<PAGE>   1


                                                                   Exhibit 10.51

                           SHORTFALL FUNDING AGREEMENT


                  THIS AGREEMENT ("AGREEMENT") is made as of December 31, 1997,
by and among Senior Care Operators of Ohio, LLC, a Delaware limited liability
company (the "LESSEE"), the members of Lessee listed on Schedule A attached
hereto (collectively, the "MEMBER") and Balanced Care Corporation, a Delaware
corporation ("BCC").

                               W I T N E S S E T H

                  WHEREAS, the Member constitutes the holder of all equity
interests in the Lessee; and

                  WHEREAS, Lessee executed and delivered the Lease dated as of
December 31, 1997 (the "LEASE") between Lessee and Medina ALF, Inc., a Florida
corporation (the "LESSOR"), whereby Lessee leased from Lessor property, together
with all improvements built or to be built thereon, located in Medina County,
Ohio as more fully described in the Lease (the "PROPERTY"); and

                  WHEREAS, the Lessee and Balanced Care at Medina, Inc., a
Delaware corporation (the "MANAGEMENT FIRM") have entered into that certain
Management Agreement dated as of December 31, 1997 (the "MANAGEMENT AGREEMENT")
whereby Lessee has appointed the Management Firm as the exclusive manager and
operator the Facility; and

                  WHEREAS, Lessee will deposit with Lessor a standby letter of
credit to fund the Working Capital Reserve (to be used to fund Shortfalls) for
the benefit of Lessor; and

                  WHEREAS, upon depletion of the Working Capital Reserve, BCC
intends to make Advances to the Lessee, on the terms and conditions herein
stated, to fund continuing Shortfalls; and

                  WHEREAS, BCC is willing to fund Advances to Lessee covering
Shortfalls only on the terms and conditions provided in this Agreement.

                  NOW, THEREFORE, for valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and intending to be legally bound
hereby, the parties hereto hereby agree as follows:

                                    ARTICLE I
                               FUNDING SHORTFALLS

                  SECTION 1.01 FUNDING; WORKING CAPITAL RESERVE. Each Member
hereby agrees to contribute as capital to the Lessee such amounts as are
required from time to time by BCC to fund Shortfalls; provided, however, the
contribution of the Members in the aggregate shall not exceed $750,000; and
provided, further, such capital contribution shall be made in the form of a
standby letter of credit naming Lessor as the beneficiary thereunder (the
"LETTER OF CREDIT"), which Letter of Credit must be in form and substance
satisfactory to BCC (the issuance and delivery of such Letter of Credit by the
Members being a "FUNDING", and the aggregate of all Fundings made is
collectively referred to as the "WORKING CAPITAL RESERVE"). Each Member and the
Lessee acknowledge and agree that (i) the Letter of Credit constitutes the
capital 



<PAGE>   2



contribution of each Member to the Lessee, (ii) the Letter of Credit is not in
any way evidence of a loan from either Member to the Lessee and (iii) Lessor may
draw on the Letter of Credit to fund Shortfalls with respect to the Facility or
as otherwise provided in the Lease Documents.

                  SECTION 1.02 ADVANCES. Upon complete depletion of the Working
Capital Reserve, and to the extent thereafter of any Shortfall, BCC hereby
agrees to advance from time to time funds to the Lessee upon no less than three
(3) days prior written notice, upon the terms and conditions provided herein
(each advance being an "ADVANCE" and collectively, the "ADVANCES"). Advances
shall be evidenced by one or more promissory notes issued by the Lessee in the
form attached hereto as Exhibit A (the "NOTES"). The Notes shall be payable upon
demand. Interest shall accrue on the Notes at the rate of 2% over the Prime Rate
as announced from time to time in the Wall Street Journal (or, in the event of
the discontinuance of the publishing of the Prime Rate in the Wall Street
Journal, such other source as the parties may agree), and shall be payable in
arrears on the first day of each calendar quarter. All sums owed under the Notes
and hereunder to BCC, and all other obligations and covenants under the
Transaction Documents applicable to Lessee and the Member (including the
obligations of each Member under the Option Agreement), together with all
interest payable under the Transaction Documents and all other costs and
expenses payable by Lessee or any Member to or for the benefit of BCC or any BCC
Affiliate (including indemnification and defense obligations) are referred to
herein as the "OBLIGATIONS".

                  SECTION 1.03 ASSET PURCHASE OPTION. The Lessee and each Member
hereby grant to BCC an option (the "ASSET PURCHASE OPTION") to purchase all of
the assets of the Lessee (including the option to take an assignment of the
Lease) for the Asset Purchase Price. The Asset Purchase Option may be exercised
by BCC by providing written notice to the Lessee at any time during the term of
the Lease. The closing of the purchase of the assets of the Lessee shall take
place within 30 days after BCC exercises the Asset Purchase Option at such
location in Pennsylvania as BCC may designate. At the closing of the asset
purchase, the Lessee shall transfer, assign and convey to BCC (or its designee)
all assets of Lessee, free and clear of all Liens and restrictions of any kind
or nature, except for Liens or restrictions in favor of the Lessor pursuant to
the Lease Documents or in favor of BCC pursuant to the Transaction Documents
(provided, however, Liens in favor of BCC securing Advances or other Obligations
shall be paid in full by Lessee and each Member at the closing of the asset
purchase). The Lessee (and each Member if requested by BCC) shall execute and
deliver at the closing of the asset purchase an assignment of lease (assigning
the Lease to the purchaser), a bill of sale conveying all other assets of the
Lessee and such other documents and instruments as BCC may reasonably request,
all in form and substance reasonably satisfactory to BCC. The "ASSET PURCHASE
PRICE" as used herein shall mean (i) all amounts funded into the Working Capital
Reserve (assuming full funding thereof as of the date hereof, which will equal
$750,000), plus (ii) an annual amount equal to 25% of the Working Capital
Reserve (assuming full funding thereof as of the date hereof, which will equal
$750,000), compounded annually through the closing date, plus (iii) the
aggregate amount of all Advances and all other Obligations due and payable by
Lessee or the Members to BCC or a BCC Affiliate through the closing date
(exclusive of the Management Fee), minus (iv) any payments made to the Members
under the Option Agreement. All Advances and all other Obligations due and
payable by Lessee or the Member to BCC or a BCC Affiliate through the closing
date of the asset purchase shall be payable from the Asset Purchase Price to BCC
or the BCC Affiliate, as appropriate.


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                  SECTION 1.04 TRANSACTION DOCUMENTS. In addition to the Notes,
and to better secure the performance of Lessee hereunder and under the other
Transaction Documents, Lessee has executed and delivered the following:

                            (i) the Lease;

                           (ii) Open-End Leasehold Mortgage in the form attached
                  hereto as Exhibit B encumbering the Property in favor of BCC
                  (the "LEASEHOLD MORTGAGE"); and

                           (iii) such other documents, certificates, affidavits
                  and instrument as BCC may reasonably request, including the
                  Working Capital Assurance Agreement between BCC and the Lessor
                  (the "WORKING CAPITAL ASSURANCE AGREEMENT").

                  In addition to the foregoing documents, each Member has
                  executed and delivered to BCC the Option Agreement (the
                  "OPTION AGREEMENT") substantially in the form attached hereto
                  as Exhibit C, whereby each Member has agreed that BCC shall
                  have an option to purchase the equity interest of each Member
                  in Lessee, on the terms and conditions provided therein.

                  SECTION 1.05 INTEREST PAYMENTS. In no event shall the amount
of interest due or payable pursuant to any Transaction Document exceed the
maximum rate of interest allowed by Law and, in the event any such payment is
inadvertently paid by the Lessee or the Member or inadvertently received by BCC
or any BCC Affiliate, then such excess sum shall be credited as a payment of
principal due to BCC or any BCC Affiliate. It is the express intention of the
parties hereto that neither the Lessee nor the Member pay to BCC, directly or
indirectly, in any manner whatsoever, interest in excess of that which may be
lawfully paid by the Lessee.

                  SECTION 1.06 INTENTION. It is the intention of BCC, each
Member and Lessee that (i) the Management Firm operate the Facility pursuant to
the Management Agreement and that Lessee act as a passive investor with respect
to the Facility, (ii) Lessee include on its financial statements all revenue and
losses with respect to the Facility during the term of this Agreement for
accounting purposes, and (iii) Advances made hereunder and all other obligations
of Lessee and the Members under the Transaction Documents be secured by the
Leasehold Mortgage, but subject to the rights of Lessor under the Lease,
regardless of any bankruptcy, insolvency, receivership or similar proceedings
instituted by or against Lessee. BCC, each Member and Lessee agree to take no
position inconsistent with the intention of the parties as herein stated.


                                   ARTICLE II
                             CONDITIONS TO ADVANCES

                  SECTION 2.01 CONDITIONS PRECEDENT TO ADVANCES. The obligations
of BCC to accept delivery of the Transaction Documents and make Advances are
subject to the condition precedent that BCC receives the following five days
prior to the making of any Advance, in form and substance satisfactory to BCC:



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                  (a)      the Note(s);

                  (b)      the Working Capital Assurance Agreement;

                  (c)      the Leasehold Mortgage;

                  (d)      the Option Agreements;

                  (e)      the Management Agreement;

                  (f)      a certificate of the Secretary of State of the State
of Delaware stating that the Lessee is duly organized, validly existing and in 
good standing in such state;

                  (g)      a certified copy of the Operating Agreement of the
Lessee and the Member, together with certified resolutions or authorizations of 
the Lessee and the Member granting the power to Lessee and the Member to enter 
into and perform the Transaction Documents;

                  (h)      all other Transaction Documents; and

                  (i)      such other affidavits, documents, certificates,
statements and instruments as BCC may reasonably request.

                  SECTION 2.02 ADDITIONAL CONDITIONS PRECEDENT TO ADVANCES. The
obligation of BCC to accept delivery of the Transaction Documents and consummate
this transaction, and to make any Advance, shall be further subject to the
condition precedent that:

                  (a) the following statements shall be true and correct (and
the delivery by the Lessee and the Member of the Transaction Documents shall be
deemed to constitute a representation and warranty by the Lessee and the Member
that such statements are true on such date):

                           (i) The representations and warranties contained in
                  Article III of this Agreement and the other Transaction
                  Documents are true and correct in all material respects on and
                  as of date of the execution and delivery of this Agreement, at
                  the time of each Advance, and as of each date until the
                  Obligations are satisfied in full; and

                           (ii) No event has occurred and is continuing which
                  constitutes a Default or an Event of Default under any of the
                  Transaction Documents; and

                  (b) BCC shall have received such other opinions or documents
as BCC may request in BCC's sole discretion.



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                                   ARTICLE III
                         REPRESENTATIONS AND WARRANTIES

                  SECTION 3.01 REPRESENTATIONS AND WARRANTIES OF THE LESSEE. The
Lessee and each Member represents and warrants as follows:

                  (a) ORGANIZATION; QUALIFICATION. The Lessee is a limited
liability company duly formed, validly existing and in good standing under the
laws of State of Delaware, has qualified to do business in the State of Ohio,
and has the power and authority to own its properties and to carry on its
business as now being and hereafter proposed to be conducted.

                  (b) POWER; AUTHORITY. The execution, delivery and performance
by the Lessee of this Agreement and the other Transaction Documents to which it
is a party are within the Lessee's power and have been duly authorized by all
necessary action, and this Agreement and the other Transaction Documents to
which Lessee is a party have been duly executed and delivered by the duly
authorized Manager of the Lessee.

                  (c) APPROVAL OR CONSENTS. No approval or consent of any
foreign, domestic, federal, state or local authority is required for the due
execution, delivery and performance by the Lessee of this Agreement or any other
Transaction Document to which it is a party and the execution, delivery and
performance by the Lessee of this Agreement and the other Transaction Documents
to which it is a party do not conflict with, and will not result in the breach
of or default under, any contract, agreement or other document or instrument to
which the Lessee is a party or by which its properties are bound.

                  (d) BINDING OBLIGATIONS. This Agreement and the other
Transaction Documents to which the Lessee is a party are legal, valid and
binding obligations of the Lessee enforceable against the Lessee in accordance
with their respective terms, except as the same may be limited by bankruptcy,
insolvency, reorganization, moratorium or other laws affecting generally the
enforcement of creditors' rights.

                  (e) LITIGATION. There is no pending or, to the best of
Lessee's knowledge, threatened action, suit or proceeding against or affecting
the Lessee before any court, governmental agency or arbitrator.

                  (f) APPLICABLE LAW. The execution, delivery and performance of
this Agreement and the other Transaction Documents to which the Lessee is a
party, and the borrowings hereunder, do not and will not, by the passage of
time, the giving of notice or otherwise, violate any Law applicable to the
Lessee.

                  (g) TITLE AND CONDITION OF ASSETS. Except for Lessee's
leasehold interest in the Lease, the Lessee has good, marketable and legal title
to its properties and assets. The Lessee has a good and valid leasehold interest
in the Lease.

                  (h) LIENS. None of the properties and assets of the Lessee are
subject to any lien, security interest or other charge or encumbrance other than
liens and encumbrances in favor 




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of BCC as provided herein, a BCC Affiliate or the Lessor ("PERMITTED LIENS"),
and the execution, delivery and performance by the Lessee of this Agreement and
the other Transaction Documents to which it is a party will neither result in
the creation of any lien, security interest or other change or encumbrance upon
any of the Lessee's properties or assets, nor cause a default under any
agreements to which Lessee is a party.

                  (i) SECURITY. Upon the consummation of this transaction, BCC
will have a valid and perfected mortgage lien in the Lease.

                  (j) TAX RETURNS AND PAYMENTS. All federal, state and other tax
returns of the Lessee required by Law to be filed have been duly filed, and all
federal, state and other taxes, assessments and other governmental charges or
levies upon the Lessee and its properties, income, profits and assets which are
due and payable have been paid.

                  (k) NO EMPLOYEES. The Lessee has no employees for which it is
required to comply with the Employment Retirement Income Security Act of 1974.

                  (l) ABSENCE OF DEFAULTS. No event has occurred, which has not
been remedied, cured or waived, which constitutes, or with the passage of time
or giving of notice or both would constitute, a Default or an Event of Default
under any Transaction Document or which constitutes or which with the passage of
time or giving of notice or both would constitute a default or event of default
by the Lessee under any agreement or judgment, decree or order, to which the
Lessee is a party or by which the Lessee or any of its properties may be bound.

                  (m) ACCURACY AND COMPLETENESS OF INFORMATION. All written
information, reports and other papers and data furnished to BCC were, at the
time the same were so furnished, complete and correct in all material respects,
to the extent necessary to give BCC a true and accurate knowledge of the subject
matter, or, in the case of financial statements, present fairly, in accordance
with GAAP consistently applied throughout the periods involved, the financial
position of the persons involved as at the date thereof and the results of
operations for such periods. No document furnished or written statement made to
BCC by Lessee or any Member in connection with the execution of this Agreement
or any of the other Transaction Documents (or in connection with the
organization or capitalization of Lessee by the Members) contains or will
contain any untrue statement of a material fact or fails to state a material
fact necessary in order to make the statements contained therein not materially
misleading.

                  (n) SUBSIDIARIES. The Lessee does not own, directly or
indirectly, of record or beneficially, any of the voting stock of any class or
classes of, or any other voting interests of, any Entity.

                  (o) INVESTMENT COMPANY. The Lessee is not an "investment
company" or a company "controlled" by an "investment company", within the
meaning of the Investment Company Act of 1940, as amended.

                  (p) PUBLIC UTILITY COMPANY. The Lessee is not a "holding
company" or a "subsidiary company", or an "affiliate" of a "holding company",
within the meaning of the Public Holding Company Act of 1935, as amended.



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                  (q) SECURITIES REPRESENTATIONS. Neither Lessee nor any agent,
broker, dealer or other person or entity has offered or sold any equity
interests in Lessee in violation of the 1933 Act or any state securities laws.

                  (r) CAPITAL CONTRIBUTIONS. All Indebtedness (if any) incurred
by any Member or equity owner of any Member to fund the capital contributions to
Lessee or any Member (including Indebtedness supporting the Letter of Credit)
constitutes full recourse Indebtedness against such Member or equity owners (as
appropriate), and such Indebtedness is not limited in collection to any
particular asset of the person or Entity incurring such Indebtedness. The equity
owners of Senior Care Operators, LLC have applied in their respective individual
capacities to Pacific Bank for the issuance of the Letter of Credit, the Letter
of Credit is being used as the initial capital equity of the Lessee (contributed
from such equity owners to the Members and from the Members to the Lessee) and
such equity owners will be liable to Pacific Bank in their individual capacities
on a full recourse basis for Indebtedness incurred to Pacific Bank in connection
with the Letter of Credit.


                                   ARTICLE IV
                             COVENANTS OF THE LESSEE

                  SECTION 4.01 AFFIRMATIVE COVENANTS. So long as BCC or any BCC
Affiliate shall have any commitment or Obligation hereunder or under the other
Transaction Documents owed to it, the Lessee will and the Member shall cause the
Lessee to:

                  (a) COMPLIANCE WITH LAWS; ETC. Comply, in all material
respects with all applicable Laws, such compliance to include, without
limitation, paying before the same become delinquent all taxes, assessments and
governmental charges imposed upon it or upon its property.

                  (b) MAINTENANCE OF INSURANCE. Maintain or contract to be
maintained, with premiums fully paid, with responsible and reputable insurance
companies or associations, such insurance in such amounts and covering such
risks as is required to be carried under the Lease, and all such policies
evidencing such insurance shall name BCC and Lessor as additional insureds
thereunder. Lessee shall also maintain insurance of sufficient types and amounts
to comply with all other Laws of any government entity exercising jurisdiction
over Lessee. All insurance policies shall provide for notice of nonrenewal and
notice of extension to BCC and Lessor, and shall not be terminated, canceled,
amended or modified without 30 days prior written notice to BCC and Lessor.
Lessee shall provide BCC with evidence of all insurance, including renewals or
extensions of such insurance, promptly after receiving such insurance. Insurance
policies and proceeds thereof shall at all times during the term of the Lease be
subject to the Lessor's rights as provided in the Lease Documents.

                  (c) NOTICE OF LITIGATION AND OTHER MATTERS. Promptly give
notice to BCC of the following: (i) any actions, suits or proceedings instituted
against the Lessee; (ii) any change in the chief executive office, principal
place of business or location of the books and records of the Lessee and (iii)
the occurrence of a Default or an Event of Default.



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                  (d) MAINTENANCE OF PROPERTY. In addition to, and not in
derogation of, the requirements of any of the other Transaction Documents, (i)
protect and preserve all of its properties, (ii) maintain in good repair,
working order and condition all of its tangible properties, and (iii) from time
to time make or cause to be made all needed and appropriate repairs, renewals,
replacements and additions to such properties so that the business carried on in
connection therewith may be properly and advantageously conducted at all times,
as reasonably may be determined by BCC.

                  (e) PRESERVATION OF EXISTENCE AND SIMILAR MATTERS. Preserve
and maintain its existence under the Laws of the state of its formation, and
preserve and maintain its rights, franchises, licenses and privileges in such
state as a limited liability company, and qualify and remain qualified and
authorized to do business in such state.

                  (f) BUSINESS. At all times endeavor to carry on its business
in the most efficient manner possible under the circumstances and engage only in
the business presently carried on by the Lessee.

                  (g) FURTHER ASSURANCES. At BCC's request, from time to time,
execute, acknowledge or take such further action as BCC may reasonably require
to effectuate the purposes of this Agreement and the purposes of the other
Transaction Documents.

Provided, however, notwithstanding anything to the contrary contained in this
Section 4.01, Lessee shall not be in default hereunder to the extent that the
obligations described in this Section 4.01 are required to be performed by the
Management Firm under the Management Agreement.

                  SECTION 4.02 NEGATIVE COVENANTS. So long as BCC shall have any
commitment or Obligation hereunder or under the other Transaction Documents owed
to it, the Lessee will not, and no Member will cause the Lessee to, without the
prior written consent of BCC:

                  (a) LIENS CREATED BY LESSEE. Create or suffer to exist any
Lien or any other type of preferential arrangement, upon or with respect to any
of its properties, whether now owned or hereafter acquired, or assign any right
to receive income, other than Permitted Liens.

                  (b) DISTRIBUTIONS. Make any distribution of cash or other
property to the Member or declare or pay any dividend or distribution on any
securities of Lessee.

                  (c) OTHER BUSINESS. Engage in any business venture or enter
into any agreement with respect to any business venture, except as expressly
provided in the Transaction Documents with respect to the Facility.

                  (d) TRANSFER OF ASSETS. Convey, transfer, lease, sublease,
assign or otherwise dispose of (whether in one transaction or in a series of
transactions) any of its assets (whether now owned or hereafter acquired) to, or
acquire all or substantially all of the assets of, any person or Entity. The
restrictions of this Subsection shall include a prohibition on any assignment,
pledge, hypothocation or other transfer of the Lease or sublease or license of
the Facility, except 



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to BCC or a BCC Affiliate in accordance with the terms and conditions of the 
Lease.

                  (e) INDEBTEDNESS FOR BORROWED MONEY. Create, assume, guaranty
or otherwise become or remain obligated in respect of, or permit or suffer to
exist or to be created, assumed or incurred or to be outstanding, any
Indebtedness, except Indebtedness incurred to BCC or a BCC Affiliate under the
Transaction Documents or Indebtedness incurred to Lessor as expressly provided
in the Lease Documents.

                  (f) CREATION OF AFFILIATES. Form, organize or participate in
the formation or organization of any Entity, or make any investment in any newly
formed or existing Entity.

                  (g) LOANS. Extend credit to or make any advance, loan,
contribution or payment of money or goods to any person or Entity.

                  (h) GOVERNANCE DOCUMENTS. Amend, supplement or otherwise
modify the terms of the Articles of Organization or the Operating Agreement of
the Lessee in any way.

                  (i) OTHER TRANSACTIONS WITH LESSOR. Enter into any transaction
with Lessor or any affiliate or related party to or with Lessor, other than
pursuant to the Transaction Documents.

                  (j) TRANSFERS OF EQUITY INTERESTS. Permit the Member to
transfer all or any portion of the Member's equity interest in Lessee to a party
that does not as of the date hereof hold an equity interest in the Lessee.

                  (k) AMEND TRANSACTION DOCUMENTS. (i) Amend, terminate,
supplement or otherwise modify any Transaction Document, (ii) waive any default
or potential event of default by Lessor under any Transaction Document, (iii)
declare a default or event of default under any Transaction Document, (iv)
exercise any right to extend the term of the Lease or (v) exercise any right to
cancel the Lease as a result of a casualty or condemnation with respect to the
Facility, or otherwise.

                  (l) MERGERS AND CONSOLIDATIONS. Merger or consolidate with,
purchase all or any substantial part of the assets of, or otherwise acquire any
Entity.

                  (m) ISSUANCE OF SECURITIES. Except for the equity interests of
the Lessee that have been issued to the Member and are outstanding as of the
date hereof, issue any equity interests or options, warrants or other rights to
purchase any equity interests or any securities convertible or exchangeable for
equity interests, or commit to do any of the foregoing.


                                    ARTICLE V
                                EVENTS OF DEFAULT

                  SECTION 5.01 EVENTS OF DEFAULT. Each of the following events
shall constitute an event of default hereunder ("SHORTFALL EVENT OF DEFAULT"),
whatever the reason for such event and whether it shall be voluntary or
involuntary or be effected by operation of law or pursuant to 




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any judgment or order of any court or any order, rule or regulation of any
governmental or nongovernmental body:

                  (a) The Lessee shall fail to make any payment of principal or
interest, as stated in the Notes, when due, or the Member shall fail to make
payments in connection with Fundings (as provided in Section 1.01 hereof) when
due (each a "MONETARY DEFAULT"); or

                  (b) Any representation or warranty made by the Lessee or the
Member under or in connection with any Transaction Document shall prove to have
been incorrect or misleading in any material respect when made; or

                  (c) The Lessee or the Member shall fail to perform or observe
any term, covenant or agreement contained in this Agreement, or in any other
Transaction Document, on its or their part to be performed or observed beyond
the applicable cure period; or

                  (d) The Lessee shall generally not pay its debts when due; or

                  (e) The Lessee shall admit in writing its inability to pay its
debts generally, or shall make a general assignment for the benefit of
creditors; or any proceeding shall be instituted by or against the Lessee
seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation,
winding up, reorganization, arrangement, adjustment, protection, relief, or
composition of the Lessee of any of its debts under any law relating to
bankruptcy, insolvency or reorganization or relief of debtors, or seeking the
entry of an order for relief or the appointment of a receiver, trustee or other
similar official for the Lessee or for any substantial part of its property; or
the Lessee shall take any action to authorize any of the actions set forth above
in this subsection; or

                  (f) Any nonappealable judgment or order for the payment of
money in excess of $50,000 shall be rendered against the Lessee and the same
shall not be discharged within 30 days after entry; or

                  (g) A warrant or writ of attachment or execution or similar
process shall be issued against any property of the Lessee which exceeds $50,000
in value and such warrant or process shall continue undischarged or unstayed for
ten consecutive days; or

                  (h) Any material provision of any Transaction Document to
which the Lessee or the Member is a party shall for any reason cease to be valid
and binding on the Lessee or the Member, or the Lessee or the Member shall so
state in writing; or

                  (i) The Leasehold Mortgage shall for any reason cease to
create a valid and perfected security interest in any of the collateral covered
thereby, subject in priority only to the Permitted Liens; or

                  (j) an Option Agreement Event of Default, a Mortgage Event of
Default, a Lease Event of Default, or a Management Agreement Event of Default
shall occur and be continuing.



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                                   ARTICLE VI
                                    REMEDIES

                  SECTION 6.01 APPLICABLE PROVISIONS UPON OCCURRENCE OF AN EVENT
OF DEFAULT. Upon the occurrence of a Shortfall Event of Default, the following
provisions shall apply:

                  (a)      ACCELERATOR AND TERMINATION:

                           (i) Automatic. Upon the occurrence of a Shortfall
                  Event of Default specified in Section 5.01(e), the principal
                  of, and the interest on, the Notes at the time outstanding,
                  and all other amounts owed to BCC under this Agreement and any
                  of the other Transaction Documents, shall become automatically
                  due and payable without presentment, demand, protest, or other
                  notice of any kind all of which are expressly waived, anything
                  in this Agreement or the other Transaction Documents to the
                  contrary notwithstanding.

                           (ii) Optional. If any other Shortfall Event of
                  Default shall have occurred, and in every such event, BCC may
                  do the following: declare the principal of, and interest on,
                  the Notes at the time outstanding, and all other amounts owed
                  to BCC under this Agreement and the other Transaction
                  Documents, to be forthwith due and payable, whereupon the same
                  shall immediately become due and payable without presentment,
                  demand, protest or other notice of any kind, all of which are
                  expressly waived, anything in this Agreement or the other
                  Transaction Documents to the contrary notwithstanding.

                  (b) BCC'S RIGHT TO ENTER PROPERTY. BCC may enter upon the
Property and any premises on which collateral may be located and, without
resistance or interference by the Lessee, take physical possession of any or all
thereof and maintain such possession on such premises or move the same or any
part thereof to such other place or places as BCC shall choose, without being
liable to the Lessee on account of any loss, damage or depreciation that may
occur as a result thereof.

                  (c) USE OF PREMISES. BCC may, without payment of any rent or
any other charge, enter the Property and, without breach of peace, take
possession of the Property or place custodians in exclusive control thereof,
remain on such premises and use the same and any of the Lessee's equipment, for
the purpose of (i) operating the Facility and (ii) collecting any accounts
receivable.

                  (d) OTHER RIGHTS. BCC may exercise any and all of its rights
and remedies available under the other Transaction Documents, as well as those
available in Law or in equity.

                  (e) RIGHT TO FORECLOSE. BCC may foreclose upon the Lease, take
immediate possession of the Facility and Property and operate the Property, all
in accordance with the terms and conditions of the Leasehold Mortgage.

                  SECTION 6.02 APPLICATION OF PROCEEDS. All proceeds from each
sale of, or



                                       11
<PAGE>   12



other realization upon, all or any part of the Collateral following a Shortfall
Event of Default shall be applied or paid over as follows:

                  (a) First: to the payment of all costs and expenses incurred
in connection with such sale or other realization, including, without
limitation, the expenses for indemnification as provided herein;

                  (b) Second: to the payment of the interest due upon the Notes;

                  (c) Third: to the payment of the principal due upon the Notes
or any other payments owed to BCC under the Transaction Documents; and

                  (d) Fourth: the balance (if any) of such proceeds shall be
paid to the Lessee subject to any duty imposed by law or otherwise to the holder
of any subordinate lien in the Collateral known to BCC and subject to the
direction of a court of competent jurisdiction.

                  The Lessee shall remain liable and will pay, on demand, any
deficiency remaining in respect of the Obligations owing by the Lessee to BCC
after the application of proceeds set forth above together with interest thereon
at a rate per annum equal to the highest rate then payable hereunder.

                  SECTION 6.03  MISCELLANEOUS PROVISIONS CONCERNING REMEDIES.

                  (a) RIGHTS CUMULATIVE. The rights and remedies of BCC under
this Agreement and each of the other Transaction Documents shall be cumulative
and not exclusive of any rights or remedies which it would otherwise have. In
exercising its rights and remedies BCC may be selective and no failure or delay
by BCC in exercising any right shall operate as a waiver of it, nor shall any
single or partial exercise of any power or right preclude its other or further
exercise of any other power or right.

                  (b) WAIVER OF MARSHALLING. The Lessee hereby waives any right
to require any marshalling of assets and any similar right.

                  (c) LIMITATION OF LIABILITY. Nothing contained in this Article
VI or elsewhere in this Agreement or in any other Transaction Documents shall be
construed as requiring or obligating BCC or any agent or designee thereof to
make any demand, or to make any inquiry as to the nature or sufficiency of any
payment received by it, or to present or file any claim or notice or take any
action, with respect to any account or any other Collateral or the moneys due or
to become due under the Notes or any other Transaction Documents or in
connection therewith, or to take any steps necessary to preserve any rights
against prior parties and neither BCC nor any of its agents or designees shall
have any liability to the Lessee for actions taken pursuant to this Article VI,
any other provision of this Agreement or any other Transaction Documents, except
as otherwise provided by Law.

                  (d) WAIVER OF DEFENSES. Lessee hereby waives any and all
defenses, either by way of set-off as to matters arising prior to the date
hereof or any other defenses, which Lessee presently believes it has or which
Lessee may have in the future relating to monetary defaults 




                                       12
<PAGE>   13



under this Agreement or any other Transaction Document.


                                   ARTICLE VII
                              ADDITIONAL AGREEMENTS

                  SECTION 7.01 RIGHT TO CURE DEFAULTS UNDER TRANSACTION
DOCUMENTS. Lessee shall give BCC immediate notice of an default or event of
default under any Transaction Document received from Lessor. BCC shall have the
right, but not the obligation, to cure such default or event of default. To the
extent that BCC shall expend sums to cure any such default or event of default,
such sums shall be deemed Advances hereunder, payable upon demand.


                                  ARTICLE VIII
                                  MISCELLANEOUS

                  SECTION 8.01 DEFINITIONS; INTERPRETATION; MISCELLANEOUS.
Capitalized terms used but not otherwise defined in this Agreement have the
respective meanings specified in Appendix 1 hereto; the rules of interpretation
and other provisions set forth in Appendix 1 hereto shall apply to this
Agreement.

                  SECTION 8.02 NOTICES. All notices and other communications
hereunder shall be in writing and shall be deemed to have been duly given if
delivered in person, Federal Express or other recognized overnight courier or
sent by registered or certified U.S. mail, return receipt requested or sent by
facsimile or telecopy transmission and addressed:

                           (i)     If to the Lessee, at:

                                   Senior Care Operators of Ohio, LLC
                                   c/o Hakman & Company, Incorporated
                                   1350 Old Bayshore Highway
                                   Suite 300
                                   Burlingame, CA 94010


                           (ii)    If to BCC, at

                                   5021 Louise Drive
                                   Suite 200
                                   Mechanicsburg, PA 17055

or to such other address or facsimile number as a party may designate by notice
to the other parties hereto.

                  SECTION 8.03 JURISDICTION. THE LESSEE AND THE MEMBER HEREBY
IRREVOCABLY SUBMIT TO THE EXCLUSIVE JURISDICTION OF ANY PENNSYLVANIA COURT OR
FEDERAL COURT SITTING IN PENNSYLVANIA IN ANY




                                       13
<PAGE>   14



ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OF THE
OTHER TRANSACTION DOCUMENTS TO WHICH THE LESSEE IS A PARTY, AND THE LESSEE AND
THE MEMBER HEREBY IRREVOCABLY AGREE THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR
PROCEEDING SHALL BE HEARD AND DETERMINED IN SUCH PENNSYLVANIA COURT OR IN SUCH
FEDERAL COURT. THE LESSEE AND THE MEMBER HEREBY IRREVOCABLY WAIVES, TO THE
FULLEST EXTENT IT MAY EFFECTIVELY DO SO, THE DEFENSE OF AN INCONVENIENT FORUM TO
THE MAINTENANCE OF SUCH ACTION OR PROCEEDING. THE LESSEE AND THE MEMBER
IRREVOCABLY CONSENT TO THE SERVICE OF COPIES OF THE SUMMONS AND COMPLAINT AND
ANY OTHER PROCESS WHICH MAY BE SERVED IN ANY SUCH ACTION OR PROCEEDING BY THE
MAILING OF COPIES OF SUCH PROCESS TO THE LESSEE AT ITS ADDRESS SPECIFIED IN
SECTION 8.02. THE LESSEE AND THE MEMBER AGREE THAT A FINAL JUDGMENT IN ANY SUCH
ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER
JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW.
NOTHING IN THIS SECTION SHALL AFFECT THE RIGHT OF BCC TO SERVE LEGAL PROCESS IN
ANY OTHER MANNER PERMITTED BY LAW OR AFFECT THE RIGHT OF BCC TO BRING ANY ACTION
OR PROCEEDING AGAINST THE LESSEE OR ITS PROPERTY (OR THE MEMBER OR THE MEMBER'S
PROPERTY) IN THE COURTS OF OTHER JURISDICTIONS.

                  SECTION 8.04 PERFORMANCE OF LESSEE'S DUTIES. The Lessee's
obligations, and the obligation of the Member, under this Agreement and the
other Transaction Documents shall be performed by the Lessee and the Member at
their sole cost and expense. If the Lessee or the Member shall fail to do any
act or thing which it or they have covenanted to do under this Agreement or any
of the other Transaction Documents, BCC may, but shall not be obligated to, do
the same or cause it to be done either in the name of BCC or in the name and on
behalf of the Lessee or the Member, and the Lessee and the Member hereby
irrevocably authorizes BCC so to act.

                  SECTION 8.05 INDEMNIFICATION. The Lessee agrees to reimburse
BCC for all costs and expenses, including reasonable counsel fees and
disbursements, incurred, and to indemnify and hold BCC harmless from and against
all losses suffered by BCC in connection with:

                  (a) any breach by Lessee or any Member of any covenant,
agreement, representation or warranty under any Transaction Document,

                  (b) any and all uncollected items, including all checks or
other negotiable instruments returned to BCC for insufficient funds, and

                  (c) any claim, debt, demand, loss, damage, action, cause of
action, liability, cost and expense or suit of any kind or nature whatsoever,
brought against or incurred by BCC, in any manner arising out of or, directly or
indirectly, related to or connected with the operation of the Lessee's business
or sale thereto, which claim, debt, demand, loss, damage, action, cause of
action, liability, cost or expense was not caused by the acts or omissions of
BCC or a BCC Affiliate.



                                       14
<PAGE>   15



                  The Lessee shall indemnify BCC as provided herein upon demand
and in immediately available funds.

                  SECTION 8.06 INJUNCTIVE RELIEF. The Lessee and each Member
recognize that, in the event the Lessee or any Member fails to perform, observe
or discharge any of its or their obligations or liabilities under this Agreement
or any of the other Transaction Documents, any remedy of Law may prove to be
inadequate relief to BCC; therefore, the Lessee and each Member agrees that BCC
shall be entitled to temporary and permanent equitable relief in any such case
without the necessity of proving actual damages.

                  SECTION 8.07 BINDING EFFECT. This Agreement shall be binding
upon and inure to the benefit of the Lessee, the Member and BCC and their
respective personal representatives, heirs, successors and assigns, except that
Lessee shall have no right to assign its rights hereunder or any interest
herein.

                  SECTION 8.08  WAIVERS.

                  (a) EACH PARTY HERETO ACKNOWLEDGES THAT ANY DISPUTE OR
CONTROVERSY BETWEEN THE LESSEE, THE MEMBER AND BCC WOULD BE BASED ON DIFFICULT
AND COMPLEX ISSUES OF LAW AND FACT. ACCORDINGLY THE LESSEE, EACH MEMBER AND BCC,
HEREBY WAIVE TRIAL BY JURY IN ANY ACTION OR PROCEEDING OF ANY KIND OR NATURE IN
ANY COURT OR TRIBUNAL IN WHICH AN ACTION MAY BE COMMENCED BY OR AGAINST THE
LESSEE AND/OR THE MEMBER ARISING OUT OF THIS AGREEMENT OR ANY OTHER TRANSACTION
DOCUMENT OR BY REASON OF ANY OTHER CAUSE OR DISPUTE WHATSOEVER BETWEEN THE
LESSEE, THE MEMBER AND BCC OF ANY KIND OR NATURE, WHETHER SOUNDING IN CONTRACT
OR TORT OR OTHERWISE, AND WHETHER NOW EXISTING OR HEREAFTER ARISING, AND LESSEE
AND THE MEMBER HEREBY AGREE AND CONSENT THAT ANY SUCH ACTION OR PROCEEDING SHALL
BE DECIDED BY A COURT TRIAL, IF BCC SO CHOOSES, WITHOUT JURY AND BCC MAY FILE AN
ORIGINAL COUNTERPART OR COPY OF THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE
OF THE CONSENT OF THE LESSEE AND THE MEMBERS TO THE WAIVER OF THE RIGHT TO TRIAL
BY JURY.

                  (b) FURTHER, THE LESSEE AND THE MEMBER WAIVE THE BENEFIT OF
ALL VALUATION, APPRAISEMENT AND EXEMPTION LAWS.

                  (c) THE FOREGOING WAIVERS HAVE BEEN MADE WITH THE ADVICE OF
COUNSEL AND WITH A FULL UNDERSTANDING OF THE LEGAL CONSEQUENCES THEREOF.

                  SECTION 8.09  CONFLICT WITH LEASE DOCUMENTS

                  This Agreement is subject to the covenants and agreements
contained in the Lease and other Lease Documents. In the event of any conflict
between the provisions of this 




                                       15
<PAGE>   16



Agreement and the Lease Documents, the provisions of the Lease Documents shall
control.





                                       16
<PAGE>   17



                  IN WITNESS WHEREOF, the parties hereto, intending to be
legally bound, have caused this Agreement to be executed by their respective
officers or authorized agents as of the date first above written.


Witness:                                    SENIOR CARE OPERATORS OF OHIO, LLC


                                            /s/ D. Mark Brosche, as Manager
---------------------------                 -----------------------------------



Witness:                                    SENIOR CARE OPERATORS, LLC:


                                            /s/ D. Mark Brosche, as Manager
---------------------------                 -----------------------------------



Attest:                                     OAKHAVEN SENIOR LIVING, INC.



By:                                         By: /s/ D. Mark Brosche, as Manager
   ------------------------                    --------------------------------



ATTEST:                                     BALANCED CARE CORPORATION



---------------------------                 By: /s/ Brian L. Barth
                                               -------------------------------

                                            Title: Vice President
                                                  ----------------------------



                                       17
<PAGE>   18


                    OMITTED SCHEDULES/EXHIBITS

SCHEDULE 1          MEMBERS  

EXHIBIT A           FORM OF NOTE
                    
EXHIBIT B           FORM OF LEASEHOLD MORTGAGE

EXHIBIT C           FORM OF OPTION AGREEMENT