<PAGE>   1
Exhibit 10.17

                      FIRST AMENDMENT TO FACILITY AGREEMENT

         THIS FIRST AMENDMENT TO FACILITY AGREEMENT (the "Amendment") is entered
into as of the 8th day of July, 1999 by and between AMERICAN HEALTH PROPERTIES,
INC., a Delaware corporation ("American Health") and BALANCED CARE CORPORATION,
a Delaware corporation ("Balanced Care") with reference to the following facts:

         A. American Health and Balanced Care have entered into that certain
Facility Agreement dated as of January 30, 1998 (the "Facility Agreement"). All
capitalized terms used in this Amendment shall have the meaning ascribed to such
terms in the Facility Agreement, except as provided herein to the contrary.

         B. In accordance with Section 15.6 of the Facility Agreement, the
parties now wish to modify and amend the terms of the Facility Agreement as more
particularly set forth in this Amendment.

         NOW, THEREFORE, in consideration of the foregoing premises and for
other good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, the parties to this Amendment, intending to be fully and
legally bound hereby, do hereby amend the Facility Agreement and the Transaction
Documents contemplated therein, as follows:

1. Qualified Property. The definition of Qualified Property in Article 1 of the
Agreement is revised to read as follows:

         "Qualified Property" shall mean the three (3) individual parcels of
         land located in Jackson, Tennessee, Anderson, Indiana and Evansville,
         Indiana, which AHP has acquired at the request of Balanced Care
         pursuant to the terms of this Agreement. Notwithstanding any
         implication to the contrary in this Agreement, AHP shall not be
         required to consider or approve any other property as a Qualified
         Property under this Agreement.

2. Term. Section 2.1 of the Agreement is revised to read as follows:

         2.1 Term. The term of this Agreement (the "Term") shall commence on
January 30, 1998 and unless sooner terminated in accordance with the terms of
the Transaction Documents

<PAGE>   2

(including this Agreement) shall expire upon the earlier of July 8, 1999 and the
date on which Developer Commences Construction with respect to the third Project
to be acquired and developed pursuant to this Agreement. Neither American Health
nor AHP shall have any obligation to consider or acquire Qualified Properties
nor to enter into any Transaction Documents with respect to any property,
Project or Facility upon the expiration or sooner termination of this Agreement.

3. Failure to Commence Construction. Section 13.1(g) of the Agreement is hereby
revised to read follows:

         (g) Balanced Care and BCC shall have failed to Commence Construction of
three (3) Facilities on three (3) Qualified Properties on or prior to the
expiration or sooner termination of the Term; provided, however, that American
Health acknowledges, based upon information provided to American Health by
Balanced Care and BCC with respect to the three (3) Qualified Properties, that
Balanced Care and BCC have fulfilled the requirements of this Section 13.1(g).

4. Amendment to Leases. As a condition to American Health agreeing to the
foregoing provisions of this Amendment and to induce American Health and AHP to
enter into this Amendment, Balanced Care shall cause each of Assisted Care
Operators of Jackson, LLC, Assisted Care Operators Anderson, LLC and Assisted
Care Operators of Evansville, LLC (individually a "Tenant" and collectively,
"Tenants") to enter into an amendment to the Lease of the Qualified Property
operated by that Tenant in substantially the form attached hereto Exhibit "A",
Exhibit "B" and Exhibit "C" respectively.

f. Affirmation. In all other respects, the Facility Agreement and each of the
Transaction Documents delivered pursuant thereto are hereby declared to remain
in full force and effect without modification.

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


<PAGE>   3


AMERICAN HEALTH PROPERTIES,                 BALANCED CARE CORPORATION
INC., a Delaware corporation                a Delaware corporation


By: /s/ Steven A. Roseman                   By: /s/ Robin L. Barber
     Name: Steven A. Roseman                     Name: Robin L. Barber
     Title: Senior Vice President                Title: Senior Vice
                                                 President and Legal Counsel
                                                 & Assistant Secretary

THE UNDERSIGNED HEREBY ACKNOWLEDGE, AGREE AND CONSENT TO THE FOREGOING AMENDMENT

AHP OF INDIANA.,                            BALANCED CARE AT EVANSVILLE,
an Indiana corporation                      INC., a Delaware corporation


By: /s/ Steven A. Roseman                   By: /s/ Robin L. Barber
     Name: Steven A. Roseman                     Name: Robin L. Barber
     Title: Vice President                       Title: Vice President and
                                                 Secretary
                                                 Its authorized
                                                 representative

ASSISTED CARE OPERATORS OF          BALANCED CARE AT ANDERSON,
EVANSVILLE, LLC, a Delaware         INC., a Delaware corporation
limited liability company,


By: Assisted Care Operators, LLC,   By: /s/ Robin L. Barber
a Delaware limited liability             Name: Robin L. Barber
company, its Manager and                 Title: Vice President and
authorized representative                Secretary
                                         Its authorized
                                         representative


By: /s/ James A. Diebold
     Name: James A. Diebold
     Title: Executive Vice President
     Its Authorized Representative



<PAGE>   4


ASSISTED CARE OPERATORS OF
ANDERSON,LLC, a Delaware
limited liability Company
its Manager and authorized
representative


By: /s/ James A. Diebold
     Name: James A. Diebold
     Title: Executive Vice
     President
     Its Authorized Representative

AHP OF TENNESSEE, INC.,                     BALANCED CARE AT JACKSON,
a Tennessee corporation                     INC., a Delaware corporation


By: /s/ Steven A. Roseman                   By: /s/ Robin L. Barber
     Name: Steven A. Roseman                     Name: Robin L. Barber
     Title: Vice President                       Title: Vice President and
                                                 Secretary
                                                 Its authorized
                                                 representative

ASSISTED CARE OPERATORS OF
JACKSON,LLC, a Delaware
limited liability Company
its Manager and authorized
representative


By: /s/ James A. Diebold
     Name: James A. Diebold
     Title: Executive Vice
     President
     Its Authorized
     Representative


<PAGE>   5


                                    EXHIBIT A

                 FIRST AMENDMENT TO LEASE AND SECURITY AGREEMENT

         THIS FIRST AMENDMENT TO LEASE AND SECURITY AGREEMENT (the "Amendment")
is entered into as of the 8th day of July, 1999 by and between AHP OF TENNESSEE,
INC., a Tennessee corporation ("Landlord") and ASSISTED CARE OPERATORS OF
JACKSON, LLC, a Delaware limited liability company ("Tenant") with reference to
the following facts:

         A. Landlord and Tenant have entered into that certain Lease and
Security Agreement dated as of January 30, 1998 (the "Lease"). All capitalized
terms used in this Amendment shall have the meaning ascribed to such terms in
the Lease, except as provided herein to the contrary.

         B. In accordance with Section 29.17 of the Lease, the parties now wish
to modify and amend the terms of the Lease as more particularly set forth in
this Amendment.

         NOW, THEREFORE, in consideration of the foregoing premises and for
other good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, the parties to this Amendment, intending to be fully and
legally bound hereby, do hereby amend the Facility Agreement and the Transaction
Documents contemplated therein, as follows:

1. Ten Year Treasury Rate.

         The definition of "Ten Year Treasury Rate" set forth in Article 1 of
the Lease is hereby amended by adding the following sentence to the end thereof:

         Notwithstanding the foregoing to the contrary, in no event shall the
         Ten Year Treasury be less than 6.80% for any purpose of this Lease.

2. Revision of Option to Purchase all Properties. The definition of Option
Purchase Date set forth in Article 1 of the Lease and the terms and conditions
of Section 25.4 of the Lease are hereby revised as follows:

         (a) The definition of Option Purchase Date set forth in Article 1 of
the Lease is revised in its entirety to read as follows:

<PAGE>   6

         "Option Purchase Date" shall mean any date occurring on or after July
         1, 1999 but not sooner than six months after the notice of exercise as
         to the first facility to be purchased.

         (b) Section 25.4 of the Lease is hereby revised in its entirety to read
as follows:

         25.4     Tenant's Option to Purchase All Properties.  Provided
         no Event of Default has occurred and is continuing, Landlord hereby
         grants to Tenant the option (the "Call Option"), exercisable on not
         less than six months' nor more than 18 months' Notice, to purchase at
         any time on or after the Option Purchase Date all property
         (collectively, the "Option Properties") leased by Landlord or its
         Affiliates in accordance with the Facility Agreement to either (x) any
         wholly-owned subsidiary of Guarantor or (y) any Person previously
         wholly-owned by Guarantor for a purchase price (determined on a
         property-by-property basis) equal to the greater of the Fair Market
         Value Purchase Price of each such property as of the Option Purchase
         Date or the Minimum Repurchase Price. For the avoidance of doubt, the
         Option Properties expressly include the Facilities known as Outlook
         Pointe at Jackson (Tennessee), Outlook Pointe at Anderson (Indiana) and
         Outlook Pointe at Evansville (Indiana). Any exercise of the Call Option
         shall be effected by delivery of written Notice of exercise to each
         Landlord of each of the Option Properties, which Notice shall be duly
         executed by all Tenants of all Option Properties. Tenant's timely and
         proper exercise of the Call Option shall constitute Tenant's
         irrevocable agreement and commitment to purchase the Property from
         Landlord for the price and on the terms and conditions stated in this
         Section. If Tenant shall timely and properly exercise the Call Option,
         the sale of the properties shall be consummated through an escrow (the
         "Escrow") to be opened with a title or escrow company mutually
         acceptable to Landlord and Tenant (the "Escrow Holder"). The purchase
         price for the properties (net solely of the principal balance of any
         Facility Mortgages placed on a Property by Landlord and expressly
         assumed by Tenant) shall be deposited into Escrow in immediately
         available federal funds at least two business days prior to the close
         of Escrow and shall be paid to Landlord at the close of Escrow in
         immediately available federal funds. The close of Escrow shall occur as
         of the date properly specified in Tenant's notice of exercise of the
         Call Option; provided

<PAGE>   7

         that Tenant may in its notice of exercise specify different dates for
         the closing of its acquisition of different Facilities provided that
         (i) the time period between the closing of the first Facility and the
         last Facility to be acquired pursuant to the Call Option shall not
         exceed twelve (12) months and (ii) the last Facility to be acquired
         pursuant to the Call Option shall be acquired by Tenant no later than
         eighteen (18) months from the date of exercise of the Call Option.
         Tenant acknowledges and agrees that it shall purchase all such property
         from Landlord "AS IS" and subject to all faults, all defects in title
         and all other matters whatsoever, including without limitation all
         matters of record. Landlord shall be conclusively deemed not to have
         made any warranty or representation regarding the title, condition or
         other status of the properties but Landlord covenants to remove
         Facility Mortgages against the properties to be conveyed under the Call
         Option solely to the extent that such Facility Mortgage both (a) was in
         excess of the amount permitted under Article 26 at the time it was
         placed against title to such property and (b) has a principal balance
         in excess of the purchase price to be paid for all properties subject
         to the Call Option pursuant to this Section 25.4. Landlord shall pay at
         closing any lien encumbering the Land or the Building which secures
         either (x) any income tax liability of the Landlord or (y) a liability
         of Landlord unrelated to any of the Property, the Rent, the Facility or
         the use, occupancy or operation of the Property. All closing costs
         associated with the sale of the properties to Tenant to this Section
         shall be paid by Tenant.

3. Acknowledgement.

         The parties acknowledge and agree as follows:

         (a) Completion. The "Project" (as defined in the Development Agreement)
was Finally Completed (within the meaning of the Development Agreement) on or
about April 22, 1999.

         (b) Commencement Date. The "Commencement Date" of the Lease is
therefore acknowledged to be April 22, 1999. Landlord acknowledges that Tenant
has been in occupancy of the Property and has commenced Tenant's operations of
the Facility on or about January 20, 1999 and Landlord hereby waives the default
of Tenant, Developer, Manager and Balanced Care which may arise by

<PAGE>   8

reason of such occupancy and operation occurring prior to the Commencement Date.

         (c) Total Project Costs. The Total Project Cost for all purposes of the
Lease is, Four Million Five Hundred Forty Nine Thousand Seventy and 11/100ths
Dollars ($4,459,970.11).

         (d) Initial Base Rent. The initial annual Base Rent due under the Lease
is Four Hundred Sixty One Thousand Eight Hundred Twenty One and 97/100ths
Dollars ($461,821.97) per annum. The first installment of Base Rent was due as
of June 1, 1999, in the amount of Eighty Eight Thousand Five Hundred Fifteen and
88/100ths Dollars ($88,515.88) covering the period from the Commencement Date to
April 30, 1999 and the Base Rent due, in advance per the terms of the Lease, for
the months of May and June 1999. Said first installment of Base Rent shall be
paid to Landlord concurrently with Tenant's execution of this Amendment. This
Amendment shall not be effective unless and until Landlord has received such
installment of Base Rent. Base Rent shall remain subject to adjustment as
provided in the Lease and all Additional Rent and Additional Charges shall
remain payable as provided in the Lease.

4. Approval of Proposed Capital Addition. Subject to compliance with the
provisions of Section 11.2 of the Lease, and Landlord's approval of the items be
submitted in accordance with Section 11.2 of the Lease, Landlord acknowledges
and agrees that it has approved the installation of the Capital Additions to the
Facility described on Schedule "1" attached to this Amendment, incorporated
herein by this reference.

5. Acknowledgement. Landlord hereby acknowledges that it does not have current
actual knowledge, without inquiry to such matters, of default by Tenant under
the Lease.

6. Affirmation. Except for the modifications expressly provided for in this
Amendment, the Lease and each of the Transaction Documents are hereby declared
to remain in full force and effect without further amendment or modification.



<PAGE>   9


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

AHP OF TENNESSEE, INC.,
a Tennessee corporation

By:_______________________
      Steven A. Roseman,
      Vice President

ASSISTED CARE OPERATORS OF
JACKSON, LLC, a Delaware limited
liability company,

By:   Assisted Care Operators, LLC, a
      Delaware limited liability company, its
      Manager and authorized representative


      By:__________________
           Name:
           Title:
           Its Authorized Representative

THE UNDERSIGNED MANAGER OF THE FACILITY AND OBLIGOR UNDER THE WORKING CAPITAL
AGREEMENT HEREBY ACKNOWLEDGE, AGREE AND CONSENT TO THE FOREGOING AMENDMENT

BALANCED CARE AT JACKSON, INC.,     BALANCED CARE CORPORATION
a Delaware corporation              a Delaware corporation


By:___________________________      By:__________________________
      Name:                               Name:
      Title:                              Title:
      Its authorized representative       Its authorized representative


<PAGE>   10


                                   Schedule 1
                 Outlook Pointe at Jackson Approved Renovations


<TABLE>
<S>                                                                    <C>
Alzheimers Unit                                                        $120,000
Interior Lighting                                                         1,000
Dishwashing Area Wall Covering                                            1,500
Canopy                                                                    8,000
Waste Container Fencing                                                   3,000
New Exterior Signage                                                      4,000
Flag Pole                                                                 1,500
Model Room                                                                8,000

Total Approved Capital Expenditures                                    $147,000
</TABLE>


It is acknowledged that upon final identification of the capital additions,
pursuant to Section 11.2 of the Lease, such identified capital additions shall
not exceed a total cost of $129,500.


<PAGE>   11


                                    EXHIBIT B

                 FIRST AMENDMENT TO LEASE AND SECURITY AGREEMENT

         THIS FIRST AMENDMENT TO LEASE AND SECURITY AGREEMENT (the "Amendment")
is entered into as of the 8th day of July, 1999 by and between AHP OF INDIANA,
INC., an Indiana corporation ("Landlord") and ASSISTED CARE OPERATORS OF
ANDERSON, LLC, a Delaware limited liability company ("Tenant") with reference to
the following facts:

         A. Landlord and Tenant have entered into that certain Lease and
Security Agreement dated as of January 30, 1998 (the "Lease"). All capitalized
terms used in this Amendment shall have the meaning ascribed to such terms in
the Lease, except as provided herein to the contrary.

         B. In accordance with Section 29.17 of the Lease, the parties now wish
to modify and amend the terms of the Lease as more particularly set forth in
this Amendment.

         NOW, THEREFORE, in consideration of the foregoing premises and for
other good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, the parties to this Amendment, intending to be fully and
legally bound hereby, do hereby amend the Facility Agreement and the Transaction
Documents contemplated therein, as follows:

1. Ten Year Treasury Rate.

         The definition of "Ten Year Treasury Rate" set forth in Article 1 of
the Lease is hereby amended by adding the following sentence to the end thereof:

         Notwithstanding the foregoing to the contrary, in no event shall the
         Ten Year Treasury be less than 6.80% for any purpose of this Lease.

2. Revision of Option to Purchase all Properties. The definition of Option
Purchase Date set forth in Article 1 of the Lease and the terms and conditions
of Section 25.4 of the Lease are hereby revised as follows:

         (a) The definition of Option Purchase Date set forth in Article 1 of
the Lease is revised in its entirety to read as follows:


<PAGE>   12

         "Option Purchase Date" shall mean any date occurring on or after July
         1, 1999 but not sooner than six months after the notice of exercise as
         to the first facility to be purchased.

         (b) Section 25.4 of the Lease is hereby revised in its entirety to read
as follows:

         25.4     Tenant's Option to Purchase All Properties.  Provided
         no Event of Default has occurred and is continuing, Landlord hereby
         grants to Tenant the option (the "Call Option"), exercisable on not
         less than six months' nor more than 18 months' Notice, to purchase at
         any time on or after the Option Purchase Date all property
         (collectively, the "Option Properties") leased by Landlord or its
         Affiliates in accordance with the Facility Agreement to either (x) any
         wholly-owned subsidiary of Guarantor or (y) any Person previously
         wholly-owned by Guarantor for a purchase price (determined on a
         property-by-property basis) equal to the greater of the Fair Market
         Value Purchase Price of each such property as of the Option Purchase
         Date or the Minimum Repurchase Price. For the avoidance of doubt, the
         Option Properties expressly include the Facilities known as Outlook
         Pointe at Jackson (Tennessee), Outlook Pointe at Anderson (Indiana) and
         Outlook Pointe at Evansville (Indiana). Any exercise of the Call Option
         shall be effected by delivery of written Notice of exercise to each
         Landlord of each of the Option Properties, which Notice shall be duly
         executed by all Tenants of all Option Properties. Tenant's timely and
         proper exercise of the Call Option shall constitute Tenant's
         irrevocable agreement and commitment to purchase the Property from
         Landlord for the price and on the terms and conditions stated in this
         Section. If Tenant shall timely and properly exercise the Call Option,
         the sale of the properties shall be consummated through an escrow (the
         "Escrow") to be opened with a title or escrow company mutually
         acceptable to Landlord and Tenant (the "Escrow Holder"). The purchase
         price for the properties (net solely of the principal balance of any
         Facility Mortgages placed on a Property by Landlord and expressly
         assumed by Tenant) shall be deposited into Escrow in immediately
         available federal funds at least two business days prior to the close
         of Escrow and shall be paid to Landlord at the close of Escrow in
         immediately available federal funds. The close of Escrow shall occur as
         of the date properly specified in Tenant's notice of exercise of the
         Call Option; provided

<PAGE>   13

         that Tenant may in its notice of exercise specify different dates for
         the closing of its acquisition of different Facilities provided that
         (i) the time period between the closing of the first Facility and the
         last Facility to be acquired pursuant to the Call Option shall not
         exceed twelve (12) months and (ii) the last Facility to be acquired
         pursuant to the Call Option shall be acquired by Tenant no later than
         eighteen (18) months from the date of exercise of the Call Option.
         Tenant acknowledges and agrees that it shall purchase all such property
         from Landlord "AS IS" and subject to all faults, all defects in title
         and all other matters whatsoever, including without limitation all
         matters of record. Landlord shall be conclusively deemed not to have
         made any warranty or representation regarding the title, condition or
         other status of the properties but Landlord covenants to remove
         Facility Mortgages against the properties to be conveyed under the Call
         Option solely to the extent that such Facility Mortgage both (a) was in
         excess of the amount permitted under Article 26 at the time it was
         placed against title to such property and (b) has a principal balance
         in excess of the purchase price to be paid for all properties subject
         to the Call Option pursuant to this Section 25.4. Landlord shall pay at
         closing any lien encumbering the Land or the Building which secures
         either (x) any income tax liability of the Landlord or (y) a liability
         of Landlord unrelated to any of the Property, the Rent, the Facility or
         the use, occupancy or operation of the Property. All closing costs
         associated with the sale of the properties to Tenant to this Section
         shall be paid by Tenant.

3. Approval of Proposed Capital Addition. Subject to compliance with the
provisions of Section 11.2 of the Lease, and Landlord's approval of the items be
submitted in accordance with Section 11.2 of the Lease, Landlord acknowledges
and agrees that it has approved the installation of the Capital Additions to the
Facility described on Schedule "1" attached to this Amendment, incorporated
herein by this reference.

4. Acknowledgement. Landlord hereby acknowledges that it does not have current
actual knowledge, without inquiry to such matters, of default by Tenant under
the Lease.

5. Affirmation. Except for the modifications expressly provided for in this
Amendment, the Lease and each of the

<PAGE>   14

Transaction Documents are hereby declared to remain in full force and effect
without further amendment or modification.

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

AHP OF INDIANA, INC.,
an Indiana corporation

By:_______________________
     Steven A. Roseman,
     Vice President

ASSISTED CARE OPERATORS OF
ANDERSON, LLC, a Delaware limited
liability company,

By:  Assisted Care Operators, LLC, a
     Delaware limited liability company, its
     Manager and authorized representative


     By:__________________
           Name:
           Title:
           Its Authorized Representative

THE UNDERSIGNED MANAGER OF THE FACILITY AND OBLIGOR UNDER THE WORKING CAPITAL
AGREEMENT HEREBY ACKNOWLEDGE, AGREE AND CONSENT TO THE FOREGOING AMENDMENT

BALANCED CARE AT ANDERSON, INC.,    BALANCED CARE CORPORATION
a Delaware corporation              a Delaware corporation


By:___________________________      By:__________________________
     Name:                               Name:
     Title:                              Title:
     Its authorized representative       Its authorized representative


<PAGE>   15


                                   Schedule 1
                 Outlook Pointe at Anderson Approved Renovations


<TABLE>
<S>                                                                    <C>
Alzheimers Unit                                                        $120,000
Interior Lighting                                                         1,000
Dishwashing Area Wall Covering                                            1,500
Canopy                                                                    8,000
Waste Container Fencing                                                   3,000
New Exterior Signage                                                      4,000
Flag Pole                                                                 1,500
Model Room                                                                8,000

Total Approved Capital Expenditures                                    $147,000
</TABLE>


It is acknowledged that upon final identification of the capital additions,
pursuant to Section 11.2 of the Lease, such identified capital additions shall
not exceed a total cost of $129,500.


<PAGE>   16


                                    EXHIBIT C

                 FIRST AMENDMENT TO LEASE AND SECURITY AGREEMENT

         THIS FIRST AMENDMENT TO LEASE AND SECURITY AGREEMENT (the "Amendment")
is entered into as of the 8th day of July, 1999 by and between AHP OF INDIANA,
INC., an Indiana corporation ("Landlord") and ASSISTED CARE OPERATORS OF
EVANSVILLE, LLC, a Delaware limited liability company ("Tenant") with reference
to the following facts:

         A. Landlord and Tenant have entered into that certain Lease and
Security Agreement dated as of June 16, 1998 (the "Lease"). All capitalized
terms used in this Amendment shall have the meaning ascribed to such terms in
the Lease, except as provided herein to the contrary.

         B. In accordance with Section 29.17 of the Lease, the parties now wish
to modify and amend the terms of the Lease as more particularly set forth in
this Amendment.

         NOW, THEREFORE, in consideration of the foregoing premises and for
other good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, the parties to this Amendment, intending to be fully and
legally bound hereby, do hereby amend the Facility Agreement and the Transaction
Documents contemplated therein, as follows:

1. Ten Year Treasury Rate.

         The definition of "Ten Year Treasury Rate" set forth in Article 1 of
the Lease is hereby amended by adding the following sentence to the end thereof:

         Notwithstanding the foregoing to the contrary, in no event shall the
         Ten Year Treasury be less than 6.80% for any purpose of this Lease.

2. Revision of Option to Purchase all Properties. The definition of Option
Purchase Date set forth in Article 1 of the Lease and the terms and conditions
of Section 25.4 of the Lease are hereby revised as follows:

         (a) The definition of Option Purchase Date set forth in Article 1 of
the Lease is revised in its entirety to read as follows:

<PAGE>   17

         "Option Purchase Date" shall mean any date occurring on or after July
         1, 1999 but not sooner than six months after the notice of exercise as
         to the first facility to be purchased.

         (b) Section 25.4 of the Lease is hereby revised in its entirety to read
as follows:

         25.4     Tenant's Option to Purchase All Properties.  Provided
         no Event of Default has occurred and is continuing, Landlord hereby
         grants to Tenant the option (the "Call Option"), exercisable on not
         less than six months' nor more than 18 months' Notice, to purchase at
         any time on or after the Option Purchase Date all property
         (collectively, the "Option Properties") leased by Landlord or its
         Affiliates in accordance with the Facility Agreement to either (x) any
         wholly-owned subsidiary of Guarantor or (y) any Person previously
         wholly-owned by Guarantor for a purchase price (determined on a
         property-by-property basis) equal to the greater of the Fair Market
         Value Purchase Price of each such property as of the Option Purchase
         Date or the Minimum Repurchase Price. For the avoidance of doubt, the
         Option Properties expressly include the Facilities known as Outlook
         Pointe at Jackson (Tennessee), Outlook Pointe at Anderson (Indiana) and
         Outlook Pointe at Evansville (Indiana). Any exercise of the Call Option
         shall be effected by delivery of written Notice of exercise to each
         Landlord of each of the Option Properties, which Notice shall be duly
         executed by all Tenants of all Option Properties. Tenant's timely and
         proper exercise of the Call Option shall constitute Tenant's
         irrevocable agreement and commitment to purchase the Property from
         Landlord for the price and on the terms and conditions stated in this
         Section. If Tenant shall timely and properly exercise the Call Option,
         the sale of the properties shall be consummated through an escrow (the
         "Escrow") to be opened with a title or escrow company mutually
         acceptable to Landlord and Tenant (the "Escrow Holder"). The purchase
         price for the properties (net solely of the principal balance of any
         Facility Mortgages placed on a Property by Landlord and expressly
         assumed by Tenant) shall be deposited into Escrow in immediately
         available federal funds at least two business days prior to the close
         of Escrow and shall be paid to Landlord at the close of Escrow in
         immediately available federal funds. The close of Escrow shall occur as
         of the date properly specified in Tenant's notice of exercise of the
         Call Option; provided

<PAGE>   18

         that Tenant may in its notice of exercise specify different dates for
         the closing of its acquisition of different Facilities provided that
         (i) the time period between the closing of the first Facility and the
         last Facility to be acquired pursuant to the Call Option shall not
         exceed twelve (12) months and (ii) the last Facility to be acquired
         pursuant to the Call Option shall be acquired by Tenant no later than
         eighteen (18) months from the date of exercise of the Call Option.
         Tenant acknowledges and agrees that it shall purchase all such property
         from Landlord "AS IS" and subject to all faults, all defects in title
         and all other matters whatsoever, including without limitation all
         matters of record. Landlord shall be conclusively deemed not to have
         made any warranty or representation regarding the title, condition or
         other status of the properties but Landlord covenants to remove
         Facility Mortgages against the properties to be conveyed under the Call
         Option solely to the extent that such Facility Mortgage both (a) was in
         excess of the amount permitted under Article 26 at the time it was
         placed against title to such property and (b) has a principal balance
         in excess of the purchase price to be paid for all properties subject
         to the Call Option pursuant to this Section 25.4. Landlord shall pay at
         closing any lien encumbering the Land or the Building which secures
         either (x) any income tax liability of the Landlord or (y) a liability
         of Landlord unrelated to any of the Property, the Rent, the Facility or
         the use, occupancy or operation of the Property. All closing costs
         associated with the sale of the properties to Tenant to this Section
         shall be paid by Tenant.

3. Approval of Proposed Capital Addition. Subject to compliance with the
provisions of Section 11.2 of the Lease, and Landlord's approval of the items be
submitted in accordance with Section 11.2 of the Lease, Landlord acknowledges
and agrees that it has approved the installation of the Capital Additions to the
Facility described on Schedule "1" attached to this Amendment, incorporated
herein by this reference.

4. Acknowledgement. Landlord hereby acknowledges that it does not have current
actual knowledge, without inquiry to such matters, of default by Tenant under
the Lease.

5. Affirmation. Except for the modifications expressly provided for in this
Amendment, the Lease and each of the

<PAGE>   19

Transaction Documents are hereby declared to remain in full force and effect
without further amendment or modification.

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

AHP OF INDIANA, INC.,
an Indiana corporation

By:_______________________
     Steven A. Roseman,
     Vice President

ASSISTED CARE OPERATORS OF
EVANSVILLE, LLC, a Delaware limited
liability company,

By:  Assisted Care Operators, LLC, a
     Delaware limited liability company, its
     Manager and authorized representative


     By:__________________
          Name:
          Title:
          Its Authorized Representative

THE UNDERSIGNED MANAGER OF THE FACILITY AND OBLIGOR UNDER THE WORKING CAPITAL
AGREEMENT HEREBY ACKNOWLEDGE, AGREE AND CONSENT TO THE FOREGOING AMENDMENT

BALANCED CARE AT EVANSVILLE, INC.,  BALANCED CARE CORPORATION
a Delaware corporation              a Delaware corporation


By:___________________________      By:__________________________
     Name:                                Name:
     Title:                               Title:
     Its authorized representative        Its authorized representative


<PAGE>   20


                                   Schedule 1
                Outlook Pointe at Evansville Approved Renovations


<TABLE>
<S>                                                                    <C>
Alzheimers Unit                                                        $120,000
Dishwashing Area Wall Covering                                            1,500
Canopy                                                                    8,000
Waste Container Fencing                                                   3,000
New Exterior Signage                                                      4,000
Flag Pole                                                                 1,500
Model Room                                                                8,000

Total Approved Capital Expenditures                                    $147,000
</TABLE>


It is acknowledged that upon final identification of the capital additions,
pursuant to Section 11.2 of the Lease, such identified capital additions shall
not exceed a total cost of $129,500.