CONFIDENTIAL: THIS DOCUMENT IS PROVIDED FOR SETTLEMENT PURPOSES ONLY AND IS

SUBJECT TO THE PROTECTIONS OF FEDERAL RULE OF EVIDENCE 408 AND ALL SIMILAR

PROVISIONS AND SUPPORTING AUTHORITIES.







                        ANCILLARY RESTRUCTURING AGREEMENT





         THIS ANCILLARY RESTRUCTURING AGREEMENT (this "Agreement") is made as of

this 21st day of December, 2000, by and among (a) OMEGA HEALTHCARE INVESTORS,

INC., a Maryland corporation ("Omega"), (b) PROFESSIONAL HEALTH CARE MANAGEMENT,

INC., a Michigan corporation ("PHCM"), (c) each of the Michigan subsidiaries of

PHCM listed on the signature page hereto (the "Michigan Subsidiaries"), (d)

LIVING CENTERS - PHCM, INC., a North Carolina corporation ("LC-PHCM"), (e)

GRANCARE, INC., a Delaware corporation formerly known as New GranCare, Inc.

("GranCare"), and (f) MARINER POST-ACUTE NETWORK, INC., a Delaware corporation

formerly known as Paragon Health Network, Inc. ("Mariner," and, together with

PHCM, the Michigan Subsidiaries, LC-PHCM and GranCare, collectively, the

"Mariner Entities").



                                   WITNESSETH:



         WHEREAS, PHCM is the owner of thirteen (13) skilled nursing facilities

located in the State of Michigan and identified more particularly on Schedule A

hereto attached and incorporated herein by reference (the "Michigan

Facilities"), and leases each Michigan Facility to the Michigan Subsidiary

indicated opposite the name of such Michigan Facility on Schedule A under

separate facility leases (as amended, collectively, the "Michigan Facility

Leases"); and



         WHEREAS, LC-PHCM is the owner of the three (3) North Carolina skilled

nursing facilities more particularly identified on Schedule A hereto attached

and incorporated herein by this reference (the "North Carolina Facilities", and

together with the Michigan Facilities, the "Facilities") and has leased the

North Carolina Facilities to PHCM, which operates the North Carolina Facilities

under facility leases between LC-PHCM, as lessor, and PHCM, as lessee

(collectively, the "North Carolina Facility Leases", and together with the

Michigan Facility Leases, the "Facility Leases"); and



         WHEREAS, Omega has previously made a loan to PHCM in the original

principal amount of $58,800,000 (the "Omega Loan") pursuant to that certain

Michigan Loan Agreement





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dated as of June 7, 1992 (as heretofore amended, the "Omega Loan Agreement")

between Omega and PHCM; and



         WHEREAS, the Omega Loan is evidenced by that certain Mortgage Note

dated August 14, 1992 (as amended, the "Omega Note"), issued by PHCM and payable

to the order of Omega in the original principal amount of $58,800,000, is

guaranteed by LC-PHCM and the Michigan Subsidiaries, and such loan and guaranty

obligations are secured by, among other things, mortgages on the Facilities and

blanket security interests in the personal property of PHCM and the affiliated

guarantors (the Omega Loan Agreement, the Omega Note and all documents,

instruments and agreements evidencing, guaranteeing or securing the Omega Loan

being hereinafter collectively referred to as the "Omega Loan Documents"); and



         WHEREAS, the Mariner Entities have filed voluntary petitions under

chapter 11 of the United States Bankruptcy Code, 11 U.S.C. ss.ss.101 et seq., as

amended (the "Bankruptcy Code"), on January 18, 2000 (the "Petition Date"),

before the United States Bankruptcy Court for the District of Delaware (the

"Court"), bearing the case numbers set forth on Schedule B hereto attached and

incorporated herein by this reference (collectively, the "Cases"), which Cases

are currently pending and are being jointly administered; and



         WHEREAS, no payments have been made on or with respect to the Omega

Loan since the Petition Date, and various disputes have arisen and now exist

between Omega and the Mariner Entities with respect to the Omega Loan, Omega's

ability to foreclose on the Facilities and related matters; and



         WHEREAS, Omega and the Mariner Entities have been negotiating for an

extended period of time in an effort to resolve their disputes and restructure

the obligations of the Mariner Entities to Omega (the "Restructuring"); and



         WHEREAS, the Mariner Entities desire to proceed with a portion of the

Restructuring - namely, the conveyance of the four (4) Michigan Facilities

identified on Schedule A as the "Ciena Facilities" (the "Ciena Facilities") to

an affiliate of Ciena Healthcare Management, Inc. ("Ciena Buyer") on the terms

and conditions set forth in the Ciena Purchase Agreement (as hereinafter

defined), free and clear of the Facility Leases pertaining to such Facilities

and free and clear of the liens and security interests securing the Omega Loan

(the "Ciena Transaction") - prior to finalizing the terms of the rest of the

Restructuring; and



         WHEREAS, Omega is willing to permit the Ciena Transaction to occur

notwithstanding that the other aspects of the Restructuring have not been

finalized, subject to the terms and conditions of this Agreement;



         NOW, THEREFORE, in consideration of the premises and the mutual

covenants and agreements herein contained, and for other good and valuable

consideration, the receipt and adequacy of which are hereby acknowledged, Omega

and the Mariner Entities (collectively, the "Parties") hereby agree as follows:





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                                    ARTICLE 1





                                   DEFINITIONS



         1.1.     The following capitalized terms shall have the meanings set

forth below:



         "Applicable Prepayment Amount" shall mean, with respect to any

particular Mandatory Prepayment Date under the Maintenance Obligation Note, the

amount by which the Net Lowest Daily Cash Balance for the second preceding

calendar month exceeds $850,000. If the Net Lowest Daily Cash Balance is equal

to or less than $850,000, the Applicable Prepayment Amount will be zero.



         "Business Day" shall mean any day other than a Saturday, Sunday, or any

other day on which banking institutions in the State of Georgia are authorized

by law or executive action to close.



         "Ciena Closing" shall mean the consummation of the Ciena Transaction.



         "Ciena Event of Default" means an Event of Default by Ciena Buyer or

Ciena Guarantor as defined in the Purchase Money Financing Documents.



         "Ciena Facility Subsidiaries" shall mean the subsidiaries of PHCM

indicated opposite the names of the respective Ciena Facilities on Schedule A.



         "Ciena Purchase Agreement" shall mean that certain Asset Purchase

Agreement dated as of December 21, 2000, by and among PHCM, the Ciena Facility

Subsidiaries and the Ciena Buyer, pursuant to which PHCM has agreed to sell, and

the Ciena Buyer has agreed to buy, the Ciena Facilities, a copy of which is

attached hereto as Exhibit A.



         "Ciena Transaction" shall mean the purchase and sale of the Ciena

Facilities pursuant to the Ciena Purchase Agreement.



         "Final Audit Report" shall mean the final audit report for the Michigan

Facilities issued to PHCM by the applicable Governmental Authority of the State

of Michigan with respect to Medicaid cost reports for the years 1998 and 1999.



         "GAAP" shall mean generally accepted accounting principles in effect at

the time in question.



         "Governmental Authority" shall mean all agencies, authorities, bodies,

boards, commissions, courts, instrumentalities, legislatures and offices of any

nature whatsoever, of any government unit or political subdivision, whether

federal, state, county, district, municipal, city or otherwise, and whether now

or hereafter in existence.





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         "Mandatory Prepayment Date" shall mean the 15th day of the second

calendar month after the calendar month in which PHCM receives the Final Audit

Report, and the 15th day of each successive calendar month thereafter until the

non-contingent portion of the Maintenance Obligation Note shall have been paid

in full.



         "Medicaid Overpayment Claims" shall mean all claims for overpayment

under the State of Michigan Medicaid program asserted in the Final Audit Report

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