Exhibit 10.1

Recording requested by and
when recorded return to:

Thompson & Knight L.L.P.
1700 Pacific Avenue, Suite 3300
Dallas, TX 75201
Attention: Jeanne Burton

NOTICE OF CONFIDENTIALITY RIGHTS: IF YOU ARE A NATURAL PERSON, YOU MAY REMOVE OR
STRIKE ANY OF THE FOLLOWING INFORMATION FROM THIS INSTRUMENT BEFORE IT IS FILED
FOR RECORD IN THE PUBLIC RECORDS: YOUR SOCIAL SECURITY NUMBER OR YOUR DRIVER’S
LICENSE NUMBER.

FOURTH EXTENSION AND MODIFICATION AGREEMENT

          This FOURTH EXTENSION AND MODIFICATION AGREEMENT (this “Agreement”)
dated as of the ____ day of March, 2004, by and among ARC CASTLE HILLS, L.P., a
Tennessee limited partnership (hereinafter called “Borrower”), AMERICAN
RETIREMENT CORPORATION, a Tennessee corporation (hereinafter called “ARC”), and
GUARANTY BANK (formerly known as Guaranty Federal Bank, F.S.B.), a federal
savings bank (hereinafter called “Lender”);

W I T N E S S E T H:

          WHEREAS, Lender made a loan to Castle Hills Delaware Business Trust, a
Delaware business trust (“Original Borrower”) in the amount of $10,375,000 (the
“Loan”), and in connection with the Loan, Original Borrower executed and
delivered to Lender one certain promissory note (as modified, hereinafter called
the “Note”) dated June 22, 2000 payable to the order of Lender in the original
principal sum of $10,375,000, with interest and principal payable as therein
provided, as modified by Second Modification Agreement dated effective as of
April 1, 2001, the Assumption, Extension and Modification Agreement (as
hereinafter defined), and Second Omnibus Extension and Modification Agreement
(herein so called) dated August 29, 2003 (collectively, the “Modification
Agreements”) a Deed of Trust, Mortgage and Security Agreement (as modified,
hereinafter called the “Deed of Trust”), dated effective June 22, 2000, securing
the payment of the Note, covering certain real and personal property described
therein (hereinafter called the “Mortgaged Property”), the real property forming
a part of which is more particularly described in Exhibit A attached hereto and
incorporated herein) recorded under File No. 2000-0106532, Volume 8469, Page
1615, Real Property Records, Bexar County, Texas, as modified by the
Modification Agreements, an Assignment of Leases and Rents (as modified,
hereinafter called the “Assignment”) dated effective June 22, 2000, providing a
source of future payment of the Note, recorded under File No. 2000-0106533,
Volume 8469, Page 1660, Real Property Records, Bexar County, Texas, as modified
by the Modification Agreements, reference being here made to the Deed of Trust
and the Assignment and the record thereof for all purposes, and that certain
Construction Loan Agreement (as modified, hereinafter called the “Loan
Agreement”) dated June 22, 2000 between Original Borrower and Lender, as
modified by Modification Agreement dated effective September 30, 2000 and the
Modification Agreements (the foregoing documents and all other documents
executed by Original Borrower, Borrower and/or any other party or parties
evidencing or securing or otherwise in connection with the loan evidenced by the
Note, being herein collectively called the “Loan Documents”);

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          WHEREAS, by that certain Assumption, Extension and Modification
Agreement (the “Assumption, Extension and Modification Agreement”) dated July
26, 2002 by and among Original Borrower, Borrower, ARC, Lender and others, the
Loan was assumed by the Borrower;

          WHEREAS, the Assumption, Extension and Modification Agreement was
recorded under File No. 20020385359,  Volume 9498, Page 1526, Real Property
Records, Bexar County, Texas;

          WHEREAS, ARC executed and delivered to Lender that certain Guaranty
(herein so called) dated June 22, 2000, as amended from time to time, with
respect to the Loan; and

          WHEREAS, Borrower has requested that Lender modify the terms of the
Loan and Lender is willing to do so on the terms and conditions herein set
forth.

          NOW, THEREFORE, for and in consideration of the mutual covenants
contained herein and for other valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:

       1.        Maturity Date Extension.  The maturity date of the Note is
hereby extended to April 1, 2006.  The liens, security interests, assignments
and other rights evidenced by the Loan Documents are hereby renewed and extended
to secure payment of the Note as extended hereby.  Borrower has no further right
to extend the maturity date of the Note.

       2.        Extension Fee.  In consideration for the agreements made
herein, Borrower will pay to Lender an extension fee in the amount of $23,243.

       3.        Principal Payment.  Lender hereby waives payment of the
principal payment due on March 1, 2004.  Upon the execution of this Agreement,
Borrower will pay to Lender $1,000,000 in immediately available funds, which
amount shall be applied to the outstanding principal balance of the Loan. 
Following such application, the outstanding principal balance of the Note will
be $4,648,524.  Further principal payments on the Note are optional until the
maturity date of the Note, on which date all principal and accrued but unpaid
interest thereon shall be due and payable in full.

       4.        Modifications to Note.  Effective as of the date hereof, the
following definitions replace in their entirety their corresponding definitions
in the Note:

 

         (a)        The definition of “Commercial Based Rate” is deleted and the
following is substituted in lieu thereof:

 

          “Commercial Based Rate” — the rate one percent (1.0%) per annum in
excess of the base rate announced or published from time to time by the Payee,
which rate may not be the lowest rate charged by the Payee; it being understood
and agreed that the Commercial Based Rate shall increase or decrease, as the
case may be, from time to time as of the effective date of each change in the
base rate.  In no event shall the Commercial Based Rate be less than six and
one-half percent (6.5%).

2

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         (b)        The definition of “LIBO Based Rate” is deleted and the
following is substituted in lieu thereof:

 

          “LIBO Based Rate” — With respect to any Euro-Dollar Amount, the rate
per annum (expressed as a percentage) determined by Payee to be equal to the sum
of (a) the quotient of the LIBO Rate for the Euro-Dollar Amount and Interest
Period in question divided by (1 minus the Reserve Requirement), rounded up to
the nearest 1/100 of 1%, and (b) three percent (3%).  In no event shall the LIBO
Based Rate be less than six and one-half percent (6.5%).

       5.        Financial Covenants.  Section 10 of the Assumption, Extension
and Modification Agreement and Section 5 of the Second Omnibus Extension and
Modification Agreement are deleted in their entirety.  Capitalized terms not
otherwise defined in this Section 5 have the meaning assigned such terms in the
Loan Agreement.   Notwithstanding anything to the contrary contained in the Loan
Documents:

 

         (a)        ARC Covenants.   Reference is made to the Amended and
Restated Guaranty (hereafter defined) for covenants regarding ARC.

 

 

 

         (b)        Property Covenants.   Notwithstanding anything to the
contrary contained in the Loan Documents, throughout the term of the Loan, the
Mortgaged Property shall maintain a Debt Coverage Ratio (as such term is defined
in the Note), measured quarterly for the prior three month period, as follows:

Required Ratio

 

Test Date

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0.05 to 1

 

June 30, 2004

0.35 to 1

 

September 30, 2004

0.60 to 1

 

December 31, 2004

0.80 to 1

 

March 31, 2005

1.00 to 1

 

June 30, 2005

1.10 to 1

 

September 30, 2005

1.20 to 1

 

December 31, 2005

 

In the event that the Mortgaged Property fails to comply with the foregoing
covenant, Borrower shall pay to Lender the amount of $100,000 within five (5)
business days of the earlier to occur of (i) the date such noncompliance is
reported, or (ii) demand for such payment.  Upon receipt of such payment, Lender
shall apply the payment to the outstanding principal balance of the Note.  It
shall be an immediate Event of Default under the Loan Agreement if Borrower
fails to make such payment of $100,000 within the time herein specified.  For
purposes of this Section 5(b), the term “Debt Coverage Ratio” means a ratio, the
first number of which is the Net Operating Income (as such term is defined in
the Note) from the Mortgaged Property (Castle Hills only) for the period in
question and the second number of which is a hypothetical payment equal to the
product of (x) an amount sufficient to amortize the Loan in equal monthly
installments over a 25-year period using an interest rate equal to six and
one-half percent (6.5%), and (y) 3.  Borrower shall submit a Compliance
Certificate in the form attached hereto as Schedule II within forty-five (45)
days of each Test Date setting forth the Debt Coverage Ratio as of such date.

3

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6.        Modification of Deed of Trust.  The Deed of Trust is modified as
follows:

 

 

 

          (a)        Schedule I attached to this Agreement is hereby attached as
Schedule I to the Deed of Trust.

 

 

 

          (b)        Clause (c) of Paragraph 1.1 is deleted and the following is
substituted in lieu thereof:

 

 

 

 

             (c)        all obligations of ARC to the Noteholder under that
certain Amended and Restated Guaranty dated March ____, 2004 made by ARC for the
benefit of the Noteholder, as amended from time to time.

 

 

 

          (c)        Section 5.34 is deleted and the following is substituted in
lieu thereof:  “5.34.  Intentionally Omitted.”

          7.        Modification of Assignment.  Schedule I attached to this
Agreement is hereby attached as Schedule I to the Assignment.

          8.        Modification of Loan Agreement.  Section 10.2 of the Loan
Agreement is deleted and the following is substituted in lieu thereof:  “10.2.
 Intentionally Omitted.”

          9.        Transfer of Partnership Interest.   Lender hereby consents
to the transfer after the date hereof of the general partner interest in
Borrower from ARC to ARC Tennessee GP, Inc.

          10.        Amended and Restated Guaranty.  Upon the execution of this
Agreement, ARC will deliver to Lender an Amended and Restated Guaranty in form
and substance satisfactory to Lender in place of the Guaranty.  All references
in the Loan Documents to the Guaranty shall hereafter be references to the
Amended and Restated Guaranty, as modified from time to time.

          11.        Waiver.  Lender waives the default as of the December 31,
2003 Test Date under Section 5(b) of the Second Omnibus Extension and
Modification Agreement.  Such waiver is made without prejudice to Lender’s
rights with respect to any future default.

          12.        Loan Document.  This Agreement constitutes a Loan Document
as such term is used in the Loan Agreement.  In the event of a conflict between
the terms of this Agreement and the terms of any Loan Document, the terms of
this Agreement shall control.  References herein to Loan Documents are
references to such agreements as modified from time to time.

4

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          13.        Borrower’s Existence and Authority.  Borrower hereby
represents and warrants that (a) it is the sole legal and beneficial owner of
the lessee’s interest under that certain Second Amended and Restated Ground
Lease dated July 26, 2002 between ARC and Borrower; (b) it is a limited
partnership and is duly organized and legally existing under the laws of the
state of its formation and is duly qualified to do business in the state where
the Mortgaged Property is located; (c) the execution and delivery of, and
performance under this Agreement are within its power and authority without the
joinder or consent of any other party and have been duly authorized by all
requisite action and are not in contravention of law or the powers of Borrower’s
organizational documents; (d) this Agreement constitutes the legal, valid and
binding obligations of Borrower enforceable in accordance with its terms; (e)
the execution and delivery of this Agreement by Borrower do not contravene,
result in a breach of or constitute a default under any deed of trust, loan
agreement, indenture or other contract, agreement or undertaking to which it is
a party or by which it or any of its properties may be bound (nor would such
execution and delivery constitute such a default with the passage of time or the
giving of notice or both) and, to the best of its knowledge, do not violate or
contravene any law, order, decree, rule or regulation to which Borrower is
subject; (f) to the best of Borrower’s knowledge, there exists no uncured
default under the Loan Documents, as modified hereby; and (g) Borrower is owned,
directly or indirectly, 100% by ARC.  Borrower agrees to indemnify and hold
Lender harmless against any loss, claim, damage, liability or expense (including
without limitation attorneys’ fees) incurred as a result of any representation
or warranty made by it herein proving to be untrue in any respect.

          14.        ARC Existence and Authority.  ARC hereby represents and
warrants that (a) ARC is duly organized and legally existing under the laws of
the state of its incorporation; (b) ARC is the sole legal and beneficial fee
owner of the Mortgaged Property; (c) the execution and delivery of, and
performance under this Agreement are within ARC’s power and authority without
the joinder or consent of any other party and have been duly authorized by all
requisite action and are not in contravention of law or the powers of ARC’s
charter, by-laws or other corporate papers; (d) this Agreement constitutes the
legal, valid and binding obligations of ARC enforceable in accordance with its
terms; and (e) the execution and delivery of this Agreement by ARC do not
contravene, result in a breach of or constitute a default under any deed of
trust, loan agreement, indenture or other contract, agreement or undertaking to
which ARC is a party or by which ARC or any of its properties may be bound (nor
would such execution and delivery constitute such a default with the passage of
time or the giving of notice or both) and do not violate or contravene any law,
order, decree, rule or regulation to which ARC is subject.  ARC agrees to
indemnify and hold Lender harmless against any loss, claim, damage, liability or
expense (including without limitation attorneys’ fees) incurred as a result of
any representation or warranty made by it herein proving to be untrue in any
respect.

5

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          15.        Other Documents.  ARC, Borrower and ARC Management, LLC
agree to execute, upon request from Lender, such other and further documents as
may be necessary (in Lender’s reasonable judgment) to consummate the
transactions contemplated herein or to perfect the liens and security interests
intended to secure the payment of the Loan.

          16.        Default.  If ARC or Borrower shall fail to keep or perform
any of the covenants or agreements contained herein or if any statement,
representation or warranty contained herein is false, misleading or erroneous in
any material respect, after the expiration of any grace or cure period provided
by the applicable Loan Documents, such party shall be deemed to be in default
hereunder and Lender shall be entitled at its option to exercise any and all of
the rights and remedies granted pursuant to the Loan Documents, or to which
Lender may otherwise be entitled, whether at law or in equity.

          17.        Title Endorsement.  Contemporaneously with the execution
and delivery hereof, Borrower shall, at Borrower’s sole cost and expense, obtain
and deliver to Lender an endorsement of the Mortgagee Title Policy insuring the
lien of the Deed of Trust under the applicable title insurance rules and
regulations, in form and content reasonably acceptable to Lender, stating that
the company issuing said Mortgagee Title Policy will not claim that policy
coverage has terminated, or that policy coverage has been reduced, solely by
reason of the execution of this Agreement and maintaining the liability
thereunder for the period of limitation applicable to the indebtedness secured
by the lien of the Deed of Trust calculated from the renewed and extended
maturity date as provided herein.

          18.        Ratification.  Except as provided herein, the terms and
provisions of the Note, the Deed of Trust, the Assignment, and the other Loan
Documents shall remain unchanged and shall remain in full force and effect.  All
references in the Loan Documents to Loan Documents shall hereafter be references
to the Loan Documents as modified by this Agreement.  The Note, the Deed of
Trust, the Assignment, and the other Loan Documents, as modified and amended
hereby, are hereby ratified and confirmed in all respects by Borrower, ARC and
ARC Management, LLC.

          19.         Validity.  ARC and Borrower hereby acknowledge that the
liens, security interests, and assignments created and evidenced by the Deed of
Trust and the assignments created by the Assignment are valid and subsisting and
further acknowledges and agrees that there are no offsets, claims, or defenses
to the Note, Deed of Trust or Assignment or any other Loan Documents.

          20.        Entire Agreement. This Agreement supersedes and merges all
prior and contemporaneous promises, representations and agreements with respect
to its subject matter.  No modification of this Agreement or any document
referenced herein, or any waiver of rights under any of the foregoing, shall be
effective unless made by supplemental agreement, in writing, executed by Lender
and the affected party or parties.  The parties hereto further agree that this
Agreement may not in any way be explained or supplemented by a prior, existing,
or future course of dealings between the parties or by any prior, existing, or
future performance between the parties pursuant to this Agreement or otherwise.

6

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          21.        Costs.  Contemporaneous with the execution and delivery
hereof, Borrower shall pay, or cause to be paid, all costs and expenses incident
to the preparation hereof and the consummation of the transactions specified
herein, including without limitation title insurance policy and/or endorsement
charges, recording fees, and reasonable fees and expenses of legal counsel to
Lender.

          22.        Release.  ARC and Borrower hereby release, remise, acquit
and forever discharge Lender, together with its employees, agents,
representatives, consultants, attorneys, fiduciaries, participants, servants,
officers, directors, partners, predecessors, successors and assigns, subsidiary
corporations, parent corporations, and related corporate divisions (all of the
foregoing hereinafter called the “Released Parties”), from any and all actions
and causes of action, judgments, executions, suits, debts, claims, demands,
liabilities, obligations, damages and expenses of any and every character, known
or unknown, direct and/or indirect, at law or in equity, of whatsoever kind or
nature, whether heretofore or hereafter accruing, for or because of any matter
or things done, omitted or suffered to be done by any of the Released Parties
prior to and including the date hereof, and in any way directly or indirectly
arising out of or in any way connected to this Agreement, the Note, the Deed of
Trust, the Assignment, or any other Loan Document, or any of the transactions
associated therewith, or the Mortgaged Property, including specifically but not
limited to claims of usury, REGARDLESS OF WHETHER THE MATTER RELEASED IS THE
RESULT OF THE NEGLIGENCE OF ONE OR MORE OF THE RELEASED PARTIES.

          23.        Counterpart Execution.  This Agreement may be executed in
any number of counterparts with the same effect as if all parties hereto had
signed the same document.  All such counterparts shall be construed together and
shall constitute one instrument, but in making proof hereof it shall only be
necessary to produce one such counterpart, provided that the counterpart
produced must be the counterpart executed by the party against whom enforcement
is sought.

          24.        Severance.  If any covenant, condition, or provision herein
contained is held to be invalid by final judgment of any court of competent
jurisdiction, the invalidity of such covenant, condition, or provision shall not
in any way affect any other covenant, condition or provision herein contained.

          25.        Time of the Essence.  It is expressly agreed by the parties
hereto that time is of the essence with respect to this Agreement.

          26.        Construction.  The parties acknowledge and confirm that
each of their respective attorneys have participated jointly in the review and
revision of this Agreement and that it has not been written solely by counsel
for one party.  The parties hereto therefore stipulate and agree that the rule
of construction to the effect that any ambiguities are to or may be resolved
against the drafting party shall not be employed in the interpretation of this
Agreement to favor any party against the other.

          27.        Governing Law.  This Agreement and the rights and duties of
the parties hereunder shall be governed for all purposes by the law of the State
of Texas and the law of the United States applicable to transactions within said
State.

7

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          28.        Successors.  The terms and provisions hereof shall be
binding upon and inure to the benefit of the parties hereto and their
representatives, successors, and assigns.

          29.        Notice and Agreement.  ARC, Borrower and Lender hereby take
notice of and agree to the following:

 

              A. PURSUANT TO SUBSECTION 26.02(b) OF THE TEXAS BUSINESS AND
COMMERCE CODE, A LOAN AGREEMENT IN WHICH THE AMOUNT INVOLVED THEREIN EXCEEDS
$50,000 IN VALUE IS NOT ENFORCEABLE UNLESS THE AGREEMENT IS IN WRITING AND
SIGNED BY THE PARTY TO BE BOUND OR BY THAT PARTY’S AUTHORIZED REPRESENTATIVE.

 

 

 

              B. PURSUANT TO SUBSECTION 26.02(c) OF THE TEXAS BUSINESS AND
COMMERCE CODE, THE RIGHTS AND OBLIGATIONS OF THE PARTIES TO THE LOAN DOCUMENTS
SHALL BE DETERMINED SOLELY FROM THE LOAN DOCUMENTS, AND ANY PRIOR ORAL
AGREEMENTS BETWEEN THE PARTIES ARE SUPERSEDED BY AND MERGED INTO THE LOAN
DOCUMENTS.

 

 

 

              C. THE NOTE, THE DEED OF TRUST, THE ASSIGNMENT, THE OTHER LOAN
DOCUMENTS AND THIS AGREEMENT REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES
THERETO AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR
SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES THERETO.  THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES.

          30.        Bankruptcy Matters.  Borrower and ARC hereby acknowledge,
represent, warrant, and agree that (i) in exchange for the covenants and
agreements hereunder, each has received valuable consideration, (ii) this
Agreement and the transactions contemplated hereunder are not made or incurred
by it (x) with intent to hinder, delay or defraud or future creditors of the
Borrower or ARC, (y) in contemplation of insolvency, or (z) after the commission
of an act of insolvency; and (iii) it is not insolvent at the time of, and will
not be rendered insolvent by virtue of the transactions contemplated by this
Agreement.

          31.        Consent of Manager.  Manager, as evidenced by the execution
of the Consent attached to this Agreement, hereby joins in Sections 15 and 18
and ratifies and confirms each of the Loan Documents, as modified by this
Agreement, to which it is a party.

          IN WITNESS WHEREOF, this Agreement is executed on the respective dates
of acknowledgment, to be effective as of the date first written above.

[Remainder of page intentionally left blank; signatures follow]

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SIGNATURE PAGE OF BORROWER
TO FOURTH EXTENSION AND MODIFICATION AGREEMENT

 

ARC CASTLE HILLS, L.P., a Tennessee limited
partnership

 

 

 

By:

American Retirement Corporation, a
Tennessee corporation, its general partner

 

 

 

 

 

By:

 

 

 

--------------------------------------------------------------------------------

 

 

Name:

 

 

 

--------------------------------------------------------------------------------

 

 

Title:

 

 

 

--------------------------------------------------------------------------------

THE STATE OF TENNESSEE

§

 

§

COUNTY OF DAVIDSON

§

 

 

          This instrument was acknowledged before me on March __, 2004,
by_______________, _______________ of American Retirement Corporation, a
Tennessee corporation, on behalf of said corporation, in its capacity as general
partner of ARC Castle Hills, L.P., a Tennessee limited partnership, on behalf of
said limited partnership.

 

Notary Public, State of Tennessee

 

My commission expires:

 

 

 

 

 

___________________.

 

 

 

(printed name)

 

9

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SIGNATURE PAGE OF ARC
TO FOURTH EXTENSION AND MODIFICATION AGREEMENT

 

AMERICAN RETIREMENT CORPORATION,
a Tennessee corporation

 

 

 

By:

 

 

--------------------------------------------------------------------------------

 

Name:

 

 

--------------------------------------------------------------------------------

 

Title:

 

 

--------------------------------------------------------------------------------

THE STATE OF TENNESSEE

§

 

§

COUNTY OF DAVIDSON

§

 

 

          This instrument was acknowledged before me on March __, 2004,
by_______________, _______________, the _______________ of American Retirement
Corporation, a Tennessee corporation, on behalf of said corporation.

 

Notary Public, State of Tennessee

 

My commission expires:

 

 

 

 

 

___________________.

 

 

 

(printed name)

 

10

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SIGNATURE PAGE OF LENDER
TO FOURTH EXTENSION AND MODIFICATION AGREEMENT

 

GUARANTY BANK, a federal savings bank

 

 

 

By:

 

 

--------------------------------------------------------------------------------

 

Name:

 

 

--------------------------------------------------------------------------------

 

Title:

 

 

--------------------------------------------------------------------------------

THE STATE OF TEXAS

§

 

§

COUNTY OF DALLAS

§

 

 

This instrument was acknowledged before me on March __, 2004,
by_________________________, _____________________ of Guaranty Bank, a federal
savings bank, on behalf of said bank.

 

Notary Public, State of Texas

 

My commission expires:

 

 

 

 

 

___________________.

 

 

 

(printed name)

 

11

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SIGNATURE PAGE/CONSENT OF MANAGER
TO FOURTH EXTENSION AND MODIFICATION AGREEMENT

 

ARC MANAGEMENT, LLC, a Tennessee limited
liability company

 

 

 

By:

American Retirement Corporation, a
Tennessee corporation, its sole member

 

 

 

 

 

By:

 

 

 

--------------------------------------------------------------------------------

 

 

Name:

 

 

 

--------------------------------------------------------------------------------

 

 

Title:

 

 

 

--------------------------------------------------------------------------------

THE STATE OF TENNESSEE

§

 

§

COUNTY OF DAVIDSON

§

 

 

          This instrument was acknowledged before me on March __, 2004,
by_______________, _______________ of American Retirement Corporation, a
Tennessee corporation, on behalf of said corporation, in its capacity as sole
member of ARC Management, LLC, a Tennessee limited liability company, on behalf
of said limited liability company.

 

Notary Public, State of Tennessee

 

My commission expires:

 

 

 

 

 

___________________.

 

 

 

(printed name)

 

12

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SCHEDULE I

1.

Promissory Note dated June 22, 2000, in the original principal amount of Ten
Million Three Hundred Seventy-Five Thousand and No/100 Dollars ($10,375,000.00)
made by Castle Hills Delaware Business Trust, payable to the order of Guaranty
Bank (formerly known as Guaranty Federal Bank, F.S.B.), the obligations of
Castle Hills Delaware Business Trust under the note having been assumed by ARC
Castle Hills, L.P., a Tennessee limited partnership (such Promissory Note, as
amended from time to time, the “Castle Hills Note”).

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SCHEDULE II

COMPLIANCE CERTIFICATE
Quarterly Debt Coverage Test

Guaranty Bank
8333 Douglas Avenue
Dallas, TX  75225
Attn:  Senior Housing Lending Division

 

RE:

Loan Agreement dated June 22, 2000 (the “Agreement”), by and between ARC Castle
Hills, L.P. (the “Borrower”), and Guaranty Bank

          The undersigned officer of Borrower does hereby certify that for the
quarterly financial period ending _____________________:

          1.        No Event of Default has occurred or exists except
                                                                                                                .

          2.        The Property’s Debt Coverage Ratio was:

                     Required:

Required Ratio

 

Test Date

--------------------------------------------------------------------------------

 

--------------------------------------------------------------------------------

0.05 to 1

 

June 30, 2004

0.35 to 1

 

September 30, 2004

0.60 to 1

 

December 31, 2004

0.80 to 1

 

March 31, 2005

1.00 to 1

 

June 30, 2005

1.10 to 1

 

September 30, 2005

1.20 to 1

 

December 31, 2005

                    Actual:          ___  to 1

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          3.        The manner of calculation of the above is attached.

 

ARC CASTLE HILLS, L.P., a Tennessee limited
partnership

 

 

 

By:

American Retirement Corporation, a Tennessee
corporation, General Partner

 

 

 

 

 

By:

 

 

 

--------------------------------------------------------------------------------

 

 

Name:

 

 

 

--------------------------------------------------------------------------------

 

 

Title:

 

 

 

--------------------------------------------------------------------------------

 

 

 

 

 

 

 

 

 

 

 

 

 

15

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