Company"), acknowledges receipt of the Notice of
Annual Meeting of Stockholders and Proxy Statement dated January 13, 1999, and
the undersigned revokes all other proxies and appoints Keith B. Pitts and Susan
Thomas Whittle, and each of them, the attorneys and proxies for the undersigned,
each with full power of substitution, to attend and act for the undersigned at
the Company's Annual Meeting of Stockholders to be held in Atlanta, Georgia at
10:00 a.m., local time, February 18, 1999 and at any adjournments or
postponements thereof in connection therewith to vote and represent all of the
shares of the Company's common stock, par value $0.01 per share, which the
undersigned would be entitled to vote.

(continued and to be signed and dated on reverse side)