Document:

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Exhibit 10.7

THIS NOTE HAS NOT BEEN REGISTERED PURSUANT TO THE SECURITIES ACT OF 1933 OR ANY
STATE SECURITIES LAW. NEITHER THIS NOTE NOR ANY PORTION HEREOF OR INTEREST
HEREIN MAY BE SOLD, ASSIGNED, TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF
UNLESS THE SAME IS REGISTERED UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES
LAW, OR UNLESS AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE AND BALANCED
CARE CORPORATION SHALL HAVE RECEIVED, AT THE EXPENSE OF THE HOLDER HEREOF,
EVIDENCE OF SUCH EXEMPTION REASONABLY SATISFACTORY TO BALANCED CARE CORPORATION
(WHICH MAY INCLUDE, AMONG OTHER THINGS, AN OPINION OF COUNSEL SATISFACTORY TO
BALANCED CARE CORPORATION).

THE INDEBTEDNESS EVIDENCED BY THIS INSTRUMENT IS SUBORDINATED TO THE PRIOR
PAYMENT IN FULL OF THE SENIOR DEBT (AS DEFINED IN THE SUBORDINATION AGREEMENT
HEREINAFTER REFERRED TO) PURSUANT TO, AND TO THE EXTENT PROVIDED IN, THAT
CERTAIN SUBORDINATION AGREEMENT, DATED AS OF APRIL 4, 2001, AMONG BALANCED CARE
CORPORATION, HELLER HEALTHCARE FINANCE, INC., VXM INVESTMENTS LIMITED, HR
INVESTMENTS LIMITED, RH INVESTMENTS LIMITED AND THE OTHER PARTIES IDENTIFIED
THEREIN (THE "SUBORDINATION AGREEMENT"). ANY HOLDER OF THIS INSTRUMENT SHALL BE
DEEMED TO BE BOUND BY, AND SUBJECT TO, THE TERMS OF THE SUBORDINATION AGREEMENT.

                                      NOTE

$1,400,000                                                      January 11, 2002

                  FOR VALUE RECEIVED, the undersigned, Balanced Care
Corporation, a Delaware corporation (the "Maker"), hereby promises to pay to the
order of VXM Investments Limited, a Cayman Islands corporation, as agent (the
"Agent") for the Lenders identified in the Bridge Loan Agreement, dated as of
April 4, 2001, among the Company, such Lenders and the Agent, as amended as of
June 12, 2001, as further amended as of July 6, 2001, as further amended as of
August 8, 2001, as further amended as of September 6, 2001, as further amended
as of October 4, 2001, as further amended as of October 29, 2001, as further
amended as of November 19, 2001, as further amended as of December 11, 2001, as
further amended as of January 4, 2002 (as the same may be further amended,
modified or supplemented from time to time in accordance with its terms, the
"Loan Agreement"), at the office of the Agent c/o Unsworth &
<PAGE>
Associates, Herengracht 483, Amsterdam, The Netherlands, to be distributed in
accordance with the terms of the Loan Agreement, the principal sum of ONE
MILLION FOUR HUNDRED THOUSAND DOLLARS ($1,400,000), in lawful money of the
United States of America in immediately available funds, and to pay interest
from the date thereof on the principal amount hereof from time to time
outstanding, in like funds, at said office, at a rate or rates per annum and, in
each case, payable on such dates as determined pursuant to the terms of the Loan
Agreement.

                  The Maker promises to pay interest, on demand, on any overdue
principal and fees and, to the extent permitted by law, overdue interest from
their due dates at a rate or rates determined as set forth in the Loan
Agreement.

                  The Maker hereby waives diligence, presentment, demand,
protest and notice of any kind whatsoever. The non-exercise by the holder of any
of its rights hereunder in any particular instance shall not constitute a waiver
thereof in that or any subsequent instance.

                  All payments and prepayments of the principal hereof and
interest hereon and the respective dates thereof shall be endorsed by the holder
hereof on the schedule attached hereto and made a part hereof, or on a
continuation thereof which shall be attached hereto and made a part hereof, or
otherwise recorded by such holder in its internal records; provided, however,
that the failure of the holder hereof to make such a notation or any error in
such a notation shall not in any manner affect the obligations of the Maker to
make payments of principal and interest in accordance with the terms of this
Note and the Loan Agreement.

                  This Note is one of the Notes referred to in the Loan
Agreement (and is secured by the Collateral referred to therein), which, among
other things, contains provisions for the acceleration of the maturity hereof
upon the happening of certain events, for optional and mandatory prepayment of
the principal hereof prior to the maturity hereof and for the amendment or
waiver of certain provisions of the Loan Agreement, all upon the terms and
conditions therein specified. THIS NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH
AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO CHOICE OF
LAW DOCTRINE, AND ANY APPLICABLE LAWS OF THE UNITED STATES OF AMERICA.

                                       2
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                                               BALANCED CARE CORPORATION

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

                                        3
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                                Loans and Payment

<TABLE>
<CAPTION>
                                                   Unpaid
                                                   Principal
           Amount              Payments            Balance of      Person Making
Date       of Loan        Principal Interest       Note            Notation
<S>        <C>            <C>                      <C>             <C>

</TABLE><PAGE>
Exhibit 10.8

                              SEPARATION AGREEMENT

This Agreement is made this 15th day of November 2001 between BALANCED CARE
CORPORATION, a Delaware corporation with its principal office at 1215 Manor
Drive, Mechanicsburg, PA 17055 (the "Company") and BRAD E. HOLLINGER, an
individual residing at 2850 Ford Farm Road, Mechanicsburg, PA 17055 (the
"Employee").

                                WITNESSTH

WHEREAS, the Company and Employee have agreed upon the terms and conditions of
Employee's resignation from the Company as more specifically set forth herein.

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

1. Resignation. Employee agrees to resign his position as CEO and Chairman of
Balanced Care Corporation and from any other offices and directorships that he
holds with the Company or any affiliate or subsidiary thereof, all effective
upon the close of business on Monday, November 19, 2001. Employee shall execute
and deliver the resignation attached hereto as Schedule 1 and the release
attached hereto as Schedule 2 at the same time as the execution and delivery of
this agreement.

2. Cash Payment. The Company shall pay Employee the sum of $450,000 in
immediately available funds (the "Cash Payment"), on or before Friday, November
23, 2001. The Company confirms that wiring instructions have been given to
effect this payment.

3. Second Cash Payment. Upon the earlier of twelve (12) months from the date of
this Agreement or the Company's completion of a "Successful Restructuring",
Company shall pay Employee the sum of $100,000 in immediately available funds
(the "Second Cash Payment"). For purposes of this paragraph, a "Successful
Restructuring" means: (i) the achievement by Company of discounts or reductions
negotiated with the lenders and landlords of the Company; and/or, (ii) the
raising by Company of equity capital in the Company; provided such
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discounts, reductions and/or equity capital are sufficient, in the aggregate, to
enable the Company to meet all of its obligations and liabilities throughout the
twenty-four (24) month period commencing on August 30, 2001.

4. Entire Agreement. This writing supersedes in their entirety all agreements,
written or oral or in any other form, entered into prior to the date hereof,
including, without limitation, the Employment Agreement dated as of January
31,2001, as amended by that certain First Amendment to Employment Agreement
dated as of August 30, 2001, provided, however, that Employee shall be entitled
to (i) receive a separate lump sum payment equal to the dollar value of his
accrued but unused vacation days as of November 19, 2001 for the Fiscal 2002
period and to receipt of his regularly scheduled salary paycheck for the period
up to and including November 19, 2001 (both of which payments shall be made on
the first regularly scheduled Company payroll date following the date of
Employee's resignation),(ii) elect continued medical and/or dental coverage
under COBRA at Employee's expense and (iii) retain vested rights Employee has
under that certain February 19, 2001 Directors Stock Option Award Agreement
(Non-Plan Grant) as detailed on Schedule 3 attached hereto and, additionally,
all outstanding stock options granted to Employee under the Company's 1996 Stock
Option Incentive Plan, as such Plan may be amended from time to time (the
"Plan") and as detailed on Schedule 3 attached hereto shall immediately become
vested and shall be exercisable in accordance with the provisions of the Plan.
Subject to the foregoing, all Employee's salary, benefits, vacation accrual,
perquisites and other compensation from Company and its affiliates and
subsidiaries shall terminate effective upon the date hereof. This writing
represents the entire agreement and understanding of the parties with respect to
the subject matter hereof and Employee and Company shall have no further duties
or obligations to each other except as set forth in this writing, and it may not
be altered or amended except by agreement in writing.

4A. Tax. Employee acknowledges and agrees that he is responsible for all tax
liabilities resulting from his receipt of monies or benefits pursuant to or in
connection with this Agreement and hereby indemnifies Company from any claims in
respect thereof.

5. Assignment. This Agreement shall not be assignable or transferable and
Employee's rights to receive payments hereunder shall not be assignable or
transferable, whether by pledge, creation of a security interest or otherwise,
other than by his will or by the laws of descent or distribution by
<PAGE>
Employee; and this Agreement shall be assignable by Company only to a person,
firm, corporation or other entity which may become a successor in interest (by
purchase, merger or otherwise) to the Company. The Company shall require any
such successor to assume and expressly agree to perform this Agreement in the
same manner and to the same extent that the Company would be required to perform
if no such succession had taken place.

6. Binding Effect/Severability. Employee confirms that he has received
independent legal advice with respect to his entry into this Agreement. Subject
to Section 5, this Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective successors, assigns, heirs, executors
and administrators. If any provision of this Agreement shall be or become
illegal or unenforceable in whole or in part for any reason whatsoever, the
remaining provisions shall nevertheless be deemed valid, binding and enforceable
to the fullest extent permitted by law.

7. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Pennsylvania.

8. Counterparts. This Agreement may be executed by the parties in two or more
counterparts, each of which shall be deemed to be an original, but all such
counterparts shall constitute one and the same instrument.

IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and
year first above written.

                                          EMPLOYEE

                                          /s/Brad Hollinger
                                          Brad E. Hollinger

                                          BALANCED CARE CORPORATION

                                          By:/s/David Goldsmith
                                                David Goldsmith
                                                Chairman,
                                                Compensation
                                                Committee
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                                   SCHEDULE 1

TO:      BALANCED CARE CORPORATION AND ITS SUBSIDIARY AND AFFILIATED
         CORPORATIONS

AND TO:  THE DIRECTORS THEREOF

      I hereby resign as CEO and Chairman (and as director and any other office
I hold) of Balanced Care Corporation and its subsidiary and affiliated
corporations, with effect as of November 19, 2001.

DATED at Mechanicsburg, Pennsylvania this 15th day of November 2001.

                                    /s/Brad E. Hollinger
                                    Brad E. Hollinger
<PAGE>
                                   SCHEDULE 2

                                     RELEASE

FROM: Brad E. Hollinger (the "Releasor")

TO:      Balanced Care Corporation, Paul and Barry Reichmann and their families,
         and all of their respective affiliates, associates, parents,
         subsidiaries and related organizations and their respective directors,
         officers, employees and agents (collectively, "BCC")

1.   In consideration of the terms of a Separation Agreement dated November,
     2001 and other good and valuable consideration (the receipt and sufficiency
     of which consideration are hereby acknowledged), the Releasor hereby
     remises, releases and forever discharges BCC of and from all manner of
     actions, causes of action, suits, debts, dues, accounts, bonds, contracts,
     liens, claims and demands whatsoever which against BCC (or any of them) the
     Releasor now has, ever had or hereafter can, shall or may have for or by
     reason of any cause, matter or thing whatsoever existing to the present
     time, and particularly and without limiting the generality of the
     foregoing, of and from all claims and demands of every nature and kind in
     any way related to or arising from an action arising from the Releasor's
     employment with BCC, any employment agreement with BCC, the termination of
     such employment or any employment agreement, or any and all claims or
     alleged entitlements that the Releasor may have in contract, tort or
     otherwise, including damages, salary, remuneration, commission, vacation
     pay, overtime pay, termination pay, severance pay, notice of termination,
     profit-sharing, employee stock options or other equity arrangements, bonus,
     proceeds of any insurance or disability plans, or any other employment
     benefit or fringe benefit of any kind whatsoever, except as specifically
     described in the Separation Agreement.
2.   The Releasor acknowledges that the consideration referred to in paragraph 1
     above is as a result of settlement discussions (which discussions shall
     remain privileged unless waived by all of the parties), and further any
     payment to the Releasor is made for the purposes of fully and finally
     settling and compromising all possible claims that the Releasor might have
     against BCC (or any of them). The Releasor covenants and agrees not to
     initiate any complaint or claim under federal, state or local laws,
     regulations or requirements, the Age Discrimination in Employment Act, the
     Americans With
<PAGE>
     Disabilities Act, Title VII of the Civil Rights Act, the Family and Medical
     Leave Act, and any rights and claims relating to discrimination, workers'
     compensation, unemployment, wrongful employment practices or any other
     matter relating to the Releasor's employment. In the event that the
     Releasor hereafter makes any claim or demand or commence or threaten to
     commence any action, claim or proceeding or to make any complaint against
     BCC (or any of them) in this respect, this Release may be raised as an
     estoppel and complete bar to any such action, claim or proceeding.
3.   The Releasor confirms that, except for the payment of accrued vacation as
     set forth in the Separation Agreement, and the payment of his regularly
     scheduled salary for the period up to and including November 19, 2001, he
     has been paid all amounts owed or owing to him pursuant to his employment
     with Balanced Care Corporation to the date of this Release and that he has
     no further entitlement with respect to salary, benefits, expenses, bonus,
     incentive pay, vacation pay or other compensation. The Releasor confirms
     that, by virtue of the consideration received by him, he has received a
     higher remuneration in money and a greater right or benefit than the
     requirements imposed by any employment standard.
4.   The Releasor agrees not to make or cause to be initiated any claims
     (expressly including any cross-claim, counterclaim, third party action or
     application) against any other person or corporation who might claim
     contribution or indemnity against the persons or corporations discharged by
     this Release.
5.   BCC and its past, present and future officers, employees, agents, attorneys
     and shareholders release Releasor, his heirs, successors and assigns of and
     from any and all claims based on any actions taken by Releasor during his
     employment with BCC, with the exception of any criminal conduct on his
     part.
6.   The Releasor confirms that the terms and contents of this Release, the
     consideration referred to in paragraph 1 above, the contents of the
     negotiations and discussions resulting in this Release, and the issues
     resolved by this Release shall all remain confidential and shall not be
     disclosed except to the extent required by law, or except to the extent
     disclosure is to the Releasor's immediate family or his legal or
     professional advisors, or except as otherwise agreed to in writing by BCC.
7.   This Release shall be binding upon the Releasor and his heirs, executors
     and administrators and shall enure to your benefit and to the benefit of
     all of your
<PAGE>
     respective heirs, executors, administrators, successors and assigns.
8.   The Releasor acknowledges having had an opportunity to review this Release
     and to obtain independent legal advice and that he is signing the Release
     without duress and with full understanding of its contents. The Releasor
     confirms that no other promises or representations of any kind have been
     made to cause the Releasor to sign this Release.
9.   If any provision contained in this Release is determined to be void or
     unenforceable in whole or in part, it shall be deemed not to affect or
     impair the validity of any other provision herein and each such provision
     is deemed to be separate and distinct.
<PAGE>
SIGNED, SEALED and DELIVERED this 19th day of November, 2001.

/s/Deborah Myers Welsh                    /s/Brad E. Hollinger
Witness                                   Brad E. Hollinger

                                          Balanced Care Corporation

/s/Robin L. Barber                        /s/David L. Goldsmith

Witness                                   David L. Goldsmith

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