Document:

<PAGE>   1
Exhibit 10.3
                                 PROMISSORY NOTE

$7,811,054                                                Boston, Massachusetts
                                                              December 30, 1999

         FOR VALUE RECEIVED, IPC ADVISORS S.A.R.L., a Luxembourg corporation
(hereinafter referred to as "IPC"), having for the purposes of this Note, an
address at 38-40 Rue Sainte Zithe, Luxembourg L-2763 and BALANCED CARE
CORPORATION, a Delaware corporation (hereinafter referred to as "BCC"), having
an address at 1215 Manor Drive, Mechanicsburg, Pennsylvania 17055 (hereinafter
collectively referred to as the "Maker") promises to pay to the order of New
Meditrust Company LLC, a Delaware limited liability company (hereinafter
referred to as the "Lender") (the Lender and each successor, owner, endorsee,
bearer and holder of this Note being hereinafter referred to as the "Holder") at
its principal place of business located at 197 First Avenue, Needham Heights,
Massachusetts 02494, or at such other place as the Holder of this Note may from
time to time designate in writing, in lawful money of the United States of
America, in immediately available Federal funds or the equivalent the principal
sum of SEVEN MILLION EIGHT HUNDRED ELEVEN THOUSAND FIFTY-FOUR DOLLARS
($7,811,054) (hereinafter referred to as the "Loan Amount"), with interest on so
much thereof as shall from time to time be outstanding at the rate of interest
specifically provided herein. To the extent applicable, interest hereunder shall
be calculated on the basis of a 360-day year, but charged for the actual days
elapsed during each calendar year (or portion thereof) that the indebtedness
evidenced by this Note remains outstanding.

         1. Terms of Payment. The Maker shall make the following payments to the
Holder:

                  (i) in the event that the Maker has exercised its "Option
Right" as such term is defined in that certain Option Agreement, of even date,
by and between the Maker and the Lender (the "Option Agreement") relating to any
"Facility" and the applicable portion of the "Leased Property" relating thereto
(as such terms are defined under the Option Agreement), as a condition of the
consummation of the applicable "Closing" (as defined under the Option
Agreement), the Maker shall pay to the Holder, on the applicable "Closing Date"
(as defined under the Option Agreement), an amount hereinafter referred to as
the
<PAGE>   2
"Required Prepayment" set forth for such Facility on EXHIBIT A attached hereto
and incorporated herein by reference; and

         (ii) on November 30, 2000 (hereinafter referred to as the "Maturity
Date"), the Maker shall pay to the Holder the entire principal balance then
remaining unpaid, together with accrued and unpaid interest thereon and any
costs, charges and other amounts due under this Note.

All payments hereunder received by the Holder shall be applied by the Holder,
without any marshalling of assets, towards payment of the Maker's obligations
hereunder in such order as the Holder shall determine in its sole discretion

         Notwithstanding the foregoing, in the event that, as a consequence of
any Seller Default (as defined under the Option Agreement), (i) the Maker does
not elect to exercise its Option Right relating to any Facility or (ii) any
Closing relating to any Facility is not consummated (notwithstanding the
exercise by the Maker of its Option Right relating thereto), the principal
amount of the indebtedness hereunder shall be reduced by the amount of the
Required Prepayment relating to such Facility set forth on EXHIBIT A.

         2. Interest Rate. Except as otherwise expressly provided in Paragraph 4
or Paragraph 5 hereof, no interest shall accrue on the outstanding principal
balance hereunder.

         3. Prepayment. The indebtedness evidenced by this Note may be prepaid,
in whole or in part, at any time without prepayment penalty, fee or premium.

         4. Acceleration of Maturity. Any one or more of the following events
shall be defined as an "Event of Default":

         (i) the failure to pay any Required Prepayment or any other sum due
under this Note on the date when such payment was due;

         (ii) the occurrence of any "Buyer Default" (as defined under the Option
Agreement);

         (iii) if either IPC or BCC shall (a) voluntarily be adjudicated a
bankrupt or insolvent, (b) seek or consent to the appointment of a receiver or
trustee for itself or for any of its properties, (c) file a petition seeking
relief under the bankruptcy or other similar laws of the United States or any
<PAGE>   3
other country, any state or any other jurisdiction, (d) make a general
assignment for the benefit of creditors, (v) make or offer a composition of its
debts with its creditors or (e) be unable to pay its debts as such debts mature;

                  (iv) if any court shall enter an order, judgment or decree
appointing, without the consent of either IPC or BCC, a receiver or trustee for
such entity or for any of their respective properties, and such order, judgment
or decree shall remain in force, undischarged or unstayed, ninety (90) days
after it is entered;

                  (v) if any petition is filed against IPC or BCC which seeks
relief under the bankruptcy or other similar laws of the United States, any
other country, any state or any other jurisdiction and such petition is not
dismissed within ninety (90) days after it is filed; and

                  (vi) the liquidation, dissolution or termination of existence
of IPC or BCC.

         Upon the occurrence of an Event of Default, at the option of the
Holder, which may be exercised at any time after an Event of Default shall have
occurred, the entire outstanding principal balance, together with all interest,
costs, charges and other amounts due under this Note, shall immediately become
due and payable and upon such acceleration, all amounts due hereunder shall bear
interest at the rate of interest per annum equal to the greater of (a) eighteen
percent (18%) per annum or (b) a variable rate of interest per annum equal to
one hundred twenty percent (120%) of the "Prime Rate" (as hereinafter defined);
but in no event in excess of the maximum rate of interest permitted by
applicable law to be charged by the Holder (hereinafter referred to as the
"Advances Rate"). As used herein, Prime Rate shall mean the variable rate of
interest per annum from time to time announced by Fleet Bank of Connecticut,
N.A. ("Fleet"), as its prime rate of interest and in the event that Fleet no
longer announces a prime rate of interest, then the Prime Rate shall be deemed
to be the variable rate of interest per annum which is the prime rate of
interest or base rate of interest from time to time announced by any other major
bank or other financial institution reasonably selected by the Holder.

         Any and all deposits or other sums at any time or times credited by or
due from the Holder to, and all securities or other property in the possession
of the Holder for safekeeping or otherwise and belonging to, the Maker or any
endorser, surety or
<PAGE>   4
guarantor of this Note or the obligations represented hereby are and shall be
subject to a security interest in favor of the Holder to secure payment of this
Note. Upon the occurrence of any Event of Default and at any time or times
thereafter, without any demand or notice, except to such extent as notice may be
required by applicable law, the Holder may sell or dispose of any or all of such
securities or other property and may exercise any and all of the rights accorded
the Holder by the Massachusetts Uniform Commercial Code or other applicable
state's Uniform Commercial Code. The Holder at any time and from time to time
may apply or set off such deposits or other sums against the liability of the
Maker or any such endorser, surety or guarantor whether or not such liability is
then due. The provisions of this Paragraph 4 are cumulative and are not
exclusive of any other rights that the Holder has with respect to such deposits,
sums, securities or other property under other agreements or applicable
principles of law. The Holder shall have no duty to take steps to preserve
rights against prior parties as to such securities or other property.

         5. Late Charges; Interest Following Certain Events. In the event of any
delinquency in the payment of any Required Prepayment or in the payment of any
other monetary obligation under this Note (hereinafter referred to as a "Late
Payment"), the Maker shall pay the Holder a late payment charge of Two Hundred
Fifty Dollars ($250) (referred to herein as a "Late Payment Charge") for the
month during which such delinquency occurs and for each month (or portion of the
month) thereafter that the Late Payment remains unpaid, for the purpose of
defraying the expenses incurred by the Holder in handling and processing such
Late Payments. In addition to any Late Payment Charges which may become due
hereunder, the Maker shall pay interest on any Late Payment, calculated at the
Advances Rate, from the date upon which the Late Payment was originally due
until the date that the Holder actually receives such Late Payment. It is
understood that nothing contained in this Paragraph 5 shall be deemed to relieve
the Maker of its obligations to make any and all payments due and payable to the
Holder pursuant to the provisions of this Note upon the dates set forth herein,
it being acknowledged that time is of the essence.

         6. Collection and Enforcement Costs. Upon demand, the Maker shall
reimburse the Holder for all costs and expenses, including, without limitation,
attorneys' fees and expenses and court costs, paid or incurred by the Holder in
connection with the collection of any sum due hereunder, or in connection with
the enforcement of any of the Holder's rights or the Maker's
<PAGE>   5
obligations under this Note. Any amount due and payable to the Holder pursuant
to the provisions of this Paragraph 6 shall bear interest at the Advances Rate.

         7. Continuing Liability. The obligation of the Maker to pay the
outstanding principal balance, interest and all other costs, charges and sums
due hereunder shall continue in full force and effect and in no way shall be
impaired, until the actual payment thereof to the Holder.

         8. Joint and Several Liability. If more than one Person shall execute
this Note, then each such Person shall be fully liable for all obligations of
the Maker hereunder, and all such obligations shall be joint and several.

         9. Amendments, Waivers and Modifications. None of the terms, covenants,
conditions, warranties or representations contained in this Note may be renewed,
replaced, amended, modified, extended, substituted, revised, waived,
consolidated or terminated, except by an agreement, in writing, signed by the
Person against whom enforcement is sought. The provisions of this Note shall
extend and be applicable to all renewals, replacements, amendments, extensions,
substitutions, revisions, consolidations and modifications of the Option
Agreement; and all references herein to the Option Agreement shall be deemed to
include any such renewals, amendments, extensions, consolidations, or
modifications thereof.

         10. Waivers. The Maker and each endorser, surety and guarantor hereof,
jointly and severally, waive presentment for payment, demand, notice of
nonpayment, notice of dishonor, protest of any dishonor, suretyship defenses,
notice of protest and protest of this Note, and all other notices in connection
with the delivery, acceptance, performance, default (except notice of default as
specifically elsewhere herein required), or enforcement of the payment of this
Note, and agree that the liability of each of them shall be unconditional
without regard to the liability of any other party and shall not be in any
manner affected by any indulgence, extension of time, renewal, waiver or
modification granted or consented to by the Holder; and the Maker and all
endorsers, sureties and guarantors hereof consent to any and all extensions of
time, renewals, waivers or modifications that may be granted or consented to by
the Holder with respect to the payment or performance of any obligations under
this Note, and agree that additional makers, endorsers, guarantors or sureties
may become parties hereto without notice to them or affecting their liability
hereunder.
<PAGE>   6
         11. Contribution. No Person obligated on account of this Note may seek
contribution from any other Person also obligated unless and until all
liabilities, obligations and indebtedness to the Holder of the Person from whom
contribution is sought have been satisfied in full.

         12. Indemnification. With the exception of any claim arising out of an
action brought by IPC and/or BCC against the Holder in which a final decision is
issued by a court in favor of IPC and/or BCC and all appeal periods having
lapsed or been exhausted, the Maker, and each endorser, surety and guarantor of
this Note, shall indemnify, defend (with counsel acceptable to the Holder), and
hold the Holder harmless against any claim brought or threatened against the
Holder by the Maker, by any endorser, surety or guarantor, or by any other
Person on account of the Holder's relationship with the Maker or any endorser,
surety or guarantor hereof (each of which may be defended, compromised, settled
or pursued by the Holder with counsel of the Holder's selection, but at the
expense of the Maker and any endorser, surety and guarantor). The aforesaid
indemnification agreement shall include, without limitation, attorneys' fees and
expenses and court costs incurred by the Holder in connection with any such
claims and with the enforcement of said indemnification.

         13. Successors and Assigns. This Note shall be binding on and inure to
the benefit of (i) the Maker and the Maker's permitted successors and assigns
and (ii) inure to the benefit of the Holder and its successors and assigns.
Notwithstanding the foregoing, neither IPC nor BCC shall assign or otherwise
transfer this Note or any of its rights or obligations hereunder without the
express written consent of the Holder, in each instance, which consent may be
withheld in the Holder's sole and absolute discretion.

         14. Applicable Law. This Note is being negotiated and delivered in
Boston, Massachusetts, and shall be governed by and construed in accordance with
the laws of the Commonwealth of Massachusetts

         15. Invalidity. If any provision of this Note or the application
thereof to any Person or circumstance shall, for any reason and to any extent,
be invalid or unenforceable, neither the remainder of this Note, nor the
application of such provision to any other Person or circumstance shall be
affected thereby, but rather the same shall be enforced to the maximum extent
<PAGE>   7
permitted by law. Notwithstanding the foregoing, it is the intention of the
Maker and the Holder that if any provision of this Note is capable of two (2)
constructions, one of which would render the provision void and the other of
which would render the provision valid, then such provision shall be construed
in accordance with the construction which renders such provision valid.

         16. Usury. In the event that fulfillment of any provision of this Note,
at the time performance of such provision shall be due and as a result of any
circumstance, shall involve transcending the limit of validity presently or
hereinafter prescribed by any applicable usury statute or any other law, with
regard to obligations of like character and amount, then ipso facto the
obligation to be fulfilled shall be reduced to the limit of such validity, so
that in no event shall any exaction be possible under this Note that is in
excess of the limit of such validity. In no event shall the Maker be bound to
pay for the use, forbearance or detention of the money loaned pursuant hereto,
interest of more than the maximum rate, if any, permitted by law to be charged
by the Holder; the right to demand any such excess being hereby expressly waived
by the Holder.

         17. Notice. Any notice, request, demand, statement or consent made
hereunder shall be in writing (each, a "Notice"). Any Notice shall be (i)
personally delivered, (ii) sent by certified mail, return receipt requested or
(iii) sent by a nationally recognized commercial overnight delivery service with
provision for a receipt, postage or delivery charges prepaid, and, in each
instance, simultaneously by facsimile transmission. Any Notice shall be deemed
given when hand delivered, when 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:

<TABLE>
<S>                                    <C>
If to Maker:                           IPC Advisors S.a.r.l.
                                       38-40 Rue Saint Zithe
                                       Luxembourg L-2763
                                       Fax: 011 352 407 804
                                       Attn: J. B. Unsworth

                                       and

                                       Balanced Care Corporation
                                       1215 Manor Drive
                                       Mechanicsburg, Pennsylvania 17055
</TABLE>
<PAGE>   8
<TABLE>
<S>                                    <C>
                                       Fax: (717) 796-6150
                                       Attn: President

With copies to:                        IPC Advisors S.a.r.l.
                                       c/o Unsworth & Associates
                                       Herengracht 483
                                       1017 BT
                                       Amsterdam
                                       Fax: 011 3120 623 2285
                                       Attn: J. B. Unsworth

                                                    and
                                       Goodman Phillips and Vineburg
                                       250 Yonge Street, Suite 2400
                                       Toronto, Ontario
                                       Canada M5B2M6
                                       Fax: (416) 979-1234
                                       Attn: Stephen Pincus, Esq.

                                                    and

                                       Balanced Care Corporation
                                       1215 Manor Drive
                                       Mechanicsburg, Pennsylvania 17055
                                       Fax: (717) 796-6294
                                       Attn: Robin L. Barber, Esq.

                                                     and

                                       Kirkpatrick & Lockhart LLP
                                       Henry W. Oliver Building
                                       535 Smithfield Street
                                       Pittsburgh, PA 15222-2312
                                       Fax: (412) 355-6501
                                       Attn: Steven J. Adelkoff, Esq.

If to Holder:                          New Meditrust Company LLC
                                       197 First Avenue
                                       Needham, Massachusetts  02494
                                       Fax: (781) 433-1290
                                       Attention:  President

With copies to:                        New Meditrust Company LLC
                                       197 First Avenue
                                       Needham, MA  02494
                                       Fax: (781) 449-1530
                                       Attention: General Counsel
</TABLE>
<PAGE>   9
<TABLE>
<S>                                    <C>
                                                      and

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

or at such other place as either the Holder or the Maker may from time to time
hereafter designate to the other in writing. Any notice given to the Maker by
the Holder at any time shall not imply that such notice or any further or
similar notice was or is required.

         19. Captions and Headings. The captions and headings set forth in this
Note are included for convenience and reference only and the words contained
therein shall in no way be held or deemed to define, limit, describe, explain,
modify, amplify or add to the interpretation, construction or meaning of any
provisions of, or the scope or intent of, this Note or any portion hereof.

         20. Rule of Construction. References in this Note to "herein," "hereof"
and "hereunder" shall be deemed to refer to this Note and shall not be limited
to the particular text or Paragraph in which such words appear. The use of any
gender shall include all genders and the singular number shall include the
plural and vice versa as the context may require. References in this Note to the
Holder's attorneys shall be deemed to include, without limitation, special
counsel and local counsel.

         As used herein, the term "including", when following any general
statement, will not be construed to limit such statement to the specific items
or matters as provided immediately following the term "including" (whether or
not non-limiting language such as "without limitation" or "but not limited to"
or words of similar import are also used), but rather will be deemed to refer to
all items or matters that could reasonably fall within the broader scope of the
general statement.

                            [SIGNATURES ON NEXT PAGE]
<PAGE>   10
         IN WITNESS WHEREOF, the Maker has duly executed this Note as a sealed
instrument as of the day and year first above written.

WITNESS:                                  MAKER:

                                          IPC ADVISORS S.A.R.L., a Luxembourg
                                          corporation

/s/J. Theot                               By:/s/J.B. Unsworth
Name: J. Theot                                  Name: J.B. Unsworth
                                                Title: Manager

                                          BALANCED CARE CORPORATION, a
                                          Delaware corporation

/s/Jaynelle D. Covert                     By:/s/Robin L. Barber
Name: Jaynelle D. Covert                        Name: Robin L. Barber
                                                Title:  Senior Vice President
                                                        and Legal Counsel &
                                                        Assistant Secretary
<PAGE>   11
                                    EXHIBIT A

<TABLE>
<CAPTION>
Facility                                                         Required Prepayment
<S>                                                              <C>
Blytheville                                                               $550,045

Lewisburg                                                                 $385,102

Lima                                                                      $522,353

Potomac Point                                                             $421,994

Dillsburg                                                                 $577,025

Xenia                                                                   $1,008,250

Chippewa                                                                  $600,463

Kingsport                                                                 $545,941

Chesterfield                                                              $838,331

Hendersonville                                                            $611,751

Knoxville                                                               $1,199,754

Pocahontas                                                                $550,045
</TABLE><PAGE>   1
Exhibit 10.4                                                     Loan No. 99-407

                                 LOAN AGREEMENT

                                      AMONG

                        HELLER HEALTHCARE FINANCE, INC.,
                             A DELAWARE CORPORATION

                                   ("LENDER")
                                       AND

      BALANCED CARE REALTY AT STATE COLLEGE, INC., a Delaware corporation,
         BALANCED CARE REALTY AT ALTOONA, INC., a Delaware corporation,
        BALANCED CARE REALTY AT LEWISTOWN, INC., a Delaware corporation,
         BALANCED CARE REALTY AT READING, INC., a Delaware corporation,
         BALANCED CARE REALTY AT BERWICK, INC., a Delaware corporation,
        BALANCED CARE REALTY AT PECKVILLE, INC., a Delaware corporation,
         BALANCED CARE REALTY AT SCRANTON, INC., a Delaware corporation,
       BALANCED CARE REALTY AT MARTINSBURG, INC., a Delaware corporation,
         BALANCED CARE REALTY AT MAUMELLE, INC., a Delaware corporation,
         BALANCED CARE REALTY AT SHERWOOD, INC., a Delaware corporation,
      BALANCED CARE REALTY AT MOUNTAIN HOME, INC., a Delaware corporation,
                                       and
         BALANCED CARE REALTY AT MANSFIELD, INC., a Delaware corporation
                           (collectively, "BORROWER")

                                $32,000,000 LOAN

                              TWELVE OUTLOOK POINTE
                           ASSISTED LIVING FACILITIES
<PAGE>   2
                                TABLE OF CONTENTS

<TABLE>
<S>                                                                                                              <C>
RECITALS..........................................................................................................1
ARTICLE I The Loan................................................................................................3
ARTICLE II Security...............................................................................................5
ARTICLE III Conditions Precedent..................................................................................6
ARTICLE IV Representations and Warranties........................................................................10
ARTICLE V Affirmative Covenants..................................................................................14
ARTICLE VI Negative Covenants....................................................................................18
ARTICLE VII Events of Default; Acceleration of Indebtedness; Remedies ...........................................19
ARTICLE VIII Miscellaneous.......................................................................................21
</TABLE>

                                                                 Loan No. 99-407

                                 LOAN AGREEMENT

This LOAN AGREEMENT (this "Agreement") is made this 30th day of December, 1999
among HELLER HEALTHCARE FINANCE, INC., a Delaware corporation ("Lender") and
BALANCED CARE REALTY AT STATE COLLEGE, INC., a Delaware corporation, BALANCED
CARE REALTY AT ALTOONA, INC., a Delaware corporation, BALANCED CARE REALTY AT
LEWISTOWN, INC., a Delaware corporation, BALANCED CARE REALTY AT READING, INC.,
a Delaware corporation, BALANCED CARE REALTY AT BERWICK, INC., a Delaware
corporation, BALANCED CARE REALTY AT PECKVILLE, INC., a Delaware corporation,
BALANCED CARE REALTY AT SCRANTON, INC., a Delaware corporation, BALANCED CARE
REALTY AT MARTINSBURG, INC., a Delaware corporation, BALANCED CARE REALTY AT
MAUMELLE, INC., a Delaware corporation, BALANCED CARE REALTY AT SHERWOOD, INC.,
a Delaware corporation, BALANCED CARE REALTY AT MOUNTAIN HOME, INC., a Delaware
corporation and BALANCED CARE REALTY AT MANSFIELD, INC., a Delaware corporation
(collectively "Borrower").

                                    RECITALS

         A. Lender has agreed to make a loan (the "Loan") of Thirty-Two Million
and No/100 Dollars ($32,000,000.00) to
<PAGE>   3
Borrower subject to the terms and conditions contained herein. The Loan is
evidenced by that certain Promissory Note A of even date herewith in the
original principal amount of Twenty-Five Million Six Hundred Thousand and No/100
Dollars ($25,600,000.00) ("Note A") and by that certain Subordinated Promissory
Note B of even date herewith in the original principal amount of Six Million
Four Hundred Thousand and No/100 Dollars ($6,400,000.00) ("Note B") (Note A and
Note B and all amendments thereto and substitutions therefor are hereinafter
referred to collectively as the "Note"). The terms and provisions of Note A and
Note B are hereby incorporated herein by reference in this Agreement.

         B. On the Closing Date, each Borrower will be the owner of the real
property more particularly described on Exhibit A hereto (collectively called
the "Properties" and individually called a "Property"), and the assisted living
facility and other improvements located thereon (collectively called the
"Improvements"). The Properties and the Improvements are sometimes collectively
called the "Project".

         C. Each Borrower will use the proceeds of the Loan for the purpose of
acquiring its respective Property and Improvements.

         D. Borrower's obligations under the Loan will be secured by, among
other things, (a) a first priority mortgage or deed of trust, each of even date
herewith (individually, a "Mortgage", and collectively, the "Mortgages")
encumbering each Property and the Improvements thereon, and (b) an Assignment of
Leases and Rents of even date herewith (an "Assignment of Leases") encumbering
each Property and the Improvements thereon. This Agreement, the Note, the
Mortgages, all of the Assignments of Leases, the Environmental Indemnity, the
Guaranty, and any other documents evidencing or securing the Loan or executed in
connection therewith, and any modifications, renewals and extensions thereof,
are referred to herein collectively as the "Loan Documents."

         E. An index of defined terms appears on the attached Schedule II.

     NOW, THEREFORE, in consideration of the foregoing and the mutual conditions
and agreements contained herein, the parties agree as follows:

                                      -2-
<PAGE>   4
                                   ARTICLE I
                                    The Loan

         1.1. Funding. On the Closing Date, Lender shall disburse to Borrower
the proceeds of the Loan in the sum of Thirty-Two Million and No/100 Dollars
($32,000,000.00). The maximum amount to be disbursed to each Borrower is that
Borrower's Loan Allocation Amount as set forth on Exhibit A hereto. "Closing
Date" means the date of disbursement of the proceeds of the Loan.

         1.2. Loan Term. The Loan shall mature on December 31, 2001 (the
"Maturity Date") or any earlier date on which the Loan shall be required to be
paid in full, whether by acceleration or otherwise.

         1.3. Interest Rate. Borrower shall pay interest on the outstanding
principal balance of the Loan at a floating rate per annum equal to the Base
Rate plus three and seventy-five percent (3.75%) (the aggregate rate referred to
as the "Interest Rate"). "Base Rate" shall mean the rate published each day in
The Wall Street Journal for notes maturing three (3) months after issuance under
the caption "Money Rates, London Interbank Offered Rates (LIBOR)". The Interest
Rate for each calendar month shall be fixed based upon the Base Rate published
prior to and in effect on the first (1st) business day of such month; provided,
however, the Interest Rate from and including the Closing Date through December
31, 1999 shall be fixed based upon the Base Rate in effect on December 30, 1999.
Interest shall be calculated based on a 360 day year and charged for the actual
number of days elapsed.

         1.4. Payments. Borrower shall make interest payments monthly in arrears
on the first (1st) day of each month commencing February 1, 2000 computed on the
outstanding principal balance of the Loan at the Interest Rate; provided,
however, interest for the period from and after the Closing Date through
December 31, 1999 shall be paid in advance on the Closing Date at the rate
described in Note A and Note B, respectively.

         1.5. Sources and Uses. The sources and uses of funds for the
contemplated transaction are as follows:

SOURCES

<TABLE>
<S>                                <C>
BORROWER'S EQUITY:                 $13,200,000
LOAN:                              $32,000,000

TOTAL:                             $45,200,000
</TABLE>

USES

<TABLE>
<S>                                <C>
PURCHASE PRICE:                    $44,200,000
LEGAL AND CLOSING COSTS:              $360,000
COMMITMENT FEE:                    $   640,000
TOTAL:                             $45,200,000
</TABLE>

                                      -3-
<PAGE>   5
Borrower shall deliver such information and documentation as Lender shall
request to verify that the sources and uses are as indicated above. A reduction
in the amounts necessary for any of the uses shall result in an equal reduction
in the amount of the Loan.

         1.6. Excess Cash Flow.

                  1.6.1. Payments. On or before November 30, 2000 and on or
before the thirtieth (30th) day after the end of each calendar month thereafter
and continuing until the Repayment Date, Borrower shall pay Lender one hundred
percent (100%) of Excess Cash Flow attributable to the calendar month then
ended, to be applied to principal outstanding under the Loan.

                  "Excess Cash Flow" for any calendar month means Net Cash Flow
for such period less payments made on the Loan during such period.

                  "Net Cash Flow" for any calendar month means all gross revenue
("Gross Revenue") collected by Borrower from or in connection with the Project
during such calendar month (including rents, other occupancy payments, fees and
other amounts paid by residents of the Project, expense reimbursements, interest
income and forfeited security deposits); less (i) all bona fide normal,
customary and reasonable operating expenses actually paid during such calendar
month (including a management fee not to exceed six percent (6%) of effective
Gross Revenue; and (ii) deposits into reserves approved by Lender or required by
the Loan Documents and deposits escrowed with Lender; provided, however, that
amounts included in such reserves and escrows shall not also be included as an
expense upon disbursement from such reserves and escrows.

                  "Repayment Date" means the date upon which the entire
principal balance of the Loan and all interest thereon, the Exit Fee and other
sums due pursuant to the Loan Documents have been paid in full.

                  1.6.2. Cash Flow Reports. Within thirty (30) days after the
end of every calendar month during the term of the Loan, Borrower shall deliver
to Lender (a) a statement and report, on a form approved by Lender in its sole
and absolute discretion (the "Cash Flow Report"), detailing Borrower's
calculation of Net Cash Flow and Excess Cash Flow for such month, (b) if
requested by Lender, back-up documentation (including, without limitation,
invoices, receipts and other evidence of costs incurred during such quarter as
Lender shall reasonably require) evidencing the propriety of the deductions from
Gross Revenues in determining such Net Cash Flow and Excess Cash Flow

                                      -4-
<PAGE>   6
and (c) operating statements for the Project on a Property by Property basis)
certified true, complete and correct by Borrower.

         1.7. Intentionally Omitted.

         1.8. Prepayments of Loan.

         Borrower may prepay the outstanding principal balance of the Loan in
full or in part any time; provided Borrower gives Lender at least thirty (30)
days' prior written notice and pays the Exit Fee then due Lender.

         1.9. Exit Fee. As additional consideration for entering into this
Agreement and making the Loan, Borrower shall, on the date payment in full of
the Loan is made, pay to Lender an amount (the "Final Exit Fee") equal to (A)
Nine Hundred Sixty Thousand and No/100 Dollars ($960,000.00), if payment in full
is made on or after October 1, 2000, otherwise Three Hundred Twenty Thousand and
No/100 Dollars ($320,000.00), less (B) the sum of the Proportionate Exit Fees,
if any, paid to Lender under Section 2.2 below. The Proportionate Exit Fees, if
any, payable to Lender and the Final Exit Fee payable to Lender are collectively
referred to as the "Exit Fee".

                                   ARTICLE II

                                    Security

         2.1. Collateral. The Loan and all other indebtedness and obligations
under the Loan Documents shall be secured by the following (collectively, the
"Collateral"): (a) the Mortgages, (b) the Assignments of Leases, and (c) any
other collateral or security described in this Agreement or required by Lender
in connection with the Loan.

         2.2. Release of Collateral. Subject to the Borrower which owns a
Property paying Lender the applicable Release Price with respect to that
Property (as set forth in Exhibit A hereto) and the satisfaction of each of the
following conditions, Lender shall release the lien of its Mortgage and
Assignment of Leases with respect to such Property and such Property shall not
be included in the Project for any period thereafter for purposes of the Loan
Documents, and such Borrower shall be released from all obligations of all
remaining Borrowers arising from and after receipt by Lender of the Release
Price and satisfaction of such other conditions:

                  (i) the Property is sold to a third party who or which is not
an Affiliate of any Borrower or Guarantor, in an arms-

                                      -5-
<PAGE>   7
length transaction, or the Property is refinanced by another lender who is not
an Affiliate of any Borrower or Guarantor;

                  (ii) the projected Project Yield, as reasonably determined by
Lender for the Project (without taking into account the Property being sold or
refinanced) during the period following the sale or refinancing through the
Maturity Date, or if later for a period of one year following the sale or
refinancing transaction, will equal or exceed thirteen percent (13%);

                  (iii) no default by any Borrower or Guarantor is then
continuing under this Loan Agreement or any other Loan Document;

                  (iv) in addition to the Release Price, Borrower shall pay to
Lender concurrently with payment of the Release Price, an amount equal to the
applicable Proportionate Exit Fee set forth in Exhibit A hereto; and

                  (v) no default by Guarantor or any Affiliate of Guarantor or
of any Borrower is then continuing under any of the Other Finance Documents,
including without limitation, any of the Other Finance Documents listed on
Exhibit E hereto.

                  "Project Yield" means the quotient of (x) the Net Operating
Income from the Project, as reasonably estimated by Lender, divided by (y) the
then current outstanding principal balance of the Loan plus all accrued but
unpaid interest thereon.

                  The "Release Price" of each Property shall equal one hundred
twenty-five percent (125%) of the Loan Allocation amount set forth in Exhibit A
hereto for such Property

                                  ARTICLE III

                              Conditions Precedent

                  Lender's obligation to disburse the Loan is subject to
satisfaction of all of the following conditions:

         3.1. Loan Documents. Lender shall have received the following Loan
Documents, all in form and substance satisfactory to Lender:

                  (a) this Agreement;

                  (b) the Note;

                  (c) the Mortgages;

                                      -6-
<PAGE>   8
                  (d) the Assignments of Leases;

                  (e) such Uniform Commercial Code financing statements as
Lender may require;

                  (f) a Guaranty executed by Balanced Care Corporation, a
Delaware corporation ("Guarantor") in favor of Lender;

                  (g) a hazardous wastes indemnity agreement ("Environmental
Indemnity"), executed by Borrower and Guarantor;

                  (h) an assignment of management contract, subordination and
recognition agreement, including a waiver of property management and broker's
liens, executed by Borrower and the Manager, relating to the Management
Contract;

                  (i) an assignment of permits and licenses relating to the
Project;

                  (j) with respect to each Property which is subject to a master
lease (a "Master Lease" in favor of an Affiliate of Guarantor (a "Master
Lessee"), (i) a subordination agreement from the Master Lessee, (ii) an
agreement to effect the changes described in Section R-2(t) of the Senior
Housing Rider attached hereto, which agreement shall provide for the automatic
termination of such Master Lease upon effecting such changes, and (iii) a
present assignment (not merely for security) by the Master Lessee to the
Borrower which owns that Property of all leases, occupancy agreements and
licenses affecting the Property, and an agreement to assign to Borrower all such
future leases, occupancy agreements and licenses entered into by Master Lessee
concurrently therewith; and

                  (k) amendments to existing mortgages and deeds of trust
encumbering properties owned by Affiliates of Guarantor to, among other things,
provide cross-collateralization as additional security for the Indebtedness.

         3.2. Borrower's Equity. On the Closing Date, Borrower shall have
invested cash equity in the Project in an amount not less than Thirteen Million
Two Hundred Thousand and No/100 Dollars ($13,200,000.00) ("Borrower's Equity").

         3.3. Appraisal. Lender shall obtain an appraisal report for the
Project, in form and content acceptable to Lender, prepared by an independent
MAI appraiser in accordance with the Financial Institutions Reform, Recovery and
Enforcement Act ("FIRREA") and the regulations promulgated pursuant to such act.

                                      -7-
<PAGE>   9
         3.4. Title Policy and Endorsements. Lender shall have received a
commitment for title insurance in an amount and issued by a title insurance
company satisfactory to Lender. On the Closing Date, Lender shall receive a
title insurance policy ("Title Policy"), acceptable to Lender, insuring
marketability of title and insuring that the lien of each of the Mortgages is a
valid first lien on each of the Properties and the Improvements thereon, subject
only to exceptions to title approved by Lender. The Title Policy shall also
contain any reinsurance and endorsements required by Lender including without
limitation creditors' rights, zoning 3.1, survey, access, variable rate, usury,
last dollar, first loss, tying and extended coverage endorsements (Comprehensive
Form 1).

         3.5. Survey. Lender shall have received and approved a survey of each
of the Properties and the Improvements thereon, dated no more than forty-five
(45) days prior to the Closing Date, prepared by registered land surveyors in
accordance with the 1992 American Land Title Association/ American Congress on
Surveying and Mapping Standards and certified in favor of Lender and the title
insurer. The surveyors shall certify that each Property is not in a flood hazard
area as identified by the Secretary of Housing and Urban Development (or if it
does state that a Property is in a flood hazard area, Borrower shall maintain
flood insurance with respect to that Property in amounts reasonably acceptable
to Lender and otherwise in compliance with the Mortgage). The surveys shall be
sufficient for the title insurer to remove the general survey exception.

         3.6. Environmental Report. Lender shall have received a Phase I
Environmental audit of the Project. The audit shall (i) be addressed to Lender;
(ii) state that Lender may rely thereon; and (iii) be acceptable to Lender in
its sole discretion.

         3.7. Leases. All leases, licenses and other agreements with regard to
the occupancy of each of the Properties, including patient and resident care
agreements and service agreements which include an occupancy agreement
("Leases") shall be in form and substance reasonably acceptable to Lender;
provided Borrower need not seek Lender's approval for the form of any Qualified
Non-residential Lease. Borrower shall submit for Lender's approval a copy of the
form of residential Lease Borrower proposes to utilize at each of the
Properties, and all residential Leases entered into after the Closing Date shall
be on forms reasonably approved by Lender without material modification. Lender
must approve all non-residential Leases of any part of the Project; provided,
however, Lender's approval shall not be required, nor shall Lender's approval of
the form of Lease be required, for

                                      -8-
<PAGE>   10
(but Borrower shall provide Lender with a copy of) the execution, amendment,
surrender or termination of any Lease of non-residential space with an occupant
thereof entered into hereafter which provides for market rentals and otherwise
contains market terms and provisions, so long as such Lease is not entered into
with Guarantor or any of its or Borrower's Affiliates, does not have a term
(including extension options in favor of lessee) in excess of five years, and
will not (in Lender's reasonable estimation) account for Ten Thousand and No/100
Dollars ($10,000.00) or more of Gross Revenue for that Property in any one-year
period (a "Qualified Non-residential Lease"). The attached Exhibit B, which
Borrower will update through the Closing Date, describes all existing Leases. On
the Closing Date, all existing Leases shall be in full force and effect and
Borrower shall submit a revised and recertified rent roll for each of the
Properties.

         3.8. Insurance. Borrower shall have provided Lender with and Lender
shall have approved copies of certificates evidencing the insurance policies
required to be delivered pursuant to the Mortgages.

         3.9. Compliance with Laws. Borrower shall have submitted and Lender
shall have approved (a) a final certificate of occupancy (or the equivalent) for
each of the Properties and the Improvements thereon, (b) evidence satisfactory
to Lender that each of the Properties and the Improvements thereon complies in
all material respects with all applicable laws (including, without limitation,
all building, zoning, density, land use, ordinances, regulations and planning
requirements), covenants, conditions and restrictions, subdivision requirements
(including, without limitation, parcel maps), and environmental impact and other
environmental requirements.

         3.10. Commitment Fee. Borrower shall have paid Lender a commitment fee
in the amount of Six Hundred Forty Thousand and No/100 Dollars ($640,000.00)
which commitment fee shall be nonrefundable and shall be deemed fully earned
upon receipt.

         3.11. Audit Requirement. Lender shall have determined that the
annualized Net Operating Income (as defined in Schedule I attached hereto) of
the Project is at least Three Million and No/100 Dollars ($3,000,000).

         3.12. Management Contract. Lender shall have approved (in Lender's
reasonable discretion) each management contract (collectively, the "Management
Contract") between Guarantor or its Affiliates (as manager of each Property)
(collectively, the

                                      -9-
<PAGE>   11
"Manager") and each Borrower for each Property. So long as no Event of Default
is continuing, each Manager shall be an Affiliate of Guarantor.

         3.13. Additional Items. Lender shall have received such other items as
Lender may reasonably require.

                                   ARTICLE IV

                         Representations and Warranties

                  As an inducement to Lender to disburse the Loan, Borrower
hereby represents and warrants as follows, which representations and warranties
shall be true as of the date hereof and shall remain true throughout the term of
the Loan:

         4.1. Borrower Existence. Each of the Borrowers is a corporation duly
formed, validly existing and in good standing under the laws of the State of
Delaware with its principal place of business at 1215 Manor Drive,
Mechanicsburg, Pennsylvania 17055. Each Borrower is in good standing under the
laws of the State of Delaware and the State where its Property is located. Each
Borrower is authorized to transact business in the State where its Property is
located. The Loan Documents have each been duly authorized, executed and
delivered and each constitutes the duly authorized, valid and legally binding
obligation of Borrower and Guarantor, as the case may be, enforceable against
Borrower and Guarantor, as the case may be, in accordance with their respective
terms, except as enforceability is limited by bankruptcy and similar laws and
general principles of equity.

         4.2. Stockholders.

                  4.2.1. Guarantor. Guarantor is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware
with its principal place of business at 1215 Manor Drive, Mechanicsburg,
Pennsylvania 17055. Guarantor owns, directly or indirectly, all of the issued
and outstanding shares of capital stock of each Borrower free and clear of all
liens, claims, and encumbrances and rights of others. Guarantor has full right,
power and authority to execute those Loan Documents to which it is a party.
Guarantor is a publicly traded corporation.

                  4.2.2. Authority. Each of the President or Chief Executive
Officer of Guarantor acting alone, shall have authority to make all material
business decisions (including a sale or refinance) for each Borrower during the
term of the Loan.

         4.3. Intentionally Omitted.

                                      -10-
<PAGE>   12
         4.4. Corporate Documents. A true and complete copy of the articles of
incorporation and by-laws of each Borrower and Guarantor and all other documents
creating and governing each Borrower and Guarantor (collectively, the
"Incorporation Documents") have been furnished to Lender. There are no other
agreements, oral or written, among any of the shareholders of any Borrower
relating to any Borrower. The Incorporation Documents were duly executed and
delivered, are in full force and effect, and binding upon and enforceable in
accordance with their terms. The Incorporation Documents of each Borrower
constitute the entire understanding among the shareholders of each Borrower. No
breach exists under the Incorporation Documents and no act has occurred and no
condition exists which, with the giving of notice or the passage of time would
constitute a breach under the Incorporation Documents.

         4.5. Other Agreements. No Borrower is in default under any contract,
agreement or commitment to which it is a party. The execution, delivery and
compliance with the terms and provisions of this Agreement and the Loan
Documents will not (i) to the best of Borrower's knowledge, violate any
provisions of law or any applicable regulation, order or other decree of any
court or governmental entity, or (ii) conflict or be inconsistent with, or
result in any default under, any contract, agreement or commitment to which
Borrower is bound. Borrower has delivered to Lender copies of any agreements
(including leases) between any Borrower and any Affiliate of a Borrower or
Guarantor or International related in any way to the Project or any part
thereof, and any other agreements or documents materially affecting the use and
operation of the Project or any part thereof.

         4.6. Property. Fee simple title to each Property will be
contemporaneously with the funding of the Loan, owned by Borrower as listed on
Exhibit A hereto, free and clear of all liens, claims, encumbrances, covenants,
conditions and restrictions, security interests and claims of others, except
only Leases listed on Exhibit B hereto and such exceptions as are set forth in
the title insurance policies for the Properties accepted by Lender at the
closing of the Loan (the "Title Policies"). To the best of Borrower's knowledge,
each Property and the Improvements thereon are in compliance in all material
respects with all zoning requirements, building codes, subdivision improvement
agreements, and all covenants, conditions and restrictions of record. The zoning
and subdivision approval of each Property and the right and ability to, use or
operate the Improvements thereon are not in any way dependent on or related to
any real estate other than such Property, except for easements insured under the

                                      -11-
<PAGE>   13
Title Policies. To Borrower's knowledge, there are no, nor are there any alleged
or asserted, violations of law, regulations, ordinances, codes, permits,
licenses, declarations, covenants, conditions, or restrictions of record, or
other agreements relating to the Project, or any part thereof.

         4.7. Property Access. Each Property is accessible through fully
improved and dedicated roads accepted for maintenance and public use by the
public authority having jurisdiction, unless otherwise expressly indicated on
the survey of such Property delivered to (and certified in favor of) Lender in
connection with the Closing.

         4.8. Utilities. All utility services necessary and sufficient for the
use or operation of each Property and the Improvements thereon are available
including water, storm, sanitary sewer, gas, electric and telephone facilities.

         4.9. Flood Hazards/Wetlands. No Property is situated in an area
designated as having special flood hazards as defined by the Flood Disaster
Protection Act of 1973, as amended, or as a wetlands by any governmental entity
having jurisdiction over any Property, unless otherwise expressly indicated on
the survey of such Property delivered to (and certified in favor of) Lender in
connection with the Closing.

         4.10. Taxes/Assessments. There are no unpaid or outstanding real estate
or other taxes or assessments on or against any Property or Improvements or any
part thereof, except general real estate taxes not yet due or payable. Copies of
the current general real estate tax bills with respect to each Property and the
Improvements thereon have been delivered to Lender. Said bills cover the entire
Project and do not cover or apply to any other property. There is no pending or
contemplated action pursuant to which any special assessment may be levied
against any portion of the Project.

         4.11. Eminent Domain. There is no eminent domain or condemnation
proceeding pending or, to Borrower's knowledge threatened, relating to any part
of the Project.

         4.12. Litigation. Except as set forth in Exhibit C, there is no
litigation, arbitration or other proceeding or governmental investigation
pending or, to Borrower's knowledge, threatened against or relating to
Guarantor, Borrower, any stockholder of Borrower or any of their property,
assets, or business, including the Project, which if decided adversely would
affect the business, affairs, assets or financial condition of Borrower,

                                      -12-
<PAGE>   14
Guarantor, any Property or the Improvements thereon or the prospects for
repayment of the Loan.

         4.13. Accuracy. Neither this Agreement nor any document, financial
statement, credit information, certificate or statement furnished to Lender by
Borrower or Guarantor contains any untrue statement of a material fact or omits
to state a material fact which would affect Lender's decision to make the Loan.

         4.14. Foreign Ownership. Except for foreign ownership of capital stock
of Guarantor, neither Borrower nor any stockholder of Borrower is or will be,
and no legal or beneficial interest of a stockholder of Borrower (other than
Guarantor itself) is or will be held, directly or indirectly, by a "foreign
corporation", "foreign partnership", "foreign trust", "foreign estate", "foreign
person", "affiliate" of a "foreign person" or a "United States intermediary" of
a "foreign person" within the meaning of IRC Sections 897 and 1445, the Foreign
Investments in Real Property Tax Act of 1980, the International Foreign
Investment Survey Act of 1976, the Agricultural Foreign Investment Disclosure
Act of 1978, or the regulations promulgated pursuant to such Acts or any
amendments to such Acts.

         4.15. Solvency. Neither Borrower, nor any stockholder of Borrower, nor
Guarantor is insolvent and there has been no: (i) assignment made for the
benefit of the creditors of any of them; (ii) appointment of a receiver for any
of them or for the property of any of them; or (iii) bankruptcy, reorganization,
or liquidation proceeding instituted by or against any of them.

         4.16. Financial Statement/No Change. Guarantor has heretofore delivered
to Lender copies of the most current financial statements of Guarantor. Said
financial statements were prepared on a basis consistent with that of preceding
years, and all of such financial statements present fairly the financial
condition of Guarantor as of the dates in question and the results of operations
for the periods indicated. Since the dates of such statements, there has been no
material adverse change in the business or financial condition of Guarantor,
except for the Disclosed Items described on Exhibit E attached hereto. Neither
any Borrower nor Guarantor has any material contingent liabilities not provided
for or disclosed in said financial statements, except for the Disclosed Items
described on Exhibit E attached hereto. Since their creation and prior to the
closing of the acquisition of the Properties and the Loan, there has been no
adverse change in the structure, business operations, credit, prospects or
financial condition of any Borrower. There has been no material adverse change
in the financial condition, operations

                                      -13-
<PAGE>   15
or physical condition of any of the Properties or the Improvements thereon since
the date of the most recent financial information about such Property received
by Lender.

         4.17. Single Asset Entities. No Borrower: (i) holds, directly or
indirectly, any ownership interest (legal or equitable) in any real or personal
property other than the interest which it owns in its Property and the
Improvements thereon and certain equipment used in the operation of such
Improvements; (ii) is a shareholder or partner or member of any other entity;
and (iii) conducts any business other than the ownership, management and
operation of its Property and the Improvements thereon.

         4.18. No Broker. No brokerage commission or finder's fee is owing to
any broker or finder arising out of any actions or activity of Borrower in
connection with the Loan.

         4.19. Year 2000. Borrower has made an assessment of the microchip and
computer-based systems and the software used in its business and based upon such
assessment believes that it will be Year 2000 Compliant by January 1, 2000.
"Year 2000 Compliant" means that all software, embedded microchips and other
processing capabilities utilized by, and material to the business operations or
financial condition of, Borrower are able to interpret, store, transmit, receive
and manipulate data on and involving all calendar dates correctly and without
causing any abnormal ending scenarios in relation to dates in and after the Year
2000. From time to time, at the request of Lender, Borrower shall provide to
Lender such updated information as is requested regarding its efforts to become
Year 2000 Compliant.

                                   ARTICLE V

                              Affirmative Covenants

         5.1. Inspection. Subject to the rights of tenants under Leases approved
by Lender, Lender and its authorized agents may enter upon and inspect the
Project at all reasonable times upon notice given orally or in writing to
Borrower. Lender, at Borrower's reasonable expense, shall retain one or more
independent consultants to periodically (but so long as no Event of Default is
then continuing, not more often than once per calendar year for each Property)
inspect the Project and all documents, drawings, plans, and consultants' reports
relating thereto. On the first (1st) day of each month during the term of the
Loan, Borrower shall pay to Lender, in addition to all other amounts due under
the Loan Documents, the product of Two Hundred Fifty and No/100 Dollars
($250.00) multiplied by the number of

                                      -14-
<PAGE>   16
Properties which remain subject to the Loan Documents (that is, the number of
Properties, initially twelve (12), which have not been released pursuant to
Section 2.2 above), which Lender shall apply against the cost of the aforesaid
inspections.

         5.2. Books and Records/Audits. Borrower shall keep and maintain at all
times at Borrower's address stated below (or at Guarantor's address set forth in
the Guaranty), or such other place as Lender may approve in writing, complete
and accurate books of accounts and records adequate to reflect the results of
the operation of the Project on a Property by Property basis (including
computations of Net Cash Flow and Excess Cash Flow) and to provide the financial
statements required to be provided to Lender pursuant to Section 5.3 below and
copies of all written contracts, correspondence, reports of Lender's independent
consultant, if any, and other documents affecting the Project. Lender and its
designated agents shall have the right to inspect and copy any of the foregoing
during normal business hours upon advance notice to Borrower or Guarantor.
Additionally, Lender may audit and determine, in Lender's sole and absolute
discretion, the accuracy of Borrower's records and computations. The costs and
expenses of the audit shall be paid by Borrower if the audit discloses a
monetary variance in any financial information or computation (including the
computation of Net Cash Flow and Excess Cash Flow) equal to or greater than the
greater of: (i) five percent (5%); or (ii) Five Thousand and No/100 Dollars
($5,000.00) more than any computation submitted by Borrower.

         5.3. Financial Statements; Balance Sheets. Each Borrower shall furnish
to Lender and shall cause the Guarantor to furnish to Lender such financial
statements and other financial information as Lender may from time to time
request. All such financial statements shall show all material contingent
liabilities and shall accurately and fairly present the results of operations
and the financial condition of each Borrower and/or Guarantor, as applicable, at
the dates and for the period indicated. Without limitation of the foregoing,
Borrower shall furnish to Lender and shall cause Guarantor to furnish to Lender
the following statements:

                  5.3.1. Monthly and Annual Operating Statements. Statements of
the operation of the Project, on a Property by Property basis (including a
current rent roll, monthly operating statements, monthly delinquency reports and
a monthly schedule of delinquency of receipts and payments) as of the last day
of each month, to be delivered within thirty (30) days after the end of each
month and certified by Borrower as true, correct, and

                                      -15-
<PAGE>   17
complete, and yearly statements of the operation of the Project on a
Property-by-Property basis, to be delivered within ninety (90) days after the
end of each fiscal year and certified by Borrower as true, correct, and
complete.

                  5.3.2. Annual Balance Sheets and Financial Statements. Annual
balance sheets and financial statements from each Borrower and Guarantor (each
on an unaudited basis) within ninety (90) days of the end of each fiscal year
which are true and correct in all respects, have been prepared in accordance
with sound accounting practices, and fairly present the financial condition(s)
of the person(s) referred to therein as of the date(s) indicated. At Lender's
request, such financial statements shall include, specific information
concerning Guarantor's and its Affiliate's other real estate holdings, including
property income and expenses, debt service requirements and occupancy.

                  5.3.3. Audits. If Borrower fails to furnish or cause to be
furnished promptly any report required by this Section 5.3, or if Lender
reasonably deems such reports to be unacceptable, Lender may elect (in addition
to exercising any other right and remedy) to conduct an audit of all books and
records of each or every Borrower, Guarantor and/or such Affiliates of Guarantor
which in any way pertain to the Project or own, directly or indirectly, any
interest in a Borrower, and to prepare the statement or statements which
Borrower or Guarantor failed to procure and deliver. Such audit shall be made
and such statement or statements shall be prepared by an independent firm of
certified public accountants to be selected by Lender. Borrower shall pay all
reasonable expenses of such audit and other services, which expenses shall be
immediately due and payable with interest thereon at the default rate contained
in the Note.

         5.4. Use of Proceeds. Borrower shall use the proceeds of the Loan for
proper business purposes. No portion of the proceeds of the Loan shall be used
by Borrower in any manner that might cause the borrowing or the application of
such proceeds to violate Regulation G, Regulation U, Regulation T or Regulation
X or any other regulation of the Board of Governors of the Federal Reserve
System or to violate the Securities Act of 1933 or the Securities Exchange Act
of 1934.

         5.5. Notice of Litigation or Default. Borrower shall promptly provide
Lender with:

                  (a) written notice of any litigation, arbitration, or other
proceeding or governmental investigation pending or, to any

                                      -16-
<PAGE>   18
Borrower's or Guarantor's knowledge, threatened against or relating to any
Borrower, Guarantor, any of the Guarantor's Affiliates which own, directly or
indirectly, an interest in a Borrower, or any of the Properties or the
Improvements thereon.

                  (b) a copy of all notices of default and violations of laws,
regulations, codes, ordinances and the like received by any Borrower or
Guarantor relating to Borrower, the Collateral or the Project or any part
thereof; and

                  (c) a copy of all notices sent to or received from a Manager
under a Management Agreement.

         5.6. Affiliate Transactions. Prior to entering into any agreement with
an Affiliate pertaining to the Project or any part thereof, Borrower shall
deliver to Lender a copy of such agreement, which shall be satisfactory to
Lender in its sole reasonable discretion. If requested by Lender, such agreement
shall provide Lender the right to terminate it upon Lender's (or its designee's)
acquisition of the Project or any part thereof through foreclosure, a
deed-in-lieu of foreclosure, UCC sale or otherwise.

     "Affiliate" means with respect to any individual, trust, estate,
partnership, limited liability company, corporation or any other incorporated or
unincorporated organization (each a "Person"), a Person that directly or
indirectly, through one or more intermediaries, controls or is controlled by or
is under common control with any Borrower, Guarantor or International, or any
officer, director, partner or shareholder of any Borrower, Guarantor or
International, or any relative of any of the foregoing. The term "control" means
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of a Person, whether through the
ownership of voting securities, by contract or otherwise.

         5.7. Advertisement. Borrower agrees to allow Lender to advertise in the
various news or financial media that Heller has provided financing to Borrower.

         5.8. Replacement Reserve. At the time of and in addition to the monthly
installments of interest and, if applicable, principal, due under the Note,
Borrower shall pay to Lender an amount equal to the product of Twenty-Five and
No/100 Dollars ($25.00) multiplied by the number of units in the entire Project
(the "Replacement Reserve"). The Replacement Reserve may be commingled with the
general funds of Lender, and no interest shall be payable thereon nor shall
these sums be deemed to be

                                      -17-
<PAGE>   19
held in trust for the benefit of Borrower. On the Maturity Date, the monies then
remaining on deposit with Lender shall, at Lender's option, be applied against
the Indebtedness or if no Event of Default is continuing, returned to Borrower.
So long as there is no Event of Default, Borrower may request Lender to disburse
funds from the Replacement Reserve (which request will include a reasonably
detailed description of the capital expenditures at a Property Borrower intends
to pay for with such funds), which request shall not be unreasonably denied by
Lender. If requested by Lender, each disbursement request will be accompanied by
copies of invoices, lien waivers and other evidence reasonably required by
Lender.

         5.9. Repair Reserve. On the Closing Date, Borrower shall deposit with
Lender the sum of Sixty-Five Thousand and No/100 Dollars ($65,000.00) (the
"Repair Deposit"). The Repair Deposit may be commingled with the general funds
of Lender, and such sum shall not be deemed to be held in trust for Borrower. No
interest shall be due Borrower with respect to the Repair Deposit. Borrower
shall cause the repairs described on Exhibit F attached hereto to be completed
promptly (taking into account the nature of the matter) after the Closing Date.
Upon completion of such required repairs, and confirmation thereof satisfactory
to Lender, Lender shall, so long as no Event of Default is then continuing,
disburse the Repair Deposit to Borrower. If any such funds are being held by
Lender on the Maturity Date, then Lender may, at its option, apply such funds to
the Indebtedness, or so long as no Event of Default is continuing, return such
funds to Borrower. In addition to the repairs described on Exhibit F, Borrower
shall, at Borrower's expense, (i) have additional testing for radon gas
performed by EMG at the Property located in Reedsville, Pennsylvania, such
testing to be completed and copies of all test results and reports thereof to be
delivered to Lender within thirty (30) days after the date hereof, and (ii)
follow the recommendations of EMG attached hereto as Exhibit G with respect to
radon gas at such Property, as EMG may modify its recommendations after taking
into account subsequent testing.

                                   ARTICLE VI

                               Negative Covenants

6.1. No Amendments. Borrower shall not (without Lender's prior written consent,
which Lender shall not unreasonably withhold) amend, modify or terminate, or
permit the amendment, modification or termination of:

                  (a) the Articles of Incorporation or Bylaws of any Borrower;
or

                                      -18-
<PAGE>   20
                  (b) any Management Agreement.

         6.2. No Additional Indebtedness. No Borrower shall, without Lender's
prior written consent, incur additional indebtedness, except for Senior Personal
Property Interests (as defined in its Mortgage) and trade payables in the
ordinary course of business.

         6.3.     Intentionally Omitted.

         6.4. Property Manager. Borrower shall not change the Manager or amend
or terminate the Management Contract for any Property without Lender's prior
written consent, which shall not be unreasonably withheld.

         6.5. Lienable Work. No excavation, construction, earth work, site work
or any other mechanic's lienable work shall be done to or for the benefit of the
Project or any part thereof, without Lender's approval (which approval will not
be unreasonably withheld), except for normal repair and maintenance in the
ordinary course of business.

         6.6. Conversion. Borrower shall not, and shall not permit, the Project
or any portion thereof to be converted or take any preliminary actions which
could lead to a conversion to condominium or cooperative form or ownership.

         6.7. Use of Project. Unless required by applicable law, Borrower shall
not permit changes in the use of any part of the Project from the use existing
at the Closing Date. Borrower shall not initiate or acquiesce in a change in the
plat of subdivision, or zoning classification of any Property without Lender's
prior written consent.

                                   ARTICLE VII
            Events of Default; Acceleration of Indebtedness; Remedies

         7.1. Events of Default. The occurrence of any one or more of the
following events shall constitute an "Event of Default" under this Agreement:

                  (a) Failure of Borrower to pay, within ten (10) days of the
due date, any of the payment obligations of a Borrower to Lender
("Indebtedness"), including any payment due under the Note, this Agreement or
the other Loan Documents; or

                  (b) Failure of Borrower to strictly comply with the provisions
of Section 4.17 (single asset entity) or 5.1 (inspection) of this Agreement; or

                                      -19-
<PAGE>   21
                  (c) Breach of any covenant, representation or warranty other
than as set forth in subsections (a) and (b) above which is not cured within
thirty (30) days after notice; provided, however, if such breach cannot by its
nature be cured within thirty (30) days, and Borrower diligently pursues the
curing thereof (and then in all events cures such failure within ninety (90)
days after the original notice thereof), Borrower shall not be in default
hereunder; or

                  (d) A petition under any Chapter of Title 11 of the United
States Code or any similar law or regulation is filed by or against Borrower or
Guarantor (and in the case of an involuntary petition in bankruptcy, such
petition is not discharged within sixty (60) days of its filing), or a
custodian, receiver or trustee for any of the Project is appointed, or Borrower
or Guarantor makes an assignment for the benefit of creditors, or any of them
are adjudged insolvent by any state or federal court of competent jurisdiction,
or any of them admit their insolvency or inability to pay their debts as they
become due or an attachment or execution is levied against any of the Project;
or

                  (e) The occurrence of a default and the expiration of any cure
period applicable thereto under any Loan Document; or

                  (f) Borrower shall default in the payment of any indebtedness
in excess of $10,000.00 (other than the Indebtedness) and such default is
declared and is not cured within the time, if any, specified therefor in any
agreement governing the same; or

                  (g) Any statement, report or certificate made or delivered to
Lender by Borrower or any Principal is not materially true and complete at any
time; or

                  (h) The occurrence of a default under the Management Agreement
which continues beyond the expiration of any applicable cure period thereunder;
or

                  (i) The occurrence of a default which default continues
uncured beyond any applicable cure period under any other loan agreement, note,
mortgage, deed of trust, security agreement, guaranty or other instrument,
document or agreement (collectively, the "Other Finance Documents") executed and
delivered by Guarantor, a Borrower or any Affiliate of Guarantor or a Borrower,
which evidences, secures or was delivered in connection with any other loan,
line of credit or other financing provided by Lender to any such party, whether
now existing or hereafter arising, including without limitation, the
instruments, documents and agreements listed on Exhibit E attached to this
Agreement; or

                                      -20-
<PAGE>   22

                  (j) All of the issued and outstanding capital stock of any
Borrower (and any and all rights thereto or therein, including without
limitation, warrants or options) ceases to be wholly owned, directly or
indirectly, by Guarantor; or

                  (k) The occurrence of a default by a Borrower, Guarantor or
any Affiliate of a Borrower or Guarantor under any lease, agreement, instrument
or documents evidencing or securing any Senior Movable Personal Property
Interests (as defined in the Mortgages), which default continues uncured beyond
any applicable cure period.

         7.2. Acceleration; Remedies. Upon the occurrence of an Event of Default
at the option of Lender, the Indebtedness shall become immediately due and
payable without notice to Borrower and Lender shall be entitled to all of the
rights and remedies provided in the Loan Documents or at law or in equity. Each
remedy provided in the Loan Documents is distinct and cumulative to all other
rights or remedies under the Loan Documents or afforded by law or equity, and
may be exercised concurrently, independently, or successively, in any order
whatsoever.

                                  ARTICLE VIII

                                  Miscellaneous

         8.1. Expenditures and Expenses. Borrower shall promptly pay all
reasonable Costs (defined below) incurred by Lender in connection with the
post-Closing matters contemplated by the Loan Documents, documentation,
modification, workout, collection or enforcement of the Loan or any of the Loan
Documents (as applicable) and all such Costs shall be included as additional
Indebtedness bearing interest at the Default Rate set forth in the Note until
paid; provided, no interest shall accrue for thirty (30) days on any Costs not
incurred or arising as a result of a default under any Loan Document. For the
purposes hereof "Costs" means all reasonable expenditures and expenses which may
be paid or incurred by or on behalf of Lender including repair costs, payments
to remove or protect against liens, attorneys' fees (including fees of Lender's
inside counsel), receivers' fees, engineers' fees, accountants' fees,
independent consultants' fees (including environmental consultants), all costs
and expenses incurred in connection with any of the foregoing, Lender's
out-of-pocket costs and expenses related to any audit or inspection of the
Project, outlays for documentary and expert evidence, stenographers' charges,
stamp taxes, publication costs, and costs (which may be estimates as to items to
be expended after entry of an order or judgment) for procuring

                                      -21-
<PAGE>   23
all such abstracts of title, title and UCC searches, and examination, title
insurance policies, Torrens' Certificates (if applicable) and similar data and
assurances with respect to title as Lender may deem reasonably necessary either
to prosecute any action or to evidence to bidders at any foreclosure sale of the
Project or any part thereof the true condition of the title to, or the value of,
the Project or any part thereof.

         8.2. Disclosure of Information. Lender shall have the right (but shall
be under no obligation) to make available to any party for the purpose of
granting participations in or selling, transferring, assigning or conveying all
or any part of the Loan (including any governmental agency or authority and any
prospective bidder at any foreclosure sale of the Project or any part thereof)
any and all information which Lender may have with respect to the Project, any
Borrower or Guarantor or any of their Affiliates, whether provided by Borrower,
Guarantor or any third party or obtained as a result of any environmental
assessments. Borrower and Guarantor agree that Lender shall have no liability
whatsoever as a result of delivering any such information to any third party,
and each Borrower and Guarantor, on behalf of themselves and their successors
and assigns, hereby release and discharge Lender from any and all liability,
claims, damages, or causes of action, arising out of, connected with or
incidental to the delivery of any such information to any third party.

         8.3. Sale of Loan. Lender, at any time and without the consent of
Borrower or the Guarantor, may grant participations in or sell, transfer, assign
and convey all or any portion of its right, title and interest in and to the
Loan, this Agreement and the other Loan Documents, any guaranties given in
connection with the Loan and any collateral given to secure the Loan.

         8.4. Forbearance by Lender Not a Waiver. Any forbearance by Lender in
exercising any right or remedy under any of the Loan Documents, or otherwise
afforded by applicable law, shall not be a waiver of or preclude the exercise of
any right or remedy. Lender's acceptance of payment of any sum secured by any of
the Loan Documents after the due date of such payment shall not be a waiver of
Lender's right to either require prompt payment when due of all other sums so
secured or to declare a default for failure to make prompt payment. The
procurement of insurance or the payment of taxes or other liens or charges by
Lender shall not be a waiver of Lender's right to accelerate the maturity of the
Loan, nor shall Lender's receipt of any awards, proceeds, or damages under
Section 4 of any Mortgage operate to cure or waive Borrower's or Guarantor's
default in payment of sums secured by any of the Loan Documents. With respect to
all Loan Documents,

                                      -22-
<PAGE>   24
only waivers made in writing by Lender shall be effective against Lender.

         8.5. Governing Law; Severability. The Loan Documents shall be governed
by and construed in accordance with the internal laws of the State of Illinois,
except that the provisions of the laws of the State where each Property is
located shall be applicable to the creation, perfection and enforcement of the
lien created by the Mortgage on such Property. The invalidity, illegality or
unenforceability of any provision of this Agreement shall not affect or impair
the validity, legality or enforceability of the remainder of this Agreement, and
to this end, the provisions of this Agreement are declared to be severable.

         8.6. Relationship. The relationship between Lender and Borrower shall
be that of creditor-debtor only. No term in this Agreement or in the other Loan
Documents and no course of dealing between the parties shall be deemed to create
any relationship of agency, partnership or joint venture or any fiduciary duty
by Lender to any other party.

         8.7. Indemnity. Borrower shall indemnify, protect, hold harmless and
defend Lender, its successors, assigns, shareholders, directors, officers,
employees, and agents from and against any and all loss, damage, cost, expense
(including reasonable attorneys' fees), and claims arising out of or in
connection with (a) the Project, (b) the Collateral, (c) any act or omission of
any Borrower, Guarantor, Manager, or their respective employees or agents,
whether actual or alleged, and (d) any and all brokers' commissions or other
costs of similar type by any party in connection with the Loan, in each case
except to the extent arising from the indemnitee's gross negligence or willful
misconduct. Upon written request by an indemnitee, Borrower will undertake, at
its own cost and expense, on behalf of such indemnitee, using counsel reasonably
satisfactory to the indemnitee, the defense of any legal action or proceeding
whether or not such indemnitee shall be a party and for which such indemnitee is
entitled to be indemnified pursuant to this section. At Lender's option, Lender
may, at Borrower's expense, prosecute or defend any action involving the
priority, validity or enforceability of any of the Loan Documents.

         8.8. Notice. Any notice or other communication required or permitted to
be given shall be in writing addressed to the respective party as set forth
below and may be personally served, telecopied or sent by overnight courier or
U.S. Mail and shall be deemed given: (a) if served in person, when served; (b)
if telecopied, on the date of transmission if before 3:00 p.m.

                                      -23-
<PAGE>   25
(Chicago time) on a business day; provided that a hard copy of such notice is
also sent pursuant to (c) or (d) below; (c) if by overnight courier, on the
first business day after delivery to the courier; or (d) if by U.S. Mail,
certified or registered mail, return receipt requested on the fourth (4th) day
after deposit in the mail postage prepaid.

Notices to Borrower:     Balanced Care Corporation
                         1215 Manor Drive
                         Mechanicsburg, Pennsylvania 17055
                         Attn: Clint Fegan, Chief Financial Officer
                         Telecopy: (717) 796-6150

With a copy to:          Balanced Care Corporation
                         1215 Manor Drive
                         Mechanicsburg, Pennsylvania  17055
                         Attn: General Counsel
                         Telecopy: (717) 796-6294

And a copy to:           Kirkpatrick & Lockhart LLP
                         1500 Oliver Building
                         Pittsburgh, Pennsylvania 15222
                         Attn: Steven J. Adelkoff, Esq.
                         Telecopy: (412) 355-6501

Notices to Lender:       Heller Healthcare Finance, Inc.
                         Loan No. 99-407
                         2 Wisconsin Circle, Suite 400
                         Chevy Chase, Maryland  20815
                         Attn:  Ethan D. Leder, President
                         Telecopy: (301) 664-9866

With a copy to:          Heller Healthcare Finance, Inc.
                         2 Wisconsin Circle, Suite 400
                         Chevy Chase, Maryland  20815
                         Attn: General Counsel
                         Telecopy: (301) 664-9866

And a copy to:           Heller Financial, Inc.
                         Real Estate Financial Services
                         Loan No. 99-407
                         Attn: Group General Counsel
                         500 West Monroe Street, 31st Floor
                         Chicago, Illinois  60661
                         Telecopy: (312) 441-7872

         8.9. Successors and Assigns Bound; Joint and Several Liability; Agents;
and Captions. The covenants and agreements

                                      -24-
<PAGE>   26
contained in the Loan Documents shall bind, and the rights thereunder shall
inure to, the respective successors and assigns of Lender, Borrower and
Guarantor, subject to the provisions of this Agreement. All covenants and
agreements of each Borrower and Guarantor shall be joint and several. In
exercising any rights under the Loan Documents or taking any actions provided
for therein, Lender may act through its employees, agents or independent
contractors as authorized by Lender. The captions and headings of the paragraphs
and sections of this Agreement are for convenience only and are not to be used
to interpret or define the provisions hereof.

         8.10. Terms and Usage. As used in the Loan Documents "business day"
means any day, other than a Saturday or a Sunday, when banks in Chicago,
Illinois are not required or authorized to be closed.

         8.11.    Intentionally Omitted.

         8.12. Time of Essence. Time is of the essence of this Agreement and the
other Loan Documents and the performance of each of the covenants and agreements
contained herein and therein.

         8.13. Venue. BORROWER HEREBY CONSENTS TO THE JURISDICTION OF ANY STATE
OR FEDERAL COURT LOCATED WITHIN THE COUNTY OF COOK, STATE OF ILLINOIS AND
IRREVOCABLY AGREES THAT, SUBJECT TO LENDER'S ELECTION, ALL ACTIONS OR
PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE OTHER LOAN
DOCUMENTS SHALL BE LITIGATED IN SUCH COURTS. BORROWER EXPRESSLY SUBMITS AND
CONSENTS TO THE JURISDICTION OF THE AFORESAID COURTS AND WAIVES ANY DEFENSE OF
FORUM NON CONVENIENS. BORROWER HEREBY WAIVES PERSONAL SERVICE OF ANY AND ALL
PROCESS AND AGREES THAT ALL SUCH SERVICE OF PROCESS MAY BE MADE UPON BORROWER BY
CERTIFIED OR REGISTERED MAIL, RETURN RECEIPT REQUESTED, ADDRESSED TO BORROWER,
AT THE ADDRESS SET FORTH IN THIS AGREEMENT AND SERVICE SO MADE SHALL BE COMPLETE
TEN (10) DAYS AFTER THE SAME HAS BEEN POSTED.

         8.14. Jury Trial Waiver. BORROWER AND LENDER HEREBY WAIVE THEIR
RESPECTIVE RIGHTS TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, OR
RELATED TO, THE SUBJECT MATTER OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS
AND THE BUSINESS RELATIONSHIP THAT IS BEING ESTABLISHED. THIS WAIVER IS
KNOWINGLY, INTENTIONALLY AND VOLUNTARILY MADE BY BORROWER AND LENDER, AND
BORROWER ACKNOWLEDGES THAT NEITHER LENDER NOR ANY PERSON ACTING ON BEHALF OF
LENDER HAS MADE ANY REPRESENTATIONS OF FACT TO INDUCE THIS WAIVER OF TRIAL BY
JURY OR HAS TAKEN ANY ACTIONS WHICH IN ANY WAY MODIFY OR NULLIFY ITS EFFECT.
BORROWER

                                      -25-
<PAGE>   27
AND LENDER ACKNOWLEDGE THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO ENTER INTO A
BUSINESS RELATIONSHIP, THAT EACH OF THEM HAS ALREADY RELIED ON THIS WAIVER IN
ENTERING INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS AND THAT EACH OF THEM
WILL CONTINUE TO RELY ON THIS WAIVER IN THEIR RELATED FUTURE DEALINGS. BORROWER
AND LENDER FURTHER ACKNOWLEDGE THAT THEY HAVE BEEN REPRESENTED (OR HAVE HAD THE
OPPORTUNITY TO BE REPRESENTED) IN THE SIGNING OF THIS AGREEMENT AND THE OTHER
LOAN DOCUMENTS AND IN THE MAKING OF THIS WAIVER BY INDEPENDENT LEGAL COUNSEL.

         8.15. Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall constitute an original, and together shall
constitute the Agreement.

         8.16. Final Agreement/Modification. This Agreement (including the
Senior Housing Rider attached hereto and hereby made a part hereof), together
with the other Loan Documents, represents the entire agreement among Borrower,
Guarantor and Lender and supersedes all prior agreements among the parties with
respect to the Loan. This Agreement and the other Loan Documents may only be
modified by written instrument executed by the applicable parties.

                                      -26-
<PAGE>   28
                  IN WITNESS WHEREOF, the parties hereto have executed this
Agreement or has caused the same to be executed by their duly authorized
representatives as of the date first above written.

                              BORROWER:

                              BALANCED CARE REALTY AT STATE
                              COLLEGE, INC., a Delaware corporation

                              By /s/Clint T. Fegan
                              Name Clint T. Fegan
                              Its VP-CFO

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

                              By /s/Clint T. Fegan
                              Name
                              Its

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

                              By /s/Clint T. Fegan
                              Name
                              Its

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

                              By /s/Clint T. Fegan
                              Name
                              Its

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

                              By /s/Clint T. Fegan
                              Name
                              Its

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

                                      -27-
<PAGE>   29
                              By /s/Clint T. Fegan
                              Name
                              Its

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

                              By /s/Clint T. Fegan
                              Name
                              Its

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

                              By /s/Clint T. Fegan
                              Name
                              Its

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

                              By /s/Clint T. Fegan
                              Name
                              Its

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

                              By /s/Clint T. Fegan
                              Name
                              Its

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

                              By /s/Clint T. Fegan
                              Name
                              Its

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

                                      -28-
<PAGE>   30
                              By /s/Clint T. Fegan
                              Name
                              Its

                              LENDER:

                              HELLER HEALTHCARE FINANCE, INC.,
                              a Delaware corporation

                              By /s/Kevin J. McMeen
                              Name Kevin J. McMeen
                              Its Sr. V.P.

                                      -29-
<PAGE>   31

                                   SCHEDULE I

                       CALCULATION OF NET OPERATING INCOME

"Net Operating Income" means annualized Revenue less Expenses, all as determined
by Lender in its sole discretion.

"Revenue" means the lesser of (i) annualized Adjusted Actual Rent or (ii)
annualized Monthly Effective Rent. In determining Revenue, the occupancy factor
utilized shall be the lesser of (a) actual occupancy, or (b) an assumed
ninety-three percent (93%) occupancy rate.

"Adjusted Actual Rent" means (a) all amounts collected from tenants of the
Property for the most current three (3) months, excluding corporate apartment
income, pet fees, redecorating fees and other income (unless specifically
included below), percentage rents, nonrecurring income and non-property related
income (as determined by Lender in its sole discretion) and income from tenants
(i) that are thirty (30) or more days delinquent, (ii) that are in bankruptcy
(even if current), (iii) non-residential tenants whose leases terminate within
six (6) months (as adjusted for space re-leased upon terms acceptable to Lender
in its sole discretion) and (iv) that have been delinquent four (4) or more
times during the past twelve (12) months, and (b) other revenue not to exceed
ten percent (10%) of the amounts included in clause (a) above for laundry,
vending, parking and other occupancy payments (but excluding late fees and
interest income) based upon collections for the previous twelve (12) months.

"Monthly Effective Rent" means an amount equal to (x) total rent due over the
term of the leases less any payments or concessions which Lender, in its sole
discretion, deems to be a rent concession, divided by (y) the total number of
months in the leases.

"Expenses" means actual and customary operating expenses on a stabilized accrual
basis for the previous twelve (12) month period (as reasonably adjusted by
Lender), including: (i) recurring expenses (e.g., tenant improvements, leasing
commissions, carpeting replacement, appliance and drapery replacement and such
others as determined by Lender), (ii) real estate taxes, (iii) management fees
(whether paid or not) in an amount not less than five percent (5%) of effective
gross income, and (iv) a replacement reserve (whether reserved or not) of not
less than Three Hundred and No/100 Dollars ($300.00) per unit.

                                      -30-

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