<PAGE>   1
Exhibit 10.11

                                                                 Loan No. 99-407

                           SECOND AMENDED AND RESTATED
                             SUBORDINATION AGREEMENT


                  THIS SECOND AMENDED AND RESTATED SUBORDINATION AGREEMENT (this
"Agreement") is made as of February 9, 2001, 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 Amended and Restated Subordination
Agreement dated as of November 6, 2000 (the "Original Amended and Restated
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 the
Original Amended and Restated Subordination Agreement,

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(i) a reserve account originally funded with 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 as of
November 6, 2000 (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, made on one or more dates and evidenced
by one or more notes) an amount not to exceed Eight Million Seven Hundred and
Fifty Thousand and No/100 Dollars ($8,750,000.00) 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";

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                  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 from time
to time, 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 whatever amounts and whenever made, with interest
thereon, and to

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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 Payments. The BCC Subs, BCC, BCC Borrowers and Borrowers agree

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

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         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;

         (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,

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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
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

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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 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.

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         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 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

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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 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.)

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         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

         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

<PAGE>   12

         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 or       Balanced Care Corporation
         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.

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

<PAGE>   13

                  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 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.

<PAGE>   14

         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
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

<PAGE>   15

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}

<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:
                             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/ J. Anthony Romero
                             Name: Anthony Romero
                             Title: Anthony Romero

<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

                             BALANCED CARE REALTY AT ALTOONA, INC.,
                             a Delaware corporation

                             BALANCED CARE REALTY AT ALTOONA, INC., a Delaware
                             corporation

                             BALANCED CARE REALTY AT LEWISTON, INC., a Delaware
                             corporation

                             BALANCED CARE REALTY AT READING, INC., a Delaware
                             corporation

                             BALANCED CARE REALTY AT BERWICK, INC., a Delaware
                             corporation

                             BALANCED CARE REALTY AT PECKVILLE, INC., a Delaware
                             corporation

                             BALANCED CARE REALTY AT SCRANTON, INC., a Delaware
                             corporation

                             BALANCED CARE REALTY AT MARTINSBURG, INC., a
                             Delaware corporation

                             By: /s/ Robin L. Barber
                             Name: Robin L. Barber
                             Title:   Vice President and Secretary

<PAGE>   18

                             BORROWERS:
                             BALANCED CARE REALTY AT MAUMELLE, INC., a Delaware
                             corporation


                             BALANCED CARE REALTY AT SHERWOOD, INC., a Delaware
                             corporation

                             BALANCED CARE REALTY AT MOUNTAIN HOME, INC., a
                             Delaware corporation

                             BALANCED CARE REALTY AT MANSFIELD, INC., a Delaware
                             corporation

                             By: /s/ Robin L. Barber
                             Name: Robin L. Barber
                             Title:   Vice President and Secretary

                             BCC SUBS:

                             BALANCED CARE REALTY I, INC., a Delaware
                             corporation

                             BALANCED CARE REALTY II, INC., a Delaware
                             corporation

                             BALANCED CARE REALTY III, INC., a Delaware
                             corporation

                             BALANCED CARE REALTY IV, INC., a Delaware
                             corporation

                             BALANCED CARE REALTY V, INC., a Delaware
                             corporation

                             BALANCED CARE REALTY VI, INC., a Delaware
                             corporation

                             By: /s/ Robin L. Barber
                             Name: Robin L. Barber
                             Title:   Vice President and Secretary

<PAGE>   19

                             BCC SUBS:

                             BALANCED CARE REALTY VII, INC., a Delaware
                             corporation

                             BALANCED CARE REALTY VIII, INC., a Delaware
                             corporation

                             BALANCED CARE REALTY IX, INC., a Delaware
                             corporation

                             BALANCED CARE REALTY X, INC., a Delaware
                             corporation

                             BALANCED CARE REALTY XI, INC., a Delaware
                             corporation

                             BALANCED CARE REALTY XII, INC., a Delaware
                             corporation

                             BALANCED CARE REALTY XIII, INC., a Delaware
                             corporation

                             BALANCED CARE REALTY XIV, INC., a Delaware
                             corporation

                             BALANCED CARE REALTY XV, INC., a Delaware
                             corporation

                             BALANCED CARE REALTY XVI, INC., a Delaware
                             corporation

                             BALANCED CARE REALTY XVII, INC., a Delaware
                             corporation

                             BALANCED CARE REALTY XVIII, INC., a Delaware
                             corporation

                             By: /s/ Robin L. Barber
                             Name: Robin L. Barber
                             Title:   Vice President and Secretary

<PAGE>   20

                             BCC SUBS:

                             BALANCED CARE REALTY XIX, INC., a Delaware
                             corporation

                             BALANCED CARE REALTY XX, INC., a Delaware
                             corporation

                             BALANCED CARE REALTY XXI, INC., a Delaware
                             corporation

                             BALANCED CARE REALTY XXII, INC., a Delaware
                             corporation

                             BALANCED CARE REALTY XXIII, INC., a Delaware
                             corporation

                             BALANCED CARE REALTY XXIV, INC., a Delaware
                             corporation

                             BALANCED CARE REALTY XXV, INC., a Delaware
                             corporation

                             BALANCED CARE REALTY XXVI, INC., a Delaware
                             corporation

                             BALANCED CARE REALTY XXVII, INC., a Delaware
                             corporation

                             BALANCED CARE REALTY XXVIII, INC., a Delaware
                             corporation

                             BALANCED CARE REALTY XXIX, INC., a Delaware
                             corporation

                             BALANCED CARE REALTY XXX, INC., a Delaware
                             corporation


                             By: /s/ Robin L. Barber
                             Name: Robin L. Barber
                             Title:   Vice President and Secretary

<PAGE>   21

                             BCC SUBS:

                             BALANCED CARE REALTY XXXI, INC., a Delaware
                             corporation

                             BALANCED CARE REALTY XXXII, INC., a Delaware
                             corporation

                             BALANCED CARE REALTY XXXIII, INC., a Delaware
                             corporation

                             BALANCED CARE REALTY XXXIV, INC., a Delaware
                             corporation

                             BALANCED CARE REALTY XXXV, INC., a Delaware
                             corporation

                             BALANCED CARE REALTY XXXVI, INC., a Delaware
                             corporation

                             BALANCED CARE REALTY XXXVII, INC., a Delaware
                             corporation

                             BALANCED CARE REALTY XXXVIII, INC., a Delaware
                             corporation

                             BALANCED CARE REALTY XXXIX, INC., a Delaware
                             corporation

                             BCC AT HARRISBURG, INC., a Delaware corporation

                             BALANCED CARE AT TALLAHASSEE, INC., a Delaware
                             corporation

                             BALANCED CARE AT PENSACOLA, INC., a Delaware
                             corporation

                             BALANCED CARE AT HILLIARD, INC., a Delaware
                             corporation

                             By: /s/ Robin L. Barber
                             Name: Robin L. Barber
                             Title:   Vice President and Secretary

<PAGE>   22

                             BCC SUBS:

                             BALANCED CARE AT AKRON, INC., a Delaware
                             corporation

                             BALANCED CARE AT YORK, INC., a Delaware
                             corporation

                             BALANCED CARE AT HAGERSTOWN, INC., a Delaware
                             corporation

                             BALANCED CARE AT BRISTOL, INC., a Delaware
                             corporation

                             BALANCED CARE AT JOHNSON CITY, INC., a Delaware
                             corporation

                             BALANCED CARE AT MURFREESBORO, INC., a Delaware
                             corporation

                             BALANCED CARE AT TEAY'S VALLEY, INC., a Delaware
                             corporation

                             By: /s/ Robin L. Barber
                             Name: Robin L. Barber
                             Title:   Vice President and Secretary

                             BCC BORROWERS:

                             BCC AT DARLINGTON, INC.,
                             a Delaware corporation

                             BALANCED CARE AT EYERS GROVE, INC.,
                             a Delaware corporation

                             By/s/ Robin L. Barber
                             Name: Robin L. Barber
                             Title:    Vice President and Secretary

<PAGE>   23

                             BCC BORROWERS:

                             BALANCED CARE AT BUTLER, INC.,
                             a Delaware corporation

                             BALANCED CARE AT SARVER, INC.,
                             a Delaware corporation

                             BALANCED CARE AT NORTH RIDGE, INC.,
                             a Delaware corporation

                             By/s/ Robin L. Barber
                             Name: Robin L. Barber
                             Title:    Vice President and Secretary

<PAGE>   24

                                    EXHIBIT A

                                    Borrowers

1.       Balanced Care Realty at State College, Inc.
2.       Balanced Care Realty at Altoona, Inc.
3.       Balanced Care Realty at Lewiston, Inc.
4.       Balanced Care Realty at Reading, Inc.
5.       Balanced Care Realty at Berwick, Inc.
6.       Balanced Care Realty at Peckville, Inc.
7.       Balanced Care Realty at Scranton, Inc.
8.       Balanced Care Realty at Martinsburg, Inc.
9.       Balanced Care Realty at Maumelle, Inc.
10.      Balanced Care Realty at Sherwood, Inc.
11.      Balanced Care Realty at Mountain Home, Inc.
12.      Balanced Care Realty at Mansfield, Inc.

<PAGE>   25

                                    EXHIBIT D

                                    BCC Subs

1.       Balanced Care Realty I, Inc.
2.       Balanced Care Realty II, Inc.
3.       Balanced Care Realty III, Inc.
4.       Balanced Care Realty IV, Inc.
5.       Balanced Care Realty V, Inc.
6.       Balanced Care Realty VI, Inc.
7.       Balanced Care Realty VII, Inc.
8.       Balanced Care Realty VIII, Inc.
9.       Balanced Care Realty IX, Inc.
10.      Balanced Care Realty X, Inc.
11.      Balanced Care Realty XI, Inc.
12.      Balanced Care Realty XII, Inc.
13.      Balanced Care Realty XIII, Inc.
14.      Balanced Care Realty XIV, Inc.
15.      Balanced Care Realty XV, Inc.
16.      Balanced Care Realty XVI, Inc.
17.      Balanced Care Realty XVII, Inc.
18.      Balanced Care Realty XVIII, Inc.
19.      Balanced Care Realty XIX, Inc.
20.      Balanced Care Realty XX, Inc.
21.      Balanced Care Realty XXI, Inc.
22.      Balanced Care Realty XXII, Inc.
23.      Balanced Care Realty XXIII, Inc.
24.      Balanced Care Realty XXIV, Inc.
25.      Balanced Care Realty XXV, Inc.
26.      Balanced Care Realty XXVI, Inc.
27.      Balanced Care Realty XXVII, Inc.
28.      Balanced Care Realty XXVIII, Inc.
29.      Balanced Care Realty XXIX, Inc.
30.      Balanced Care Realty XXX, Inc.
31.      Balanced Care Realty XXXI, Inc.
32.      Balanced Care Realty XXXII, Inc.
33.      Balanced Care Realty XXXIII, Inc.
34.      Balanced Care Realty XXXIV, Inc.
35.      Balanced Care Realty XXXV, Inc.
36.      Balanced Care Realty XXXVI, Inc.
37.      Balanced Care Realty XXXVII, Inc.
38.      Balanced Care Realty XXXVIII, Inc.
39.      Balanced Care Realty XXXIX, Inc.
40.      BCC at Harrisburg, Inc.
41.      Balanced Care at Tallahassee, Inc.
42.      Balanced Care at Pensacola, Inc.
43.      Balanced Care at Lakemont Farms, Inc.

<PAGE>   26

44.      Balanced Care at Hilliard, Inc.
45.      Balanced Care at Akron, Inc.
46.      Balanced Care at York, Inc.
47.      Balanced Care at Hagerstown, Inc.
48.      Balanced Care at Bristol, Inc.
49.      Balanced Care at Johnson City, Inc.
50.      Balanced Care at Murfreesboro, Inc.
51.      Balanced Care at Teay's Valley, Inc.