Exhibit 10.3

SECURITY AGREEMENT

     THIS SECURITY AGREEMENT (“Agreement”) is executed and entered into by and
between Covenant Group of Texas, Inc., a Delaware corporation (“Secured Party”),
and Capital Senior Management 1, Inc., a Texas corporation (“Debtor”), as of
August 18, 2004.

W I T N E S S E T H:

     WHEREAS, Debtor and Secured Party have executed and entered into that
certain Stock Purchase Agreement dated effective as of July 30, 2004 (“Purchase
Agreement”), pursuant to the closing under which Debtor has acquired from
Secured Party all of issued and outstanding capital stock of CGI Management,
Inc., a Delaware corporation (the “Company”); and

     WHEREAS, pursuant to the closing under the Purchase Agreement, Debtor has
executed and delivered to Secured Party that certain Promissory Note dated
August 18, 2004, in the original principal amount of One Million Three Hundred
Fifty Thousand and No/100 Dollars ($1,350,000.00) made payable by the Debtor to
the order of Secured Party (the “Note”); and

     WHEREAS, as an inducement to Secured Party, the parties hereto wish to more
fully secure payment and performance of the obligations of the Debtor under the
Note pursuant to the terms and provisions set forth hereinbelow;

     NOW, THEREFORE, in consideration of the foregoing, the parties hereby agree
as follows:

     1. The term “Collateral” shall mean all of the shares of the capital stock
of the Company, together with all certificates, options, rights or other
distributions issued as an addition to, in substitution or in exchange for, or
on account of, any such capital stock, and all proceeds of the foregoing, as
further described in Paragraph 4 below, now or hereafter owned or acquired by
Debtor, or by any Affiliate of Debtor. For the purposes of this Agreement, an
“Affiliate” of a person or entity means any other person or entity that
controls, is controlled by, or is under common control with such person or
entity.

     2. As security for the full and timely payment, performance and
satisfaction of the Obligations (as defined below), Debtor, for value received,
hereby grants to Secured Party a first priority security interest in the
Collateral.

     3. As used herein, (a) the term “Obligations” shall mean (i) all of the
Debtor’s obligations, covenants and agreements under the Note, together with any
and all renewals, extensions, or modifications thereof, and (ii) all of Debtor’s
obligations, covenants and agreements under this Agreement, and (b) the term
“Loan Documents” shall mean collectively the Note and this Agreement.

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     4. In the event Debtor shall become entitled to receive or shall receive,
in connection with any of the Collateral (i) any stock certificate, including
any certificate representing a stock dividend or any certificate in connection
with any increase or reduction of capital, reclassification, merger,
consolidation, sale of assets, combination of shares, stock split or spin-off or
(ii) any option, warrant or right, whether as an addition to or in substitution
of any of the Collateral, or otherwise, Debtor shall accept same as encumbered
by the security interest created hereby, and shall deliver same forthwith to
Secured Party in the exact form received, including as appropriate, Debtor’s
endorsement or appropriate stock powers duly executed in blank, to be held by
Secured Party as a part of the Collateral, subject to the terms hereof;
provided, however, that for so long as no event of default (as defined in
Paragraph 10 below) is in existence, Debtor shall have the right to receive cash
dividends declared and paid on account of the Collateral.

     5. Debtor warrants and represents to Secured Party that (a) Debtor has the
power and authority to enter into this Agreement, and to pledge the Collateral
for the purposes described herein, (b) Debtor is the sole legal and beneficial
owner of all the Collateral, (c) the Collateral constitutes all of the issued
and outstanding shares of capital stock of the Company, (d) all of the
Collateral has been duly and validly issued and the stock certificate
representing the same has been duly executed by the President and Secretary of
the Company, (e) to the best of its knowledge the Collateral is fully paid and
nonassessable, and is owned by Debtor free of any pledge, mortgage, lien or
security interest of any kind, (f) to the best of its knowledge execution and
delivery by Debtor of this Agreement, and the performance of its terms, has been
duly authorized by all corporate action necessary on Debtor’s part and will not
result in any violation or default under Debtor’s corporate charter or bylaws,
or under any agreement, instrument, law, governmental rule or regulation, order
or judgment applicable to Debtor or the Collateral, (g) to the best of its
knowledge upon execution and deliver by Debtor of this Agreement and upon
delivery of the Collateral to Secured Party, this Agreement shall create a valid
perfected first priority security interest in the Collateral, (h) this Agreement
and the Note constitute legal, valid, and binding obligations of Debtor,
enforceable against Debtor in accordance with their respective terms, and (i) no
consent, approval, authorization or order of, and no notice to or filing with,
any court, governmental authority or third party is required in connection with
the grant by Debtor of the security interest herein or with the exercise by
Secured Party of its rights and remedies hereunder.

     6. Until such time as the Obligations have been fully paid, performed and
satisfied, Debtor shall not without the prior written consent of Secured Party:
(a) sell, convey or otherwise dispose of any of the Collateral or any interest
therein, or create, incur or permit to exist any pledge, mortgage, lien, charge,
encumbrance or any security interest whatsoever in or with respect to any of the
Collateral, other than the security interest created hereby, (b) consent to,
approve, or allow the issuance of any additional equity securities of the
Company, or of any instrument convertible voluntarily by the holder thereof or
automatically upon the occurrence or non-occurrence of any event or condition
into, or exchangeable for, any such equity securities, or of any warrants,
options, contracts, rights or other commitments entitling any third party to
purchase or otherwise to acquire any such equity securities, (c) take any action
that could impair in any manner the enforceability of Secured Party’s security
interest in the Collateral, (d) fail to take any action necessary to prevent, in
any manner, the impairment of enforceability of Secured Party’s security
interest in the Collateral, or (e) enter into any agreement creating, or
otherwise permit to exist, any restriction or condition upon the transfer,
voting, or control of any Collateral.

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     7. Until such time as the Obligations have been fully paid, performed and
satisfied, Debtor shall (a) maintain good and marketable title to the Collateral
free and clear of all liens, security interests, encumbrances or adverse claims,
except for the security interest created by this Agreement, (b)“not permit or
suffer to exist any dispute, right of setoff, counterclaim or defense to exist
with respect to all or any part of the Collateral, (c) cause any financing
statement or other security instrument covering the Collateral to be terminated,
except as may exist or as may have been filed in favor of Secured Party,
(d) keep adequate records concerning the Collateral and permit Secured Party and
its representatives to inspect Debtor’s books and records of or relating to the
Collateral at any time during normal business hours, to make and take away,
without charge, photocopies, photographs and printouts thereof and to write down
and record any such information, (e) promptly notify Secured Party of any claim,
action or proceeding affecting title to the Collateral, or any part thereof, or
the security interest created hereunder, and (f) contemporaneously with the
execution hereof and from time to time thereafter at Secured Party’s expense
promptly execute and deliver all further instruments and documents and take all
further action necessary or appropriate or that Secured Party may reasonably
request in order (i) to perfect and protect the security interest created or
purported to be created hereby and the perfection and first priority of such
security interest, (ii) to enable Secured Party to exercise and enforce its
rights and remedies hereunder in respect of the Collateral, and (iii) otherwise
to effect the purposes of this Agreement.

     8. Until such time as the Obligations have been fully paid, performed and
satisfied, Secured Party shall have the rights contained in this Paragraph.

     (a) If Debtor fails to perform any agreement or obligation provided herein,
Secured Party may itself perform, or cause performance of, such agreement or
obligation, and the reasonable expenses of Secured Party incurred in connection
therewith shall be a part of the Obligations, secured by the Collateral and
payable by Debtor on demand.

     (b) Notwithstanding any other provision herein to the contrary, Secured
Party does not have any duty to exercise or continue to exercise any of the
foregoing rights and shall not be responsible for any failure to do so or for
any delay in doing so.

     9. Debtor shall defend, at Debtor’s sole cost and expense, Secured Party’s
right, title and security interest in and to the Collateral against the claims
of any person or entity.

     10. The occurrence of any one or more of the following events shall
constitute a default by Debtor hereunder:

     (a) The failure of timely payment or performance of any of the Obligation
and the failure to cure such default within ten (10) days after written notice
from Secured Party;

     (b) Default by Debtor in the punctual performance of any of the
obligations, covenants, terms or provisions contained or referred to in this
Agreement and the failure to cure such default within thirty (30) days after
written notice from Secured Party;

     (c) Any warranty, representation or statement contained in this Agreement
or made or furnished to Secured Party by or on behalf of Debtor in connection
with this Agreement proves to have been false in any material respect when made
or furnished;

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     (d) The making of any levy on or seizure or attachment of any of the
Collateral;

     (e) If Debtor (i) becomes insolvent, or makes a transfer in fraud of
creditors, or makes an assignment for the benefit of creditors, or admits in
writing its inability to pay its debts as they become due; (ii) has a receiver,
trustee or custodian appointed for, or take possession of, all or substantially
all of the assets of such party or any of the Collateral, either in a proceeding
brought by such party or in a proceeding brought against such party and such
appointment is not discharged or such possession is not terminated within one
hundred twenty (120) days after the effective date thereof or such party
consents to or acquiesces in such appointment or possession; (iii) files a
petition for relief under the United States Secured Bankruptcy Code or any other
present or future federal or state insolvency, bankruptcy or similar laws (all
of the foregoing hereinafter collectively called “Applicable Secured Bankruptcy
Law”) or an involuntary petition for relief is filed against such party under
any Applicable Secured Bankruptcy Law and such involuntary petition is not
dismissed within one hundred twenty (120) days after the filing thereof, or an
order for relief naming such party is entered under any Applicable Secured
Bankruptcy Law, or any composition, rearrangement, extension, reorganization or
other relief of debtors now or hereafter existing is requested or consented to
by such party; or (iv) fails to have discharged within a period of one hundred
twenty (120) days any attachment, sequestration or similar writ levied upon any
property of such party;

     (f) The liquidation or dissolution of Debtor; or

     (g) The Company hereafter issues any shares of any class of equity security
(unless immediately upon issuance, additional securities are pledged and
delivered to Secured Party pursuant to the terms hereof to the extent necessary
to give Secured Party a security interest after such issuance in at least the
same percentage of the Company’s outstanding securities as Secured Party had
before such issuance) or any warrants, options, contracts, rights or other
commitments entitling any third party to purchase or otherwise to acquire any
such equity securities.

     11. Upon the occurrence of any of the events of default set forth in
Paragraph 10 above, Secured Party may, at Secured Party’s option, (a) proceed
immediately to have any or all of the Collateral registered in Secured Party’s
name or the name of Secured Party’s nominee, and Debtor hereby covenants that,
in such event and upon Secured Party’s request, Debtor will cause the issuer of
the Collateral to effect such registration, (b) exercise all voting rights with
respect to the Collateral and all other corporate rights and rights of
conversion, exchange, subscription or other rights, privileges or options
pertaining thereto as if Secured Party were the absolute owner thereof,
including without limitation, the right to exchange any or all of the Collateral
upon the merger, consolidation, reorganization, recapitalization or other
readjustment of the Company, or upon the exercise by the Company of any right,
privilege or option pertaining to any of the Collateral and, in connection
therewith, to deliver any of the Collateral to any committee, depository,
transfer agent, registrar or other designated agency upon such terms and
conditions as it may determine, without liability except to account for property
actually received by Secured Party (provided, however, that Secured Party shall
have no duty to exercise any of the foregoing rights, privileges or options and
shall not be responsible for any delay or failure to do so), (c) proceed
immediately to dispose of the Collateral, or any part thereof, and in connection
therewith, sell or otherwise dispose of and deliver the Collateral, or any part
thereof, in one or more parcels at public or private sale or sales, at any
exchange, broker’s board or at any of

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Secured Party’s offices or elsewhere, at such prices and on such terms
(including, but without limitation, a requirement that any purchaser of all or
any part of the Collateral purchase the Collateral for investment and without
any intention to make a distribution thereof), as it may deem best, for cash or
on credit, or for future delivery without assumption of any credit risk, with
the right of Secured Party or any purchaser to purchase at any such sale either
the whole or any part of the Collateral (in connection with any such sale or
disposition, Secured Party need not give more than five (5) calendar days’
notice by certified mail, return receipt requested, of the time and place of any
public sale or of the time after which a private sale may take place, which
notice Debtor hereby acknowledges to be reasonable.)

     12. The proceeds of any disposition of all or any part of the Collateral,
as provided in Paragraph 11 above, shall be applied as follows: (a) first, to
the reasonable costs and expenses incurred in connection therewith or incidental
thereto, including reasonable attorneys’ fees and legal expenses; (b) second, to
the satisfaction of all security interests and liens on the Collateral other
than the security interest granted hereby; (c) second, to the satisfaction of
the Obligations; (d) third, to the payment of any other amounts required by
applicable law; and (e) fourth, to Debtor to the extent of any surplus
remaining.

     13. Debtor recognizes and acknowledges that Secured Party may be unable to
effect a public sale of all or a part of the Collateral and may elect to resort
to one or more private sales to purchasers who will be obligated to agree, among
other things, to acquire the Collateral for their own account, for investment,
and not with a view to the distribution or resale thereof. Debtor acknowledges
that any such private sales may be at prices and on terms less favorable to
Secured Party than those of public sales, and agree that such private sales may
be deemed to have been made in a commercially reasonable manner and that Secured
Party has no obligation to delay sale of any Collateral or to permit the issuer
thereof to register it for public sale under the Securities Act of 1933, as
amended.

     14. (i) In the event of any dispute, controversy, or claim arising out of
or in connection with this Agreement or with the transactions contemplated
hereby, or with the breach or alleged breach hereof, in each case whether
sounding in contract, tort, or otherwise (each a “Dispute”), the parties shall
settle such Dispute in accordance with the provisions of this Section 14.

           (ii) Upon the occurrence and during the continuation of a Dispute,
the parties agree first to attempt to settle such Dispute amicably through
consultation and negotiation between their respective executive officers.

           (iii) Upon the occurrence and during the continuation of any Dispute
that remains unresolved notwithstanding compliance with Section 14(ii) above,
the parties agree to attempt to settle such Dispute through non-binding
mediation conducted by a mediator with at least five (5) years of mediation
experience who has been qualified under the Texas Alternative Dispute Resolution
Act (a “Mediator”). In the event that the parties cannot agree on a single
Mediator, then each of the parties shall select a Mediator, and the two
(2) Mediators thus selected shall select a single Mediator to hear the Dispute.
Each of the parties shall pay one-half (1/2) of the aggregate fees and expenses
of the mediation.

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           (iv) Any Dispute that remains unresolved notwithstanding compliance
with Sections 14(ii) and (iii) above, or any Dispute with respect to which one
or more parties shall fail to comply in all material respects with the
requirements of such Section 14(ii) and/or (iii) promptly following the written
request of the other party, shall be settled by arbitration administered by the
American Arbitration Association (“AAA”) under its “R-Series” Commercial
Arbitration Rules, as supplemented and modified by its “E-Series” Commercial
Arbitration Rules (or under such other AAA rules as may then apply with respect
to expedited arbitration), and judgment on the award (the “Award”) rendered by
the arbitrator(s) (the “Arbitrator”) may be entered in any court having
jurisdiction thereof. The parties agree to and mutually request an oral hearing
of the Dispute. The Arbitrator must have at least five (5) years of arbitration
experience.

           (v) The parties expressly agree that, prior to the appointment of the
Arbitrator, nothing in this Agreement shall prevent a party from applying to a
court that otherwise would be of competent jurisdiction solely to obtain a
preliminary injunction or other similar provisional or interim relief to
maintain the status quo. Upon appointment of the Arbitrator, the Arbitrator
shall have sole jurisdiction to hear any such applications, except that any such
provisional or interim measures that the Arbitrator may order may be immediately
and specifically enforced by a court that otherwise would be of competent
jurisdiction.

           (vi) Each of the parties shall pay one-half (1/2) of the aggregate
fees and expenses of the arbitration, and all other fees and expenses (such as,
for example, attorney and accounting fees, actuarial and other experts) shall be
paid by the party incurring them; provided, however, that a party prevailing on
substantially all of its claims shall be entitled to reasonable attorneys’ fees,
costs, and other disbursements in addition to any other relief to which such
party may be entitled.

           (vii) The place of any arbitration instituted under this Section 14
shall be Dallas, Texas. Each party consents to jurisdiction in such forum.

     15. Upon the execution hereof, Debtor shall deliver to Secured Party the
stock certificate or certificates representing the Collateral, including
Debtor’s endorsements thereon as appropriate or appropriate stock powers, duly
executed in blank, to be held by Secured Party in accordance with the terms of
this Agreement.

     16. Upon full payment and performance of all of the Obligations and upon
payment of all additional costs and expenses provided herein, this Agreement
shall terminate and Secured Party shall deliver to Debtor, at Debtor’s expense,
such of the Collateral as shall not have been sold or otherwise disposed of
pursuant to this Agreement.

     17. Secured Party shall exercise reasonable care to assure the safe custody
of the Collateral while held pursuant hereto, but shall have no other
obligations with respect to the Collateral.

     18. The rights and remedies provided herein are cumulative and are in
addition to, and not exclusive of, any rights or remedies provided in other
instruments and agreements

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between Debtor and Secured Party, or as provided by law, including without
limitation, the rights and remedies of a secured party under the Code.

     19. This Agreement shall be governed as to its validity, interpretation and
effect in accordance with the laws of the State of Texas, except as required by
mandatory provisions of law and except if the validity or perfection of the
security interest hereunder, or remedies hereunder, are governed by the laws of
a jurisdiction other than the State of Texas.

     20. This Agreement and the security interest created hereby shall be
transferable and assignable by the Secured Party in whole or in part, at such
times and upon such terms as it deems advisable and, upon any such transfer or
assignment, the transferee or assignee shall succeed to all rights and powers of
the Secured Party hereunder to the extent of any such transfer or assignment.
The Agreement shall not be transferable or assignable by Debtor without the
prior written consent of Secured Party. This Agreement is binding upon and shall
inure to the benefit of the parties hereto, their successors, permitted assigns,
heirs and legal representatives.

     21. All notices, requests, demands, claims, and other communications
hereunder will be in writing. Any notice, request, demand, claim, or other
communication hereunder shall be deemed (i) duly given if (A) it is faxed to the
intended recipient as set forth below, and (B) thereafter it is sent by
registered or certified mail, return receipt requested, postage prepaid, and
addressed to the intended recipient as set forth below, and (ii) duly received
upon actual receipt:

          If to the Secured Party:   Copy to: Covenant Group of Texas, Inc.  
Brian D. Bowden, Esq. 5601 Bridge Street, Suite 504   Brian D. Bowden, P.C. Fort
Worth, Texas 76112   2900 Westridge Avenue Attn: Mr. Gary Staats   Fort Worth,
Texas 76116 Facsimile: 817/446-0923   Facsimile: 817/732-7722
 
        If to the Debtor:   Copy to: Capital Senior Management 1, Inc.   Jeffrey
L. Fisher, Esq. 14160 Dallas Parkway, Suite 300   Geary, Porter & Donovan, P.C.
Dallas, Texas 75254   16475 Dallas Parkway, Suite 500
Attn:
  James A. Stroud and   Addison, Texas 75001

  David R. Brickman   Facsimile: 972/931-9208 Facsimile: 972/770-5666    

Either party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, ordinary mail or electronic mail), but no such notice, request demand,
claim, or other communication shall be deemed to have been duly given unless and
until it actually is received by the intended recipient. Either party may change
the address to which notices, requests, demands, claims, and other
communications hereunder are to be delivered by giving the other party notice in
the manner herein set forth.

     22. This Agreement and all documents and instruments executed in connection
therewith or herewith, supersede any and all other agreements, either oral or in
writing, between

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the parties hereto with respect to the subject matter hereof and contain all of
the covenants and agreements between the parties with respect to the subject
matter hereof.

     23. No term or condition of this Agreement shall be deemed to have been
waived nor shall there be any estoppel to enforce any provision of this
Agreement except by written instrument of the party charged with such waiver or
estoppel. No amendment or modification of this Agreement shall be deemed
effective unless and until executed in writing by all of the parties hereto.
Secured Party may waive any default without waiving any other prior or
subsequent default. Secured Party may remedy any default without waiving the
default remedied. Neither the failure by Secured Party to exercise, nor the
delay by Secured Party in exercising, any right or remedy upon any default shall
be construed as a waiver of such default or as a waiver of the right to exercise
any such right or remedy at a later date. No single or partial exercise by
Secured Party of any right or remedy hereunder shall exhaust the same or shall
preclude any other or further exercise thereof, and every such right or remedy
hereunder may be exercised at any time. No waiver of any provision hereof or
consent to any departure by Debtor therefrom shall be effective unless the same
shall be in writing and signed by Secured Party and then such waiver or consent
shall be effective only in the specific instances, for the purpose for which
given and to the extent therein specified.

     24. This Agreement (i) creates a continuing security interest in the
Collateral, (ii) shall be binding on Debtor and the heirs, executors,
administrators, personal representatives, successors and assigns of Debtor, and
(iii) shall inure to the benefit of Secured Party and its successors and
assigns. Secured Party may not pledge, assign or otherwise transfer the
Obligations and its rights under this Agreement and any of the other Loan
Documents to any other party. Debtor’s rights and obligations hereunder may not
be assigned or otherwise transferred without the prior written consent of
Secured Party.

     25. In the event any one or more of the provisions contained in this
Agreement shall for any reason be held to be invalid, illegal or unenforceable
in any respect, such invalidity, illegality or unenforceability shall not affect
any other provision hereof and this Agreement shall be construed as if such
invalid, illegal or unenforceable provision had never been contained herein.

     26. No delay, failure to enforce or single or partial exercise on the part
of Secured Party in connection with any of its rights hereunder shall constitute
an estoppel or waiver thereof, or preclude other or further exercise or
enforcement thereof and no waiver of any default hereunder shall be a waiver of
any subsequent default.

     27. Notwithstanding any other provision contained in this Agreement or the
Note, in the event that the proceeds of any sale of, collection from, or other
realization upon, all or any part of the Collateral by Secured Party are
insufficient to pay all amounts to which Secured Party is legally entitled,
Debtor shall be liable for the deficiency, together with interest thereon as
provided in the Loan Documents and Purchase Agreement, to the full extent
permitted by the Code.

[Signature page follows]

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     IN WITNESS WHEREOF, Debtor and Secured Party have entered into this
Security Agreement as of the date first above written.

            DEBTOR:

CAPITAL SENIOR MANAGEMENT 1, INC.,
a Texas corporation
      By:   /s/ David R. Brickman         David R. Brickman, Vice President     
          SECURED PARTY:

COVENANT GROUP OF TEXAS, INC.,
a Delaware corporation
      By:   /s/ Robert Bullock         Robert Bullock, Executive Vice President 
           

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