Document:

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Exhibit 10.7
                        RIGHT OF FIRST REFUSAL AGREEMENT

         This Right of First Refusal Agreement is dated December 30, 1999 by and
among Meditrust Mortgage Investments, Inc., a Delaware corporation having a
principal place of business at 197 First Avenue, Needham, Massachusetts, 02494
("MMI"), Meditrust Corporation, a Delaware corporation having a principal place
of business at 197 First Avenue, Needham, Massachusetts, 02494 ("MC"; MMI and MC
hereinafter collectively referred to as Meditrust), and IPC Advisors S.A.R.L., a
Luxembourg corporation having for the purposes of this Agreement, an address at
38-40 Rue Sainte Zithe, Luxembourg L-2763 ("IPC").

                               W I T N E S S E T H

         WHEREAS, MMI owns three hundred thirty-one thousand three hundred
twelve (331,312) shares of common stock, $0.001 par value (the "Common Stock")
of Balanced Care Corporation, a Delaware corporation (the "Company"), and MC
owns seven hundred fifty thousand (750,000) shares of Common Stock of the
Company (said 331,312 and 750,000 shares of Common Stock being hereinafter
referred to as the "Shares"); and

         WHEREAS, the parties desire to impose restrictions on the transfer of
the Shares.

         NOW, THEREFORE, the parties, each in consideration that the other joins
herein, act and agree as follows:

         1. Right of First Refusal. (a) In the event Meditrust desires to sell,
give or otherwise dispose of or transfer any of the Shares (such Shares so
desired to be sold, given or otherwise disposed of or transferred being
hereinafter in this Section 1 called the "Stock"), Meditrust shall, except only
as provided in subsection (b) below, be under an obligation, before selling,
giving or otherwise disposing of or transferring the Stock, to offer in writing
the Stock to IPC for purchase or acquisition by IPC and in such offer, and as an
essential part thereof, to state the name and address of the proposed transferee
(or that the proposed transferee will be a transferee in the open market), and
the price or consideration, if any, to be paid by such transferee (or the
expected price to be received by Meditrust if the Shares will be sold on the
open market) and the terms, if any, of payment of such price. IPC may, at any
time within ten (10) days after receipt of such an offer from Meditrust, elect
to accept such offer, but only with respect to all of the Stock, by so
<PAGE>   2
notifying Meditrust in writing and delivering to it a written acceptance of such
offer. The price, if any, at which IPC shall buy and Meditrust shall sell the
Stock, if such offer shall have been duly accepted as aforesaid, shall be the
price per Share, if any, as stated in the offer, to be paid for the Stock by the
proposed transferee, and shall be payable upon such terms, as stated in the
offer, to be paid by the proposed transferee on the tenth (10th) day after
acceptance of the offer (the "Payment Date") at the principal place of business
of Meditrust. If, within such ten (10) day period, IPC shall not elect to accept
the offer, or if IPC shall accept the offer and then fail to purchase the Stock
on or before the Payment Date, Meditrust may, prior to the expiration of six (6)
months from the date of such offer by Meditrust, give or otherwise dispose of or
transfer the Stock to the proposed transferee, and only to the proposed
transferee, and at the price, and only at the price, if any, named in the offer,
but not after the expiration of said six (6) months or to any other transferee
or at any other price without again offering the Stock to IPC for purchase by it
hereunder. Such failure by IPC to purchase the Stock following its acceptance of
an offer shall not deprive Meditrust of any right or remedy arising out of such
failure.

         (b) The restrictions on transfer contained in this Section 1 shall not
be applicable to any transfer of Common Stock by Meditrust to any entity that is
a direct or indirect subsidiary of Meditrust Corporation, provided however, that
no such transfer under this subsection 1(b) may be made unless and until such
transferees shall have become parties to and bound by this Right of First
Refusal Agreement.

         (c) A pledge or hypothecation shall not be deemed a sale, transfer or
other disposition for the purposes of this Section 1, provided that the pledgee
shall agree to be bound by and subject to this Right of First Refusal Agreement
upon any foreclosure or transfer pursuant to foreclosure under the pledge or
hypothecation. If the pledge or hypothecation is foreclosed, any transfer
pursuant to foreclosure shall be deemed a sale or transfer and shall be subject
to this Right of First Refusal Agreement.

         (d) Any transfer, sale or disposition (or attempted transfer, sale or
disposition) of any Shares which violates or fails to comply with this Section 1
shall be absolutely void and of no force or effect.

         2. Legend. Meditrust agrees that, during the term of this
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Right of First Refusal Agreement, it will cause each certificate representing
Shares to have noted thereon the following legend:

         "This certificate and the shares represented hereby are subject to a
         Right of First Refusal Agreement dated December 30, 1999, executed by
         and among Meditrust Mortgage Investments, Inc., Meditrust Corporation
         and IPC Advisors S.A.R.L. and to the restrictions and rights contained
         therein, a copy of which Right of First Refusal Agreement will be
         furnished by Meditrust Corporation to the holder of this certificate
         upon written request and without charge."

         3. Benefit and Binding Effect. This Right of First Refusal Agreement
shall inure to the benefit of the respective representatives, successors and
assigns of the parties hereto, and no other persons, and shall be binding upon
such representatives, successors and assigns and all other persons having or
claiming an interest in any Shares, whether by operation of law or otherwise.

         4. Termination. This Right of First Refusal Agreement, as the same may
from time to time be amended, may be terminated at any time by an instrument in
writing duly executed by Meditrust and IPC, or their respective successors,
assigns and transferees, without any requirement for action by or on behalf of
the Company. Unless sooner terminated pursuant to the provisions of the
immediately preceding sentence, this Right of First Refusal Agreement shall
continue until December 31, 2009; provided, however, that this Right of First
Refusal Agreement shall terminate automatically upon the occurrence of any of
the following events:

         (a) as a result of purchases made pursuant to this Right of First
Refusal Agreement, Meditrust no longer owns any Shares;

         (b) a "Buyer Default" pursuant to and as defined in that certain Option
Agreement of even date herewith by and among the Company, New Meditrust Company
LLC and IPC;

         (c) an "Event of Default" pursuant to and as defined in that certain
$7,811,054 Note of even date herewith from the Company and IPC to New Meditrust
Company LLC;

         (d) the Company is liquidated and dissolved; or

         (e) the Company is adjudicated bankrupt or insolvent.
<PAGE>   4
         5. Additional Securities. (a) All references in this Right of First
Refusal Agreement to Shares shall be deemed to mean, and this Right of First
Refusal Agreement shall be applicable to, all other securities which may from
time to time hereafter come to the holders of record of the Shares as a result
of any one or more stock or security reclassifications, changes, exchanges,
dividends, splits, consolidations, subdivisions or combinations, or any one or
more consolidations, mergers, recapitalizations or reorganizations affecting the
Company or the holders of record of its stock or other securities, or any one or
more sales or conveyances to another corporation of the properties of the
Company as an entirety or substantially as an entirety, except for stock or
other securities surrendered or canceled pursuant to any of same.

         6. Severability. If any term or condition of this Right of First
Refusal Agreement shall be invalid or unenforceable to any extent or in any
application, then the remainder of this Right of First Refusal Agreement, and
such term or condition except to such extent or in such application, shall not
be affected thereby, and each and every term and condition of this Right of
First Refusal Agreement shall be valid and enforceable to the fullest extent and
in the broadest application permitted by law.

         7. Waivers or Modifications. Neither this Right of First Refusal
Agreement nor any term or condition hereof, including without limitation, the
terms and conditions in this Section, may be waived in whole or in part or
otherwise modified as against any party hereto, except by written instrument
signed by the party sought to be charged hereunder expressly stating that it is
intended to operate as a waiver or modification of this Right of First Refusal
Agreement.

         8. Notices. Any notice, offer, acceptance, request, instruction or
other document to be given, made or delivered under this Right of First Refusal
Agreement shall be in writing (a "Notice"). Any Notice shall be (i) personally
delivered, (ii) sent by certified mail, return receipt requested or (iii) sent
by nationally recognized commercial overnight delivery service, with provision
for a receipt, postage or delivery charges prepaid and, in each instance, sent
simultaneously by facsimile transmission. Any Notice shall be deemed given when
hand delivered, postmarked or placed in the possession of such mail or delivery
service, as the case may be (provided, that, in each instance, a copy of such
Notice was simultaneously sent by facsimile transmission) and shall be addressed
as follows:
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if to Meditrust, to it at:

Meditrust Corporation
197 First Avenue
Needham, Massachusetts 02494
Fax: (781) 433-1290
Attention: President

with a copy simultaneously so sent to:

Meditrust Corporation
197 First Avenue
Needham, Massachusetts 02494
Fax: (781) 449-1530
Attention: General Counsel

and

Nutter, McClennen & Fish, LLP
One International Place
Boston, Massachusetts 02110-2699
(617) 973-9748
Attention: Marianne Ajemian, Esq.

if to IPC, to it at

IPC Advisors S.a.r.l.
38-40 Rue Saint Zithe
Luxembourg L-2763
Fax: 011352407804
Attention: J.B.Unsworth

with a copy simultaneously so sent to:

IPC Advisors S.a.r.l.
c/o Unsworth & Associates
Herengracht 483
1017 BT
Amsterdam, Netherlands
Fax: 011-31206232285
Attention: J.B. Unsworth

Goodman, Phillips and Vineburg
250 Yonge Street, Suite 2400
Toronto, Ontario
Canada M5B 2M6
Fax: (416) 979-1234
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Attn: Stephen Pincus, Esq.

or to such other address as any party hereto may designate by notice given as
herein provided.

         9. Captions. The captions of the Sections of this Right of First
Refusal Agreement are for convenience of reference only and shall not affect the
meaning or interpretation of any of the provisions hereof.

         10. Governing Law. This Right of First Refusal Agreement shall be
construed in all respects in accordance with the law of the Commonwealth of
Massachusetts.

         11. Closing Dates. If any closing contemplated by this Right of First
Refusal Agreement is, by the terms of this Right of First Refusal Agreement,
scheduled to occur on (i) a Saturday, Sunday or statutory holiday in the State
of New York or (ii) any of the first, second, seventh or eighth day of Passover,
the first or second day of Shavuoth, the first or second day of Rosh Hashanah,
Yom Kippur, the first or second day of Sukkoth, Shemini Azereth or Simchas
Torah, the closing shall occur on the next day that is not such a day.

         12. Ownership. Meditrust hereby represents and warrants to IPC that the
Shares are the only Common Stock or rights to acquire any equity securities of
the Company held by Meditrust.

         WITNESS the execution hereof under seal as of the day and year first
above written.

                                      MEDITRUST MORTGAGE INVESTMENTS, INC.
CORPORATE
SEAL                                  By: /s/ Michael S. Benjamin, Esq.
                                      Its : Senior Vice President

                                      MEDITRUST CORPORATION
CORPORATE
SEAL                                  By: /s/ Michael S. Benjamin, Esq.
                                      Its: Senior Vice President
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                                       IPC ADVISORS S.A.R.L.

CORPORATE
SEAL                                   By: /s/ J.B. Unsworth
                                       Its: Manager

                                       -7-<TABLE>
<CAPTION>
<S>                 <C>                               <C>
[graphic            Phone: (503) 986-2200
 seal                 Fax: (503) 378-4381     Restated Articles of Incorporation--Business/Professional/Nonprofit
 of the             =============================================================================================
 State of           Secretary of State                Check the appropriate box below:        For office use only
 Oregon             Corporation Division              [X] BUSINESS/PROFESSIONAL CORPORATION
 omitted]           255 Capitol St. NE, Suite 151     (Complete only 1, 2, 3, 4, 6, 7)
                    Salem, OR  97310-1327             [ ] NONPROFIT CORPORATION
                                                      (Complete only 1, 2, 3, 5, 6, 7)

Registry Number: 209240-15
                 ---------

Attach Additional Sheet if Necessary
Please Type or Print Legibly in Black Ink

=================================================================================================================

1)   NAME OF CORPORATION PRIOR TO AMENDMENT  MedicaLogic, Inc.
                                             --------------------------------------------------------------------

2)   NEW NAME OF THE CORPORATION (if changed)
                                              -------------------------------------------------------------------

3)   A COPY OF THE RESTATED ARTICLES MUST BE ATTACHED
                                                      -----------------------------------------------------------

=================================================================================================================
                                                         |
     BUSINESS/PROFESSIONAL CORPORATION ONLY              |         NONPROFIT CORPORATION ONLY
                                                         |
4)   CHECK THE APPROPRIATE STATEMENT                     |    5)   CHECK THE APPROPRIATE STATEMENT
                                                         |
[X]  The restated articles contain amendments            |    [ ]  The restated articles contain amendments which
     which do not require shareholder approval.          |         do not require membership approval. The date
     The date of the adoption of the amendments          |         of the adoption of the amendments and restated
     and restated articles was 9/17/99 & 11/12/99.       |         articles was _______________. These amendments
     These amendments were duly adopted by the           |         were duly  adopted by the board of directors.
     board of directors.                                 |
                                                         |
[ ]  The restated articles contain amendments            |    [ ]  The restated articles contain amendments which
     which require shareholder approval. The             |         require membership approval. The date of the
     date of the adoption of the amendments              |         adoption of the amendments and restated
     and restated articles was ______________.           |         articles was ______________. The vote of the
     The vote of the shareholders was as follows:        |         members was as follows:
                                                         |
------------------------------------------------------   | ----------------------------------------------------
                            Number    Number    Number   |            Number of      Number    Number    Number
 Class or    Number of    of votes  of votes  of votes   | Class(es)    members    of votes  of votes  of votes
series of       shares    entitled      cast      cast   |  entitled   entitled    entitled      cast      cast
   shares  outstanding  to be cast       FOR   AGAINST   |   to vote    to vote  to be cast       FOR   AGAINST
---------  -----------  ----------  --------  --------   | ---------  ---------  ----------  --------  --------
                                                         |
                                                         |
------------------------------------------------------   | ----------------------------------------------------
                                                         |
[ ]  The corporation has not issued any shares of stocks.|
     Shareholder action was not required to adopt the    |
     restated articles. The restated articles were       |
     adopted by the incorporators or by the board of     |
     directors.                                          |
                                                         |
=================================================================================================================

6)   EXECUTION

     Printed Name                           Signature                              Title

     David C. Moffenbeier                   DAVID C. MOFFENBEIER                   COO & Secretary
     ----------------------------------     ----------------------------------     ------------------------------

=================================================================================================================

7)   CONTACT NAME                                            DAYTIME PHONE NUMBER

     Bethany K. Luke                                         (503) 294-9455
     ---------------------------------------------------     ----------------------------------------------------
</TABLE>
<PAGE>
                     1999 RESTATED ARTICLES OF INCORPORATION
                                       OF
                                MEDICALOGIC, INC.

          Pursuant to ORS 60.451, MedicaLogic, Inc. adopts the following 1999
Restated Articles of Incorporation, which shall supersede its heretofore
existing Restated Articles of Incorporation and all amendments thereto.

                                    ARTICLE I

                The name of the Corporation is MedicaLogic, Inc.

                                   ARTICLE II

     A. Authorized Capital. The Corporation is authorized to issue shares of two
classes of stock: 100,000,000 shares of Common Stock and 50,000,000 shares of
Preferred Stock.

     B. Common Stock. Holders of Common Stock are entitled to one vote per
share. On dissolution of the Corporation, after any preferential amount with
respect to the Preferred Stock has been paid or set aside, the holders of Common
Stock and the holders of any series of Preferred Stock entitled to participate
in the distribution of assets are entitled to receive the net assets of the
Corporation.

     C. Preferred Stock. The Board of Directors is authorized, subject to
limitations prescribed by the Oregon Business Corporation Act, as amended from
time to time (the "Act"), and by the provisions of this Article, to provide for
the issuance of shares of Preferred Stock in series, to establish from time to
time the number of shares to be included in each series and to determine the
designations, relative rights, preferences and limitations of the shares of each
series. The authority of the Board of Directors with respect to each series
includes determination of the following:

          1. The number of shares in and the distinguishing designation of that
series;

          2. Whether shares of that series shall have full, special,
conditional, limited or no voting rights, except to the extent otherwise
provided by the Act;

          3. Whether shares of that series shall be convertible and the terms
and conditions of the conversion, including provision for adjustment of the
conversion rate in circumstances determined by the Board of Directors;

          4. Whether shares of that series shall be redeemable and the terms and
conditions of redemption, including the date or dates upon or after which they
shall be redeemable and the amount per share payable in case of redemption,
which amount may vary under different conditions or at different redemption
dates;

<PAGE>
          5. The dividend rate, if any, on shares of that series, the manner of
calculating any dividends and the preferences of any dividends;

          6. The rights of shares of that series in the event of voluntary or
involuntary dissolution of the Corporation and the rights of priority of that
series relative to the Common Stock and any other series of Preferred Stock on
the distribution of assets on dissolution; and

          7. Any other rights, preferences and limitations of that series that
are permitted by law to vary.

                                   ARTICLE III

          No director of the Corporation shall be personally liable to the
Corporation or its shareholders for monetary damages for conduct as a director,
provided that this Article shall not eliminate the liability of a director for
any act or omission for which such elimination of liability is not permitted
under the Oregon Business Corporation Act. No amendment to the Oregon Business
Corporation Act that further limits the acts or omissions for which elimination
of liability is permitted shall affect the liability of a director for any act
or omission which occurs prior to the effective date of the amendment.

                                   ARTICLE IV

          The Corporation shall indemnify to the fullest extent not prohibited
by law any current or former director of the Corporation who is made, or
threatened to be made, a party to an action, suit or proceeding, whether civil,
criminal, administrative, investigative or other (including an action, suit or
proceeding by or in the right of the Corporation), by reason of the fact that
such person is or was a director, officer, employee or agent of the Corporation
or a fiduciary within the meaning of the Employee Retirement Income Security Act
of 1974 with respect to any employee benefit plan of the Corporation, or serves
or served at the request of the Corporation as a director, officer, employee or
agent, or as a fiduciary of an employee benefit plan, of another corporation,
partnership, joint venture, trust or other enterprise. The Corporation shall pay
for or reimburse the reasonable expenses incurred by any such current or former
director in any such proceeding in advance of the final disposition of the
proceeding if the person sets forth in writing (i) the person's good faith
belief that the person is entitled to indemnification under this Article and
(ii) the person's agreement to repay all advances if it is ultimately determined
that the person is not entitled to indemnification under this Article. No
amendment to this Article that limits the Corporation's obligation to indemnify
any person shall have any effect on such obligation for any act or omission that
occurs prior to the later of the effective date of the amendment or the date
notice of the amendment is given to the person. This Article shall not be deemed
exclusive of any other provisions for indemnification or advancement of expenses
of directors, officers, employees, agents and fiduciaries that may be included
in any statute, bylaw, agreement, general or specific action of the Board of
Directors, vote of shareholders or other document or arrangement.

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<PAGE>
                                    ARTICLE V

     A. Notwithstanding any other provisions of these 1999 Restated Articles of
Incorporation or the Bylaws of the Corporation (and notwithstanding the fact
that some lesser percentage may be specified by law, these 1999 Restated
Articles of Incorporation or the Bylaws of the Corporation), any director or the
entire Board of Directors of the Corporation may be removed at any time, but
only for cause or by the affirmative vote of the holders of 75% or more of the
voting power of the outstanding shares of capital stock of the Corporation
entitled to vote generally in the election of directors (considered for this
purpose as one class) cast at a meeting of the shareholders called for that
purpose.

     B. Notwithstanding any other provisions of these 1999 Restated Articles of
Incorporation or the Bylaws of the Corporation (and notwithstanding the fact
that some lesser percentage may be specified by law, these 1999 Restated
Articles of Incorporation or the Bylaws of the Corporation), the provisions set
forth in this Article V may not be amended, altered, changed or repealed in any
respect, nor may any provision be adopted which is inconsistent with this
Article V, unless such action is approved by the affirmative vote of the holders
of not less than 75% of the voting power of the outstanding shares of capital
stock of the Corporation entitled to vote generally in the election of directors
(considered for this purpose as one class) cast at a meeting of the shareholders
called for that purpose.

     C. Notwithstanding any other provisions of these 1999 Restated Articles of
Incorporation or the Bylaws of the Corporation (and notwithstanding the fact
that some lesser percentage may be specified by law, these 1999 Restated
Articles of Incorporation or the Bylaws of the Corporation), the provisions set
forth in Sections 1.5 or 2.1 of the Bylaws of the Corporation may not be
amended, altered, changed or repealed in any respect, nor may any provision be
adopted which is inconsistent with Sections 1.5 or 2.1 of the Bylaws, unless
such action is approved by the Board of Directors or by the affirmative vote of
the holders of not less than 75% of the voting power of the outstanding shares
of capital stock of the Corporation entitled to vote generally at an annual or
special meeting of shareholders (considered for this purpose as one class) cast
at a meeting of the shareholders called for that purpose.

                                       MEDICALOGIC, INC.

                                       By: DAVID C. MOFFENBEIER
                                           -------------------------------------
                                           David C. Moffenbeier,
                                           Chief Operating Officer and Secretary

                                       3

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