Exhibit 10.86

Promissory Note
 
$26,250,000.00
December 12, 2005

 
FOR VALUE RECEIVED, ASF of Green Hills, LLC, a Tennessee non-profit limited
liability company (“Borrower”), hereby promises to pay to the order of American
Retirement Corporation, a Tennessee corporation (together with any and all of
its successors and assigns and/or any other holder of this Note, “Lender”),
without offset, in immediately available funds in lawful money of the United
States of America, at 111 Westwood Place, Suite 200, Brentwood, Tennessee 37027,
or at such other address as Borrower may from time to time be directed by
Lender, the principal sum of Twenty-Six Million Two Hundred Fifty Thousand and
No/100 Dollars ($26,250,000.00) (or the unpaid balance of all principal advanced
against this Note, if that amount is less), together with interest on the unpaid
principal balance of this Note from day to day outstanding as hereinafter
provided. Capitalized terms used and not otherwise defined herein shall have the
meanings assigned thereto in the Loan Agreement (as hereinafter defined).
 
Section 1  Payment Schedule and Maturity Date.
 
(a)  Base Rate Interest. Beginning on January 1, 2006, and continuing on the
first (1st) day of each succeeding month thereafter until the Maturity Date (as
hereinafter defined), Maker shall make payments of interest accrued in respect
of the indebtedness evidenced by this Note at the Base Rate as required by
Section 2.2 of the Loan Agreement.
 
(b)  Spread Rate Interest. In addition to interest payments required by Section
1(a) above, beginning on the first (1st) day of the first (1st) month after
which Maker achieves a Debt Service Coverage Ratio greater than or equal to 1.1
to 1.0, and, provided that Maker thereafter maintains a Debt Service Coverage
Ratio greater than or equal to 1.1 to 1.0, continuing on the first (1st) day of
each succeeding month until the Maturity Date, Maker shall make payments of
interest accrued in respect of the indebtedness evidenced by this Note at the
Spread Rate as required by Section 2.2 of the Loan Agreement.
 
(c)  Principal. The entire principal balance of this Note then unpaid, together
with all accrued and unpaid interest and all other amounts payable hereunder and
under the other Loan Documents (as hereinafter defined), shall be due and
payable in full on December 12, 2010 (the “Maturity Date”), the final maturity
of this Note.
 
Section 2  Security; Loan Documents. The security for this Note includes a Deed
of Trust, Assignment, Security Agreement and Fixture Filing (as the same may
from time to time be amended, restated, modified or supplemented, the
“Mortgage”) of even date herewith from Borrower to Lender, conveying and
encumbering certain real and personal property more particularly described
therein (the “Property”). This Note, the Mortgage, the Construction Loan
Agreement between Borrower and Lender of even date herewith (as the same may
from time to time be amended, restated, modified or supplemented, the “Loan
Agreement”) and all other documents now or hereafter securing, guaranteeing or
executed in connection with the loan evidenced by this Note (the “Loan”), as the
same may from time to time be amended, restated, modified or supplemented, are
herein sometimes called individually a “Loan Document” and together the “Loan
Documents.”
 
Section 3  Interest Rate.
 
(a)  BBA LIBOR Daily Floating Rate. The unpaid principal balance of this Note
from day to day outstanding which is not past due, shall bear interest at a
fluctuating rate of interest per annum equal to the BBA LIBOR Daily Floating
Rate plus two hundred fifty (250) basis points per annum. The “BBA LIBOR Daily
Floating Rate” shall mean a fluctuating rate of interest per annum equal to the
British Bankers Association LIBOR Rate (“BBA LIBOR”), as published by Reuters
(or other commercially available source providing quotations of BBA LIBOR as
selected by Lender from time to time) as determined for each Business Day at
approximately 11:00 a.m. London time two (2) London Banking Days prior to the
date in question, for U.S. Dollar deposits (for delivery on the first day of
such interest period) with a one month term, as adjusted from time to time in
Lender’s sole discretion for reserve requirements, deposit insurance assessment
rates and other regulatory costs. If such rate is not available at such time for
any reason, then the rate will be determined by such alternate method as
reasonably selected by Lender. A “London Banking Day” is a day on which banks in
London are open for business and dealing in offshore dollars. Interest shall be
computed for the actual number of days which have elapsed, on the basis of a
360-day year.
 
 
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(b)  Alternative Rates. If Lender determines that no adequate basis exists for
determining the BBA LIBOR Daily Floating Rate or that the BBA LIBOR Daily
Floating Rate will not adequately and fairly reflect the cost to Lender of
funding the Loan, or that any applicable Law or regulation or compliance
therewith by Lender prohibits or restricts or makes impossible the charging of
interest based on the BBA LIBOR Daily Floating Rate and Lender so notifies
Borrower, then until Lender notifies Borrower that the circumstances giving rise
to such suspension no longer exist, interest shall accrue and be payable on the
unpaid principal balance of this Note from the date Lender so notifies Borrower
until the Maturity Date of this Note (whether by acceleration, declaration,
extension or otherwise) at a fluctuating rate of interest equal to the Prime
Rate of Lender. The term “Prime Rate” means, on any day, the rate of interest
per annum then most recently established by Bank of America, N.A. "Bank of
America" as its “prime rate.” Any such rate is a general reference rate of
interest, may not be related to any other rate, and may not be the lowest or
best rate actually charged by Lender to any customer or a favored rate and may
not correspond with future increases or decreases in interest rates charged by
other lenders or market rates in general, and that Lender may make various
business or other loans at rates of interest having no relationship to such
rate. Each time the Prime Rate changes, the per annum rate of interest on this
Note shall change immediately and contemporaneously with such change in the
Prime Rate. If Bank of America ceases to exist or to establish or publish a
prime rate from which the Prime Rate is then determined, the applicable variable
rate from which the Prime Rate is determined thereafter shall be instead the
prime rate reported in The Wall Street Journal (or the average prime rate if a
high and a low prime rate are therein reported), and the Prime Rate shall change
without notice with each change in such prime rate as of the date such change is
reported.
 
(c)  Past Due Rate. If any amount payable by Borrower under any Loan Document is
not paid when due (without regard to any applicable grace periods), such amount
shall thereafter bear interest at the Past Due Rate (as defined below) to the
fullest extent permitted by applicable Law. Accrued and unpaid interest on past
due amounts (including interest on past due interest) shall be due and payable
on demand, at a fluctuating rate per annum (the “Past Due Rate”) equal to the
Prime Rate plus two hundred (200) basis points.
 
Notwithstanding anything to the contrary contained in Section 3 of this Note,
Lender shall only make adjustments or changes to the interest rate as provided
in Section 3(a) and (b) hereof, or charge interest at the Past Due Rate as
provided in Section 3(c) hereof, at the same time and in the same manner as are
made or charged by Bank of America under that certain Promissory Note of even
date herewith executed by American Retirement Corporation (“ARC”), payable to
Bank of America, in the original principal amount of $26,250,000.00 (as the same
may from time to time be amended, restated, modified or supplemented, the “ARC
Note”).

Section 4  Prepayment. Borrower may prepay the principal balance of this Note,
in full at any time or in part from time to time, without fee, premium or
penalty, provided that: (a) no prepayment may be made which in Lender’s judgment
would contravene or prejudice funding under any applicable permanent loan
commitment or tri-party agreement or the like; (b) Lender shall have actually
received from Borrower prior written notice of (i) Borrower’s intent to prepay,
(ii) the amount of principal which will be prepaid (the “Prepaid Principal”),
and (iii) the date on which the prepayment will be made; (c) each prepayment
shall be in the amount of $1,000 or a larger integral multiple of $1,000 (unless
the prepayment retires the outstanding balance of this Note in full); and
(d) each prepayment shall be in the amount of 100% of the Prepaid Principal,
plus accrued unpaid interest thereon to the date of prepayment, plus any other
sums which have become due to Lender under the Loan Documents on or before the
date of prepayment but have not been paid. If this Note is prepaid in full, any
commitment of Lender for further advances shall automatically terminate.
 
Section 5  Late Charges. If Borrower shall fail to make any payment under the
terms of this Note (other than the payment due at maturity) within fifteen (15)
days after the date such payment is due, Borrower shall pay to Lender on demand
a late charge equal to four percent (4%) of the amount of such payment. Such
fifteen (15) day period shall not be construed as in any way extending the due
date of any payment. The late charge is imposed for the purpose of defraying the
expenses of Lender incident to handling such delinquent payment. This charge
shall be in addition to, and not in lieu of, any other amount that Lender may be
entitled to receive or action that Lender may be authorized to take as a result
of such late payment. Notwithstanding anything to the contrary contained in
Section 5 of this Note, Lender shall only demand a late charge at the same time
and in the same manner as demanded by Bank of America under the ARC Note.
 
 
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Section 6  Certain Provisions Regarding Payments. All payments made under this
Note shall be applied, to the extent thereof, to late charges, to accrued but
unpaid interest, to unpaid principal, and to any other sums due and unpaid to
Lender under the Loan Documents, in such manner and order as Lender may elect in
its sole discretion, any instructions from Borrower or anyone else to the
contrary notwithstanding. Remittances shall be made without offset, demand,
counterclaim, deduction, or recoupment (each of which is hereby waived) and
shall be accepted subject to the condition that any check or draft may be
handled for collection in accordance with the practice of the collecting bank or
banks. Acceptance by Lender of any payment in an amount less than the amount
then due on any indebtedness shall be deemed an acceptance on account only,
notwithstanding any notation on or accompanying such partial payment to the
contrary, and shall not in any way (a) waive or excuse the existence of an Event
of Default (as hereinafter defined), (b) waive, impair or extinguish any right
or remedy available to Lender hereunder or under the other Loan Documents, or
(c) waive the requirement of punctual payment and performance or constitute a
novation in any respect. Payments received after 2:00 p.m. shall be deemed to be
received on, and shall be posted as of, the following Business Day. Whenever any
payment under this Note or any other Loan Document falls due on a day which is
not a Business Day, such payment may be made on the next succeeding Business
Day.
 
Section 7  Events of Default. The occurrence of any one or more of the following
shall constitute an “Event of Default” under this Note:
 
(a)  Borrower fails to pay within three (3) days after the date such payment is
due or upon acceleration, maturity or otherwise.
 
(b)  Any covenant, agreement or condition in this Note is not fully and timely
performed, observed or kept, subject to any applicable grace or cure period.
 
(c)  An Event of Default (as therein defined) occurs under any of the Loan
Documents other than this Note (subject to any applicable grace or cure period).
 
Section 8  Remedies. Upon the occurrence of an Event of Default, Lender may at
any time thereafter exercise any one or more of the following rights, powers and
remedies:
 
(a)  Lender may accelerate the Maturity Date and declare the unpaid principal
balance and accrued but unpaid interest on this Note, and all other amounts
payable hereunder and under the other Loan Documents, at once due and payable,
and upon such declaration the same shall at once be due and payable.
 
(b)  Lender may set off the amount due against any and all accounts, credits,
money, securities or other property now or hereafter on deposit with, held by or
in the possession of Lender to the credit or for the account of Borrower,
without notice to or the consent of Borrower.
 
(c)  Lender may exercise any of its other rights, powers and remedies under the
Loan Documents or at law or in equity.
 
Section 9  Remedies Cumulative. All of the rights and remedies of Lender under
this Note and the other Loan Documents are cumulative of each other and of any
and all other rights at law or in equity, and the exercise by Lender of any one
or more of such rights and remedies shall not preclude the simultaneous or later
exercise by Lender of any or all such other rights and remedies. No single or
partial exercise of any right or remedy shall exhaust it or preclude any other
or further exercise thereof, and every right and remedy may be exercised at any
time and from time to time. No failure by Lender to exercise, nor delay in
exercising, any right or remedy shall operate as a waiver of such right or
remedy or as a waiver of any Event of Default.
 
 
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Section 10  Costs and Expenses of Enforcement. Borrower agrees to pay to Lender
on demand all costs and expenses incurred by Lender in seeking to collect this
Note or to enforce any of Lender’s rights and remedies under the Loan Documents,
including court costs and reasonable attorneys’ fees and expenses, whether or
not suit is filed hereon, or whether in connection with bankruptcy, insolvency
or appeal.
 
Section 11  Service of Process. Borrower hereby consents to process being served
in any suit, action, or proceeding instituted in connection with this Note by
the mailing of a copy thereof by certified mail, postage prepaid, return receipt
requested, to Borrower. Borrower irrevocably agrees that such service shall be
deemed to be service of process upon Borrower in any such suit, action, or
proceeding. Nothing in this Note shall affect the right of Lender to serve
process in any manner otherwise permitted by law and nothing in this Note will
limit the right of Lender otherwise to bring proceedings against Borrower in the
courts of any jurisdiction or jurisdictions, subject to any provision or
agreement for arbitration or dispute resolution set forth in the Loan Agreement.
 
Section 12  Heirs, Successors and Assigns. The terms of this Note and of the
other Loan Documents shall bind and inure to the benefit of the heirs, devisees,
representatives, successors and assigns of the parties. The foregoing sentence
shall not be construed to permit Borrower to assign the Loan except as otherwise
permitted under the Loan Documents.
 
Section 13  General Provisions. Time is of the essence with respect to
Borrower’s obligations under this Note. If more than one person or entity
executes this Note as Borrower, all of said parties shall be jointly and
severally liable for payment of the indebtedness evidenced hereby. Borrower and
each party executing this Note as Borrower hereby severally (a) waive demand,
presentment for payment, notice of dishonor and of nonpayment, protest, notice
of protest, notice of intent to accelerate, notice of acceleration and all other
notices (except any notices which are specifically required by this Note or any
other Loan Document), filing of suit and diligence in collecting this Note or
enforcing any of the security herefor; (b) agree to any substitution,
subordination, exchange or release of any such security or the release of any
party primarily or secondarily liable hereon; (c) agree that Lender shall not be
required first to institute suit or exhaust its remedies hereon against Borrower
or others liable or to become liable hereon or to perfect or enforce its rights
against them or any security herefor; (d) consent to any extensions or
postponements of time of payment of this Note for any period or periods of time
and to any partial payments, before or after maturity, and to any other
indulgences with respect hereto, without notice thereof to any of them; and
(e) submit (and waive all rights to object) to non-exclusive personal
jurisdiction of any state or federal court sitting in the state and county in
which any of the Property is located for the enforcement of any and all
obligations under this Note and the other Loan Documents; (f) waive the benefit
of all homestead and similar exemptions as to this Note; (g) agree that their
liability under this Note shall not be affected or impaired by any determination
that any title, security interest or lien taken by Lender to secure this Note is
invalid or unperfected; and (h) hereby subordinate to the Loan and the Loan
Documents any and all rights against Borrower and any security for the payment
of this Note, whether by subrogation, agreement or otherwise, until this Note is
paid in full. A determination that any provision of this Note is unenforceable
or invalid shall not affect the enforceability or validity of any other
provision and the determination that the application of any provision of this
Note to any person or circumstance is illegal or unenforceable shall not affect
the enforceability or validity of such provision as it may apply to other
persons or circumstances. This Note may not be amended except in a writing
specifically intended for such purpose and executed by the party against whom
enforcement of the amendment is sought. Captions and headings in this Note are
for convenience only and shall be disregarded in construing it. This Note and
its validity, enforcement and interpretation shall be governed by the laws of
the state in which payment of this Note is to be made (without regard to any
principles of conflicts of laws) and applicable United States federal law.
Whenever a time of day is referred to herein, unless otherwise specified such
time shall be the local time of the place where payment of this Note is to be
made. The term “Business Day” shall mean a day on which Lender is open for the
conduct of substantially all of its banking business at its office in the city
in which this Note is payable (excluding Saturdays and Sundays). Capitalized
terms used herein without definition shall have the meanings ascribed to such
terms in the Loan Agreement. The words “include” and “including” shall be
interpreted as if followed by the words “without limitation.”
 
 
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Section 14  Notices. Any notice, request, or demand to or upon Borrower or
Lender shall be deemed to have been properly given or made when delivered in
accordance with the terms of the Loan Agreement regarding notices.
 
Section 15  No Usury. It is expressly stipulated and agreed to be the intent of
Borrower and Lender at all times to comply with applicable state law or
applicable United States federal law (to the extent that it permits Lender to
contract for, charge, take, reserve, or receive a greater amount of interest
than under state law) and that this Section shall control every other covenant
and agreement in this Note and the other Loan Documents. If applicable state or
Federal law should at any time be judicially interpreted so as to render
usurious any amount called for under this Note or under any of the other Loan
Documents, or contracted for, charged, taken, reserved, or received with respect
to the Loan, or if Lender’s exercise of the option to accelerate the Maturity
Date, or if any prepayment by Borrower results in Borrower having paid any
interest in excess of that permitted by applicable law, then it is Lender’s
express intent that all excess amounts theretofore collected by Lender shall be
credited on the principal balance of this Note and all other indebtedness
secured by the Assignment, and the provisions of this Note and the other Loan
Documents shall immediately be deemed reformed and the amounts thereafter
collectible hereunder and thereunder reduced, without the necessity of the
execution of any new documents, so as to comply with the applicable law, but so
as to permit the recovery of the fullest amount otherwise called for hereunder
or thereunder. All sums paid or agreed to be paid to Lender for the use or
forbearance of the Loan shall, to the extent permitted by applicable law, be
amortized, prorated, allocated, and spread throughout the full stated term of
the Loan.
 
[Signature Page Follows]
 
 
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IN WITNESS WHEREOF, Borrower has duly executed this Note as of the date first
above written.
 

  Borrower:             ASF of Green Hills, LLC,   a Tennessee non-profit
limited liability company           By: American Seniors Foundation, Inc.,    
its sole member
           
By:
     
Title:
 

 

ENDORSEMENT

As collateral security, pay to the order of Bank of America, N.A.

          AMERICAN RETIREMENT CORPORATION           By:          Name:       
Title: