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                                                                  EXHIBIT 10.128


                             SUBORDINATION AGREEMENT

                                October 30, 1998


To:      Fleet Capital Corporation
         2711 North Haskell Avenue
         Suite 2100, LB 21
         Dallas, Texas 75204

Ladies and Gentlemen:

         Ramsay Health Care, Inc., a Delaware corporation with its principal
place of business at One Alhambra Plaza, Suite 750, Coral Gables, Florida 33134
("RAMSAY") is (i) indebted to Paul Ramsay Holdings Pty. Limited, an Australian
corporation ("RAMSAY HOLDINGS PTY"), in the current principal amount not in
excess of $7,283,553 under the terms of those certain promissory notes and other
agreements (either verbal or written) that are delineated in EXHIBIT "A" hereto
and (ii) the issuer of the Series B Preferred Stock described on EXHIBIT "A"
hereto and currently held by Ramsay Holdings Pty, Ramsay Holdings HSA Limited, a
Barbados corporation ("RAMSAY HSA") and Paul Ramsay Hospitals Pty. Limited, an
Australian corporation ("RAMSAY HOSPITALS" and together with Ramsay HSA and
Ramsay Holdings Pty, the "RAMSAY AFFILIATES" or individually, a "RAMSAY
AFFILIATE") (such instruments, certificates and agreements described in clauses
(i) and (ii) collectively, with all amendments, modifications and supplements
thereto, and all renewals, extensions and restatements thereof, being
hereinafter called the "SUBORDINATED AGREEMENTS"). Ramsay understands that,
pursuant to that certain Loan and Security Agreement dated October 30, 1998
(herein, as such Loan Agreement as the same may hereafter from time to time be
amended, modified, supplemented, renewed, extended and/or restated, the "LOAN
AGREEMENT"), among Ramsay and certain of its direct and indirect subsidiaries
now or hereafter becoming a party to the Loan Agreement (collectively, the
"BORROWERS" or individually, a "BORROWER") and Fleet Capital Corporation, a
Rhode Island corporation ("FLEET"), as Agent (Fleet and any successor Agent, in
such capacity, the "AGENT") for the lenders (including Fleet) that are a party
to the Loan Agreement (collectively, including Fleet in such capacity, the
"LENDERS", and individually, a "LENDER" and the respective assigns of such
Lenders pursuant to SECTION 12.3 of the Loan Agreement) the Agent and Lenders
have agreed to provide certain loans and financing and credit accommodations to
the Borrowers (Borrowers, together with any other Person (other than Agent or
each Lender) which are or becomes a party to any Loan Document, are sometimes
referred to collectively as the "LOAN PARTIES" or individually, as a "LOAN
PARTY", and the Loan Agreement, together with each of the other "LOAN DOCUMENTS"
defined in the Loan Agreement, and all other instruments and documents delivered
by any one or more of the Loan Parties to Agent and/or any one or more of the
Lenders pursuant to the Loan Agreement, and all other financing agreements now
or hereafter existing between and/or among the Agent and/or any one or more of
the Lenders and any one or more of the Loan Parties, together with all
amendments, 




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modifications, and supplements to, and all restatements of, any one or more of
the foregoing, and together with all renewals, extensions and restatements of
any one or more of the foregoing, are hereinafter collectively called the
"SENIOR LOAN DOCUMENTS"), but that the Agent and the Lenders require, as a
condition precedent to its obligation to commence funding loans under the Loan
Agreement, the execution of this Subordination Agreement by the Ramsay
Affiliates and the delivery of the same to the Agent. Accordingly, each Ramsay
Affiliate, in order to satisfy such condition precedent and intending to be
legally bound, jointly and severally, agrees as follows:

1.       Each Ramsay Affiliate hereby agrees, jointly and severally, to
         subordinate, and does hereby subordinate, (a) the payment by any Loan
         Party of all or any part of such Loan Party's obligations, liabilities
         and indebtedness which may now or hereafter be owing by such Loan Party
         to any Ramsay Affiliate, whether pursuant to the Subordinated
         Agreements or otherwise, including, without limitation, any dividend or
         redemption obligation with respect to the Preferred Stock of Ramsay
         described in EXHIBIT "A" hereto (the "PREFERRED STOCK")and the
         outstanding balance of principal and accrued interest from time to time
         owing by Ramsay to Ramsay Holdings Pty pursuant to the Junior
         Subordinated Promissory Notes listed as items 2 and 3 on EXHIBIT "A"
         hereto (together, the "SUBORDINATED NOTES" or individually, the
         "SUBORDINATED NOTE" or otherwise, and all costs and expenses (including
         attorneys' fees) owing by any Loan Party to any Ramsay Affiliate (all
         of the obligations, liabilities and indebtedness described or to which
         reference is made in this CLAUSE (a) (other than Common Stock issued in
         respect thereof) being hereinafter called the "SUBORDINATED DEBT") to
         the payment in full in cash of the Senior Debt, and (b) all security
         interests, mortgages and liens now or hereafter securing the
         Subordinated Debt, or any portion thereof, to all security interests,
         mortgages and liens now or hereafter securing all or any part of the
         Senior Debt, regardless of the time of granting of any security
         interests or liens or the filing or recording of any mortgages or
         financing statements, it being agreed that, by reason of this
         Agreement, the liens and security interests in favor of the Agent
         and/or any one or more of the Lenders in the Senior Collateral (as
         defined in SECTION 3 hereof) shall be senior and superior to any and
         all liens and security interests now or hereafter encumbering all or
         any portion of the Senior Collateral as security for all or any portion
         of the Subordinated Debt. Regardless of whether a default or an event
         of default (however defined) exists under any one or more of the
         Subordinated Agreements, each Ramsay Affiliate agrees not to (i)
         accept, retain, request or take any security for the Subordinated Debt
         or any guaranty of the Subordinated Debt without the Agent's prior
         written consent, (ii) amend or modify the Subordinated Agreements, or
         increase any of the Subordinated Debt, without the Agent's prior
         written consent, or (iii) except as otherwise expressly provided in
         SECTION 19 of this Subordination Agreement, (1) accept, demand, sue
         for, take or receive from any Loan Party or any other person or entity,
         by payment, setoff or otherwise, and including the taking of any new
         negotiable instrument, payment of all or any part of the Subordinated
         Debt, or (2) take any action to enforce their rights in any collateral
         securing payment thereof, or enforce their rights under any judgment
         rendered or writ issued in favor of any Ramsay Affiliate with respect
         to the Subordinated Debt, in any event with respect to the immediately
         foregoing


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         CLAUSES (i) through (iii) unless and until all Senior Debt has been
         indefeasibly paid in full in cash and the Loan Agreement has been
         terminated.

2.       Without limiting the generality or scope of SECTION 1 of this
         Subordination Agreement, each Ramsay Affiliate expressly agrees,
         jointly and severally, that if such Ramsay Affiliate at any time
         purchases goods or services from any Loan Party, such Ramsay Affiliate
         will pay for such goods or services in cash or cash equivalents in
         accordance with the customary terms of such purchases available to
         third parties and shall not deduct from or setoff against any amounts
         owing by such Ramsay Affiliate to such Loan Party in connection with
         such purchases any amounts due or claimed to be due with respect to, or
         otherwise owing by reason of, the Subordinated Debt.

3.       For purposes of this Subordination Agreement, the term "SENIOR DEBT"
         means all obligations, including, without limitation (i) principal of
         and interest (including, without limitation, interest that would accrue
         during the pendency of any proceeding under Title 11 of the United
         States Bankruptcy Code on all or any portion of the Senior Debt
         regardless of whether such interest is included in any allowed claim in
         any such proceeding) on all loans, advances, accommodations (including,
         without limitation, guarantees of payment under letter of credit-
         related obligations for the benefit of banks or other financial
         institutions issuing letters of credit for the account of any Loan
         Party and guarantees of any Loan Party's payment and performance under
         written contracts to which any Loan Party is a party) and other
         extensions of credit by the Lender now or hereafter made and howsoever
         evidenced to or on behalf of any Loan Party (including any Loan Party
         operating as Debtor or Debtor in Possession under, or any trustee of
         any Loan Party appointed under, the United States Bankruptcy Code),
         (ii) amounts owing by reason of guarantees by any one or more of the
         Lenders of any Loan Party's indebtedness to others unrelated to the
         Lender, (iii) accrued interest, attorneys' fees and expenses incurred
         by the Agent and/or any one or more of the Lenders in enforcing their
         rights in the event of default by any Loan Party under the Loan
         Agreement and/or any one or more of the Senior Loan Documents, (iv)
         amounts owing by reason of advances by Lender for the preservation,
         maintenance, insurance or protection of any Senior Collateral, (v) all
         other indebtedness for which any Loan Party is now or at any time
         hereafter liable to the Agent and/or any one or more of the Lenders in
         any manner, whether primarily or secondarily, absolutely or
         contingently, directly or indirectly, jointly, severally or jointly and
         severally, and whether matured or unmatured, including, without
         limitation, all interest, costs, disbursements, indemnification
         amounts, fees, expenses and all indebtedness arising directly out of
         transactions among any Loan Party, the Agent and/or any one or more of
         the Lenders or acquired by the Agent or any one or more of the Lenders
         outright, conditionally or as collateral security from another person
         or entity, and (vi) all "Obligations," as that term is defined in the
         Loan Agreement (and, in the case of all of the foregoing, any and all
         renewals, extensions, replacements and refinancings of all or any part
         thereof), and the term "SENIOR COLLATERAL" means all property, real and
         personal, tangible and intangible, now owned or hereafter acquired by
         any Loan Party, and includes, without limitation, all inventory,
         accounts, equipment, fixtures, instruments and general intangibles (as
         those terms


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         are defined in the Uniform Commercial Code) now owned or hereafter 
         acquired by any Loan Party.

4.       Upon the maturity of the Senior Debt (or any portion thereof) by lapse
         of time, acceleration or otherwise, all amounts due or to become due in
         connection therewith shall first be indefeasibly paid in full in cash
         before any payment is made by any Borrower or any person acting on
         behalf of any Borrower on account of any Subordinated Debt. Upon a
         distribution of the assets or readjustment of the indebtedness of any
         Borrower by reason of liquidation, composition, bankruptcy,
         arrangement, receivership, assignment for the benefit of creditors or
         any other action or proceeding involving the readjustments of all or
         any of the debts of any Borrower, or the application of the assets of
         any Borrower to the payment or liquidation thereof, each Ramsay
         Affiliate acknowledges that the payment and satisfaction of the Senior
         Debt and the Senior Loan Documents shall have priority over the payment
         and satisfaction of the Subordinated Debt and the Subordinated
         Agreements. If any Borrower shall become subject to a proceeding under
         the United States Bankruptcy Code and the Agent and/or any one or more
         of the Lenders shall desire to permit the use of cash collateral by
         such Borrower or to provide financing to such Borrower under either
         Section 363 or 364 of the United States Bankruptcy Code, with or
         without obtaining a priority lien under Section 364(d) thereof, each
         Ramsay Affiliate hereby agrees as follows: (a) adequate notice to such
         Ramsay Affiliate shall have been given for such financing if such
         Ramsay Affiliate is given notice thereof at least two (2) business days
         prior to the entry of the order approving such financing, and (b) no
         objection will be raised by any Ramsay Affiliate to any such financing
         on the grounds of failure to provide "adequate protection" of such
         Ramsay Affiliate's lien position, if any, in any portion of the Senior
         Collateral subject to the senior lien position in the Senior Collateral
         in favor of the Agent and/or any one or more of the Lenders, whether
         granted in connection with such financing or otherwise existing or
         created. For purposes hereof, notice of such a proposed financing or
         use of cash collateral shall be deemed given to each Ramsay Affiliate
         upon the sending of notice by overnight delivery service, telecopy or
         hand delivery to such Ramsay Affiliate. The Agent, for itself and on
         behalf of the Lenders is irrevocably authorized and empowered to
         receive and collect any and all dividends, payments and distributions
         made on account of any proof of claim relating to the Subordinated Debt
         in whatever form the same may be paid or issued until the Senior Debt
         is paid or satisfied.

5.       Until the Senior Debt is indefeasibly paid in full in cash and the Loan
         Agreement terminated, no Ramsay Affiliate shall, without the Agent's
         prior written consent, (i) take or require the delivery of a guaranty
         of the Subordinated Debt from any person or entity, (ii) take any
         action to foreclose or otherwise enforce any liens or security
         interests now existing in favor of any Ramsay Affiliate on any of the
         Senior Collateral, (iii) take any action to foreclose or otherwise
         enforce any judgment rendered or writ issued in favor of any Ramsay
         Affiliate with respect to any of the Subordinated Agreements, (iv)
         commence or join with any other creditor or creditors of any Loan Party
         in commencing any bankruptcy, reorganization, receivership or
         insolvency proceeding against any Loan Party, (v) except for the
         acceleration of the amounts due with respect to the Subordinated Notes
         in the event the Senior Debt is 



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         accelerated, exercise any other rights or remedies any Ramsay Affiliate
         may have under the Subordinated Agreements, the Uniform Commercial Code
         or any other applicable law with respect to the Senior Collateral, or
         (vi) take or permit any action prejudicial to or inconsistent
         with the priority position of the Agent and the Lenders over each
         Ramsay Affiliate that is created by this Subordination Agreement.

6.       In the event any Loan Party defaults on any one or more of its
         obligations with respect to all or any part of the Senior Debt or under
         the Senior Loan Documents and, as a result, the Agent and/or any one or
         more of the Lenders undertake to enforce any of the security interests
         and liens in the Senior Collateral granted to or for the benefit of the
         Agent and/or any one or more of the Lenders, each Ramsay Affiliate
         agrees, jointly and severally, that no Ramsay Affiliate will hinder,
         delay or otherwise prevent the Agent or any Lender from taking any and
         all action which it or they deem necessary or appropriate to enforce
         such liens and/or security interests in the Senior Collateral and to
         realize thereon, and, in furtherance of the foregoing, each Ramsay
         Affiliate hereby waives, jointly and severally, any and all rights (i)
         to notices in respect of any public or private sales of the Senior
         Collateral, (ii) to participate in the distribution of proceeds of any
         public or private sales of the Senior Collateral, and (iii) to redeem
         the Senior Collateral prior to or after the occurrence of any public or
         private sales of the Senior Collateral. In connection with any sale or
         transfer of the Senior Collateral by Lender or any Loan Party after the
         occurrence and during the continuation of any "Default" and/or "Event
         of Default", as defined in the Loan Agreement, each Ramsay Affiliate
         hereby irrevocably authorizes, empowers and appoints Agent as their
         agent and attorney-in-fact to execute, verify, deliver and file any
         release, termination or other statement or document necessary to
         release and terminate any liens or security interests which secure the
         Subordinated Debt.

7.       In the event of any distribution, division or application, partial or
         complete, voluntary or involuntary, by operation of law or otherwise,
         of all or any part of the assets of any Loan Party or the proceeds
         thereof to creditors of any Loan Party, or the readjustment of the
         obligations and indebtedness of any Loan Party, whether by reason of
         liquidation, bankruptcy, arrangement, receivership, assignment for the
         benefit of creditors or any other action or proceeding involving the
         readjustment of all or any part of the Subordinated Debt, or the
         application of all or any part of the assets of any Loan Party to the
         payment or liquidation thereof, or upon the dissolution of any Loan
         Party or the winding up of any Loan Party's business, or upon the sale
         of all or substantially all of any Loan Party's assets, then, in any
         such event, (a) the Agent and the Lenders shall be entitled to receive
         payment in full in cash of the Senior Debt prior to the payment of all
         or any part of the Subordinated Debt, and (b) any payment or
         distribution of any kind or character, whether in cash, securities or
         other property, which shall be payable or deliverable upon or with
         respect to all or any portion of the Subordinated Debt shall be paid or
         delivered directly to the Agent for application on the Senior Debt,
         whether or not then due, until the Senior Debt shall have been fully
         paid in cash. In order to enable the Agent and the Lenders to enforce
         their rights hereunder in any of the aforesaid actions or proceedings,
         the Agent is hereby irrevocably







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         authorized and empowered and granted the right, at any time and from
         time to time in its discretion, (i) to make and present for and on
         behalf of each Ramsay Affiliate such proofs of claim against any Loan
         Party on account of the Subordinated Debt as the Agent may deem
         expedient or proper in the event any Ramsay Affiliate fails to do so at
         least ten (10) days prior to the deadline for filing such claims, (ii)
         to vote such proofs of claim in any such proceeding upon failure of any
         Ramsay Affiliate to do so prior to ten (10) days before the expiration
         of the time to vote such claim, and (iii) to receive and collect any
         and all dividends and other payments and disbursements made thereon in
         whatever form the same may be paid or issued and to apply the same on
         account of the Senior Debt. Agent shall have no obligation to execute,
         verify, deliver, file and/or vote any such proofs of claim. In the
         event Agent votes any claim in accordance with the authority granted
         hereby, no Ramsay Affiliate shall be entitled to change or withdraw
         such vote. Each Ramsay Affiliate irrevocably authorizes and empowers
         the Agent to demand, sue for, collect and receive each of the aforesaid
         payments and distributions, to give acquittances therefor, and to file
         claims and take such other actions, in the Agent's own name or in the
         name of such Ramsay Affiliate or otherwise, as the Agent may deem
         necessary or advisable for the enforcement of this Subordination
         Agreement. Each Ramsay Affiliate will execute and deliver to the Agent
         such powers of attorney, assignments and other instruments and
         documents, including notes and stock certificates (together with such
         assignments or endorsements as the Agent shall deem necessary), as may
         be requested by the Agent in order to enable the Agent to enforce any
         and all claims upon or with respect to all or any portion of the
         Subordinated Debt and to collect and receive any and all payments and
         distributions which may be payable at any time upon or with respect to
         the Subordinated Debt, all for the benefit of the Agent and the Lenders
         until the Senior Debt is paid in full in cash. When the Senior Debt is
         paid in full in cash and the Loan Agreement has been terminated, the
         Agent and each Lender will remit to each Ramsay Affiliate, to the
         extent of its interest therein and to the extent permitted by law, all
         dividends or other payments or distributions paid to and held by the
         Agent or such Lender in excess of the amount necessary to pay the
         Senior Debt in full in cash to the extent such Ramsay Affiliate shall
         have made any payment to Agent or any payments have been made to the
         Agent or any Lender by reason of the Subordinated Debt.

8.       If any payment on account of, or any collateral for any part of, the 
         Subordinated Debt is received by any Ramsay Affiliate (other than a
         payment expressly permitted to be received by such Ramsay Affiliate in
         accordance with the provisions of SECTION 19 of this Subordination
         Agreement), such payment or collateral shall be delivered forthwith by
         such Ramsay Affiliate to the Agent for application to the Senior Debt,
         in the form received except for the addition of any endorsement or
         assignment necessary to effect a transfer of all rights therein to the
         Agent. The Agent is irrevocably authorized to supply any required
         endorsement or assignment which may have been omitted. Until so
         delivered, any such payment or collateral required to be delivered by
         any Ramsay Affiliate to the Agent under this SECTION 8 shall be held by
         such Ramsay Affiliate in trust for the Agent and the Lenders and shall
         not be commingled with other funds or property of any Ramsay Affiliate.


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9.       Each Ramsay Affiliate, jointly and severally, represents, warrants and
         covenants to the Agent and to each of the Lenders that:

         (a)      It has not relied and will not rely on any representations or
                  information of any nature made by or received from the Agent
                  and/or any one or more of the Lenders relating to any Loan
                  Party in executing this Subordination Agreement.

         (b)      As of the date hereof, the total principal amount of the
                  Subordinated Debt does not exceed $7,283,553.

         (c)      Borrowers have delivered to the Agent true and correct copies
                  of the Subordinated Documents listed in EXHIBIT "A" hereto,
                  and, as of the date hereof, no documents or agreement
                  evidencing or otherwise relating to any Subordinated Debt
                  exist except as set forth in EXHIBIT "A" hereto.

         (d)      The Ramsay Affiliates are the lawful owners of the
                  Subordinated Debt free and clear of all liens and
                  encumbrances, and as of the date hereof, no Ramsay Affiliate
                  has subordinated, encumbered, assigned or transferred any
                  Subordinated Debt. Each Ramsay Affiliate agrees, jointly and
                  severally, that it will not subordinate or encumber, assign or
                  transfer at any time while this Subordination Agreement
                  remains in effect, any right, claim or interest of any kind in
                  or to the Subordinated Debt (a) without giving prior written
                  notice of such action to Agent, (b) unless prior to the
                  consummation of any such action, the transferee thereof shall
                  execute and deliver to Agent an agreement substantially
                  identical to this Agreement, providing for the continued
                  subordination and forbearance of the Subordinated Debt to the
                  Senior Debt as provided herein and for the continued
                  effectiveness of all of the rights of Agent and Lenders
                  arising under this Agreement and (c) unless following such
                  sale, assignment, pledge, disposition or other transfer, there
                  shall be no more than five holders of Subordinated Debt.
                  Notwithstanding the failure to execute or deliver any such
                  agreement, the subordination effected hereby shall survive any
                  sale, assignment, pledge, disposition or other transfer of all
                  or any portion of the Subordinated Debt, and the terms of this
                  Agreement shall be binding upon the successors and assigns of
                  each Ramsay Affiliate, as provided in Section 12 below.

         (e)      Each Ramsay Affiliate has received all consents and approvals
                  required in order for it to execute and deliver this
                  Subordination Agreement.

10.      The Agent and/or any one or more of the Lenders may, at any time and
         from time to time, in its and/or their discretion, (i) renew, extend or
         otherwise modify the rate of interest on, the time and/or terms of
         payment of, and/or any other of the terms and provisions relative to
         the Senior Debt or any of the other provisions of the Senior Loan
         Documents, (ii) lend additional monies, extend additional credit and
         make other financial accommodations to or for the account of any Loan
         Party, (iii) waive or release any collateral or guaranties which may be


SUBORDINATION AGREEMENT - PAGE 7


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         held as security for all or any part of the Senior Debt, and/or (iv)
         renew, extend, modify, amend, supplement and/or restate any and all of
         the Senior Loan Documents, including the Loan Agreement, in any manner,
         in each case, without necessity of consent from any Ramsay Affiliate
         and without impairing or affecting this Subordination Agreement or any
         of the rights of Agent and/or any one or more of the Lenders hereunder.
         Each Ramsay Affiliate shall provide the Agent with copies of any
         modifications or amendments to the Subordinated Agreements promptly
         upon the execution thereof.

11.      Each Ramsay Affiliate hereby waives any rights it has or may have in
         the future to require the Agent or any Lender to marshal any of the
         Senior Collateral securing payment of all or any part of the Senior
         Debt, and agrees that the Agent and each of the Lenders may, in
         addition to all other rights under this Subordination Agreement,
         proceed against all or any part of the Senior Collateral securing all
         or any portion of the Senior Debt in any order that they or any of them
         deem appropriate in the exercise of their respective remedies. Each
         Ramsay Affiliate also waives any right to be subrogated to the Senior
         Debt unless and until the Senior Debt is paid in full in cash and the
         Loan Agreement has been terminated in which event, such Ramsay
         Affiliate shall be and hereby is subrogated to the Senior Debt and the
         Senior Collateral.

12.      Each Ramsay Affiliate agrees that it will advise each future holder of
         all or any part of the Subordinated Debt that the Subordinated Debt is
         subordinated to the Senior Debt in the manner and to the extent set
         forth herein. To that end, each Ramsay Affiliate hereby agrees, jointly
         and severally, (and is hereby so authorized by Borrowers) to endorse
         upon each instrument, certificates and document evidencing all or any
         part of the Subordinated Debt the following legend:

                  "The payment of any indebtedness or other obligations
                  evidenced by this instrument or certificate is subordinated to
                  the payment of the "Senior Debt" defined and described in the
                  Subordination Agreement dated October 30, 1998, between Paul
                  Ramsay Holdings Pty. Limited, an Australian corporation,
                  Ramsay Holdings HSA Limited, a Barbados corporation, Paul
                  Ramsay Hospitals Pty. Limited, an Australian corporation and
                  Fleet Capital Corporation, a Rhode Island corporation, as
                  Agent and its successors and assigns, and reference is made to
                  such Agreement for a full statement of the terms and
                  conditions of such subordination."

         Each Ramsay Affiliate further agrees, jointly and severally, to
         indemnify the Agent and each Lender against any losses, damages, costs
         and expenses incurred or suffered by the Agent or any such Lender by
         reason of the failure of any Ramsay Affiliate to so notify any future
         holder of the Subordinated Debt, or any part thereof. Each Ramsay
         Affiliate hereby authorizes the Agent to file this Subordination
         Agreement and such other notices of record as the Agent may from time
         to time deem appropriate to evidence or give notice of this
         Subordination Agreement. This Agreement shall inure to the benefit of
         the successors and 



SUBORDINATION AGREEMENT - PAGE 8
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         assigns of Agent and each Lender and shall be binding upon the
         successors and assigns of each Ramsay Affiliate and each Loan Party.

13.      Each Ramsay Affiliate agrees, jointly and severally, that it will not
         at any time directly or indirectly contest the validity, perfection,
         priority or enforceability of any lien, security interest, encumbrance
         or claim granted to the Agent and/or any one or more of the Lenders in
         or on the Senior Collateral, and hereby agrees not to hinder the Agent
         or any Lender or take a position adverse to the Agent or any Lender in
         the defense of any action contesting the validity, perfection, priority
         or enforceability of any such liens, security interests, encumbrances
         or claims. Each Ramsay Affiliate further agrees, jointly and severally,
         that the provisions of this Subordination Agreement shall remain in
         full force and effect notwithstanding a successful challenge to the
         validity, perfection, priority or enforceability of all or any of the
         Senior Debt or the liens and security interests securing the Senior
         Debt.

14.      This Subordination Agreement shall be effective and may not be
         terminated or otherwise revoked by any Ramsay Affiliate until all
         Senior Debt has been paid in full in cash and the Loan Agreement has
         been terminated. This is a continuing agreement of subordination and
         the Agent and each Lender may continue, at any time and without notice
         to any Ramsay Affiliate, to extend credit or other financial
         accommodations and loan monies to or for the benefit of any Loan Party
         in reliance on this Subordination Agreement.

15.      The Agent and/or any one or more of the Lenders, and each of them, at
         any time and from time to time, either before or after any such
         aforesaid notice of termination or revocation, may enter into such
         agreement or agreements with any Loan Party or others as they or it, as
         the case may be, may deem proper, extending the time of payment of or
         renewing or otherwise altering the terms of all or any of the Senior
         Debt or affecting the security underlying, or any guaranty of, any or
         all of the Senior Debt, and may exchange, sell, release, surrender or
         otherwise deal with any such security, without in any way thereby
         impairing or affecting this Subordination Agreement.

16.      All of the Senior Debt shall be deemed to have been made or incurred
         in reliance upon this Subordination Agreement. Each Ramsay Affiliate
         expressly waives all notice of the acceptance by any Lender of the
         subordination and other provisions of this Subordination Agreement and
         all other notices not specifically required pursuant to the terms of
         this Subordination Agreement or applicable law whatsoever, and each
         Ramsay Affiliate expressly waives reliance by the Agent and the Lenders
         upon the subordination and other agreements as herein provided. Each
         Ramsay Affiliate agrees, jointly and severally, that neither the Agent
         nor any Lender has made any warranties or representations with respect
         to the due execution, legality, validity, completeness or
         enforceability of the Senior Loan Documents, or the collectibility of
         the Senior Debt, that the Agent and the Lenders shall each be entitled
         to manage and supervise its loans to any Loan Party in accordance with
         applicable law and its usual practices, modified from time to time as
         it deems appropriate under the circumstances, without regard to the
         existence of any rights that any Ramsay Affiliate may 



SUBORDINATION AGREEMENT - PAGE 9

<PAGE>   10
         now or hereafter have in or to any of the assets of any Loan Party, and
         that neither the Agent nor any Lender shall have any liability to any
         Ramsay Affiliate for, and each Ramsay Affiliate waives any claim which
         such Ramsay Affiliate may now or hereafter have against the Agent
         and/or any one or more of the Lenders arising out of, (i) any and all
         actions which the Agent and/or any one or more of the Lenders takes or
         omits to take (including, without limitation, actions with respect to
         the creation, perfection or continuation of liens or security interests
         in all or any portion of the Senior Collateral and other security for
         the Senior Debt, actions with respect to the occurrence of any default
         or event of default under the Loan Agreement, actions with respect to
         the foreclosure upon, sale, release, or depreciation of, or failure to
         realize upon, any of the Senior Collateral and actions with respect to
         the collection of any claim for all or any part of the Senior Debt from
         any account debtor, guarantor or any other party) with respect to the
         Senior Loan Documents or any other agreement related thereto or to the
         collection of the Senior Debt or the valuation, use, protection or
         release of any of the Senior Collateral and/or other security for the
         Senior Debt, (ii) any election by the Agent and/or any one or more of
         the Lenders in any proceeding instituted under Title 11 of the United
         States Code (11 U.S.C. Section 101 et seq.) (the "Bankruptcy Code") of
         the application of Section 1111(b)(2) of the Bankruptcy Code, and/or
         (iii) any borrowing or grant of a security interest under Section 364
         of the Bankruptcy Code to any Loan Party, as debtor in possession.

17.      Each Ramsay Affiliate hereby assumes responsibility for keeping itself 
         informed of the financial condition of each Borrower and each other
         Loan Party, any and all endorsers and any and all guarantors of the
         Senior Debt and Subordinated Debt and of all other circumstances
         bearing upon the risk of nonpayment of the Senior Debt and/or
         Subordinated Debt that diligent inquiry would reveal, and each Ramsay
         Affiliate hereby agrees that the Lender shall not have any duty to
         advise any Ramsay Affiliate of information known to it regarding such
         condition or any such circumstances. In the event Agent or any Lender,
         in its sole discretion, undertakes, at any time or from time to time,
         to provide any such information to any Ramsay Affiliate, neither the
         Agent nor any Lender shall be under any obligation (i) to provide any
         such information to any Ramsay Affiliate on any subsequent occasion or
         (ii) to undertake any investigation and shall be under no obligation to
         disclose any information which the Agent or any Lender wishes to
         maintain confidential. Each Ramsay Affiliate hereby agrees that all
         payments received by the Agent and/or any one or more of the Lenders
         may be applied, reversed, and reapplied, in whole or in part, to any of
         the Senior Debt, as the Agent, in its sole discretion, deems
         appropriate, and each Ramsay Affiliate assents to any extension or
         postponement of the time of payment of all or any portion of the Senior
         Debt or to any other indulgence with respect thereto, to any
         substitution, exchange or release of Senior Collateral which may at any
         time secure the Senior Debt and to the addition or release of any other
         party or Person primarily or secondarily liable therefor.

18.      (A)      THIS SUBORDINATION AGREEMENT SHALL BE GOVERNED BY, AND
                  SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH,



SUBORDINATION AGREEMENT - PAGE 10

<PAGE>   11

                  THE INTERNAL LAWS OF THE STATE OF TEXAS WITHOUT REGARD
                  TO CONFLICTS OF LAWS PRINCIPLES.

         (B)      EACH RAMSAY AFFILIATE HEREBY CONSENTS TO THE
                  JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED
                  WITHIN THE COUNTY OF DALLAS, STATE OF TEXAS AND
                  IRREVOCABLY AGREES THAT, SUBJECT TO LENDER'S ELECTION,
                  ALL ACTIONS OR PROCEEDINGS ARISING OUT OF OR RELATING TO
                  THIS SUBORDINATION AGREEMENT SHALL BE LITIGATED IN SUCH
                  COURTS.  EACH RAMSAY AFFILIATE ACCEPTS, GENERALLY AND
                  UNCONDITIONALLY, THE NONEXCLUSIVE JURISDICTION OF THE
                  AFORESAID COURTS AND WAIVES ANY DEFENSE OF FORUM NON
                  CONVENIENS, AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT
                  RENDERED THEREBY IN CONNECTION WITH THIS SUBORDINATION
                  AGREEMENT. EACH RAMSAY AFFILIATE HEREBY AGREES THAT SERVICE
                  UPON SUCH RAMSAY AFFILIATE BY REGISTERED OR CERTIFIED MAIL
                  SHALL CONSTITUTE SUFFICIENT NOTICE. NOTHING HEREIN SHALL
                  AFFECT THE RIGHT TO SERVE PROCESS IN ANY OTHER MANNER
                  PERMITTED BY LAW OR SHALL LIMIT THE RIGHT OF THE LENDER TO
                  BRING PROCEEDINGS AGAINST ANY LOAN PARTY IN THE COURTS OF ANY
                  OTHER JURISDICTION.

         (C)      EACH RAMSAY AFFILIATE AND AGENT EACH HEREBY WAIVE THEIR
                  RESPECTIVE RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF
                  ACTION BASED UPON OR ARISING OUT OF THIS SUBORDINATION
                  AGREEMENT.  EACH RAMSAY AFFILIATE, AGENT AND EACH
                  LENDER ALSO WAIVE ANY BOND OR SURETY OR SECURITY UPON
                  SUCH BOND WHICH MIGHT, BUT FOR THIS WAIVER, BE REQUIRED
                  OF THE AGENT.  THE SCOPE OF THIS WAIVER IS INTENDED TO BE
                  ALL-ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE
                  FILED IN ANY COURT AND THAT RELATE TO THE SUBJECT MATTER
                  OF THE SUBORDINATION AGREEMENT, INCLUDING, WITHOUT
                  LIMITATION CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY
                  CLAIMS, AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS.
                  EACH RAMSAY AFFILIATE AND THE AGENT EACH ACKNOWLEDGE
                  THAT EACH OF THESE WAIVERS IS A MATERIAL INDUCEMENT TO
                  ENTER INTO THIS SUBORDINATION AGREEMENT, THAT EACH HAS
                  ALREADY RELIED ON THESE WAIVERS IN ENTERING INTO THIS
                  SUBORDINATION AGREEMENT, AND THAT EACH WILL CONTINUE
                  TO RELY ON THESE WAIVERS IN THEIR RELATED FUTURE
                  DEALINGS. EACH RAMSAY AFFILIATE AND THE AGENT FURTHER



SUBORDINATION AGREEMENT - PAGE 11

<PAGE>   12

                  WARRANT AND REPRESENT THAT EACH HAS REVIEWED THIS
                  WAIVER WITH THEIR OR ITS LEGAL COUNSEL AND THAT EACH
                  KNOWINGLY AND VOLUNTARILY WAIVES THEIR OR ITS JURY
                  TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL
                  COUNSEL.  THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY
                  NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THE
                  WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS,
                  RENEWALS, SUPPLEMENTS OR MODIFICATIONS OF OR TO THIS
                  SUBORDINATION AGREEMENT.  IN THE EVENT OF LITIGATION, THIS
                  SUBORDINATION AGREEMENT MAY BE FILED AS A WRITTEN
                  CONSENT TO A TRIAL BY THE COURT.

         (d)      This Subordination Agreement contains the entire agreement
                  among the Ramsay Affiliates, the Agent and the Lenders with
                  respect to this subject, and may only be modified by a writing
                  signed by both the Ramsay Affiliates and the Agent.

         (e)      No failure by the Agent and/or any Lender to exercise any
                  right hereunder shall be construed as a waiver of the right to
                  exercise the same or any other right at any other time and
                  from time to time thereafter, and such rights shall be
                  cumulative and not exclusive.

         (f)      The knowledge by Agent and/or any Lender of any breach or
                  other non-observance by any Ramsay Affiliate of the terms of
                  this Subordination Agreement shall not constitute a waiver
                  thereof or of any obligations to be performed by any Ramsay
                  Affiliate.

         (g)      Wherever possible, each provision of this Subordination
                  Agreement shall be interpreted in such manner as to be
                  effective and valid under applicable law, but if any provision
                  of this Subordination Agreement shall be prohibited by or
                  invalid under applicable law, such provision shall be
                  ineffective to the extent of such prohibition or invalidity,
                  without invalidating the remainder of such provision or the
                  remaining provisions of this Subordination Agreement.

         (h)      Each Ramsay Affiliate acknowledges that Agent and each Lender
                  will rely upon this instrument in connection with the
                  extension of financial accommodations to each Loan Party
                  pursuant to the Senior Loan Documents, and that any additional
                  financial accommodations the Agent or any Lender may hereafter
                  extend to any Loan Party will be in reliance on this
                  instrument. Each Ramsay Affiliate agrees, jointly and
                  severally, that this Subordination Agreement (i) shall
                  continue in full force and effect until payment in full in
                  cash of the Senior Debt and the termination of the Loan
                  Agreement, and (ii) shall be binding upon each Ramsay
                  Affiliate and its successors and assigns, including, without
                  limitation, any future holder of all or any part of the
                  Subordinated Debt and shall inure to the benefit of Agent and
                  each Lender, and its 



SUBORDINATION AGREEMENT - PAGE 12

<PAGE>   13

                  successors and assigns, including, without limitation, any
                  future holder of all or any part of the Senior Debt, it being
                  expressly acknowledged that the Agent and each Lender's rights
                  under this Subordination Agreement may be assigned in
                  connection with any assignment or transfer of all or any
                  portion of Senior Debt and that each holder of any portion of
                  Senior Debt shall be equally and ratably entitled to the
                  benefits of this Subordination Agreement. References herein to
                  any Loan Party shall include any successor to, or assign of
                  such Loan Party, including without limitation any
                  debtor-in-possession or trustee for any Loan Party in any
                  proceeding under the United States Bankruptcy Code.

         (i)      All notices, requests and demands hereunder shall be made (a)
                  to the Agent at the following office of the Agent:

                                    Fleet Capital Corporation
                                    2711 North Haskell Avenue
                                    Suite 2100, LB 21
                                    Dallas, Texas 75204
                                    Attention:  Loan Administration Manager
                                    Facsimile Number: (214) 828-6530

                  With a copy to:

                                    Gardere & Wynne, L.L.P.
                                    1601 Elm Street
                                    3000 Thanksgiving Tower
                                    Dallas, Texas 75201
                                    Attention: Gary B. Clark
                                    Facsimile Number: (214) 999-4667

                  and (b) to the Ramsay Affiliates at their office as follows:













SUBORDINATION AGREEMENT - PAGE 13

<PAGE>   14

                                    Paul Ramsay Holdings Pty. Limited
                                    Ramsay Holdings HSA Limited
                                    Paul Ramsay Hospitals Pty. Limited
                                    154 Pacific Highway, 9th Floor
                                    St. Leonards NSW 2065
                                    Australia
                                    Attention: Secretary
                                    Facsimile Number: 011-612-94-333-460

                  With a copy to:

                                    Haythe & Curley
                                    237 Park Avenue
                                    New York, NY 10017
                                    Attention: Thomas M. Haythe
                                    Facsimile Number: (212) 682-0200

                  or in the case of either party to such other address and/or
                  facsimile number as such party may designate by written notice
                  to the other party in accordance with this provision, and (b)
                  deemed to have been given or made: if by hand, immediately
                  upon delivery; if by telex, telegram or telecopy (facsimile),
                  immediately upon receipt; if by overnight delivery service,
                  one (1) day after dispatch; and if by first class or certified
                  mail three (3) days after mailing postage paid.

         (j)      Except as provided in Section 18(h) as to successors and 
                  assigns of Agent and/or any Lender, this Subordination
                  Agreement is not intended to and shall not create rights in
                  favor of any third party (including without limitation, any
                  Loan Party).

         (k)      This Subordination Agreement may be executed in any number of 
                  counterparts, each of which shall be deemed to be an original
                  hereof and submissible in evidence and all of which together
                  shall be deemed to be a single instrument.

19.      (a)      PAYMENT-IN-KIND. Notwithstanding the foregoing, to the extent
                  the cash payment of any regularly scheduled interest with
                  respect to the Subordinated Notes or the cash payment of any
                  dividend with respect to the Preferred Stock is prohibited by
                  the terms of this Agreement such interest may be deferred by
                  Ramsay and paid in kind by adding such deferred interest to
                  the principal amount of the Subordinated Notes, or such
                  dividends may accrue with respect to the Preferred Stock, as
                  the case may be.

         (b)      ISSUANCE OF COMMON STOCK. Notwithstanding the foregoing but 
                  subject to Section 10.1.11 of the Loan Agreement, Ramsay may,
                  at any time and from time to time, issue shares of its common
                  stock, $.01 par value per share ("Common Stock") upon the
                  conversion or exchange of the Preferred Stock and issue shares
                  of Common Stock in payment of principal and interest with
                  respect to the Subordinated Notes.




SUBORDINATION AGREEMENT - PAGE 14




<PAGE>   15
         (c)      PERMITTED PAYMENTS AND PAYMENT BLOCKAGE. Notwithstanding the
                  foregoing, until the Agent shall have given the Ramsay
                  Affiliates written notice that a "Default" and/or an "Event of
                  Default" as those terms are defined in the Loan Agreement, has
                  occurred (a "Default Notice"), beginning November 1, 1999,
                  Ramsay may pay and the Ramsay Affiliates may receive and
                  retain (1) the regularly scheduled quarterly payments of
                  interest due under the Subordinated Notes as and when the same
                  become due and payable in accordance with the terms and
                  provisions thereof and (2) the regularly scheduled dividends
                  on (but not any redemption of) the Preferred Stock; provided
                  that, with respect to this clause (c) of Section 19, EBITDA
                  (as defined in the Loan Agreement) of Ramsay, on a
                  consolidated basis and calculated in the manner specified in
                  the Loan Agreement, for the twelve month period ending on the
                  last day of the calendar month immediately preceding such
                  interest and/or dividend payment date for which Agent and
                  Lenders have received the financial statements required by
                  clause (ii) of Section 8.1.3 of the Loan Agreement, is greater
                  than $7,800,000. Except as otherwise permitted by clauses (a)
                  and (b) of this SECTION 19, no payment, whether in cash,
                  securities or other property, shall be made by or on behalf of
                  any Loan Party on account of the principal of, premium, if
                  any, or interest on the Subordinated Debt or to defease,
                  redeem or acquire any of the Subordinated Debt or on account
                  of any fees and expenses relating to the Subordinated Debt or
                  on account of any other amount or obligation arising under or
                  by virtue of the Subordinated Debt during the period beginning
                  on the date that Agent delivers to any Ramsay Affiliate a
                  Default Notice and ending on the earliest of (A) the date that
                  all Senior Debt is paid in full in cash and the Loan Agreement
                  has been terminated, and (B) the date on which the "Default"
                  and/or "Event of Default", as defined in the Loan Agreement,
                  giving rise to such Default Notice is waived in writing by the
                  Lenders in accordance with the Loan Documents or cured to the
                  satisfaction of Agent, and Required Lenders, in their sole and
                  absolute discretion.















SUBORDINATION AGREEMENT - PAGE 15



<PAGE>   16


      IN WITNESS WHEREOF, the Ramsay Affiliates have executed this Subordination
Agreement as of the date first above written.


                                    Paul Ramsay Holdings Pty. Limited


                                    By:  
                                       ------------------------------------
                                    Name:
                                    Title:


                                    Ramsay Holdings HSA Limited


                                    By:  
                                       ------------------------------------
                                    Name:
                                    Title:


                                    Paul Ramsay Hospitals Pty. Limited


                                    By:  
                                       ------------------------------------
                                    Name:
                                    Title:














SUBORDINATION AGREEMENT - SIGNATURE PAGE

<PAGE>   17

ACCEPTED AND AGREED TO AS OF THE DATE FIRST ABOVE WRITTEN:


                                         Fleet Capital Corporation, as Agent



                                         By:  
                                            ------------------------------------
                                         Name:             Rosemary Davis
                                         Title:            Vice President
































SUBORDINATION AGREEMENT - SIGNATURE PAGE



<PAGE>   18


                                     CONSENT


         Each Loan Party acknowledges receipt of a copy of the foregoing
Subordination Agreement, consents to all of the terms and conditions thereof,
and agrees that it will not pay any Subordinated Debt, except as provided
therein. In the event of any breach of the provisions of this Subordination
Agreement, each Loan Party agrees that, in addition to any other rights and
remedies which Agent and/or any Lender may have under any of the Loan Documents,
the Agent may by written notice to the Loan Parties declare all of the Senior
Debt to be, and the same shall thereupon become, immediately due and payable
unless Requisite Lenders shall otherwise elect. Each Loan Party agrees to mark
its records to reflect the subordination of the Subordinated Debt.
 

                                 Bethany Psychiatric Hospital, Inc.
                                 Bountiful Psychiatric Hospital, Inc.
                                 East Carolina Psychiatric Services Corporation
                                 Great Plains Hospital, Inc.
                                 Gulf Coast Treatment Center, Inc.
                                 Havenwyck Hospital, Inc.
                                 H.C. Corporation
                                 HSA Hill Crest Corporation
                                 HSA of Oklahoma, Inc.
                                 Michigan Psychiatric Services, Inc.
                                 Ramsay Educational Services, Inc.
                                 Ramsay Health Care, Inc.
                                 Ramsay Louisiana, Inc.
                                 Ramsay Managed Care, Inc.
                                 Ramsay Youth Services, Inc.
                                 Ramsay Youth Services of Alabama, Inc.
                                 Ramsay Youth Services of Florida, Inc.
                                 Ramsay Youth Services of South Carolina, Inc.
                                 RHCI San Antonio, Inc.
                                 Transitional Care Ventures, Inc.
                                 Transitional Care Ventures (Texas), Inc.


                                 By:
                                    ---------------------------------------
                                 Name:    Jorge Rico
                                 Title:   Vice President





SUBORDINATION AGREEMENT - SIGNATURE PAGE


<PAGE>   19




                                    H.C. Partnership

                                    By: H.C. Corporation, its General Partner
                                    By: HSA Hill Crest Corporation, its
                                        General Partner


                                        By:
                                           -----------------------------------
                                        Name:    Jorge Rico
                                        Its:     Vice President




































SUBORDINATION AGREEMENT - SIGNATURE PAGE


<PAGE>   20

                                    EXHIBIT A

                             SUBORDINATED AGREEMENTS

SUBORDINATED NOTES

1.       Junior Subordinated Loan and Exchange Agreement dated as of October 30,
         1998, by and between Paul Ramsay Holdings Pty. Limited, an Australian
         corporation, as purchaser, and Ramsay Health Care, Inc., a Delaware
         corporation, as seller.

2.       Junior Subordinated Promissory Note due September 30, 2006, executed by
         Ramsay Health Care, Inc., a Delaware corporation, as maker, bearing
         interest at an initial fixed rate of thirteen and one-half percent 
         (13 1/2%) per annum, and payable to the order of Paul Ramsay Holdings
         Pty. Limited, an Australian corporation, in the original principal
         amount of $5,330,428.00.

3.       Junior Subordinated Promissory Note due September 30, 2005, executed by
         Ramsay Health Care, Inc., a Delaware corporation, as maker, bearing
         interest at a fixed rate of thirteen percent (13%) per annum, and
         payable to the order of Paul Ramsay Holdings Pty. Limited, an
         Australian corporation, in the original principal amount of
         $2,553,125.00.


PREFERRED STOCK

4.       Certificate of Incorporation of Ramsay Health Care, Inc., a Delaware
         corporation, as amended.

5.       Certificate of Designation of Preferred Stock of Ramsay Health Care,
         Inc., a Delaware corporation, filed in the office of the Secretary of
         State of The State of Delaware on September 13, 1997 with respect to
         the Class B Preferred Stock, Series 1997-A and all Stock Certificates
         evidencing such shares.

6.       Certificate of Designation of Preferred Stock of Ramsay Health Care,
         Inc., a Delaware corporation, filed in the office of the Secretary of
         State of the State of Delaware on June 29, 1993 with respect to the
         Class B Preferred Stock, Series C and all Stock Certificates evidencing
         such shares.

7.       Certificate of Designation of Preferred Stock of Ramsay Health Care,
         Inc., a Delaware corporation, filed in the office of the Secretary of
         State of the State of Delaware on March 13, 1997 with respect to the
         Class B Preferred Stock, Series 1996 and all Stock Certificates
         evidencing such shares.