BALANCED CARE CORP, 8-K, EX-10.1, 2000-11-13

BALANCED CARE CORP
8-K, EX-10.1, 2000-11-13
NURSING & PERSONAL CARE FACILITIES

Previous: BALANCED CARE CORP, 8-K, 2000-11-13

Next: BALANCED CARE CORP, 8-K, EX-10.2, 2000-11-13

<PAGE> 1
Exhibit 10.1

Loan No. 99-407

AMENDED AND RESTATED
SUBORDINATION AGREEMENT

THIS AMENDED AND RESTATED SUBORDINATION AGREEMENT (this
"Agreement") is made as of November 6, 2000, by and among the entities listed on
Exhibit A hereto, each a Delaware corporation (collectively, "Borrowers"),
BALANCED CARE CORPORATION, a Delaware corporation ("BCC"), the entities listed
on Exhibit D hereto, each a Delaware corporation, which are direct or indirect
subsidiaries of BCC and shareholders of one or more of the Borrowers
(collectively "BCC Subs", and collectively with BCC, "Pledgor"), FRR Investments
Limited, a Cayman Islands corporation ("FRR"), IPC Advisors, S.a.r.l., a
Luxembourg corporation ("IPC"), HR Investments Limited, a Cayman Islands
corporation ("HR"), RH Investments Limited, a Cayman Islands corporation ("RH"),
VXM Investments Limited, a Cayman Islands corporation ("VXM") (FRR, IPC, RH, HR
and VXM, together with any successors or assigns in such capacity, are
collectively referred to herein as the "Junior Lender"), and HELLER HEALTHCARE
FINANCE, INC., a Delaware corporation, (together with any successors or assigns
in such capacity, "Senior Creditor").

W I T N E S S E T H:

WHEREAS, Borrowers, BCC, BCC Subs, FRR, IPC and Senior
Creditor are parties to that certain Subordination Agreement dated as of
November 6, 2000 (the "Original Subordination Agreement");

WHEREAS, Borrowers have executed and delivered a Second
Amended and Restated Promissory Note A in the principal amount of Thirty Million
Six Hundred Thousand and No/100 Dollars ($30,600,000.00) in favor of Senior
Creditor (the "Senior Note A"), a Second Amended and Restated Subordinated
Promissory Note B in the principal amount of Six Million Four Hundred Thousand
and No/100 Dollars ($6,400,000.00) in favor of Senior Creditor (the "Senior Note
B"; Senior Note A and Senior Note B being referred to herein collectively as the
"Senior Notes"), and a Promissory Note C in the principal amount of Five Million
and No/100 Dollars ($5,000,000.00) in favor of Senior Creditor ("Note C");

WHEREAS, in connection with the execution and delivery of this
Agreement, (i) a reserve account originally funded with

<PAGE> 2

some of the proceeds of Note C was disbursed to Senior Creditor to repay, in
part, Note C, (ii) Note C was repaid in its entirety, and (iii) a Third
Amendment to Loan Documents dated the date hereof (the "Third Amendment") was
entered into among Borrowers, BCC, Senior Creditor and certain affiliates of BCC
and Borrowers;

WHEREAS, all amounts owed by Borrowers to Senior Creditor
under the Senior Notes or otherwise under the Senior Security Documents (as
defined below) and all amounts owed by BCC Borrowers (as defined in the Third
Amendment) to Senior Creditor pursuant to the Revolving Credit Facility Loan
Documents (as defined in (and amended by) the Third Amendment) or otherwise are
being hereinafter referred to collectively as the "Senior Debt;"

WHEREAS, the Senior Debt is secured by, among other things,
those certain mortgages and deeds of trust, each dated December 30, 1999 listed
on Exhibit B hereto, as each has been amended (together with the Revolving
Credit Facility Mortgages (as defined in (and amended by) the Third Amendment),
collectively, the "Senior Mortgages"), covering certain real property including
the real property more particularly described on Exhibit C attached hereto and
incorporated herein by reference (together with the properties encumbered by the
Revolving Credit Facility Mortgages, collectively, the "Properties");

WHEREAS, (i) FRR agreed to loan an amount not to exceed Seven
Million and No/100 Dollars ($7,000,000.00) to BCC, which loan was evidenced by a
Series One 1999 BCC Discount Note dated December 29, 1999, executed by BCC in
favor of FRR, and which loan was subsequently repaid in full, and (ii) BCC has
executed and delivered in favor of IPC that certain Indemnification, Defense,
Hold Harmless and Reimbursement Agreement dated as of December 29, 1999 (the
"Indemnification Agreement");

WHEREAS, some or all of the Junior Lenders have agreed to loan
BCC (through one or more disbursements and evidenced by one or more notes) an
amount not to exceed Eight Million and No/100 Dollars ($8,000,000.00) in
aggregate (the note(s) evidencing such loan being referred to (collectively) as
the "Junior Note");

WHEREAS, the indebtedness and other obligations of BCC to each
Junior Lender under the Indemnification Agreement, and the indebtedness and
other obligations of the Borrowers to each Junior Lender pursuant to the Junior
Note, is hereinafter referred to collectively as the "Junior Debt";

-2-
<PAGE> 3

WHEREAS, the Junior Debt is secured by a Pledge Agreement
pursuant to which Pledgor is pledging the capital stock of Borrowers (the
"Stock") to Junior Lender as security for the Junior Debt (as amended by that
certain Amendment and Joinder to Stock Pledge Agreement dated the date hereof,
the "Pledge Agreement", and together with the Junior Note and Indemnification
Agreement, the "Junior Loan Documents");

WHEREAS, Junior Lender has agreed to fully subordinate the
Junior Debt and the Junior Loan Documents to the Senior Debt and Senior Security
Documents;

WHEREAS, that certain Loan Agreement dated December 30, 1999
among Senior Creditor and Borrowers, as amended to date, including by the Third
Amendment (the "Loan Agreement"), the Senior Mortgages, the Senior Notes and all
other documents evidencing, securing or otherwise executed in connection with
the Senior Notes or the Senior Debt (other than this Agreement), together with
the Revolving Credit Facility Loan Documents are referred to herein as the
"Senior Security Documents;"

WHEREAS, all capitalized terms used herein and not defined
herein shall have the meanings as signed to them in the Loan Agreement; and

WHEREAS, the parties intend that the Original Subordination
Agreement is hereby amended and restated in its entirety to read as provided in
this Agreement.

NOW, THEREFORE, in consideration of the premises, and for
other good and valuable consideration, the parties agree as follows:

1. The Junior Loan Documents and the Junior Debt and the
liens, security interests and assignments created thereunder (including without
limitation the Pledge Agreement and any liens created thereby) are and shall
continue to be expressly subject and subordinate to (a) the Senior Debt and the
liens, security interests and assignments created by the Senior Security
Documents (regardless of the relative times and method of attachment or
perfection thereof or the order of filing, of financing statements, mortgages,
deeds of trust, assignments or other security agreements or documents, or
anything in the Junior Loan Documents or this Agreement to the contrary); (b)
all the terms, covenants and conditions contained in the Senior Security
Documents and any extensions, replacements, consolidation, modifications and
supplements thereto, including without limitation any and all advances (whether
or not obligatory), in

-3-
<PAGE> 4

whatever amounts and whenever made, with interest thereon, and to any expenses,
charges and fees incurred thereby, including any and all advances, interest,
expenses, charges and fees which may increase the indebtedness secured by the
Senior Security Documents above the original principal amount thereof and any
post-petition interest which accrues, or would have accrued but for such filing,
after the commencement of any case under the Federal Bankruptcy Code, to the
full extent of all of the foregoing; and (c) any amounts advanced or incurred,
in the sole judgment of Senior Creditor whether or not in accordance with the
Senior Security Documents, for the benefit of the Properties or for costs and
expenses associated with the Senior Debt or otherwise. In foreclosing on the
Senior Creditor's security interests and liens, Senior Creditor may proceed to
foreclose on its security interests and liens in any manner which Senior
Creditor, in its sole discretion, chooses, even though a higher price might have
been realized if Senior Creditor had proceeded to foreclose on its security
interests and liens in another manner. Notwithstanding the foregoing to the
contrary, nothing in this Agreement shall be construed to prevent Junior Lender
from receiving (i) payment of the obligations under the Indemnification
Agreement at any time from BCC, (ii) so long as no Event of Default has occurred
and is continuing under (and as defined in) any of the Senior Security
Documents, regularly scheduled interest payments under the Junior Note may be
made by BCC to the Junior Lender, and (iii) so long as (1) BCC obtains new funds
to repay the Junior Note from either (A) an equity contribution (without an
increase in BCC's liabilities as would be the case, for example, if convertible
debt were issued, as opposed to common or preferred stock) or (B) new debt
incurred by BCC which debt is consented to by Senior Creditor (whose consent
will not be unreasonably withheld), and which new debt is subject to a complete
standstill and subordination in favor of Senior Creditor by the holder of such
debt, pursuant to a written agreement in substantially the form of this
Agreement, and (2) no Event of Default has occurred and is continuing under (and
as defined in) any of the Senior Security Documents, payment due under the
Junior Note upon maturity (as the maturity date may be extended from time to
time) (the payments described in clauses (i), (ii) and (iii) of this sentence
being referred to collectively as the "Permitted Payments").

2. (a) Until the Senior Debt has been satisfied in full,
Junior Lender shall not be entitled to receive or retain any payment made by
BCC, any of the BCC Borrowers, any of the Borrowers or any of the BCC Subs with
respect to the Junior Debt or under the Junior Loan Documents, except for the
Permitted

-4-
<PAGE> 5

Payments. The BCC Subs, BCC, BCC Borrowers and Borrowers agree that they shall
not, directly or indirectly, make any payments (whether of principal, interest
or otherwise) on account of the Junior Debt (other than the Permitted Payments)
or redeem, purchase or otherwise acquire, directly or indirectly, any Junior
Debt, and Junior Lender agrees that it will not accept any such payment (other
than the Permitted Payments) or payment from any other source including, without
limitation, proceeds of insurance or any condemnation award or participate in
any such redemption, purchase or other acquisition.

(b) Until the Senior Debt has been satisfied in
full, Junior Lender agrees that it shall not exercise any remedies whatsoever
under the Junior Loan Documents, including without limitation, any remedies with
respect to the capital shares of any of the Borrowers or of any of the Pledgors
(or if applicable at any time hereafter, any of the BCC Borrowers), whether
under the Junior Loan Documents or otherwise.

(c) Until the Senior Debt has been fully satisfied,
Junior Lender shall not take, require or accept from BCC, any BCC Borrower, any
Borrower or any BCC Sub any security or collateral for the Junior Debt or any
guaranty of the Junior Debt (except for pledges of shares by the Pledgor and
other security granted by the Pledgor under the Pledge Agreement).

3. At all times during which the Senior Debt is outstanding,
Junior Lender agrees that it shall not (i) vote for any plan of reorganization
of BCC Borrowers, Borrowers or Pledgor without the written consent of the Senior
Creditor; (ii) commence or join with any other creditor or creditors of BCC
Borrowers, Borrowers or Pledgor in commencing any bankruptcy, reorganization or
insolvency proceeding against BCC Borrowers, Borrowers or Pledgor; (iii) object
to any motion filed in any bankruptcy proceeding that rents from the Properties,
or any of them, shall constitute cash collateral of the Senior Creditor; (iv)
oppose any motion filed by the Senior Creditor to lift the automatic stay in a
bankruptcy proceeding; or (v) take any action to appoint a receiver for Pledgor,
Borrowers, BCC Borrowers or any of the Properties.

4. Nothing contained in this Agreement is intended to or shall
impair the obligations of Borrowers, BCC and BCC Borrowers, which are absolute
and unconditional, to pay to Senior Creditor the principal of the prepayment
premium, if any, and the interest on the Senior Debt as and when the same shall
become due and payable in accordance with its terms, or to affect the

-5-
<PAGE> 6

relative rights of Senior Creditor and creditors of BCC Borrowers, Borrowers or
Pledgor, other than Junior Lender.

5. Should any payment on account of, or any stock as
collateral (or other collateral) for any part of, the Junior Debt be paid to
Junior Lender in violation of the terms of this Agreement, such payment or
collateral shall be delivered forthwith to Senior Creditor by the recipient for
application to the Senior Debt, in the form received. Senior Creditor is
irrevocably authorized to supply any required endorsement or assignment which
may have been omitted. Until so delivered, any such payment or collateral shall
be held by Junior Lender in trust for Senior Creditor and shall not be
commingled with other funds or property of Junior Lender.

6. Each of FRR, IPC, HR, RH and VXM represents that it has not
transferred or assigned its rights under the Junior Note, in the case of HR, RH
and VXM, and the Indemnification Agreement, in the case of IPC, and no part
thereof has been subordinated in favor of anyone except Senior Creditor. Junior
Lender may not sell, assign or transfer its collateral interest in the Stock or
its interest in the Junior Note or any of the Junior Loan Documents without
Senior Creditor's consent.

7. The rights in favor of Senior Creditor created hereunder
are solely for its benefit and protection and for the benefit and protection of
its participants, successors and assigns. Nothing herein contained shall impose
on Senior Creditor any duties with respect to any property of BCC Borrowers,
Borrowers, Pledgor or the Junior Lender.

8. Senior Creditor is hereby authorized to demand specific
performance of this Agreement, whether or not BCC Borrowers, Borrowers or
Pledgor shall have complied with the provisions hereof applicable to it, at any
time when Junior Lender shall have failed to comply with any provision hereof
applicable to it. Junior Lender hereby irrevocably waives any defense based on
the adequacy of a remedy at law which might be asserted as a bar to the remedy
of specific performance hereof in any action brought therefor by Senior
Creditor. Junior Lender consents that, without the necessity of any reservation
of rights against Junior Lender, and without notice to or further assent by
Junior Lender:

(a) any demand for payment of any Senior Debt may be rescinded
in whole or in part, and any Senior Debt may continue;

-6-
<PAGE> 7

(b) the Senior Debt, or the liability of BCC, BCC Borrowers,
Borrowers or any other party upon or for any part thereof, or any collateral
security therefor or guaranty thereof or right of offset with respect thereto,
may, from time to time, in whole or in part, be renewed, increased, extended,
modified, compromised, waived, surrendered or released;

(c) the Senior Notes and any other agreement or instrument
evidencing the Senior Debt or governing the terms of the Senior Debt, and any
collateral security documents or guaranties or documents signed in connection
therewith, and the Revolving Credit Facility Loan Documents, may be amended,
modified, supplemented or terminated, in whole or in part, as Senior Creditor
may deem advisable from time to time; and

(d) any collateral security at any time held by the Senior
Creditor for the payment of any of the Senior Debt may be sold, waived,
surrendered or released, and Senior Creditor may take any other action it deems
desirable with respect to the collateral for the Senior Debt.

9. Junior Lender shall execute and deliver to the Senior
Creditor such further instruments and shall take such further action as the
Senior Creditor may reasonably request from time to time in order to carry out
the provisions and intent of this Agreement or to enable Senior Creditor to
exercise and enforce its rights and remedies hereunder.

10. Junior Lender and Senior Creditor agree to provide to each
other estoppel certificates current to the date of such request within thirty
(30) business days of the request of the other party, but not more frequently
than three times per year, which estoppel certificate shall provide that the
Junior Debt or Senior Debt (as the case may be) is in full force and effect,
that, to the affirming party's knowledge, no defaults have occurred and are
continuing thereunder, and as to any other matters reasonably requested by the
requesting party.

11. Junior Lender agrees that in the event of a casualty to
one or more of the Properties or a condemnation or taking under a power of
eminent domain of all or any portion of one or more of the Properties, or a
threat of such a condemnation or taking, all adjustments of insurance claims,
condemnation claims and settlements in anticipation of such a condemnation or
taking shall be prosecuted, at Senior Creditor's election, by Senior Creditor or
at Senior Creditor's direction pursuant to the terms and provisions of the
Senior Security Documents, and all payments and settlements of insurance claims
or condemnation

-7-
<PAGE> 8

awards or payments in anticipation of condemnation or a taking shall be paid to
Senior Creditor or at Senior Creditor's direction for use and application
pursuant to the terms and provisions of the Senior Security Documents. Junior
Lender irrevocably assigns to Senior Creditor all of its interest, if any, in
any such claims, settlements or awards and irrevocably grants to Senior Creditor
authorization to execute any and all documents on Junior Lender's behalf
necessary in connection with the prosecution or settlement of such claims,
awards and payments.

12. The execution of this Agreement shall not create or be
construed as creating a partnership, joint venture or other joint enterprise
between the Senior Creditor and the Junior Lender, and shall not be construed as
creating any special relationship between Senior Creditor and Junior Lender.
Except as provided in Sections 5 and 15, nothing in this Agreement shall be
construed to constitute the Senior Creditor or the Junior Lender as trustee or
other fiduciary for the other or to impose on either of them any duty,
responsibility or obligation other than those expressly provided for herein,
including, without limitation, any duty of good faith and fair dealing. Each of
the Senior Creditor and the Junior Lender has, independently and without
reliance on the other and based on such documents and information as it has
deemed appropriate, made its own credit analysis of the BCC Borrowers, Borrowers
and/or Pledgor, as applicable, and agrees that it will, independently and
without reliance upon the other, and based on such documents and information as
it shall deem appropriate at the time, continue to make its own independent
analysis and decisions in taking or not taking action under this Agreement, the
Senior Security Documents or the Junior Loan Documents, respectively.

13. In the event there exists a conflict between the terms and
provisions of the Senior Security Documents, the Junior Loan Documents and this
Agreement, the terms and provisions of this Agreement will prevail. Senior
Lender hereby consents to, and waives any default under the Senior Security
Documents in connection with, the execution and delivery of the Junior Loan
Documents, and the performance thereunder of the parties thereto, subject to the
terms and conditions of this Agreement.

14. If Junior Lender shall acquire by subrogation or
otherwise, any lien, estate, right, or other interest in the Properties which is
or may be prior in right to the Senior Creditor, including, but not limited to,
advances made by the Junior Lender for real estate taxes and assessments, such
lien, estate, right or other interest shall be subordinate to the

-8-
<PAGE> 9

Senior Security Documents and Junior Lender shall not exercise any such
subrogation or other rights until all amounts due under the Senior Security
Documents are paid in full and all obligations thereunder are fully satisfied.

15. Upon any distribution of the assets of one or more of BCC,
the BCC Borrowers or the Borrowers in connection with any dissolution, winding
up, liquidation or reorganization of one or more of BCC, the BCC Borrowers or
the Borrowers (whether in bankruptcy proceedings or upon an assignment for the
benefit of creditors or any other marshaling of the assets and liabilities of
BCC, a BCC Borrower or a Borrower or otherwise), or the distribution of
insurance proceeds or condemnation awards received with respect to one or more
of the Properties in the event of a casualty or condemnation, Senior Creditor
shall first be entitled to receive payment in full of all Senior Creditor claims
which claims shall include, without limitation, the right to payment in full of
the Senior Debt (the "Senior Claims") before Junior Lender shall be entitled to
receive any payment from such proceeds in respect of the claims of the Junior
Lender (the "Junior Claims"). Upon any such dissolution, winding up, liquidation
or reorganization, any payment or distribution of assets of BCC, a BCC Borrower
or Borrower of any kind or character, whether in cash, property or securities,
to which Senior Creditor is entitled shall be made directly to Senior Creditor
by the liquidating trustee or agent or other persons making such payment or
distribution (whether a trustee in bankruptcy, a receiver or liquidating trustee
or otherwise) (a "Paying Party"). If the aggregate amount of such payments or
distributions on the Senior Claims is insufficient to pay the Senior Claims in
full, then Junior Lender hereby irrevocably authorizes the Paying Party to remit
promptly to Senior Creditor, and Junior Lender hereby assigns to Senior
Creditor, the lesser of the proceeds Junior Lender is entitled to receive by
reason of any payment or distribution on the Junior Claims, or the difference
between the aggregate amount of the Senior Claims and the proceeds Senior
Creditor receives by reason of any payment on distribution on the Senior Claims.
In furtherance of the foregoing, but not by way of limitation thereof, if one or
more of BCC, the BCC Borrowers or the Borrowers are subject to any proceeding,
with the result that BCC, such BCC Borrower or BCC Borrowers or such Borrower or
Borrowers, as applicable, are excused from the obligation to pay all or part of
the interest otherwise payable in respect of the Senior Claims during the period
subsequent to the commencement of any such Proceedings, Junior Lender agrees
that such interest (calculated at the rate of interest set forth in the Senior
Security Documents) shall be

-9-
<PAGE> 10

payable out of payments or distributions made by the Paying Party in respect of
the Junior Claims.

If any payment or distribution of assets of BCC, a BCC
Borrower or a Borrower of any kind or character (including any distribution of
insurance proceeds or condemnation awards received with respect to the Property
owned by BCC, such BCC Borrower or such Borrower in the event of a casualty or
condemnation), whether in cash, property or securities, and whether or not
pursuant to any dissolution, winding up, liquidation or reorganization, not
permitted by or in accordance with the provisions of this Agreement shall be
received by Junior Lender in connection with the Junior Claims, such payment or
distribution to Junior Lender shall be held in trust for the benefit of, and
shall be paid over or delivered to, Senior Creditor, or to its representative,
in precisely the form received (except for the endorsement or assignment of
Junior Lender where necessary). In the event of any failure by Junior Lender to
make any such endorsement or assignment, Senior Creditor is hereby irrevocably
authorized to make same.

16. This Agreement shall be binding upon the parties hereto
until all of the Senior Debt shall have been paid and fully satisfied.

17. Junior Lender agrees that: (a) Senior Creditor shall be
entitled to manage and supervise the Senior Debt and its relationship to
Borrowers, BCC Borrowers and BCC as it deems appropriate under the
circumstances; (b) Senior Creditor shall not have any responsibility to Junior
Lender to advise it of information known to Senior Creditor regarding the
financial condition of the BCC Borrowers, the Borrowers or Pledgor or of any
circumstances bearing upon the risk of nonpayment of the Senior Debt or any
other indebtedness of the BCC Borrowers, Borrowers or Pledgor; and (c) Senior
Creditor shall have the right at all times to determine the order in which any
or all of the collateral for the Senior Debt shall be subjected to the remedies
provided by the Senior Security Documents. In any event, Senior Creditor shall
not have any liability to Junior Lender for, and Junior Lender hereby waives any
claim which it may now or hereafter have against Senior Creditor arising out of
any amendment to, waiver or departure from, any term of the Senior Security
Documents and any and all actions to which Senior Creditor, takes or omits to
take with respect to the BCC Borrowers, Borrowers, Pledgor, the Senior Security
Documents or any collateral (including, without limitation, (i) actions with
respect to the taking, perfection or release of liens or security interests in
any other collateral, (ii) actions with respect to

-10-
<PAGE> 11

the foreclosure upon sale of, release of or failure to realize upon, any
collateral or to the collection of the Senior Debt or the valuation, use or
protection of any collateral, and (iii) actions under any guaranty of the Senior
Debt.)

18. All notices or other written communications hereunder
shall be deemed to have been properly given (i) upon delivery, if delivered in
person or by facsimile transmission with receipt acknowledged by the recipient
thereof, (ii) one (1) Business Day (defined below) after having been deposited
for overnight delivery with any reputable overnight courier service, or (iii)
three (3) Business Days after having been deposited in any post office or mail
depository regularly maintained by the U.S. Postal Service and sent by
registered or certified mail, postage prepaid, return receipt requested,
addressed as follows:

If to Senior Creditor: Heller Healthcare Finance, Inc.
Loan No. 99-407
2 Wisconsin Circle
Suite 400
Chevy Chase, Maryland 20815
Attn: Manager, Portfolio
Administration Group
Facsimile No. (301) 664-9866

with a copy to: Heller Healthcare Finance, Inc.
Loan No. 99-407
816 Congress Avenue
Suite 1900
Austin, Texas 78701
Attn:Diana Pennington,
V.P. and Chief Counsel
Senior Living Group
Facsimile No. (512) 505-5487

with a copy to: Heller Healthcare Finance, Inc.
Loan No. 99-407
500 West Monroe Street
Chicago, Illinois 60661
Attn:Kevin McMeen,
Senior Vice President
Facsimile No. (312) 441-7119

-11-
<PAGE> 12

If to Junior Lender: IPC Advisors S.a.r.l.
28, rue Jean Baptiste Fresez
Luxembourg L-1542
Attn:J.B. Unsworth
Facsimile No.: (352) 2620-1713

with a copy to: FRR Investments Limited
Walter House
Mary Street
George Town, Grand Cayman
Attn:J.B. Unsworth
Facsimile No.: (3120) 623-2285

and with copies to: Goodman, Phillips & Vineberg
250 Young Street, Suite 2400
Toronto, Ontario M5B 2M6
Attn:Stephen Pincus, Esq.
Facsimile No.: (416) 979-1234

Alliance Finance B.V.
Herengracht 483, 1017 BT
Amsterdam, Netherlands
Attn:J.B. Unsworth
Facsimile No.: (3120) 623-2285

If to Borrowers, BCC Balanced Care Corporation
BCC or the BCC Subs: 1215 Manor Drive
Mechanicsburg, Pennsylvania 17055
Attn:Clint Fegan, Chief
Financial Officer
Telecopy: (717) 796-6150

with a copy to: Balanced Care Corporation
1215 Manor Drive
Mechanicsburg, Pennsylvania 17055
Attn:Robin L. Barber, Esq.
Telecopy: (717) 796-6294

with a copy to: Kirkpatrick & Lockhart LLP
1500 Oliver Building
Pittsburgh, Pennsylvania 15222
Attn: Steven J. Adelkoff, Esq.
Telecopy: (412) 355-6501

or addressed as such party may from time to time designate by written notice to
the other parties.

-12-
<PAGE> 13

Either party by notice to the other may designate additional
or different addresses for subsequent notices or communications.

For purposes of this Section, "Business Day" shall mean a day
on which commercial banks are not authorized or required by law to close in
Chicago, Illinois, and a day which is not any of the first, second, seventh or
eighth day of Passover, the first or second day of Shavuoth, the first or second
day of Rosh Hashanah, Yom Kippur, the first or second day of Sukkoth, Shemini
Azerth or Simchas Torah.

19. Time is of the essence with respect to the obligations
contained herein.

20. The Agreement shall be binding upon BCC, BCC Borrowers,
BCC Subs, Borrowers, Senior Creditor, Junior Lender and their respective
successors and assigns, and shall inure to the benefit of Senior Creditor and
its successors and assigns. The terms "Borrowers", "BCC", "BCC Subs" and "BCC
Borrowers" as used herein shall also refer to their respective successors and
assigns, including, without limitation, a receiver, trustee, custodian or debtor
in possession.

21. This Agreement may be executed in any number of
counterparts, but all such counterparts shall together constitute but one
agreement. In making proof of this Agreement, it shall not be necessary to
produce or account for more than one counterpart signed by each of the parties
hereto.

22. This Agreement and the rights and obligations of the
parties hereunder shall in all respects be construed, governed, applied and
enforced in accordance with the laws of the State of Illinois (without regard to
conflicts of laws principles) and the applicable laws of the United States of
America. PLEDGOR, BORROWERS, BCC BORROWERS AND JUNIOR LENDER HEREBY CONSENT TO
THE JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED WITHIN THE COUNTY OF
COOK, STATE OF ILLINOIS AND IRREVOCABLY AGREE THAT, SUBJECT TO SENIOR CREDITOR'S
ELECTION, ALL ACTIONS OR PROCEEDINGS ARISING OUT OF OR RELATING TO THIS
AGREEMENT SHALL BE LITIGATED IN SUCH COURTS. PLEDGOR, BORROWERS, BCC BORROWERS
AND JUNIOR LENDER EXPRESSLY SUBMIT AND CONSENT TO THE JURISDICTION OF THE
AFORESAID COURTS AND WAIVE ANY DEFENSE OF FORUM NON CONVENIENS. PLEDGOR,
BORROWERS, BCC BORROWERS AND JUNIOR LENDER HEREBY WAIVE PERSONAL SERVICE OF ANY
AND ALL PROCESS AND AGREE THAT ALL SUCH SERVICE OF PROCESS MAY BE MADE UPON
PLEDGOR, BORROWERS, BCC BORROWERS AND JUNIOR LENDER BY CERTIFIED OR REGISTERED
MAIL, RETURN RECEIPT REQUESTED, ADDRESSED

-13-
<PAGE> 14

TO PLEDGOR, BORROWERS, BCC BORROWERS AND JUNIOR LENDER, AT THE ADDRESSES SET
FORTH IN THIS AGREEMENT AND SERVICE SO MADE SHALL BE COMPLETE TEN (10) DAYS
AFTER THE SAME HAS BEEN POSTED.

23. Pledgor, BCC Borrowers and Borrowers are executing this
Agreement for the sole purpose of evidencing their consent to the terms hereof
and the agreements made between Senior Creditor and Junior Lender evidenced
hereby; however, none of Pledgor, BCC Borrowers or Borrowers shall be entitled
to enforce any of the provisions of this Agreement, but nonetheless are
permitted to rely on (i) the consent by Senior Creditor to the pledge to Junior
Lender of the stock owned by Pledgor in Borrowers, and (ii) the waiver of any
default under any Senior Security Document as a result of entering into the
Pledge Agreement and making the Junior Debt. There are no third party
beneficiaries to this Agreement.

24. Notwithstanding any other provision of this Agreement
which may be to the contrary: (i) any debt or obligation which is or becomes
secured by the Pledge Agreement shall automatically and without further
documentation irrevocably become part of the Junior Debt for all purposes of
this Agreement and all documents, notes, debentures, agreements or other
instruments evidencing or securing such debt or obligations shall automatically
and without further documentation irrevocably become Junior Loan Documents for
all purposes of this Agreement; provided, however, nothing in this clause (i)
shall be deemed to constitute the consent of Senior Creditor to any debt
incurred hereafter by BCC (other than the debt evidenced (or to be evidenced) by
the Junior Note as defined above), Borrowers, BCC Subs or BCC Borrowers, when
such consent is required under the terms of the Senior Security Documents; (ii)
Junior Lender and their affiliates will not make additional loans or provide
other financial assistance (other than the debt evidenced (or to be evidenced)
by the Junior Note as defined above), without regard to how they are documented
(as notes, convertible securities or otherwise), to BCC, Borrowers, BCC Subs,
BCC Borrowers or their affiliates, if doing so would cause a default under any
of the Senior Security Documents, without in each instance obtaining the prior
written consent of Senior Creditor; (iii) Junior Lender and their affiliates
will not take additional security to secure any existing or future debt or
obligations of BCC, Borrowers, BCC Subs, BCC Borrowers or their affiliates, if
doing so would cause a default under any of the Senior Security Documents,
without in each instance obtaining the prior written consent of Senior Creditor;
(iv) if Senior Creditor consents to any debt or other financial assistance
described in clause (ii) above, in the exercise of Senior Creditor's reasonable
discretion, Senior

-14-
<PAGE> 15

Creditor may require as a condition to its consent, that such debt or other
financial assistance become part of the Junior Debt for all purposes of this
Agreement and, if required as a condition to Senior Creditor's consent, all
documents, notes, debentures, agreements or other instruments evidencing or
securing such debt or other financial assistance shall automatically and without
further documentation irrevocably become part of the Junior Loan Documents and
subject to the provisions of this Agreement; and (v) if Senior Creditor consents
to any security described in clause (iii) above, all documents, notes,
debentures, agreements or other instruments evidencing such security interests
shall automatically and without further documentation irrevocably become Junior
Loan Documents for all purposes of this Agreement. Junior Lender shall give
Senior Creditor prompt written notice as to any debts or obligations which
become secured by the Pledge Agreement.

{remainder of page intentionally left blank}

-15-
<PAGE> 16

IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the date first above written.

JUNIOR LENDER:

IPC Advisors, S.a.r.l.

By:/s/J.B. Unsworth
Name: J.B. Unsworth
Title: Manager

FRR Investments Limited

By:/s/J.B. Unsworth
Name: J.B. Unsworth
Title: Director

HR Investments Limited

By: /s/J.B. Unsworth
Name: J.B. Unsworth
Title: Director

RH Investments Limited

By: /s/J.B. Unsworth
Name: J.B. Unsworth
Title: Director

VXM Investments Limited

By: /s/J.B. Unsworth
Name: J.B. Unsworth
Title: Director

SENIOR CREDITOR:

HELLER HEALTHCARE FINANCE, INC., a
Delaware corporation

By:/s/Steven M. Curwin
Name: Steven M. Curwin
Title: EVP

-16-
<PAGE> 17

BCC:

BALANCED CARE CORPORATION, a Delaware
corporation

By:/s/Robin L. Barber
Name: Robin L. Barber
Title: Senior Vice President and
Counsel; Assistant Secretary

BORROWERS:

BALANCED CARE REALTY AT STATE COLLEGE,
INC., a Delaware corporation