<PAGE>
 
                                                                     Exhibit 4.2
________________________________________________________________________________

                            ATRIA COMMUNITIES, INC.
                                  AS BORROWER

                                      AND

                           THE LENDERS NAMED HEREIN
                                  AS LENDERS

                                      AND

                        PNC BANK, NATIONAL ASSOCIATION
                            AS ADMINISTRATIVE AGENT

                           PNC BANK, KENTUCKY, INC.
                               AS MANAGING AGENT

                        NATIONAL CITY BANK OF KENTUCKY
                            AS DOCUMENTATION AGENT



                             _____________________

                                AMENDMENT NO. 2
                                  DATED AS OF
                                MARCH 27, 1997

                                      TO

                               CREDIT AGREEMENT
                                  DATED AS OF
                                AUGUST 15, 1996

                             _____________________
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                      AMENDMENT NO. 2 TO CREDIT AGREEMENT

     THIS AMENDMENT NO. 2 TO CREDIT AGREEMENT, dated as of March 27, 1997, among
ATRIA COMMUNITIES, INC., a Delaware corporation (herein, together with its
successors and assigns, the "BORROWER"); the Lenders who have executed this
Amendment as indicated by their signatures on the signature pages hereof,
constituting the Required Lenders (such Lenders and the other Lenders party to
the Credit Agreement, the "LENDERS"); PNC BANK, NATIONAL ASSOCIATION, a national
banking association, as administrative agent (the "ADMINISTRATIVE AGENT") for
the Lenders under the Credit Agreement (hereafter defined); PNC BANK, KENTUCKY,
INC., a Kentucky banking corporation, as managing agent (the "MANAGING AGENT")
for the Lenders under the Credit Agreement; and NATIONAL CITY BANK OF KENTUCKY,
a national banking association, as documentation agent (the "DOCUMENTATION
AGENT") for the Lenders under the Credit Agreement:


     PRELIMINARY STATEMENTS:

     (1)  The Borrower, the Lenders named therein, and the Agents party hereto
entered into the Credit Agreement, dated as of August 15, 1996, and Amendment
No. 1 to Credit Agreement, dated as of January 15, 1997 (as so amended, the
"CREDIT AGREEMENT"; with the terms defined therein, or the definitions of which
are incorporated therein, being used herein as so defined).

     (2)  The Borrower, such Agents and the Lenders party hereto desire to amend
certain of the terms and provisions of the Credit Agreement, all as more fully
set forth below.

     NOW, THEREFORE, the parties hereby agree as follows:

     SECTION 1.  AMENDMENTS TO CREDIT AGREEMENT.

     1.1. DEFINITIONAL CHANGES.  (A) ADDITIONAL DEFINED TERMS.  The following
defined terms shall be inserted in section 10 of the Credit Agreement in
appropriate alphabetical order:

          "AMERICAN ELDERSERVE ACQUISITION" shall mean the acquisition by the
     Borrower of American ElderServe Corporation and its subsidiaries pursuant
     to the terms of the Agreement and Plan of Merger, dated as of March 3,
     1997, among the Borrower, Atria Communities Southeast, Inc., American
     ElderServe Corporation, Andy L. Schoepf, Elizabeth A. Schoepf and Evely C.
     Schoepf, for consideration consisting of (i) approximately 675,000 shares
     of Common Stock of the Borrower, (ii) approximately $8,000,000 cash and
     (iii) the assumption of the American ElderServe Assumed Debt and the
     American ElderServe Assumed Finance Lease Obligations.

          "AMERICAN ELDERSERVE ASSUMED DEBT" shall mean obligations of American
     ElderServe Corporation and its Subsidiaries for borrowed money or
     represented by bonds, notes or similar securities, with an aggregate
     outstanding principal amount at the date of completion of the American
     ElderServe Acquisition of approximately $15,000,000, all of which (except
     for the Suburban Lodge Debt) will be permanently retired out of available
     cash and/or refinanced by Loans under the Credit Agreement within 90 days
     following the completion of the American ElderServe Acquisition.

          "AMERICAN ELDERSERVE ASSUMED FINANCE LEASE OBLIGATIONS" shall mean
     obligations of American ElderServe Corporation and its Subsidiaries arising
     under a letter agreement dated April 25, 1996 between Health Care REIT,
     Inc. and American ElderServe Corporation, providing for operating lease and
     credit facilities, including all operating lease and related obligations
     incurred pursuant to such letter agreement.

          "DEVCO DEVELOPMENT AGREEMENT" shall mean the Development Agreement, to
     be entered into contemporaneously with the completion of the American
     ElderServe Acquisition, between the Borrower and Elder Healthcare
     Developers, LLC, pursuant to which, among other things, Devco, LLC
     undertakes to develop at least 15 Assisted Living Facilities in the
     Southeast Region (as such terms are defined therein), as the same may be
     from time to time modified, amended and/or supplemented.

          "DEVCO JOINT VENTURE" shall mean Elder Healthcare Developers, LLC, a
     Georgia limited liability company formed pursuant to an Operating
     Agreement, to be entered into contemporaneously with the completion of the
     American ElderServe Acquisition, between the Borrower and Schoepfco, LLC,
     together with its successors and assigns.

          "FIXED CHARGE COVERAGE RATIO" shall mean, for any Test Period, the
     ratio of (x) EBITDA PLUS Total Rental Expense, to (y) Total Interest
     Expense PLUS Total Rental Expense, in each case for such Test 
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     Period.

          "PROPERTY JOINT VENTURE" shall mean (i) the Devco Joint Venture; and
     (ii) any other person, other than a Subsidiary of the Borrower, which is
     organized to, or whose principal business activities relate to, the
     ownership, leasing, development or operation of real property and/or
     assisted living facilities, and in which the Borrower and its Subsidiaries
     have invested, or to whom the Borrower and its Subsidiaries have loaned or
     advanced any funds aggregating at least $1,000,000. Notwithstanding the
     foregoing, the term Property Joint Venture shall not include the joint
     venture investment in Atrium at Buckhead specified in clause (i) of section
     8.5.

          "SUBURBAN LODGE DEBT" shall mean a loan in the approximate principal
     amount of $2,700,000 secured by The Suburban Lodge in Savannah, Georgia.

          "TOTAL RENTAL EXPENSE" shall mean, for any period, total rental
     expense (other than that which is attributable to Capitalized Leases and is
     included in Total Interest Expense) of the Borrower and its Subsidiaries on
     a consolidated basis, all as determined in accordance with GAAP.

     (B)  INTEREST COVERAGE RATIO.  The definition of the term Interest Coverage
Ratio in section 10 of the Credit Agreement is deleted.

     (C)  PERMITTED ACQUISITIONS.  A new clause (z) is added to the last
sentence of the definition of the term "Permitted Acquisition" in section 10 of
the Credit Agreement so that, as so amended, such sentence reads in its entirety
as follows:

     Notwithstanding the above provisions of this definition, (x) the
     acquisition for development of land which is not encumbered at the time of
     acquisition by any Lien securing Indebtedness shall in no event constitute
     a Permitted Acquisition, and any such acquisition shall not be subject to
     the restrictions contained in section 8.2(d); (y) the acquisition of land
     (or of a person substantially all of whose assets consist of land)
     containing facilities the construction of which is less than 50% complete
     (based on currently projected costs), including the amount of any Priority
     Debt assumed in connection with any such acquisition, shall not be counted
     against the $50,000,000 consideration limitation in any fiscal year which
     is provided above; and (z) neither the American ElderServe Acquisition, nor
     any acquisition of up to 15 assisted living facilities pursuant to the
     Devco Joint Venture, shall count against the $25,000,000 or $50,000,000
     consideration limitations which are provided above.

     1.2. INDEBTEDNESS.  Clause (c) of section 8.4 of the Credit Agreement is
amended to include reference to the American ElderServe Assumed Debt and the
American ElderServe Assumed Finance Lease Obligations, so that it reads in its
entirety as follows:

          (c)  the following: (i) Existing Indebtedness, and any refinancing,
     extension, renewal or refunding of any such Existing Indebtedness, PROVIDED
     that (A) the aggregate principal amount of any such Indebtedness in respect
     of Residential Mortgage Bond programs of the Borrower and its Subsidiaries
     (as described in the Registration Statement) currently in existence is not
     increased above $50,000,000, and (B) the principal amount of any other such
     Existing Indebtedness is not increased; (ii) the American ElderServe
     Assumed Debt (including any guaranty by the Borrower or any Subsidiary of
     any of the American ElderServe Assumed Debt), PROVIDED that the entire
     American ElderServe Assumed Debt (and any such guaranty), other than the
     Suburban Lodge Debt (and any such guaranty in respect thereof), is retired,
     repaid or prepaid in full within 90 days following the date the American
     ElderServe Acquisition is completed and not refinanced in whole or in part
     with Indebtedness other than Loans made hereunder; and (iii) Contingent
     Obligations of the Borrower and its Subsidiaries in respect of the American
     ElderServe Assumed Finance Lease Obligations covering not more than
     $25,000,000 of Approved Costs (as defined in the documents governing the
     American ElderServe Assumed Finance Lease Obligations as in effect on the
     date the American ElderServe Acquisition is completed);

     1.3. LIENS.  Clause (d) of section 8.3 of the Credit Agreement is amended
to include reference to Liens securing the American ElderServe Assumed Debt and
the American ElderServe Assumed Finance Lease Obligations, so that it reads in
its entirety as follows:

          (d)  Liens (i) in existence on the Closing Date which are listed, and
     the Indebtedness secured thereby and the property subject thereto on the
     Closing Date described, in Annex V; (ii) arising out of the refinancing,
     extension, renewal or refunding of any Indebtedness secured by any such
     Liens, PROVIDED that the principal amount of such Indebtedness is not
     increased and such Indebtedness is not secured by any additional assets;

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     (iii) in existence on the date the American ElderServe Acquisition is
     completed, securing the American ElderServe Assumed Debt, but such Liens
     shall be discharged upon payment of the American ElderServe Assumed Debt
     applicable thereto as contemplated by section 8.4(c)(ii); and (iv) in
     existence on the date the American ElderServe Acquisition is completed or
     created thereafter pursuant to commitments in respect of the American
     ElderServe Assumed Finance Lease Obligations in effect on such date,
     covering land, facilities, equipment, inventory, working capital, accounts
     receivable and other property of facilities financed by, and securing only,
     the American ElderServe Assumed Finance Lease Obligations permitted by
     section 8.4(c)(iii), but not any extensions or renewals of any such Liens;

     1.4. ADVANCES, INVESTMENTS AND LOANS.  Section 8.5 of the Credit Agreement
is amended by deleting the word "and" at the end of clause (h) thereof and by
replacing clause (i) thereof with the following three clauses:

          (i) loans, advances and investments not otherwise permitted pursuant
     to the preceding clauses, made by the Borrower or any Subsidiary Guarantor
     in Atrium at Buckhead, a Georgia limited liability company in which the
     Borrower has a 50% equity interest, for the purpose of financing a 74 unit
     assisted living facility near Atlanta, Georgia, up to an aggregate of not
     more than $9,000,000;

          (j) loans, advances and investments not otherwise permitted pursuant
     to the preceding clauses, made by the Borrower or any Subsidiary Guarantor
     in any Property Joint Venture by means of cash or Cash Equivalents or
     property transfers after the Closing Date and taking into account any
     repayment of any such loans or advances or the return or other realization
     in cash or Cash Equivalents of the amount of such investments, in
     compliance with the following requirements:

               (A) at the time of making any such loan, advance or investment
          and after giving effect thereto, no Default or Event of Default shall
          have occurred and be continuing;

               (B) the Property Joint Venture to which such loan or advance is
          made, or in which such investment is made, shall own or be committed
          to acquire or develop one or more assisted living properties located
          in the United States;

               (C) the Borrower or a Subsidiary Guarantor shall have been
          retained (or shall have a commitment to be retained upon completion of
          any proposed development) to manage such property or properties,
          subject to any termination of any existing management contracts
          pertaining thereto;

               (D) at least 80% of the aggregate amount so invested in any
          Property Joint Venture will be in the form of secured loans or
          advances having a final maturity date not to exceed three years from
          the initial drawdown date but in no event extending beyond the
          Revolving Loan Maturity Date (assuming the same will be extended as
          provided in section 3.4, unless the Lenders through the Administrative
          Agent have previously indicated that such extension will not be agreed
          to) and bearing interest prior to maturity at an arms-length rate or
          rates;

               (E) at least 10 days prior to the date of any such loan, advance
          or investment the Borrower shall have provided to the Administrative
          Agent notice of such proposed loan, advance or investment, together
          with copies of all documents (or proposed forms of documents) incident
          thereto; and such documents shall be satisfactory in form and
          substance to the Managing Agent;

               (F) the aggregate amount of all such loans, advances and
          investments made after the Closing Date shall not at any time exceed
          $40,000,000;

               (G) contemporaneously with or prior to the making of any such
          loan, advance or other investment the Borrower shall have caused to be
          delivered to the Administrative Agent a supplement or amendment to the
          Pledge Agreement, pursuant to which the Borrower or any applicable
          Subsidiary Guarantor has pledged to the Collateral Agent its interests
          in the Property Joint Venture (including any promissory notes
          evidincing any loans or advances to such Property Joint Venture); and

               (H) contemporaneously with or prior to the making of any such
          loan or advance the proceeds of which are to be used to acquire,
          develop or operate any property or facility, the Borrower shall have
          caused to be delivered to the Administrative Agent, (1) a guaranty
          agreement, substantially in the form of the Subsidiary Guaranty, of
          such Property Joint Venture, guaranteeing the Obligations, subject to
          the effect of any limitations on the enforceability of such guaranty
          arising under any fraudulent transfer laws, together with such
          evidence as the Administrative Agent may reasonably 

                                       3
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          request to establish the financial condition and solvency of such
          person, (2) a subordination agreement pursuant to which all other
          equity investors in such Property Joint Venture subordinate all
          obligations owed by such Property Joint Venture to such guaranty and
          any obligations in respect of any such loans or advances to such
          Property Joint Venture, and (3) a mortgage and security agreement,
          satisfactory in form and substance to the Administrative Agent,
          pursuant to which such person has granted a first priority Lien on and
          security interest in all of the assets and properties to be so
          financed by such loans or advances, subject to no encumbrances which
          are not acceptable to the Administrative Agent, accompanied by
          boundary surveys, mortgagee title policies, environmental assessments
          and other supporting documentation required by the Managing Agent,
          acting in good faith and with due regard to the supporting document
          requirements provided in section 7.10(a);

          (k)  loans, advances and investments not otherwise permitted pursuant
     to the preceding clauses, made by the Borrower or any Subsidiary Guarantor
     in cash or Cash Equivalents after the Closing Date and taking into account
     any repayment of any such loans or advances or the return or other
     realization in cash or Cash Equivalents of the amount of such investments,
     in persons other than Property Joint Ventures, in compliance with the
     following requirements:

               (A) at the time of making any such loan, advance or investment
          and after giving effect thereto, no Default or Event of Default shall
          have occurred and be continuing;

               (B) the person (including a joint venture) to which such loan or
          advance is made, or in which such investment is made, shall own or be
          committed to acquire one or more assisted living properties located in
          the United States;

               (C) the Borrower or a Subsidiary Guarantor shall have been
          retained (or shall have a commitment to be retained upon completion of
          any proposed development) to manage such property or properties,
          subject to any termination of any existing management contracts
          pertaining thereto;

               (D) at least 10 days prior to the date of any such loan, advance
          or investment involving $3,000,000 or more (including any commitments
          in respect of future loans, advances or investments), the Borrower
          shall have delivered to the Administrative Agent an officer's
          certificate executed on behalf of the Borrower by an Authorized
          Officer of the Borrower, which certificate shall (1) contain the date
          such loan, advance or investment is scheduled to be consummated, (2)
          specify the known or estimated amount thereof, (3) contain a
          description, to the extent then known, of the property and/or assets
          owned or proposed to be acquired by such person, (4) demonstrate that
          at the time of making any such loan, advance or investment the
          covenants contained in sections 8.10, 8.11, 8.12 and 8.13 shall be
          complied with on a PRO FORMA basis as if the loan, advance or
          investment so made had been made by the Borrower, and the Indebtedness
          assumed and/or incurred to acquire and/or finance same has been
          outstanding, for the 12 month period immediately preceding such loan,
          advance or investment (without giving effect to any credit for
          unobtained or unrealized gains in connection therewith), (5) confirms
          that the property acquired or to be acquired by such person with the
          proceeds of such loan, advance or investment is to be (or is to be
          following completion of development thereof) managed by the Borrower
          or a Subsidiary Guarantor, and (6) attach thereto a true and correct
          copy of the then proposed loan agreement, purchase agreement or
          similar agreement, partnership agreement and/or management contract
          entered into in connection with such loan, advance or investment; and

               (E) the aggregate amount of all such loans, advances and
          investments made after the Closing Date, when taken together with the
          aggregate principal amount of all loans, advances and investments at
          the time outstanding made pursuant to clause (i) of this section 8.5
          and made by the Borrower and the Subsidiary Guarantors to all
          Subsidiaries which are not Subsidiary Guarantors, shall not exceed
          $20,000,000.

     1.5. CERTAIN LEASES.  Section 8.6 of the Credit Agreement is amended to
read in its entirety as follows:

          8.6.  CERTAIN LEASES.  The Borrower will not permit the aggregate
     rental payments (exclusive of any supplemental or additional rental
     payments in respect of taxes, maintenance or insurance) under all
     noncancelable leases (other than Capital Leases) of real and/or personal
     property having an original term (including any extensions or renewals at
     the option of the lessee or lessor) of at least one year, to exceed
     $4,000,000 on a combined basis for the Borrower, its Subsidiaries and the
     Property Joint Ventures, in any period of 12 consecutive months.

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     1.6. LEVERAGE RATIO.  (a)  Section 8.12(a) of the Credit Agreement is
amended by changing the dollar amount $1,000,000, which appears in clause (A) of
the definition of Cash Flow from Operations which is contained therein, to
$1,500,000, and by adding after clause (B) of such definition the following: ",
or (C) any such properties which are leased if there is any restriction on the
payment to the Borrower of the cash flow or dividends in respect thereof".

     (b)  A sentence is added at the end of section 8.12(b) of the Credit
Agreement so that, as so amended, section 8.12(b) of the Credit Agreement reads
in its entirety as follows:

          (b) The Borrower will not, at any time following the termination of
     the Parent Guaranty in accordance with its terms, permit the ratio of (i)
     Total Indebtedness to (ii) EBITDA for any Test Period, to exceed 3.50 to
     1.00. In addition, the Borrower will not, at any time following the
     termination of the Parent Guaranty in accordance with its terms, permit the
     ratio of (i) Total Indebtedness to (ii) EBITDA for any Test Period, to
     exceed 3.50 to 1.00, EXCEPT that, solely for purposes of this sentence,
     Total Indebtedness and EBITDA shall be computed on a combined basis for the
     Borrower, its Subsidiaries and the Property Joint Ventures, notwithstanding
     anything to the contrary contained in the definitions of those terms.

     1.7. SUBSTITUTION OF FIXED CHARGE COVERAGE RATIO FOR INTEREST COVERAGE
RATIO.  Section 8.13 of the Credit Agreement is amended to read in its entirety
as follows:

          8.13.  FIXED CHARGE COVERAGE RATIO. The Borrower will not permit the
     Fixed Charge Coverage Ratio for any Test Period to be less than 2.00 to
     1.00. In addition, the Borrower will not permit the Fixed Charge Coverage
     Ratio (determined on a combined basis for the Borrower, its Subsidiaries
     and the Property Joint Ventures, notwithstanding anything to the contrary
     contained in the definition of the term Fixed Charge Coverage Ratio or any
     other defined terms used in such definition) for any Test Period to be less
     than 2.00 to 1.00.

     1.8. LIMITATION ON CERTAIN RESTRICTIONS ON SUBSIDIARIES.  Section 8.15 of
the Credit Agreement is amended by deleting the word "and" which appears at the
end of clause (ix) thereof and inserting at the end of clause (x) thereof before
the period at the end thereof the following: ", (xi) any restrictions contained
in the documents relating to the American ElderServe Assumed Debt at the time
the American ElderServe Acquisition was completed, which restrictions may remain
in place so long as the American ElderServe Assumed Debt is permitted to remain
outstanding under clause (c)(ii) of section 8.4, and (xii) any restrictions
contained in the documents relating to the American ElderServe Assumed Finance
Lease Obligations at the time the American ElderServe Acquisition was completed,
and any similar restrictions contained in any subsequent documents related
thereto which are not more restrictive than the restrictions in existence on
such date, PROVIDED that the American ElderServe Assumed Finance Lease
Obligations are within the limits prescribed in section 8.4(c)(iii)".


     SECTION 2.  AMENDMENTS TO OTHER CREDIT DOCUMENTS.

     2.1. PLEDGE AGREEMENT.  On the Effective Date (as hereinafter defined), the
Credit Parties named therein (including American ElderServe Corporation and its
Subsidiaries) and the Collateral Agent shall enter into Amendment No. 1 to
Pledge Agreement, substantially in the form attached hereto as Exhibit A
("AMENDMENT NO. 1 TO PLEDGE AGREEMENT"), and the additional stock, partnership
interests and/or membership interests to be pledged thereunder shall be pledged
to the Collateral Agent as provided therein.

     2.2. SECURITY AGREEMENT.  On the Effective Date, the Credit Parties named
therein (including American ElderServe Corporation and its Subsidiaries) and the
Collateral Agent shall enter into Amendment No. 1 to Security Agreement,
substantially in the form attached hereto as Exhibit B ("AMENDMENT NO. 1 TO
SECURITY AGREEMENT").

     2.3. PARENT GUARANTY.  On the Effective Date, the Credit Parties named
therein and the Administrative Agent shall enter into Amendment No. 1 to Parent
Guaranty, substantially in the form attached hereto as Exhibit C ("AMENDMENT NO.
1 TO PARENT GUARANTY").

     2.4. SUBSIDIARY GUARANTY.  On the Effective Date, the Credit Parties named
therein (including American ElderServe Corporation and its Subsidiaries) and the
Administrative Agent shall enter into Amendment No. 1 to Subsidiary Guaranty,
substantially in the form attached hereto as Exhibit D ("AMENDMENT NO. 1 TO
SUBSIDIARY GUARANTY").

     2.5. CONSENT TO AMENDMENTS.  The Lenders party hereto and the Agents party
hereto hereby consent to the execution and delivery of Amendment No. 1 to Pledge
Agreement, 

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Amendment No. 1 to Security Agreement, Amendment No. 1 to Parent Guaranty, and
Amendment No. 1 to Subsidiary Guaranty, and to the amendments effected thereby.

     2.6. FILINGS, RECORDINGS, ETC.  Promptly following the Effective Date, the
Borrower will at its expense cause any and all UCC financing statements, notices
of secured transactions and other filings and recordings considered by the
Collateral Agent to be necessary or desirable in connection with the grant of
the security interests pursuant to Amendment No. 1 to Pledge Agreement and
Amendment No. 1 to Security Agreement to be executed, delivered, made, filed
and/or otherwise effected.


     SECTION 3.  REPRESENTATIONS AND WARRANTIES.

     The Borrower represents and warrants as follows:

     3.1. CURRENT FINANCIAL STATEMENTS.  The Borrower has delivered to the
Administrative Agent and each Lender prior to the execution of this Amendment
true, correct and complete copies of the unaudited consolidated financial
statements of the Borrower and its consolidated subsidiaries for the fiscal
quarter ended September 30, 1996. Such unaudited consolidated financial
statements have been prepared in accordance with generally accepted accounting
principles, consistently applied (except as noted therein), and fairly present
the consolidated financial condition of the Borrower and its consolidated
subsidiaries at such date and the consolidated results of their operations and
cash flows for the period then ended, subject to normal audit adjustments which
are not expected to be material.

     3.2. AMERICAN ELDERSERVE ACQUISITION AND JOINT VENTURE DOCUMENTS.  The
Borrower has delivered to the Managing Agent and the Documentation Agent prior
to the execution of this Amendment true, correct and complete copies of the
following documents (the "ACQUISITION AND JOINT VENTURE DOCUMENTS") relating to
the acquisition by the Borrower of American ElderServe Corporation ("AMERICAN
ELDERSERVE") and its Subsidiaries and the establishment by the Borrower of a
development joint venture with certain of the principals of American ElderServe:

          (a)  Agreement and Plan of Merger, dated as of March 3, 1997, among
     the Borrower, Atria Communities Southeast, Inc., American ElderServe
     Corporation, Andy L. Schoepf, Elizabeth A. Schoepf and Evely C. Schoepf;

          (b)  Agreement for Purchase and Sale of Partnership Interest on
     Plantation South at Auburn Partnership, for consideration of approximately
     $286,009; Agreements for Purchase and Sale of Partnership Interest of
     Plantation South on Cypresswood Limited Partnership, for aggregate
     consideration of approximately $621,910; and Agreement for the Purchase and
     Sale of Real Property (50% interest in Plantation South at Hartwell) for
     consideration of approximately $250,000;

          (c)  consent letter of Health Care REIT, Inc., relating to
     modification of the American ElderServe Assumed Finance Lease Obligations,
     substantially in the form of the draft thereof dated March 26, 1997;

          (d)  Operating Agreement, to be entered into contemporaneously with
     the completion of the American ElderServe Acquisition, between the Borrower
     and Schoepfco, LLC, relating to the formation of Elder Healthcare
     Developers, LLC, a Georgia limited liability company; and

          (e)  Development Agreement, to be entered into contemporaneously with
     the completion of the American ElderServe Acquisition, between Elder
     Healthcare Developers, LLC and the Borrower, relating to the development of
     at least 15 Assisted Living Facilities in the Southeast Region (as such
     terms are defined therein).

There are no "side letters" or similar documents which purport to modify or
waive any of the terms or conditions of any of the Acquisition and Development
Documents.

     3.3. PRO FORMA BALANCE SHEET.  The Borrower has delivered to the Managing
Agent, the Documentation Agent and each Lender prior to the execution of this
Amendment a PRO FORMA consolidated balance sheet of the Borrower and its
consolidated subsidiaries as of December 31, 1996. Such PRO FORMA consolidated
balance sheet has been prepared in accordance with generally accepted accounting
principles, consistently applied (except as noted therein), and fairly presents
the PRO FORMA consolidated financial condition of the Borrower and its
consolidated subsidiaries at such date as if the consummation of the acquisition
by the Borrower of American ElderServe Corporation in accordance with the
Acquisition and Joint Venture Documents had been completed on such date.

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     3.4. NEW PARENT CREDIT AGREEMENT. The Borrower has delivered to the
Managing Agent and the Documentation Agent prior to the execution of this
Amendment true, correct and complete copies of (i) a Credit Agreement, dated as
of March 17, 1997, among the Parent, as Borrower, the banks referred to therein,
the Swingline Bank referred to therein, the LC Issuing Banks referred to
therein, Morgan Guaranty Trust Company of New York, as Documentation Agent and
Collateral Agent, and NationsBank, N.A., as Administrative Agent, providing for
credit facilities of up to $1,600,000,000 (the "NEW PARENT CREDIT AGREEMENT"),
and (ii) a proposed amendment thereof to be entered into on or about March 31,
1997 to inter alia increase the credit facilities thereunder to $1,750,000,000.

     3.5. AUTHORIZATION, VALIDITY AND BINDING EFFECT.  This Amendment has been
duly authorized by all necessary corporate action on the part of the Borrower,
has been duly executed and delivered by a duly authorized officer or officers of
the Borrower, and constitutes the valid and binding agreement of the Borrower,
enforceable against the Borrower in accordance with its terms.

     3.6. REPRESENTATIONS AND WARRANTIES TRUE AND CORRECT.  The representations
and warranties of the Borrower contained in the Credit Agreement, as amended
hereby, are true and correct on and as of the date hereof as though made on and
as of the date hereof, except to the extent that such representations and
warranties expressly relate to a specified date, in which case such
representations and warranties are hereby reaffirmed as true and correct when
made.

     3.7. NO EVENT OF DEFAULT, ETC.  No condition or event has occurred or
exists which constitutes or which, after notice or lapse of time or both, would
constitute an Event of Default.

     3.8. COMPLIANCE.  The Borrower is in full compliance with all covenants and
agreements contained in the Credit Agreement, as amended hereby, and the other
Credit Documents to which it is a party.


     SECTION 4.  RATIFICATIONS.

     The terms and provisions set forth in this Amendment shall modify and
supersede all inconsistent terms and provisions set forth in the Credit
Agreement, and except as expressly modified and superseded by this Amendment,
the terms and provisions of the Credit Agreement are ratified and confirmed and
shall continue in full force and effect.

     SECTION 5.  AMENDMENT FEE.

     Whether or not this Amendment becomes effective as provided in section 6
hereof, the Borrower will pay to the Administrative Agent in immediately
available funds, for PRO RATA distribution among the Lenders in accordance with
their respective Commitments, a nonrefundable amendment fee of $100,000 (i.e. 5
basis points on the Total Commitment) within two Business Days after the
Administrative Agent notifies the Borrower that the conditions specified in
clauses (a), (b) and (c) of section 6 hereof have been satisfied.


     SECTION 6.  BINDING EFFECT.

     This Amendment shall become effective if and when, on a date (the
"EFFECTIVE DATE") or prior to April 30, 1997, the following conditions shall
have been satisfied:

          (a)  this Amendment shall have been executed by the Borrower, the
     Administrative Agent, the Managing Agent and the Documentation Agent, and
     counterparts hereof as so executed shall have been delivered to the
     Administrative Agent;

          (b)  the Acknowledgment and Consent appended hereto shall have been
     executed by the Credit Parties named therein, and counterparts thereof as
     so executed shall have been delivered to the Administrative Agent;

          (c)  the Administrative Agent shall have been notified by Lenders
     constituting the Required Lenders that such Lenders have executed this
     Amendment (which notification may be by facsimile or other written
     confirmation of such execution);

          (d)  the Borrower shall have contemporaneously completed the
     acquisition of American ElderServe and its Subsidiaries and established the
     development joint venture between the Borrower and certain of the
     principals of American ElderServe, in accordance with the Acquisition and
     Joint Venture Documents; there shall not have been any material amendment
     to or other modification of any of the 

                                       7
<PAGE>
 
     Acquisition and Joint Venture Documents from the versions thereof delivered
     to the Agents pursuant to section 3.2, or any waiver of any material term
     or condition thereof; and such Agents shall have received copies of all
     such documents incident to the such transactions and the consummation
     thereof, and all such documents shall be satisfactory in form and substance
     to such Agents;

          (e)  Amendment No. 1 to Pledge Agreement, Amendment No. 1 to Security
     Agreement, Amendment No. 1 to Parent Guaranty and Amendment No. 1 to
     Subsidiary Guaranty shall each have been duly executed and delivered and
     shall each be in full force and effect;

          (f)  the New Parent Credit Agreement shall have become effective in
     accordance with its terms; and

          (g)  the Borrower shall have timely paid to the Administrative Agent
     the amendment fee referred to in section 5 hereof;

and thereafter this Amendment shall be binding upon and inure to the benefit of
the Borrower, the Administrative Agent, the Managing Agent, the Documentation
Agent and each Lender and their respective permitted successors and assigns. The
Administrative Agent may assume that an authorization by a Lender to release its
signed counterpart of this Amendment is confirmation by such Lender that the
conditions specified above have been satisfied insofar as it is concerned,
subject to any disbursement to such Lender of its portion of any funds to which
it is entitled as referred to in the above conditions. After this Amendment
becomes effective, the Managing Agent will promptly furnish a copy of this
Amendment to each Lender and the Borrower and confirm the specific Effective
Date hereof.


     SECTION 7.  MISCELLANEOUS.

     7.1. SURVIVAL OF REPRESENTATIONS AND WARRANTIES.  All representations and
warranties made in this Amendment shall survive the execution and delivery of
this Amendment, and no investigation by any Agent or any Lender or any
subsequent Loan or other Credit Event shall affect the representations and
warranties or the right of any Agent or any Lender to rely upon them.

     7.2. REFERENCE TO CREDIT AGREEMENT.  The Credit Agreement and any and all
other agreements, instruments or documentation now or hereafter executed and
delivered pursuant to the terms of the Credit Agreement as amended hereby, are
hereby amended so that any reference therein to the Credit Agreement shall mean
a reference to the Credit Agreement as amended hereby.

     7.3. EXPENSES.  As provided in the Credit Agreement, but without limiting
any terms or provisions thereof, the Borrower agrees to pay on demand all costs
and expenses incurred by the Administrative Agent, the Managing Agent or the
Documentation Agent in connection with the preparation, negotiation, and
execution of this Amendment, including without limitation the costs and fees of
the Documentation Agent's and the Administrative Agent's special legal counsel,
regardless of whether this Amendment becomes effective in accordance with the
terms hereof, and all costs and expenses incurred by the Administrative Agent,
the Managing Agent, the Documentation Agent or any Lender in connection with the
enforcement or preservation of any rights under the Credit Agreement, as amended
hereby.

     7.4. SEVERABILITY.  Any term or provision of this Amendment held by a court
of competent jurisdiction to be invalid or unenforceable shall not impair or
invalidate the remainder of this Amendment and the effect thereof shall be
confined to the term or provision so held to be invalid or unenforceable.

     7.5. APPLICABLE LAW.  This Amendment shall be governed by and construed in
accordance with the laws of the Commonwealth of Kentucky.

     7.6. HEADINGS.  The headings, captions and arrangements used in this
Amendment are for convenience only and shall not affect the interpretation of
this Amendment.

     7.7. ENTIRE AGREEMENT.  This Amendment is specifically limited to the
matters expressly set forth herein. This Amendment and all other instruments,
agreements and documentation executed and delivered in connection with this
Amendment embody the final, entire agreement among the parties hereto with
respect to the subject matter hereof and supersede any and all prior
commitments, agreements, representations and understandings, whether written or
oral, relating to the matters covered by this Amendment, and may not be
contradicted or varied by evidence of prior, contemporaneous or subsequent oral
agreements or discussions of the parties hereto. There are no oral agreements
among the parties hereto relating to the subject matter hereof or any other
subject matter relating to the Credit 

                                       8
<PAGE>
 
Agreement.

     7.8. COUNTERPARTS.  This Amendment may be executed by the parties hereto
separately in one or more counterparts, each of which when so executed shall be
deemed to be an original, but all of which when taken together shall constitute
one and the same agreement.



               [The balance of this page is intentionally blank.]

                                       9
<PAGE>
 
     IN WITNESS WHEREOF, this Amendment has been duly executed and delivered as
of the date first above written.


ATRIA COMMUNITIES, INC.                   THE BANK OF NEW YORK                
                                                                              
                                                                              
BY:_______________________________        BY:_________________________________
     CHIEF FINANCIAL OFFICER AND                    VICE PRESIDENT            
     VICE PRESIDENT OF DEVELOPMENT                                            
                                                                              
PNC BANK, NATIONAL ASSOCIATION,           THE CHASE MANHATTAN BANK            
     INDIVIDUALLY AND AS                                                      
     ADMINISTRATIVE AGENT                                                     
                                                                              
BY:_______________________________        BY:_________________________________
     VICE PRESIDENT                                 VICE PRESIDENT            
                                                                              
NATIONAL CITY BANK OF KENTUCKY,           MORGAN GUARANTY TRUST COMPANY OF    
     INDIVIDUALLY AND AS                            NEW YORK                  
     DOCUMENTATION AGENT                                                      
                                                                              
BY:_______________________________        BY:_________________________________
     VICE PRESIDENT                                 VICE PRESIDENT            
                                                                              
                                                                              
PNC BANK, KENTUCKY, INC.,                      AMSOUTH BANK OF ALABAMA        
     INDIVIDUALLY AND AS                                                      
     MANAGING AGENT                                                           
                                                                              
BY:_______________________________        BY:_________________________________
     VICE PRESIDENT                                 VICE PRESIDENT            
                                                                              
THE TORONTO-DOMINION BANK                 U.S BANK OF WASHINGTON,             
                                               NATIONAL ASSOCIATION           
                                                                              
BY:_______________________________        BY:_________________________________
     MGR. CREDIT ADMINISTRATION                     VICE PRESIDENT            
                                                                              
BANK ONE, KENTUCKY, NA                    FIRST AMERICAN NATIONAL BANK        
                                                                              
BY:_______________________________        BY:_________________________________
     SENIOR VICE PRESIDENT                          SENIOR VICE PRESIDENT     
                                                                              
NATIONSBANK, N.A.                         KEYBANK NATIONAL ASSOCIATION        
                                                                              
BY:_______________________________        BY:_________________________________
     VICE PRESIDENT                                 ASSISTANT VICE PRESIDENT  

FLEET NATIONAL BANK

BY:_______________________________
     VICE PRESIDENT

                                       10
<PAGE>
 
                          ACKNOWLEDGMENT AND CONSENT


     For the avoidance of doubt, and without limitation of the intent and effect
of sections 5 and 6 of the Parent Guaranty and sections 6 and 10 of the
Subsidiary Guaranty (as each of such terms is defined in the Credit Agreement
referred to in the Amendment No. 2 to Credit Agreement (the "AMENDMENT"), to
which this Acknowledgment and Consent is appended), each of the undersigned
hereby unconditionally and irrevocably (i) acknowledges receipt of a copy of the
Credit Agreement and the Amendment, and (ii) consents to all of the terms and
provisions of the Credit Agreement as amended by the Amendment.

     Capitalized terms which are used herein without definition shall have the
respective meanings ascribed thereto in the Credit Agreement referred to herein.
This Acknowledgment and Consent is for the benefit of the Lenders, the
Administrative Agent, the Collateral Agent, the Managing Agent, the
Documentation Agent, any other person who is a third party beneficiary of the
Parent Guaranty or the Subsidiary Guaranty, and their respective successors and
assigns. No term or provision of this Acknowledgment and Consent may be modified
or otherwise changed without the prior written consent of the Administrative
Agent, given as provided in the Credit Agreement. This Acknowledgment and
Consent shall be binding upon the successors and assigns of each of the
undersigned. This Acknowledgment and Consent may be executed by any of the
undersigned in separate counterparts, each of which shall be an original and all
of which together shall constitute one and the same instrument.

     IN WITNESS WHEREOF, each of the undersigned has duly executed and delivered
this Acknowledgment and Consent as of the date of the Amendment referred to
herein.


                 SIGNATURES OF PARTIES TO THE PARENT GUARANTY

                                    VENCOR, INC.
                                    FIRST HEALTHCARE CORPORATION
                                    NORTHWEST HEALTH CARE, INC.
                                    MEDISAVE PHARMACIES, INC.
                                    NATIONWIDE CARE, INC.
                                    THERATX, INCORPORATED
                                         (SUCCESSOR BY MERGER WITH
                                         PEACH ACQUISITION CORP.)
                                    VENCOR HOSPITALS ILLINOIS, INC.
                                    VENCOR HOSPITALS SOUTH, INC.
                                    VENCOR HOSPITALS EAST, INC.
                                    VENCOR HOSPITALS CALIFORNIA, INC.
                                    VENCOR HOSPITALS TEXAS, LTD.
                                         BY: VCI SPECIALTY SERVICES, INC.,
                                              ITS GENERAL PARTNER
                                    VENTECH SYSTEMS, INC.
                                    PASATIEMPO DEVELOPMENT CORP.
                                    VCI SPECIALTY SERVICES, INC.
                                    VENCOR PROPERTIES, INC.



                                    BY:______________________________________
                                         VICE PRESIDENT
<PAGE>
 
               SIGNATURES OF PARTIES TO THE SUBSIDIARY GUARANTY


                         LANTANA PARTNERS, LTD.
                              BY: HILLHAVEN PROPERTIES, LTD.,
                                    A GENERAL PARTNER
                         PHILLIPPE ENTERPRISES, INC.
                         HILLHAVEN PROPERTIES, LTD.
                         CASTLE GARDENS RETIREMENT CENTER
                              BY: HILLHAVEN PROPERTIES, LTD.,
                                    A GENERAL PARTNER
                         HILLCREST RETIREMENT CENTER, LTD.
                              BY: FAIRVIEW LIVING CENTERS, INC.,
                                    A GENERAL PARTNER
                         SANDY RETIREMENT CENTER LIMITED PARTNERSHIP
                              BY: HILLHAVEN PROPERTIES, LTD.,
                                    A GENERAL PARTNER
                         TOPEKA RETIREMENT CENTER, LTD.
                              BY: HILLHAVEN PROPERTIES, LTD.,
                                    A GENERAL PARTNER
                         EVERGREEN WOODS, LTD.
                              BY: ATRIA COMMUNITIES, INC.,
                                    A GENERAL PARTNER
                         FAIRVIEW LIVING CENTERS, INC.
                         TWENTY-NINE HUNDRED ASSOCIATES, LTD.
                              BY: TWENTY-NINE HUNDRED CORPORATION,
                                    A GENERAL PARTNER
                         TWENTY-NINE HUNDRED CORPORATION
                         WOODHAVEN PARTNERS, LTD.
                              BY: HILLHAVEN PROPERTIES, LTD.,
                                    A GENERAL PARTNER
                         TUCSON RETIREMENT CENTER LIMITED
                                    PARTNERSHIP
                              BY: HILLHAVEN PROPERTIES, LTD.,
                                    A GENERAL PARTNER


                         BY: _________________________________
                              VICE PRESIDENT

                                       2