FIRST SUPPLEMENTAL AGREEMENT


     FIRST SUPPLEMENTAL AGREEMENT  ("Agreement") made as of May 31, 1996 between
     CHRYSLER  PROPERTIES  INC,  formerly  known  as  Cooke  Properties  Inc,  a
     California  corporation  having an office at 405 Lexington Avenue, New York
     New York  10174  ("Landlord")  and MERIT  BEHAVIORAL  CARE  CORPORATION,  a
     Delaware  Corporation having an office at One Maynard Drive Park Ridge, New
     Jersey 07656 ("Tenant").

                            W I T N E S S E T H

                WHEREAS:

                A.  Landlord and Tenant's  predecessor-in-interest,  Empire Blue
Cross Blue Shield  ("Empire"),  heretofore entered into a certain lease dated as
of August 14, 1991  ("Lease") with respect to a portion of the 6th floor and the
entire  5th  floor  as  more  particularly  described  in  the  Lease  ("Demised
Premises") in the building  known as The Kent  Building,  666 Third Avenue,  New
York, New York 10017 ("Building"); and

                B. By an  assignment  and  assumption  of  lease  of  even  date
herewith ("Assignment"), Empire assigned all of its right, title and interest in
and to the Lease to Tenant, and Tenant assumed the performance and observance of
all of the  obligations  on the tenant's part to be performed and observed under
the Lease for the period from and after the  effective  date of the  Assignment;
and

                C. The parties hereto desire to modify the Lease to provide for,
among other things,  (i) an extension of the term of Lease, (ii) a change in the
rent payable under the Lease, and (iii) an addition to the Demised Premises, all
on the terms and conditions hereinafter set forth.

                NOW,  THEREFORE,  in  consideration  of the  premises and mutual
covenants hereinafter contained, the parties hereto agree as follows:

                1. All  terms  contained  in this  Agreement,  unless  otherwise
defined herein,  shall, for the purposes hereof,  have the same meaning ascribed
to them in the Lease.

                2. All of the terms,  covenants and provisions of this Agreement
shall be effective June 1, 1996 ("Effective Date").

                3.    The Expiration  Date of the Lease shall mean March 31,
2008.

                4.  Section 1.2 of the Lease is hereby  modified to provide that
the  Demised  Premises  shall  include  the  following  additional  space in the
Building:

                The portion of the 6th floor containing approximately twenty two
                thousand six hundred eighty (22,680) square feet,  substantially
                as shown hatched on the floor plan annexed hereto as Exhibit "A"
                ("First Added Space").

                Tenant  acknowledges  that Tenant has  examined  the First Added
Space and accepts the First Added Space "as is", in the  condition  and state of
repair  existing  on the date  hereof  subject to normal  wear and tear.  Tenant
acknowledges that no work is to be performed,  or materials supplied by Landlord
in  connection  therewith,  except for (i) the "Tenant's  Construction  Work" as
hereinafter  defined) and (ii) that  Landlord  shall  provide to Tenant an ACP-5
form for filing  with  respect to the  Tenant's  Construction  Work to the First
Added Space.

                5.  Section  1.4(a) of the Lease is hereby  modified  to provide
that the annual fixed rent payable pursuant to the Lease shall be as follows:

                      a) for the  period  June 1, 1996  through  August  31,
                      1997,  two million nine  thousand  nine hundred  forty
                      dollars and no cents ($2,009,940.00) per annum;

                      b) for the period  September 1, 1997  through  October
                      31,  2002,  one  million  eight  hundred  twenty  four
                      thousand  dollars  and no  cents  ($1,824,000.00)  per
                      annum; and

                      c) for the period from  November  1, 2002  through the
                      Expiration   Date,   two  million   sixteen   thousand
                      dollars and no cents ($2,016,000.00) per annum.

                6.    Article  5 and  Exhibit  C of  the  Lease  are  hereby
modified to provide that:

                      a) the  Operation  Year  pursuant  to  Section  5.1(b)
                      shall mean the calendar year 1997; and

                      b)  "Tenants'  Proportionate  Share"  as set  forth in
                      subsection  5.1(c)  and  paragraph  B. 3. in Exhibit C
                      shall mean .1401; and

                      c) the  Real  Estate  Tax  Base  pursuant  to  Section
                      5.1(g)  shall  mean  the  Real  Estate  Taxes  for the
                      calendar year 1997; and

                      d)  the  Base  Year  pursuant  to  paragraph  B.  4 in
                      Exhibit C shall be the calendar year 1997.

                7. The amount  "$123,960.00"  in Section  16.3(a) and in Section
16.4 for the Electric Charge are changed to $160,000.00,  and the date of August
1, 1991 in Section 16.3 shall be changed to June 1, 1996.

                8.    Section  5.7 of the  Lease is hereby  deleted  and the
following new Section 5.7 shall be substituted:

                      "5.7.  Payments  shall be made  pursuant to this Article 5
                notwithstanding  the  fact  that  an  Escalation   Statement  is
                furnished  to Tenant  after the  expiration  of the term of this
                Lease. Any Escalation  Statement furnished by Landlord to Tenant
                pursuant to this  Article 5 shall be  conclusively  binding upon
                Tenant  unless  within  sixty (60) days after such  Statement is
                sent,  Tenant shall send a written notice to Landlord  objecting
                to such  Statement  and  specifying  the  respects in which such
                Statement is disputed.  Notwithstanding  the foregoing,  pending
                the resolution of any such dispute, Tenant shall pay to Landlord
                when  due  the  amount  of any  such  Escalation  Statement,  as
                provided in Article 5 hereof."

                9.    Article 10 of the Lease is hereby  modified  by adding
the following new Section 10.4:

                      "10.4.  Supplementing  the  provisions  of  Section  10.1,
                Tenant, at Tenant's  expense,  shall be responsible for ensuring
                that both the structure and layout of the Demised  Premises,  as
                well as Tenant's activities within the Demised Premises, are and
                continue  to  be  in   compliance   with  the   Americans   with
                Disabilities Act of 1990 and local law #58, as well as all rules
                and regulations  promulgated pursuant to either the Act or local
                law #58, or both."

                10.  Provided that Tenant shall not then be in default of any of
the terms and  conditions of the Lease,  Tenant shall receive a rental credit of
(i) $154,161.67 per month for the months of June,  July,  August,  September and
October of 1996;  (ii) a rental  credit of  $49,140.00  per month for the period
from November 1, 1996 through May 31, 1997;  (iii) a rental credit of $49,140.00
per month for the months of December of 1997, January and February of 1998; (iv)
a rental credit of $154,666.67 per month for the months of November and December
of 2002 and  January,  February  and March of 2003;  and (v) a rental  credit of
$54,810.00 per month for the months of April, May, June, July, August, September
and October of 2003.

                      Tenant  acknowledges  that  Landlord's   agreement  to
provide to Tenant the rent credit provided in this paragraph 10 has been granted
to Tenant as a material  part of the  consideration  for Tenant's  entering into
this  Agreement,  timely paying the rentals  reserved in the Lease and otherwise
timely  performing  and observing  the terms and  conditions to be performed and
observed by Tenant under the Lease.  Accordingly,  if after having  received the
benefit  of all or any  part  of this  rent  credit,  Tenant  shall  default  in
performing  and observing the terms and  conditions to be performed and observed
by Tenant  under the Lease,  Landlord  may, in  addition  to any other  remedies
Landlord  may have under this  Lease,  at its option,  elect that  Tenant  shall
immediately become obligated to pay to Landlord all rent theretofore credited to
Tenant  pursuant  to this  paragraph  10. In  addition,  if this Lease  shall be
terminated  pursuant  to the  provisions  of Article 25 or Article  26, all rent
credited  to Tenant  pursuant to this  paragraph  10 and  including  the date of
termination, shall, at Landlord's option, be deemed immediately due and payable.

                11.  Tenant  acknowledges  that  Landlord  has  entered  into an
agreement  with McBride  Corporate Real Estate  ("McBride"),  one of the brokers
identified  in  paragraph  17 of this  Agreement,  which  provides,  among other
things, that at the request of Landlord and McBride, one or more installments of
the brokerage commission payable by Landlord to McBride shall be paid by Tenant,
in  consideration  of which Tenant shall  receive a rent credit in the amount of
the payment made by Tenant to McBride on Landlord's  behalf.  Tenant agrees that
if  Landlord  and  McBride  shall so request  payment  by Tenant of  commissions
payable by Landlord to McBride, Tenant shall make the requested payment and upon
such payment shall be entitled to an  unconditional  and  automatic  rent credit
equal to the amount of such  payment,  such credit to be provided to Tenant with
respect to the rent  installment  payable  for the month in which the payment by
Tenant to McBride shall have been made.

                12. Landlord agrees that it shall cause the  improvements to the
First  Added Space to be  constructed  in  accordance  with  detailed  plans and
specifications   (walls,   doors,  ceiling,   lighting,   paint,  carpet,  HVAC,
electrical,   millwork,   class  E  devices,   etc.,  but  excluding  furniture,
furnishings, office equipment, telephone equipment, etc.) prepared by and at the
expense of Tenant in accordance  with Article 13 of the Lease (the  construction
of such  improvements  herein,  the  "Tenant's  Construction  Work");  provided,
however,  that  Landlord  shall not be obligated to fund any part of the cost of
the Tenant's Construction Work in excess of nine hundred thousand dollars and no
cents  ($900,000.00)("Tenant   Improvement  Allowance").   Tenant  shall  submit
complete,  detailed  architectural  and mechanical  drawings to Landlord  within
thirty (30) days of the execution of this  Agreement for  Landlord's  review and
comment as  provided in Section  13.1.  Tenant's  architect  shall be subject to
Landlord's  reasonable approval.  Upon Landlord's approval of the detailed plans
and  specifications,  Landlord  shall  seek  competitive  bids  on the  Tenant's
Construction  Work from  reputable,  responsible  general  contractors who shall
comply with the  requirements of the Lease,  including the provisions of Section
13.3. Within five (5) days after receipt of the bids,  Landlord and Tenant shall
select for the performance of Tenant's  Construction  Work, the single qualified
contractor which shall have submitted the lowest bid ("Bid").  If the total cost
of the  Tenant's  Construction  Work,  based upon the  accepted  Bid exceeds the
amount of the Tenant Improvement  Allowance,  then in such event,  Tenant shall,
within five (5) days of receipt of the bid, either pay the amount of the overage
to Landlord ("Tenant Improvement Payment"),  or revise the scope of the Tenant's
Construction Work to achieve a cost less than the Tenant  Improvement  Allowance
by revising  the detailed  plans and  specifications  so that  Landlord may seek
revised  pricing from the  acceptable  contractor,  which will be presented once
more to Tenant for Tenant's reasonable acceptance of price. Notwithstanding that
the  amount of the Bid may be less than the  amount  of the  Tenant  Improvement
Allowance,  the Tenant Improvement  Allowance shall remain at the amount of nine
hundred thousand dollars and no cents ($900,000.00).  The difference between the
amount of the Bid and the Tenant  Improvement  Allowance shall be deemed to be a
fund  which  shall  be the  first  sums  used to pay for any  additional  Tenant
Improvements requested by Tenant.

                Upon final  acceptance  of the Bid either at a price  which does
not exceed the Tenant  Improvement  Allowance,  or upon revision of the scope of
work or the payment of the Tenant Improvement Payment, as appropriate,  Landlord
will enter in to a contract or  contracts  with the  contractor  or  contractors
awarded the Tenant's Construction Work. Thereafter, work will commence under the
direction of Landlord and Tenant's  architect.  Tenant agrees to cooperate  with
Landlord   in  causing  the   Tenant's   Construction   Work  to  be   completed
expeditiously.
                Landlord  and  Tenant   recognize  that  during  the  course  of
construction of the Tenant's  Construction  Work,  Tenant may desire to amend or
revise the plans and specifications and scope of the work. If such amendments or
revisions  cause  an  increase  in the  project  cost in  excess  of the  Tenant
Improvement  Allowance  (as  same  may  have  been  supplemented  by the  Tenant
Improvement  Payment),  then the increase shall be payable by Tenant to Landlord
upon Tenant's  request to Landlord to issue a change order to the contractor for
the revised  scope of work.  Landlord  shall not be  obligated to issue a change
order until the payment for the cost thereof is received by Landlord.

                Upon the completion of Tenant's  Construction Work, in the event
the cost is less than the Tenant Improvement Allowance, Landlord will credit the
difference  to Tenant in the form of a rent  credit,  in a  monthly  amount  not
exceeding  the monthly  rent due  hereunder,  until the  difference  between the
actual  cost  of the  Tenant's  Construction  Work  and the  Tenant  Improvement
Allowance is met, once all invoices have been submitted to Landlord and paid and
Landlord  has been  provided  general  releases  and  waivers  of lien  from all
contractors,  subcontractors  and  materialmen  involved in the  performance  of
Tenant's  Construction Work and the materials furnished in connection therewith,
and a certificate  from  Tenant's  architect  certifying  that (i) in his or her
opinion, Tenant's Construction Work has been completed in a good and workmanlike
manner  and  completed  in  accordance   with  the  final   detailed  plans  and
specifications as approved by Landlord, and (ii) all contractors, subcontractors
and materialmen have been paid in full.

                13.  Landlord  agrees  that upon  execution  of this  Agreement,
Landlord shall request the holder of the existing superior mortgage, to enter in
to a non-disturbance and attornment agreement with Tenant, which agreement shall
be substantially  in the form of the agreement  annexed in the Lease as Schedule
1, ("Non-Disturbance  Agreement").  If after sixty (60) days from the Landlord's
request for a Non-Disturbance  Agreement,  such agreement is not obtained,  then
Landlord  shall  have no  liability  to Tenant for its  failure  to obtain  such
Non-Disturbance Agreement and Tenant's obligations under this Lease shall not be
affected by reason of such failure to obtain such Non-Disturbance Agreement.

                14.  Section  13.2  and  all  references  to  "Tenant's  Initial
Alterations",  Articles  42, 43 and 44 and  Schedule 2 shall be deleted in their
entirety  from the Lease.  In  addition,  Exhibit B thereto is  supplemented  by
adding thereto Exhibit A to this Agreement.

                15. Simultaneously with the execution of this Agreement,  Tenant
shall pay to Landlord as additional  rent, nine hundred  thousand dollars and no
cents ($900,000.00).

                16. If, on both the "Exercise Date" (hereinafter defined) and on
the "Early Termination Date" (hereinafter  defined),  the Lease shall be in full
force and effect  and Tenant is not in  violation  of any  covenant,  agreement,
term,  provision or condition of this Lease on Tenant's part to be performed and
observed following required notice, if any, and the expiration of any applicable
cure period, then Tenant shall have the option to terminate this Lease effective
as of October 31, 2002  ("Early  Termination  Date"),  provided  that Tenant has
given Landlord written notice of its election to so terminate the Lease prior to
October 31, 2001 (the date such notice is given being the "Exercise  Date").  If
Tenant elects to terminate the Lease, then the Early Termination Date shall have
the same meaning as the  Expiration  Date of the Lease and Tenant shall continue
to pay, and will owe, all fixed rent and  additional  rent, and will continue to
perform and observe all of the  covenants,  agreements,  terms,  provisions  and
conditions of this Lease on Tenant's part to be performed and observed up to and
including the Early Termination Date.

                17. Tenant  covenants,  represents  and warrants that Tenant has
had no dealings or  negotiations  with any broker or agent other than  Cushman &
Wakefield,  Inc and  McBride  Corporate  Real  Estate,  in  connection  with the
consummation  of this  Agreement  and Tenant  covenants  and agrees to pay, hold
harmless and indemnify  Landlord and Cushman & Wakefield,  Inc, from and against
any and all cost,  expense (including  reasonable  attorneys' fees) or liability
for any  compensation,  commissions  or charges  claimed by any other  broker or
agent other than Cushman &  Wakefield,  Inc and McBride  Corporate  Real Estate,
with respect to this Agreement or the negotiation thereof.

                18. This  Agreement  may not be changed  orally,  but only by an
agreement  in  writing  signed by the party  against  which  enforcement  of any
waiver, change, modification or discharge is sought.

                19.  Except as  modified  by this  Agreement,  the Lease and all
covenants,  agreements,  terms and conditions thereof shall remain in full force
and effect and are hereby in all respects ratified and confirmed.

                20. The covenants, agreements, terms and conditions contained in
this  Agreement  shall bind and inure to the benefit of the  parties  hereto and
their  respective  successors and, except as otherwise  provided in the Lease as
hereby supplemented, their respective assigns.

                IN WITNESS  WHEREOF,  the  parties  hereto  have  executed  this
Agreement as of the day and year first above written.

                LANDLORD:
                CHRYSLER PROPERTIES INC
                By:   /s/ Michael R. Dillow
                Michael R. Dillow, Vice President


                TENANT:
                MERIT BEHAVIORAL CARE CORPORATION
                By:   /s/ Arthur H. Halper
                Arthur H. Halper, EVP & CFO

                print name and title



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                                 EXHIBIT A

                                 Floor Plan

           All areas, dimensions and conditions are approximate.


                          [Diagram -- Floor Plan]