Exhibit 10.11


     

    
      	
               Exhibit
                10.11

            


    

    
 

    FOURTH
      AMENDMENT TO

    MASTER
      LEASE AND SECURITY AGREEMENT

    (Pool
      1)

     

    THIS
      FOURTH AMENDMENT TO MASTER LEASE AND SECURITY AGREEMENT (Pool
      1)
      (the
“Amendment”)
      is
      entered into as of  June
      30,
      2005 by and among NATIONWIDE
      HEALTH PROPERTIES, INC.,
      a
      Maryland corporation (“NHP”),
      and
NH
      TEXAS PROPERTIES LIMITED PARTNERSHIP,
      a Texas
      limited partnership (“NH
      Texas”)
      (collectively, “Landlord”);
      ARC
      PINEGATE, L.P.,
      a
      Tennessee limited partnership, ARC
      PEARLAND, L.P.,
      a
      Tennessee limited partnership, TRINITY
      TOWERS LIMITED PARTNERSHIP,
      a
Tennessee
      limited
      partnership, ARC
      LAKEWAY, L.P., a
      Tennessee limited partnership (“ARC
      Lakeway”),
      ARC
      SPRING SHADOW, L.P., a
      Tennessee limited partnership, ARC
      SHADOWLAKE, L.P.,
      a
      Tennessee limited partnership, ARC
      WILLOWBROOK, L.P.,
      a
      Tennessee limited partnership (“ARC
      Willowbrook”),
      ARC
      PARK REGENCY, INC.,
      a
      Tennessee corporation, and ARC
      PARKLANE, INC.,
      a
      Tennessee corporation (individually
      and collectively, “Existing
      Tenant”);
      ARC
      Westover Hills, L.P.,
      a
      Tennessee limited partnership (“ARC
      Westover Hills”),
      and
ARC
      Deane Hill, LLC,
      a
      Tennessee limited liability company (“ARC
      Deane Hill”)
      (individually and collectively, “Additional
      Tenants”
      and,
      together with Existing Tenant, “Tenant”);
      and
AMERICAN
      RETIREMENT CORPORATION,
      a
      Tennessee corporation (“Guarantor”).

     

    R
      E C I T A L S

     

    A. Landlord
      and Existing Tenant have entered into that certain Master Lease and Security
      Agreement (Pool 1) dated as of July 9, 2002, as amended by (i) that certain
      First Amendment to Master Lease and Security Agreement (Pool 1) dated as of
      July
      9, 2002, (ii) that certain Second Amendment to Master Lease and Security
      Agreement (Pool 1) dated as of July 1, 2003, and (iii) that certain
      Third
      Amendment to Master Lease and Security Agreement (Pool 1) dated as of July
      7,
      2004 (the “Original
      Lease”).
      Initially capitalized terms used but not otherwise defined in this Amendment
      shall have the meanings given to them in the Original Lease. The Original Lease,
      as amended, modified and revised by this Amendment, may be hereinafter referred
      to as the “Master
      Lease”
      herein.

     

    B. Landlord
      or certain Affiliates of Landlord, as landlord (collectively, “Pool
      2 Landlord”),
      and
      Tenant or certain Affiliates of Tenant, as tenant (collectively “Pool
      2 Tenant”),
      have
      entered into that certain Master Lease and Security Agreement (Pool 2) dated
      as
      of July 9, 2002, as amended by (i) that certain First Amendment to Master Lease
      and Security Agreement (Pool 2) dated to be effective as of July 9, 2002, (ii)
      that certain Second Amendment to Master Lease and Security Agreement (Pool
      2)
      dated as of July 1, 2003, and (iii) that certain Third Amendment to Master
      Lease
      and Security Agreement (Pool 2) of even date herewith (the “Pool
      2 Lease”).

     

    C. Pursuant
      to that certain Letter of Credit Agreement dated as of July 9, 2002, executed
      by
      Landlord, Pool 2 Landlord, Tenant and Pool 2 Tenant (the “LC
      Agreement”),
      Tenant and Pool 2 Tenant posted with Landlord and Pool 2 Landlord one or more
      letters of credit as partial collateral for the performance of Tenant’s and Pool
      2 Tenant’s obligations under the Original Lease and the Pool 2
      Lease.

     

    
      
        
        

      

      
        1

        
          

        

      

      
        
        

      

    

    D. 
      Pursuant
      to that certain Guaranty of Master Lease and Security Agreement and Letter
      of
      Credit Agreement dated as of July 9, 2002, executed by Guarantor (the
“Guaranty”),
      Guarantor guaranteed to Landlord and to Pool 2 Landlord, respectively, Tenant’s
      obligations under the Original Lease and Pool 2 Tenant’s obligations under the
      Pool 2 Lease

     

    E. Concurrently
      herewith, (i) NH Texas is selling to ARC Lakeway and ARC Willowbrook the
      Facilities commonly known as Homewood at Lakeway located at 1915 Lohmans
      Crossing Road, Lakeway, Texas (the “Lakeway
      Facility”)
      and
      Willowbrook located at 7450 Willochase Blvd., Houston, Texas (the “Willowbrook
      Facility”
      and,
      collectively with the Lakeway Facility, the “Removed
      Facilities”)
      and,
      (ii) Landlord is acquiring from ARC Westover Hills and ARC Deane Hill
      (x) that certain real property, all improvements thereon and all
      appurtenances thereto commonly known as Deane Hill and located at 401 Catherine
      McAuley Way, Knoxville, Tennessee 37919 (the “Deane
      Hill Facility”),
      and
      (y) that certain real property, all improvements thereon and all
      appurtenances thereto commonly known as Westover Hills and located at 6201
      Plaza
      Parkway, Fort Worth, Texas 76116 (the “Westover
      Hills Facility”),
      the
      legal descriptions of which are attached as Exhibit A
      (collectively, the “Additional
      Facilities”).

     

    F. In
      connection with the transactions described in Recital
      E
      above,
      Landlord, Existing Tenant and Additional Tenants have agreed to remove the
      Removed Facilities from the Premises and to add the Additional Facilities to
      the
      Premises under the Original Lease. 

     

    G. Accordingly,
      Landlord, Guarantor and Tenant wish to amend the Original Lease to, among other
      things, (i) remove the Removed Facilities from the Premises under the
      Original Lease, (ii) join Additional Tenants to the Master Lease and
      the LC
      Agreement, (iii) add the Additional Facilities to the Premises under
      the
      Original Lease, and (iv) make certain other revisions and modifications,
      all as more particularly set forth herein. In connection therewith, Guarantor
      desires to affirm to Landlord its obligations under the Guaranty notwithstanding
      the amendment of the Master Lease set forth in this Agreement. 

     

    A
      G R E E M E N T

     

    NOW,
      THEREFORE,
      in
      consideration of the foregoing Recitals, which by this reference are
      incorporated herein, and of other good and valuable consideration, the receipt
      and adequacy of which are hereby acknowledged, Landlord and Tenant agree as
      follows:

     

    1. Joinder
      of Additional Tenants; Addition of Additional Premises. Additional
      Tenants are hereby joined to the Master Lease and the LC Agreement as a
      collective Tenant thereunder. The Additional Facilities and associated Landlord
      Personal Property are hereby added to the Premises demised under the Master
      Lease.

     

    2. Amendment
      to Original Lease.
      The
      Original Lease is amended, modified and revised as follows: 

     

    (a) The
      Original Lease is hereby amended in all respects necessary to confirm that
      each
      of the Removed Facilities and all property relating thereto shall, from and
      after the date hereof, no longer be included as part of the “Facilities” or as
      part of the “Premises” under the Original Lease.

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

    (b) Section
      2.1
      of the
      Original Lease is hereby deleted in its entirety and the following substituted
      therefor:

     

    “2.1 Initial
      Term Minimum Rent.
      During
      the Initial Term, Tenant shall pay to Landlord Minimum Rent of (a) Nine Million
      Eight Hundred Twenty-Eight Thousand Seven Hundred Fifty Dollars ($9,828,750)
      annually for each Lease Year through and including the Lease Year ending June
      30, 2011, and (b) Nine Million Six Hundred Forty-Two Thousand Seven Hundred
      Fifty Dollars ($9,642,750) annually for each Lease Year thereafter, plus, in
      any
      Lease Year in which due, Development Rent (as defined below) as provided in
      Section 2.1.3. Such Minimum Rent with respect to each month shall be paid by
      wire transfer in advance and in equal monthly installments of (x) Eight Hundred
      Nineteen Thousand Sixty-Two and 50/100 Dollars ($819,062.50) for each month
      in
      each Lease Year through and including the Lease Year ending June 30, 2011,
      and
      (y) Eight Hundred Three Thousand Five Hundred Sixty-Two and 50/100 Dollars
      ($803,562.50) for each month in each Lease Year thereafter, plus any Development
      Rent then due pursuant to Section 2.1.3, on the first business day of each
      such
      calendar month.”

     

    (c) Section
      2.2.5
      of the
      Original Lease is hereby deleted in its entirety and the following substituted
      therefor:

     

    “2.2.5 As
      used
      herein, “Landlord’s
      Adjusted Investment”
      in the
      Premises shall mean Landlord’s Original Investment (as hereinafter defined in
      this Section 2.2.5) multiplied at the end of each Lease Year, commencing on
      June
      30, 2006, by a percentage equal to one hundred percent (100%) plus one-half
      (1⁄2)
      of the CPI Increase (as defined in Section 2.2.6 below) for such Lease Year.
      As
      used herein, “Landlord’s Original Investment” shall mean One Hundred Eight
      Million Three Hundred Sixty-Seven Thousand Four Hundred Twenty-Nine Dollars
      ($108,367,429), as increased by (A) any amount paid by Landlord pursuant to
      Section 5.7 below on or after July 1, 2005, and as decreased by (B) any net
      award paid to Landlord pursuant to Section 13.2 below on or after July 1, 2005,
      any portion thereof allocable to any Facility sold to Tenant pursuant to Section
      5.4 or otherwise on or after July 1, 2005, all as applicable and as may be
      otherwise increased or decreased pursuant to any other provision of the Lease
      as
      a result of any matter arising on or after July 1, 2005, provided that, with
      respect to the computation of “Landlord’s
      Adjusted Investment”
      for any
      Lease Year, any increase or decrease made to “Landlord’s
      Original Investment”
      as a
      result of clause
      (A)
      or
clause
      (B)
      above
      shall first become effective during the Lease Year in which such increase or
      decrease occurred and the computation of “Landlord’s
      Adjusted Investment”
      made at
      the end of such Lease Year shall include such increase or decrease.

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

    (d) Section
      2.3.4
      of the
      Original Lease is hereby deleted in its entirety and the following substantial
      therefor:

     

    “2.3.4 The
      “Base
      Year”
      shall
      mean with respect to each Lease Year during the Initial Term commencing July
      1,
      2005, the twelve month period commencing on July 1, 2001 and ending on June
      30,
      2002, with Gross Revenues for such Base Year being agreed to equal the amount
      of
      Twenty-Seven Million Three Hundred Sixty Thousand Dollars ($27,360,000). The
      “Base
      Year”
      with
      respect to any Renewal Term, shall mean the first Lease Year of such Renewal
      Term.”

     

    (e) For
      purposes of comparing the Total Rent due during the Lease Year (and each quarter
      during such Lease Year) commencing July 1, 2005 and ending June 30, 2006 to
      the
      Total Rent due in the immediately preceding quarterly or annual period pursuant
      to Section 2.5 of the Original Lease, the increase in Minimum Rent in the amount
      of One Hundred Thirty-Eight Thousand Seven Hundred Fifty Dollars ($138,750)
      annually, shall be ignored.

     

    (f) Section
      4.10
      of the
      Original Lease is hereby deleted in its entirety and the following substituted
      therefor:

     

    “4.10 Reimbursement
      of Landlord’s Insurance Costs.
      During
      any Lease Year or portion thereof in which Tenant is not in compliance with
      the
      other provisions of this Section 4, Tenant shall reimburse Landlord, within
      ten
      (10) days of Landlord’s demand therefor, for the costs of the premiums of the
      general liability and environmental insurance policies maintained by Landlord,
      or contributions to self-insurance in lieu thereof, in connection with the
      Premises, which amount shall not exceed in any Lease Year the amount of One
      Hundred Thousand Dollars ($100,000) when aggregated with such amounts as may
      be
      due under the Pool 2 Lease and that certain Lease and Security Agreement
      (Heritage Club) dated as of July 1, 2003, as amended by that First Amendment
      to
      Master Lease and Security Agreement dated as of July 1, 2005 (the “Heritage Club
      Lease”), as adjusted at the end of each Lease Year for increases in the CPI
      since July 1, 2005. Tenant shall have no right to receive any proceeds or other
      benefits from any such insurance. The foregoing shall not in any way imply
      that
      Landlord shall, or impose any duty on Landlord to: (a) waive any Event of
      Default that may arise as a result of Tenant’s failure to comply with the other
      provisions of this Section 4, or (b) obtain or maintain any such general
      liability or environmental insurance with respect to the Premises.”

     

    (g) The
      following is hereby added to and incorporated into the Original Lease as Section
      5.9 thereof:

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

    “5.9 Capital
      Improvements.
      Commencing upon the first release of any Security Deposit and Collateral
      pursuant to Section 11.3 (the “CapEx
      Reserve Commencement Date”),
      Tenant, Pool 2 Tenant and “Tenant” (as defined in the Heritage Club Lease) shall
      make, in the aggregate, annual expenditures for capital improvements to the
      Facilities, the “Facilities” (as defined in the Pool 2 Lease) and the “Facility”
      (as defined in the Heritage Club Lease) equal to one and three-fourths
      percent (1.75%) of the “Gross Revenues”, as calculated in the aggregate
      under this Lease, the Pool 2 Lease and the Heritage Club Lease (the
“Aggregate
      Gross Revenues”),
      for
      the applicable “Lease Year” under this Lease, the Pool 2 Lease and/or the
      Heritage Club Lease, as applicable, or the applicable portion thereof in the
      case of the first “Lease Year” hereunder or thereunder in which this obligation
      commences (the “Required Tenant
      Capital Expenditures”).
      Concurrently with each quarterly payment of Additional Rent after the CapEx
      Reserve Commencement Date, Tenant shall deliver to Landlord in a form mutually
      agreed upon by Landlord and Tenant, a certificate, certified by an officer
      or
      general partner of Tenant, as applicable, setting forth the actual year-to-date
      expenditures for capital improvements to the Facilities, the “Facilities” (as
      defined in the Pool 2 Lease) and the “Facility” (as defined in the Heritage Club
      Lease) made by Tenant, Pool 2 Tenant and “Tenant” (as defined in the Heritage
      Club Lease) as of the end of the applicable quarter. If such actual year-to-date
      expenditures for capital improvements are less than one and three-fourths
      percent (1.75%) of year-to-date Aggregate Gross Revenues for such Lease
      Year under this Lease, the Pool 2 Lease and/or the Heritage Club Lease, as
      applicable, or such applicable portion thereof in the case of the first “Lease
      Year” hereunder or thereunder in which this obligation commences, Tenant, Pool 2
      Tenant and “Tenant” (as defined in the Heritage Club Lease) shall, in the
      aggregate, deposit with Landlord, Pool 2 Landlord and “Landlord” (as defined in
      the Heritage Club Lease) an amount equal to such deficiency, and such funds
      (the
“CapEx
      Funds”)
      shall
      be impounded with Landlord, Pool 2 Landlord and “Landlord” (as defined in the
      Heritage Club Lease), in the aggregate, in accordance with Section 5.10
      of
      this Lease, the Pool 2 Lease and the Heritage Club Lease. Each and every capital
      improvement funded by Tenant, Pool 2 Tenant and “Tenant” (as defined in the
      Heritage Club Lease) in accordance with this Section 5.9 or with use of CapEx
      Funds, as provided under Section 5.10 of this Lease, the Pool 2 Lease and the
      Heritage Club Lease, shall immediately become a part of the Premises, the
“Premises” (as defined in the Pool 2 Lease) or the “Premises” (as defined in the
      Heritage Club Lease), as the case may be, and shall belong to Landlord, Pool
      2
      Landlord and “Landlord” (as defined in the Heritage Club Lease), as the case may
      be, subject to the terms and conditions of this Lease, the Pool 2 Lease or
      the
      Heritage Club Lease, as applicable. Notwithstanding the foregoing, if, at any
      time after the CapEx Reserve Commitment Date, the Security Deposit and
      Collateral is restored to one hundred percent (100%) of its original requirement
      under this Lease, the Pool 2 Lease and the Heritage Club Lease in accordance
      with the provisions of Section 11.3 under this Lease, the Pool 2 Lease and
      the
      Heritage Club Lease, the obligations under Section 5.9 of this Lease, the Pool
      2
      Lease and the Heritage Club Lease shall be suspended until any Security Deposit
      and Collateral is thereafter released under this Lease, the Pool 2 Lease and/or
      the Heritage Club Lease in accordance with such Section 11.3.”

     

    (h) The
      following is hereby added to and incorporated into the Original Lease as Section
      5.10 thereof:

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

    “5.10
      CapEx Funds. Any
      CapEx
      Funds shall be held by Landlord, Pool 2 Landlord and “Landlord” (as defined in
      the Heritage Club Lease), and shall be applied for the purposes of making
      capital improvements to the Facilities, the “Facilities” (as defined in the Pool
      2 Lease) and the “Facility” (as defined in the Heritage Club Lease) (the
“CapEx
      Reserve”).
      From
      time to time, but not more often than twice in any calendar month and provided
      that no Event of Default is then continuing, Landlord, Pool 2 Landlord and/or
      “Landlord” (as defined in the Heritage Club Lease), as the case may be, will
      disburse to Tenant, Pool 2 Tenant and/or “Tenant” (as defined in the Heritage
      Club Lease) amounts from the CapEx Reserve, subject to the following conditions:
      (A)
      the
      costs incurred by Tenant, Pool 2 Tenant and/or “Tenant” (as defined in the
      Heritage Club Lease), as the case may be, shall be for the purposes of making
      capital improvements to the Facilities, the “Facilities” (as defined in the Pool
      2 Lease) and/or the “Facility” (as defined in the Heritage Club Lease); and
(B)
      the
      request for disbursement shall be accompanied with such invoices or purchase
      orders evidencing the expenditure by Tenant, Pool 2 Tenant and/or “Tenant” (as
      defined in the Heritage Club Lease), as the case may be, as Landlord, Pool
      2
      Landlord and/or “Landlord” (as defined in the Heritage Club Lease), as
      applicable, may reasonably require. Landlord, Pool 2 Landlord and/or “Landlord”
      (as defined in the Heritage Club Lease), as the case may be, shall make the
      reimbursements to Tenant, Pool 2 Tenant and/or “Tenant” (as defined in the
      Heritage Club Lease), as applicable, required hereunder within fourteen (14)
      days after satisfaction of all conditions to such disbursement. Upon reasonable
      advance request, Landlord, Pool 2 Landlord and/or “Landlord” (as defined in the
      Heritage Club Lease), as the case may be, may require Tenant, Pool 2 Tenant
      and/or “Tenant” (as defined in the Heritage Club Lease), as applicable, to
      procure mechanic’s lien waivers, in form and substance reasonably satisfactory
      to Landlord, Pool 2 Landlord and/or “Landlord” (as defined in the Heritage Club
      Lease), as the case may be, (if such waivers are then available in the
      applicable State in which the subject Facility is located), in connection with
      any capital improvements in excess of One Hundred Thousand Dollars ($100,000).
      Any amount remaining in the CapEx Reserve at the expiration of the “Term” (as
      such term is defined hereunder, under the Pool 2 Lease and under the Heritage
      Club Lease) under all of this Lease, the Pool 2 Lease and the Heritage Club
      Lease, and/or the earlier termination hereof or thereof, shall be retained
      by
      Landlord, Pool 2 Landlord and/or “Landlord” (as defined in the Heritage Club
      Lease), as the case may be, as additional or supplemental “Total Rent” (as such
      terms is defined hereunder, under the Pool 2 Lease and under the Heritage Club
      Lease) hereunder or thereunder.”

     

    (i) Section
      7.4
      of the
      Original Lease is hereby deleted in its entirety and the following substituted
      therefor:

     

    “7.4 Intangible
      Property.
      The
      term “Intangible Property” means documents, chattel paper, contract rights,
      residency agreements, management agreements, medical records, patient files,
      confidential patient materials, general intangibles, choses in action, now
      owned
      or hereafter acquired by Tenant (including any right to any refund of any taxes
      or other charges heretofore or hereafter paid to any governmental authority)
      arising from or in connection with Tenant’s operation or use of the Premises;
      all licenses and permits now owned or hereinafter acquired by Tenant, necessary
      or desirable for Tenant’s use of the Premises under this Lease, including
      without limitation, if applicable, any certificate of need or other similar
      certificate; and the right to use any trade or other name now or hereafter
      associated with the operation of the Premises by Tenant, including, without
      limitation, the names “Westover Hills,”“Parklane West,”“Pinegate,”“Deane
      Hill,”“Pearland,”“Park Regency,”“Shadowlake,”“Trinity Towers” and “Spring
      Shadows,” but excluding any corporate names or logos used by Tenant. For
      purposes of this Lease, the term “Intangible Property” shall not include
      accounts receivable, negotiable instruments, rights to payment from third
      parties, security deposits, utility deposits, proprietary software, training
      manuals, or general corporate trademarks, service marks, logos, insignia, books
      or records of Tenant, or the tradenames “American Retirement
      Corporation,”“ARC,”“Homewood” or any derivation thereof.

     

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

    (j) The
      following is hereby added to and incorporated into the Original Lease as Section
      9.7 thereof:

     

    “9.7 Financial
      Covenants Calculations.
      Within
      forty-five (45) days of the end of each of the first three quarters of the
      fiscal year of Guarantor and Tenant, and within ninety (90) days of the end
      of
      the fiscal year of Guarantor and Tenant, Tenant shall deliver to Landlord the
      calculations of the “Rent Coverage Ratio”, the “Fixed Charge Coverage Ratio” and
“Book Net Worth” (all as defined in Section 11.3), together with all necessary
      support documentation with respect to such calculations as reasonably required
      by Landlord, and accompanied by an Officer’s Certificate (collectively, the
“Financial
      Covenants Calculations”).”

     

    (k) The
      following is hereby added to and incorporated into the Original Lease as
      Section 11.3 thereof:

     

    “11.3 Security
      Deposit and Collateral Release.
      Provided the threshold Financial Covenants (as hereinafter defined) set forth
      below with respect to a particular Level (i.e., Level 1, Level 2, Level 3 or
      Level 4) have been met, the amount of the original Security Deposit and
      Collateral required hereunder shall be released in twenty-five
      percent (25%) increments, as set forth below, for any fiscal quarter
      in
      which the threshold Financial Covenants pertaining to a particular Level have
      been satisfied; provided however,
      that
      if, at any time after the release of any Security Deposit and Collateral at
      a
      particular Level, the requisite threshold of Financial Covenants pertaining
      to
      such Level is not maintained, as evidenced by the most recent Financial
      Covenants Calculations, then the Security Deposit and Collateral shall be
      restored by Tenant, Pool 2 Tenant and “Tenant” (as defined in the Heritage Club
      Lease), within five (5) days of the delivery of the Financial Covenants
      Calculations to Landlord, to the amount that was held by Landlord, Pool 2
      Landlord and “Landlord” (as defined in the Heritage Club Lease) prior to any
      release of the Security Deposit and Collateral in accordance with such Level
      until such future time, if any, that the applicable threshold Financial
      Covenants pertaining to such Level are once again satisfied. The “Financial
      Covenants”
      shall
      mean the satisfaction of all of the following with respect to any particular
      Level release threshold: 

     

    
      	
              Level

            	 	
              Threshold
                Rent 

              Coverage
                Ratio

            	 	
              Threshold
                

              Fixed
                Charge 

              Coverage

              Ratio

            	 	
              Threshold
                

              Book
                Net 

              Worth

            	 	
              %
                of Original 

              Security
                

              Deposit
                and 

              Collateral
                

              required
                

              hereunder
                to 

              be
                released

            
	
              1

              2

              3

              4

            	 	
              1.25x

              1.35x

              1.40x

              1.45x

            	 	
              1.35x

              1.35x

              1.40x

              1.40x

            	 	
              $100
                Million

              $100
                Million

              $100
                Million

              $100
                Million

            	 	
              25%

              50%

              75%

              100%

            


    

    


     

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

     

    Upon
      the
      exercise by Tenant of any Renewal Term in accordance with Section 1.2 of this
      Lease, Tenant shall increase the amount of the Security Deposit and Collateral
      to the amount required by Section 1.2.3 of this Lease, and such amount shall
      thereafter be deemed to be the “original Security Deposit and Collateral”
      required under the Lease; provided,
      however,
      that
      Landlord shall immediately release to Tenant (or excuse Tenant from depositing
      with Landlord) that portion of the new amount that would have theretofore been
      released if the increased “original Security Deposit and Collateral” amount had
      initially been the “original Security Deposit and Collateral” amount required
      under such Section 1.2.3.

     

    As
      used
      herein, (i) “Rent
      Coverage Ratio”
      shall
      mean, as of the end of any fiscal quarter of Tenant, Pool 2 Tenant and “Tenant”
      (as defined in the Heritage Club Lease), the ratio of (A) “Portfolio
      EBITDAR-X”
      to (B)
“Portfolio
      Rent Expense”
      with
      use of the following defined terms:

     

    “Portfolio
      EBITDAR-X”
      shall
      be calculated as (a) the trailing six (6)-month Portfolio EBITDARM
minus
      (b) an
      amount equal to six percent (6%) of the trailing six (6)-month
      Portfolio Gross Revenues; 

     

    “Portfolio
      EBITDARM”
      shall
      mean, as of the end of any fiscal quarter, the aggregate net income of Tenant,
      Pool 2 Tenant and “Tenant” (as defined in the Heritage Club Lease) for such
      trailing six (6)-month period to the extent derived from the collective
      operation of the Premises as defined herein, the “Premises” as defined under the
      Pool 2 Lease (the “Pool
      2 Premises”)
      and
      the “Premises” as defined under the Heritage Club Lease (the “Heritage
      Club Premises”),
      adjusted to add thereto, to the extent allocable to the Premises, the Pool
      2
      Premises or the Heritage Club Premises, as applicable, without duplication,
      (a)
      interest expense, (b) income tax expense, (c) depreciation and
      amortization expense, (d) rental expense, and (e) management
      fee
      expenses, in each case determined in accordance with GAAP; 

     

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

    “Portfolio
      Gross Revenues”
      shall
      mean, as of the end of any fiscal quarter, the aggregate amount of “Gross
      Revenues” as defined herein with respect to the Premises, the “Gross Revenues”
      as defined in the Pool 2 Lease with respect to the Pool 2 Premises and the
      “Gross Revenues”, as such term is defined herein, and calculated with respect to
      the Heritage Club Premises, in each case, for the trailing six (6)-month period;
      

     

    “Portfolio
      Rent Expense”
      shall
      mean, as of the end of any fiscal quarter, the aggregate amount of “Total Rent”
      (as defined herein or therein) payable by Tenant under this Lease, by Pool
      2
      Tenant under the Pool 2 Lease and by “Tenant” (as defined in the Heritage Club
      Lease) under the Heritage Club Lease, in each case, during the trailing six
      (6)-month period. 

     

    (ii)“Fixed
      Charge Coverage Ratio”
      shall
      mean, as of the end of any fiscal quarter of Guarantor, the ratio of (A)
“Portfolio
      EBITDAR”
      to (B)
“Portfolio
      Fixed Charges”
      with
      use of the following defined terms:

     

    “Portfolio
      EBITDAR”
      shall
      mean, as of the end of any fiscal quarter of Guarantor, the aggregate net income
      of Guarantor and its subsidiaries, as determined in accordance with GAAP on
      a
      consolidated basis, during the trailing six (6)-month period, adjusted to add
      thereto, without duplication, (a) interest expense, (b) income tax expense,
      (c)
      depreciation and amortization expense, and (d) rental expense, as determined
      in
      accordance with GAAP on a consolidated basis, during such trailing six (6)-month
      period, and as further adjusted to add thereto or subtract therefrom (I) any
      gains or losses arising from the sale of assets or (II) any items of income
      or
      expense which are deemed to be “extraordinary” in accordance with GAAP, and any
      other non-cash, non-recurring charges and expenses. As used herein,
“non-recurring charges and expenses” means expenditures or charges that (i) have
      not been incurred within the prior two years, and (ii) are not reasonably likely
      to recur within the subsequent two year period.

     

    “Portfolio
      Fixed Charges”
      shall
      mean, as of the end of any fiscal quarter of Guarantor, the sum of (a) all
      net
      lease expenses, (b) all interest expenses (including the interest component
      of
      rentals under capitalized leases), exclusive of prepayment fees or one-time
      loan
      fees or similar expenses, (c) all scheduled principal amortization payments
      under indebtedness or capitalized leases, exclusive of balloon payments due
      on
      maturity or expiration, as applicable, (d) all dividends paid on preferred
      stock, and (e) all mandatory distributions of earnings to shareholders, for
      Guarantor and its subsidiaries, as determined on a consolidated basis in
      accordance with GAAP, during the trailing six (6)-month period.

     

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

    (iii)
      “Book
      Net Worth”
      shall
      mean, as of the end of any fiscal quarter of Guarantor, as determined on a
      consolidated basis in accordance with GAAP with respect to Guarantor and its
      subsidiaries, (a) the total assets of such parties, minus
      (b) the
      total liabilities of such parties. 

     

    (l) Schedule
      1
      attached
      to the Original Lease is hereby deleted in its entirety and Schedule 1
      attached
      hereto is substituted therefor. In furtherance thereof, ARC Lakeway, L.P.,
      a
      Tennessee limited partnership, and ARC Willowbrook, L.P., a Tennessee limited
      partnership, are hereby released from all liability under the Original Lease
      that arises or accrues on or after the date of this Amendment.

     

    (m) Schedule
      2
      attached
      to the Original Lease is hereby deleted in its entirety and Schedule 2
      attached
      hereto is substituted therefor.

     

    (n) The
      reference to “Homewood at Lakeway” on the front page of Exhibit
      A
      (item
      number 2), the metes and bounds legal description for “Homewood at Lakeway”
      attached as Exhibit
      A-3
      and the
      reference to “Homewood at Lakeway” as item 2 on Exhibit
      C
      are
      hereby deleted.

     

    (o) The
      reference to “Willowbrook” on the front page of Exhibit
      A
      (item
      number 7), the metes and bounds legal description for “Willowbrook” attached as
Exhibit A-15
      and the
      reference to “Willowbrook” as item 7 on Exhibit
      C
      are
      hereby deleted.

     

    (p) Exhibit
      A
      attached
      hereto is hereby added to Exhibit
      A
      of the
      Original Lease.

     

    (q) Exhibit C
      attached
      hereto is hereby added to Exhibit C
      of the
      Original Lease.

     

    3. Reaffirmation
      of Obligations.

     

    (a) Notwithstanding
      the modifications to the Original Lease contained herein, Tenant and Landlord
      each hereby acknowledges and reaffirms its obligations under the Master Lease
      and all other documents executed by such party in connection
      therewith.

     

    (b) Notwithstanding
      the modifications to the Original Lease contained herein, Guarantor hereby
      acknowledges and reaffirms its obligations under the Guaranty and all documents
      executed by Guarantor in connection therewith, and further agrees that any
      reference made in the Guaranty to the Original Lease or any terms or conditions
      contained therein, shall mean such Original Lease or such terms or conditions
      as
      modified by this Amendment.

     

    4. Interpretation;
      Governing Law.
      This
      Amendment shall be construed as a whole and in accordance with its fair meaning.
      Headings are for convenience only and shall not be used in construing meaning.
      This Amendment shall be governed by and construed in accordance with the
      internal laws of the State of California without regard to rules concerning
      the
      choice of law. 

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

    5. Further
      Instruments.
      Each
      party will, whenever and as often as it shall be reasonably requested so to
      do
      by another party, cause to be executed, acknowledged or delivered, any and
      all
      such further instruments and documents as may be necessary or proper, in the
      reasonable opinion of the requesting party, in order to carry out the intent
      and
      purpose of this Amendment.

     

    6. Incorporation
      of Recitals.
      The
      Recitals to this Amendment are incorporated hereby by reference.

     

    7. Counterparts.
      This
      Amendment may be executed in counterparts, all of which executed counterparts
      shall together constitute a single document. Signature pages may be detached
      from the counterparts and attached to a single copy of this document to
      physically form one document.

     

    8. Attorneys'
      Fees.
      In
      the
      event of any dispute or litigation concerning the enforcement, validity or
      interpretation of this Amendment, or any part thereof, the losing party shall
      pay all costs, charges, fees and expenses (including reasonable attorneys'
      fees)
      paid or incurred by the prevailing party, regardless of whether any action
      or
      proceeding is initiated relative to such dispute and regardless of whether
      any
      such litigation is prosecuted to judgment.

     

    9. Effect
      of Amendment.
      Except
      as
      specifically amended pursuant to the terms of this Amendment, the terms and
      conditions of the Original Lease shall remain unmodified and in full force
      and
      effect. In the event of any inconsistencies between the terms of this Amendment
      and any terms of the Original Lease, the terms of this Amendment shall govern
      and prevail.

     

    10. Costs;
      Expenses.
      All
      costs and expenses incurred by Tenant or Landlord with respect to the
      preparation, negotiation and execution of this Amendment and all other
      documentation related to this Amendment shall be paid by Tenant. To the extent
      Landlord pays any such costs or expenses, Tenant shall reimburse Landlord for
      such costs and expenses immediately upon Landlord’s demand
      therefor.

     

    11. Entire
      Agreement.
      This
      Amendment contains the entire agreement between the parties relating to the
      subject matters contained herein. Any oral representations or statements
      concerning the subject matters herein shall be of no force or
      effect.

     

    


    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

     




    IN
      WITNESS WHEREOF,
      this
      Amendment has been executed as of the date first above written.

     

    
      	 	 

              TENANT:

               

              ARC
                PINEGATE, L.P., 

              a
                Tennessee limited partnership

              


              By: ARC
                Tennessee GP, Inc.,

              a
                Tennessee corporation,

              its
                general partner

               

              By:                                                         

              Name:                                                    

              Title:                                                       
                

            
	 	 

              ARC
                PEARLAND, L.P.,
                

              a
                Tennessee limited partnership

              


              By: ARC
                Tennessee GP, Inc.,

              a
                Tennessee corporation,

              its
                general partner

               

              By:                                                         

              Name:                                                    

              Title:                                                      
                

            
	 	 

              TRINITY
                TOWERS LIMITED PARTNERSHIP,

               

              a
                Tennessee limited partnership

               

              By: ARC
                Corpus Christi, LLC,

              a
                Tennessee corporation,

              its
                general partner

               

              By:                                                         

              Name:                                                    

              Title:                                                            

            


    

         

     

    


    
      
        
        

      

      
        S-1

        
          

        

      

      
        
        

      

    

     

    
      	 	 

              ARC
                LAKEWAY, L.P.,

              a
                Tennessee limited partnership

              


              By: ARC
                Tennessee GP, Inc.,

              a
                Tennessee corporation,

              its
                general partner

               

              By:                                                          

              Name:                                                     

              Title:                                                       
                

            
	 	 

              ARC
                SPRING SHADOW, L.P.,
                

              a
                Tennessee limited partnership

              


              By: ARC
                Tennessee GP, Inc.,

              a
                Tennessee corporation,

              its
                general partner

               

              By:                                                           

              Name:                                                      

              Title:                                                       
                

            
	 	 

              ARC
                SHADOWLAKE, L.P.,

              a
                Tennessee limited partnership

               

              By: ARC
                Tennessee GP, Inc.,

              a
                Tennessee corporation,

              its
                general partner

               

              By:                                                           

              Name:                                                      

              Title:                                                             

            


    

     

     

    
      
        
        

      

      
        S-2

        
          

        

      

      
        
        

      

    

     

     

      	 	 

              ARC
                WILLOWBROOK, L.P.,

              a
                Tennessee limited partnership

              


              By: ARC
                Tennessee GP, Inc.,

              a
                Tennessee corporation,

              its
                general partner

               

              By:                                                          

              Name:                                                     

              Title:                                                       
                

            
	 	 

              ARC
                PARK REGENCY, INC.,
                

              a
                Tennessee corporation

               

              By:                                                           

              Name:                                                      

              Title:                                                       
                

            
	 	 

              ARC
                PARKLANE, INC.,

              a
                Tennessee corporation

               

              
              

              By:                                                           

              Name:                                                      

              Title:                                                             

            
	 	 

              ARC
                WESTOVER HILLS, L.P.,

              a
                Tennessee limited partnership

              


              By: ARC
                Tennessee GP, Inc.,

              a
                Tennessee corporation,

              its
                general partner

               

              By:                                                          

              Name:                                                     

              Title:                                                       
                

            


    

     

     

    
      
        
        

      

      
        S-3

        
          

        

      

      
        
        

      

    

     

    
      	 	 

              ARC
                DEANE HILL, LLC,

              a
                Tennessee limited liability company

               

              By:                                                           

              Name:                                                      

              Title:                                                       
                

            
	 	 

              LANDLORD:

               

              NATIONWIDE
                HEALTH PROPERTIES, INC.,
                

              a
                Tennessee corporation

               

              By:                                                           

                   
                Donald D. Bradley

                   
                Senior Vice President and Chief 

                   
                Investment Officer

               

              NH
                TEXAS PROPERTIES LIMITED PARTNERSHIP,

              a
                Texas limited partnership

               

              By:    MLD
                TEXAS CORPORATION,

                               
                a Texas corporation

                               
                Its General Partner

               

                               
                By:                                                            

                                     
                Donald D. Bradley

                                     
                Senior Vice President and 

                                     
                Chief Investment

                                     
                Officer

               

              GUARANTOR:

               

              AMERICAN
                RETIREMENT CORPORATION,

              a
                Tennessee corporation

               

              By:                                                          

              Name:                  ________                                   

              Title:                                                        

               

               

               

            


    

     

     

    
      
        
        

      

      
        S-4

        
          

        

      

      
        
        

      

    

     

    SCHEDULE
      1

     

    LANDLORD
      AND TENANT ENTITIES

     

    


    Landlord

    


    1. NATIONWIDE
      HEALTH PROPERTIES, INC.,
      a
      Maryland corporation

    


    
      	 	
              2.

            	
              NH
                TEXAS PROPERTIES LIMITED PARTNERSHIP,
                

            


    

    a
      Texas
      limited partnership

    


    


    Tenant

    


    
      	 	
              1.

            	
              ARC
                PINEGATE, L.P.,
                a
                Tennessee limited partnership

            


    

     

    
      	 	
              2.

            	
              ARC
                PEARLAND, L.P.,
                a
                Tennessee limited partnership

            


    

     

    
      	 	
              3.

            	
              TRINITY
                TOWERS LIMITED PARTNERSHIP,

              a
Tennessee
                limited partnership

            


    

     

    
      	 	
              4.

            	
              ARC
                SPRING SHADOW, L.P., a
                Tennessee limited partnership

            


    

     

    
      	 	
              5.

            	
              ARC
                SHADOWLAKE, L.P.,
                a
                Tennessee limited partnership

            


    

     

    
      	 	
              6.

            	
              ARC
                PARK REGENCY, INC.,
                a
                Tennessee corporation

            


    

     

    
      	 	
              7.

            	
              ARC
                PARKLANE, INC.,
                a
                Tennessee corporation

            


    

     

    
      	 	
              8.

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

            


    

     

    
      	 	
              9.

            	
              ARC
                DEANE HILL, LLC,
                a
                Tennessee limited liability company

            


    

    
 

    
      
        
        

      

      
        Schedule
          1-1

        
          

        

      

      
        
        

      

    



    SCHEDULE
      2

     

    LOCATION
      OF FACILITIES AND FACILITY INFORMATION

    
      	
              Facility

            	
              Facility
                Location

            	
              No.
                of Beds/Units

            	
              Type
                of Personal Care Facility

            
	
              1.

            	
              Hampton
                at 

              Spring
                Shadow

            	
              9889
                Kempwood Drive

              Houston
                (Harris County), Texas 77080

            	
              52
                Personal Care Beds

              15
                Memory Impaired Beds

            	
              Personal
                Care and

              Memory
                Impaired Facilities

            
	
              2.

            	
              Trinity
                Towers

            	
              101
                North Upper Broadway

              Corpus
                Christi (Nueces County), 

              Texas
                78401

            	
              76
                Nursing Facility Beds

              84
                Personal Care Facility Unit

              (Type
                A Large) Beds

              196
                Independent Living Facility Units

              15
                Dementia Care Units

            	
              Nursing

              Personal
                Care

              Independent
                Living and

              Dementia
                Care Facilities

            
	
              3.

            	
              Homewood
                at Pearland

            	
              2121
                Scarsdale Boulevard

              Pearland
                (Harris County), Texas 77581

            	
              15
                Independent Beds

              52
                Personal Care Beds

              15
                Memory Impaired Beds

            	
              Personal
                Care

              Independent
                Living and

              Memory
                Impaired Facilities

            
	
              4.

            	
              Homewood
                at Pinegate

            	
              2121
                Pinegate Drive

              Houston
                (Harris County), Texas 77008

            	
              80
                Personal Care Beds

              15
                Memory Impaired Beds

            	
              Personal
                Care and

              Memory
                Impaired Facilities

            
	
              5.

            	
              Hampton
                at Shadowlake

            	
              2835
                Shadow Drive

              Houston
                (Harris County), Texas 77072

            	
              79
                Personal Care Beds

              17
                Memory Enhancement Beds

            	
              Personal
                Care and

              Memory
                Enhancement 

              Facilities

            
	
              6.

            	
              Park
                Regency

            	
              2555
                North Price Road

              Chandler,
                Arizona 85224

            	
              120
                Independent Living Units

              (w/
                a la carte AL care)

              and
                66 Nursing Beds

            	
              Independent
                Living,

              Personal
                Care

              and
                Nursing Care

            
	
              7.

            	
              Parklane
                West

            	
              2
                Towers Park Lane

              San
                Antonio, Texas 78209

            	
              17
                Assisted Living Beds

              and
                124 Nursing Beds

            	
              Personal
                Care

              and
                Nursing Care

            
	
              8.

            	
              Westover
                Hills

            	
              6201
                Plaza Parkway

              Fort
                Worth, Texas 76116

            	
              74
                Assisted Living Beds and 17 Memory Impaired Beds

            	
              Personal
                Care and Memory 

              Impaired
                Facilities

            
	
              9.

            	
              Deane
                Hill

            	
              401
                Catherine McAuley Way

              Knoxville,
                Tennessee 37919

            	
              15
                Independent Living Beds

              63
                Assisted Living Beds

              27
                Memory Impaired Beds

            	
              Personal
                Care Independent 

              Living
                and Memory Impaired 

              Facilities

            


    

    


    


    
      
        
        

      

      
        Schedule
          2-1

        
          

        

      

      
        
        

      

    




    EXHIBIT
      A

     

    Legal
      Descriptions of the Facilities

    


    


    (Attached)

     

     

     

     

     

     

    
      
        
        

      

      
        Exhibit
          A-1

        
          

        

      

      
        
        

      

    




    EXHIBIT
      C

     

    Permitted
      Exceptions

     

    


    
      	
              Facility

            	
              Permitted
                Exceptions

            
	
              1.

            	
              Westover
                Hills

            	
              1. The
                standard printed exceptions, conditions and exclusions from coverage
                contained in the standard coverage owner’s title policy then prevailing in
                use at the title company which consummates the sale
                transaction.

               

              2. Any
                matters which an accurate survey of the Premises may show.

               

              3. Exceptions         .

               

              4. Such
                other matters burdening the Premises which were created with the
                consent
                or knowledge of Tenant or arising out of Tenant’s acts or
                omissions.

            
	
              2.

            	
              Deane
                Hill

            	
              1. The
                standard printed exceptions, conditions and exclusions from coverage
                contained in the standard coverage owner’s title policy then prevailing in
                use at the title company which consummates the sale
                transaction.

               

              2. Any
                matters which an accurate survey of the Premises may show.

               

              3. Exceptions          .

               

              4. Such
                other matters burdening the Premises which were created with the
                consent
                or knowledge of Tenant or arising out of Tenant’s acts or
                omissions.

            


    

    


     

    
      
        
        

      

      
        Exhibit
          C-1