Document:

exv10w15

 

EXHIBIT 10.15

SECOND AMENDED AND RESTATED AIRCRAFT AND ENGINE USE AGREEMENT

     This Second Amended and Restated Aircraft Use Agreement (this
“Agreement”), is made as of the 1st day of November, 2004, by and between Kitty
Hawk Aircargo, Inc. (“Aircargo”) and the Kitty Hawk Collateral Liquidating
Trust, by Langdon Asset Management, Inc., its Trust Manager (the “Trust”).

     A. Aircargo and the Trust entered into that certain Aircraft and Engine
Use Agreement dated as of September 30, 2002 (the “Original Agreement”) and
entered into the Amended Aircraft and Engine Use Agreement dated as of January
1, 2004.

     B. Aircargo and the Trust have determined to amend and restate the
Original Agreement, and the Amended and Restated Aircraft and Engine Use
Agreement in its entirety as set forth herein.

     C. In consideration of the foregoing premises (which constitute an
integral part of this Agreement) and the mutual covenants hereinafter set
forth, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree
as follows:

     1. Utilization of Airframes.

Airframes N278US, N279US, N281KH and N284KH – (the “Heavy Weight Airframes”)

Aircargo shall use the Heavy Weight Airframes identified on Schedule A
collectively, in total, a minimum of ***** block hours (“Block Hours”) per
month (the “Minimum Heavy Weight Airframe Usage”). Each Heavy Weight Airframe
shall be available for use by Aircargo for purposes of this Agreement until the
date set forth opposite such Heavy Weight Airframe on Schedule A (for each
Heavy Weight Airframe, the “Available to Date”). Notwithstanding the
foregoing, if for any reason during any month fewer than four (4) Heavy Weight
Airframes (the four current Heavy Weight Airframes being N278US, N279US, N281KH
and N284KH, and, collectively, the “Heavy Weight Airframes”) are available for
Aircargo’s use, the Minimum Airframe Usage for such month will be reduced by
***** Block Hours for each of the four (4) Heavy Weight Airframes not available
for Aircargo’s use.

For purposes of determining the Minimum Heavy Weight Airframe Usage requirement
in any month, the Available to Dates of airframes N278US, N279US, N281KH and
N284KH set forth on Schedule A shall apply regardless of whether Aircargo
elects a Heavy Weight Airframe Extension Option (as defined below) with respect
to such Heavy Weight Airframe. Furthermore, for the purposes of determining
the Minimum Heavy Weight Airframe Usage requirement in any month, any Heavy
Weight Airframe for which a Heavy Weight Extension Option has been exercised
and the corresponding maintenance event has been completed will be deemed not
available for use for purposes of calculating the Minimum Heavy Weight Airframe
Usage requirement referenced in the preceding paragraph and instead will be
governed by the Aircargo

CONFIDENTIAL TREATMENT HAS BEEN REQUESTED BY KITTY HAWK, INC. FOR CERTAIN
PORTIONS OF THIS DOCUMENT. CONFIDENTIAL PORTIONS HAVE BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION. OMITTED PORTIONS ARE INDICATED IN
THIS AGREEMENT WITH “*****”.

 

 

Minimum Block Hour Commitment for such Heavy Weight Airframe as reflected on
Schedule B.

In the event that any Heavy Weight Airframe is not available for use by
Aircargo during any part of a month prior to the Available to Date applicable
to such airframe, the Minimum Heavy Weight Airframe Usage requirement for such
month shall be reduced by the number of Block Hours attributable to such Heavy
Weight Airframe prorated for such part of the month for which such airframe is
unavailable based on a thirty-day month. Any Heavy Weight Airframe with less
than ***** Block Hours remaining prior to its next required C-Check or Heavy
Maintenance event is deemed not available for use.

Airframes N69739, N69740, N854AA, N252US, N6827, N6833, and N6809 – (the “Other
Airframes”)

Until the latest date shown on Schedule A for the Other Airframes, Aircargo
shall use the Other Airframes identified on Schedule A collectively, in total,
a minimum of ***** block hours (“Block Hours”) per month (the “Minimum Other
Airframe Usage”). Each Other Airframe shall be available for use by Aircargo
for purposes of this Agreement until the date set forth opposite such Other
Airframe on Schedule A (for each Other Airframe, the “Available to Date”).
Notwithstanding the foregoing, if for any reason during any month fewer than
seven (7) Other Airframes are available for Aircargo’s use, the Minimum Other
Airframe Usage for such month will be reduced by ***** Block Hours for each of
the seven (7) Other Airframes not available for Aircargo’s use. In the event
that any Other Airframe is not available for use by Aircargo during any part of
a month prior to the Available to Date applicable to such airframe, the Minimum
Other Airframe Usage requirement for such month shall be reduced by the number
of Block Hours attributable to such Other Airframe prorated for such part of
the month for which such Other Airframe is unavailable based on a thirty-day
month. Any Other Airframe with less than ***** Block Hours remaining prior to
its next required C-Check or Heavy Maintenance event is deemed not available
for use.

“Airframes” when used without the modifier ‘Heavy Weight’ or ‘Other’ refers to
either or both the Heavy Weight Airframes and the Other Airframes as
applicable.

     2. Rates for Airframes. The Block Hour rate for utilization of each of
the Airframes shall be as follows:

	 	 	 	 	 
	 	 	Rate per Block Hour
	 	 	Until Aircraft Extension Options
	Airframe
	 	per Schedule B

	N278US
	 	$	*	****
	N279US
	 	$	*	****
	N281KH
	 	$	*	****
	N284KH
	 	$	*	****
	N69739
	 	$	*	****

CONFIDENTIAL TREATMENT HAS BEEN REQUESTED BY KITTY HAWK, INC. FOR CERTAIN
PORTIONS OF THIS DOCUMENT. CONFIDENTIAL PORTIONS HAVE BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION. OMITTED PORTIONS ARE INDICATED IN
THIS AGREEMENT WITH “*****”.

2

 

	 	 	 	 	 
	 	 	Rate per Block Hour
	 	 	Until Aircraft Extension Options
	Airframe
	 	per Schedule B

	N69740
	 	$	*	****
	N854AA
	 	$	*	****
	N252US
	 	$	*	****
	N6809
	 	$	*	****
	N6827
	 	$	*	****
	N6833
	 	$	*	****

     3. Modifications to Airframes. The Airframes shall be modified as
provided below. Such modifications shall be completed prior to the date
required by the rules and regulations of the Federal Aviation Administration:

          a. TCAS (traffic collision avoidance system) Avionics: For any Airframe
requiring the installation of TCAS avionics prior to the Available to Date
applicable to such Airframe, Aircargo will pay for the installation of such
TCAS avionics and the costs for the wiring of such Airframe to accommodate the
installation of the TCAS avionics. The Trust will reimburse up to $*****of the
costs incurred by Aircargo related to the installation of the TCAS avionics for
any such Airframe, including costs related to the acquisition of the TCAS
avionics computer processor (the “Computer Processor”), upon the receipt by the
Trust of written demand for such reimbursement from Aircargo. The Trust shall
own the Computer Processor following the installation of the TCAS avionics.
The TCAS avionics shall include the Computer Processor, two (2) IVSI’s, two (2)
antennas, a Mode S transponder, Radar Indication and related Control Head.

          b. RVSM (reduced vertical separation): For any Heavy Weight Airframe or
Other Airframe except for airframe N6833 and N6809 for which Aircargo requires
the installation of an RVSM system prior to the Available to Date applicable to
such airframe, the Trust will pay for the installation of the RVSM system. The
cost of the parts of the RVSM system for which the Trust will be obligated will
not exceed $***** per Airframe.

          c. EGPWS/TAWS (enhanced ground proximity warning): For any Airframe requiring
the installation of an EGPWS/TAWS system prior to the Available to Date
applicable to such airframe, the Trust will pay for the installation of the
EGPWS/TAWS system upon thirty (30) days written notice of demand by Aircargo to
install the EGPWS/TAWS system. The cost of the parts of the EGPWS/TAWS system
for which the Trust will be obligated will not exceed $***** per Airframe.

     4. Airframe Extension Option.

          a. Aircargo may elect, in its sole discretion, to extend the Available to
Date of airframes N278US, N279US, N281KH, and N284KH by delivering written
notice (“Airframe Extension Option”) of such election to the Trust at any time
prior to the Airframe Extension

CONFIDENTIAL TREATMENT HAS BEEN REQUESTED BY KITTY HAWK, INC. FOR CERTAIN
PORTIONS OF THIS DOCUMENT. CONFIDENTIAL PORTIONS HAVE BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION. OMITTED PORTIONS ARE INDICATED IN
THIS AGREEMENT WITH “*****”.

3

 

Option Notice Date as reflected on Schedule B for such airframe. N279US Airframe
Extension Option is exercised by Aircargo concurrently with
the execution of this Amendment.

          b. In the event that Aircargo elects an Airframe Extension Option with
respect to any Airframe pursuant to Section 4(a) above and the Trust fulfills
its obligation applicable to such Airframe Extension Option, Aircargo shall
pay to the Trust an amount equal to the rate per Block Hour applicable to such
Airframe multiplied by the number of actual Block Hours that such Airframe was
used by Aircargo in the manner provided in Section 6 of this Agreement. Upon
the expiration of the Extended Available to Date applicable to any Airframe
Extension Option, Aircargo shall make an additional payment to the Trust if the
total number of Block Hours that Aircargo used the relevant Airframe prior to
the Extended Available to Date is less than the Aircargo Minimum Block Hours
Commitment applicable to such Airframe Extension Option. Such payment shall be
made within thirty (30) days after the Extended Available to Date for such
Airframe Extension Option. The payment shall be in an amount equal to the
Block Hour rate applicable to such Airframe multiplied by the number of Block
Hours by which the Aircargo Minimum Block Hours Commitment exceeds the actual
total Block Hours such Airframe was used by Aircargo prior to the Extended
Available to Date.

     5. Transfer of Engines and Rates for Engines.

          a. Aircargo and the Trust agree and affirm that on September 15, 2003,
each party transferred certain engines that each such party owned for certain
engines owned by the other party. Aircargo and the Trust further agree and
affirm that the transfer of such engines from each party to the other
constituted a transfer of all ownership rights in the transferred engines to
the other party, effective as of September 15, 2003, and that each party will
transfer all documents of title or other documents or instruments evidencing
ownership of the transferred engines to the other party no later than February
27, 2004. The engines so transferred are set forth on Schedule C to this
Agreement. Aircargo and the Trust agree that this Agreement shall serve as a
bill of sale for such engine transfers. To the extent that any Aircargo engine
that was transferred to the Trust was subject to a lien in favor of a secured
creditor prior to September 15, 2003, the Trust affirms that such lien shall
remain in place until satisfied. Schedule D to this Agreement sets forth the
engines owned by the Trust as of December 3, 2003 (the “Engines”), and sets
forth the Block Hour rate that Aircargo will pay for the use of each of the
Engines from January 1, 2004 to December 31, 2008 (the Available to Date of
such Engines) regardless of whether such Engines are installed on one of the
Airframes, on an Aircargo airframe or on the airframe of a third party.

          b. Prior to December 31, 2008, Aircargo will use the Engines collectively,
in total and on a pooled basis, for a minimum of ***** (*****%) of the expected
Block Hour life of the Engines set forth on Schedule D (“Minimum Engine Block
Hours”). Aircargo shall pay to the Trust an amount equal to the rate per Block
Hour applicable to each Engine multiplied by the
actual number of Block Hours that such Engine was used by Aircargo in the
manner provided in Section 6 below. In the event that the total actual number
of Block Hours used for all Engines between January 1, 2004 and December 31,
2008 do not exceed the Minimum Engine Block

CONFIDENTIAL TREATMENT HAS BEEN REQUESTED BY KITTY HAWK, INC. FOR CERTAIN
PORTIONS OF THIS DOCUMENT. CONFIDENTIAL PORTIONS HAVE BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION. OMITTED PORTIONS ARE INDICATED IN
THIS AGREEMENT WITH “*****”.

4

 

Hours, within thirty (30) days
after December 31, 2008, Aircargo shall pay to the Trust an amount equal to the
Weighted Average Engine Block Hour Rate (as provided on Schedule D to this
Agreement) multiplied by the number of hours by which the Minimum Engine Block
Hours exceeds the total actual Engine Block Hours used by Aircargo. In the
event that any Engine is removed from Schedule D to this Agreement in the
manner provided in Section 9 below, the Minimum Engine Block Hours shall be
reduced by the expected Block Hour life attributable to such removed Engine as
provided on Schedule D.

     6. Monthly Payments.

          a. On
or about the 10th day of each month after January 2004, Aircargo
will provide to the Trust a schedule of the number of Block Hours that each
Airframe and each Engine was used in the immediately preceding month and will
pay to the Trust an amount equal to the applicable Block Hour rate for each
Airframe and each Engine multiplied by the actual number of Block Hours that
each such Airframe and each such Engine was used in the immediately preceding
month.

          b. If for any month Aircargo fails to achieve the Minimum Heavy Weight
Airframe Usage or Minimum Other Airframe Usage, then on the date that payment
for actual usage for the month is required under Section 6(a) above, Aircargo
shall pay to the Trust an amount equal to the then applicable weighted average
Heavy Weight Airframe or Other Airframe Rate per Block Hour, respectively,
multiplied by the number of Block Hours by which the Minimum Heavy Weight
Airframe Usage requirement or Minimum Other Airframe Usage requirement,
respectively, exceeds the total actual number of Block Hours that the Heavy
Weight Airframes or Other Airframes were used in the immediately preceding
month.

     7. Maintenance. Aircargo will perform line maintenance of the Airframes
and Engines in accordance with Aircargo’s current maintenance program.
Airframe maintenance shall be limited to “A” checks, “B” checks and Aircargo’s
responsibility for repairs or incidental replacement of parts and rotables
shall not exceed $***** per Airframe for any such check or other event. If
such repair or incidental replacement of parts and rotables should exceed
$***** and the Trust elects not to pay the excess above $***** or a mutually
agreed upon amount of the excess above $*****, then that Airframe, at
Aircargo’s option, can be deemed not available for Aircargo’s use. In the
event that an Engine requires more than $***** in Engine maintenance in order
to remain in serviceable condition and the Trust elects not to pay the excess
above $***** or a mutually agreed upon amount of the excess above $*****, then
Aircargo may elect to remove such engine from Schedule D in accordance with
Section 9 below or perform such maintenance at its own cost by electing to buy
such Engine from the Trust at a core value of $***** for 9A Engines and $*****
for -15 Engines.

Aircargo shall be required to make any repairs, replacements or improvements to
any Airframe that are necessary as the result of an Airworthiness Directive or
Service Bulletin or similar requirement issued by any regulating body, such
amount not to exceed $***** per Airframe subject to cost sharing with the
Trust as reflected in Section 3 and Section 4. If such repair,

CONFIDENTIAL TREATMENT HAS BEEN REQUESTED BY KITTY HAWK, INC. FOR CERTAIN
PORTIONS OF THIS DOCUMENT. CONFIDENTIAL PORTIONS HAVE BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION. OMITTED PORTIONS ARE INDICATED IN
THIS AGREEMENT WITH “*****”.

5

 

replacements
or improvements to any Airframe that are necessary as a result of an Airworthiness
Directive or Service Bulletin or similar requirement issued by an regulating
body exceeds $***** other than those items subject to cost sharing with
the Trust as reflected in Section 3 and Section 4,
and the Trust elects not to pay the excess above $***** or a mutually agreed
upon amount of the excess above $*****, then the Airframe, at Aircargo’s
option, can be deemed not available for Aircargo’s use.

     8. Insurance. Aircargo shall cause the Airframes and Engines to be
covered by hull and liability insurance in accordance with Aircargo’s current
fleet plan insurance program. Policies relating to such insurance shall show
the Trust as a loss payee and an additional insured; provided, however, that,
for any Airframe removed from Schedule A and for any Engines mounted on such
Airframe, Aircargo’s obligation to insure the Airframe and such Engines shall
terminate upon the Trust’s receipt of the Deliverables (as defined below).
Following the execution of this Agreement, each Airframe identified on Schedule
A shall be insured by Aircargo in an amount equal to that set forth opposite
such Airframe on Schedule E to this Agreement.

     9. Removal of Engines and Airframes. In the event the Trust or Aircargo
elects to remove an Engine from Schedule D to this Agreement for any reason,
the Trust or Aircargo shall deliver written notice of removal of such Engine
from Schedule D at least sixty (60) days prior to the removal of such Engine.
An Engine removed from Schedule D shall be referred to as a “Terminated
Engine.” Within sixty (60) days of the receipt of such notice, Aircargo shall
deliver, other than in cases where Aircargo has elected to buy an Engine as
described under Section 7, physical possession of the Terminated Engine to a
place within the United States designated by the Trust, and shall deliver for
such Terminated Engine: (i) a current certificate of airworthiness if such
certificate of airworthiness is available and (ii) all technical records,
including, but not limited to, current maintenance and operations records (all
of the foregoing, for any Terminated Engine, the “Deliverables”). In the event
that Aircargo proposes to deliver to the Trust free and clear title to an
engine that is not owned by the Trust in lieu of a Terminated Engine, Aircargo
shall convey an engine of similar type and condition (determined by a
comparison of engine disc profiles and limiters) to the Trust. The Trust shall
pay the cost of all shipping and other expenses required for the delivery of
such Terminated Engine to the Trust; provided, however, that Aircargo shall
remove the Engine from any Airframe at its own expense. In the event that any
Airframes are removed from Schedule A pursuant to the terms of this Agreement,
the same procedure for the removal of Terminated Engines shall apply to the
removal of such Airframes.

     10. Operation of Aircraft. Aircargo may operate the Airframes and Engines
in such types of service as Aircargo deems appropriate; provided, however, that
Aircargo shall not “Dry Lease” any of the Airframes or Engines.

     11. Force Majeure. In the event that, through no action or inaction on
the part of Aircargo, Aircargo’s fleet of 727 airframes or JT8D engines
(regardless of whether such airframes or engines are owned by Aircargo or by
the Trust) become unavailable for operation

CONFIDENTIAL TREATMENT HAS BEEN REQUESTED BY KITTY HAWK, INC. FOR CERTAIN
PORTIONS OF THIS DOCUMENT. CONFIDENTIAL PORTIONS HAVE BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION. OMITTED PORTIONS ARE INDICATED IN
THIS AGREEMENT WITH “*****”.

6

 

for service, the Minimum Heavy
Weight Airframe Usage, Minimum Other Airframe Usage and
Minimum Engine Block Hours commitment and under any Airframe Extension Option
will be modified in the following manner:

          a. If Aircargo’s fleet of 727 airframes or JT8D engines become unavailable
for a period of 180 days or less (a “Temporary Period”), then the Available To
Date of all Airframes and Engines will be extended by a number of days equal to
the length of the Temporary Period and Aircargo will continue to be obligated
to perform its obligations under the Agreement.

          b. If Aircargo’s fleet of 727 airframes or JT8D engines become unavailable
for a period exceeding 180 days (a “Permanent Period”), then Aircargo’s
obligations under the Minimum Heavy Weight Airframe Usage, the Minimum Other
Airframe Usage, the Minimum Engine Block Hours and any elected Airframe
Extension Option will be terminated and Aircargo shall be obligated only to pay
any outstanding amounts due to the Trust related to actual Airframe or actual
Engine usage prior to the date of the event causing the unavailability of such
Airframes or Engines.

          c. Upon the occurrence of an event causing either a Temporary Period or a
Permanent Period of unavailability, all payments under this Agreement shall be
suspended following payment by Aircargo for the actual Block Hour usage of any
Airframes or Engines during the month in which such event occurs. If such
event causes a Temporary Period, then payments shall resume pursuant to the
terms of this Agreement at such time as either or both of Aircargo’s fleet of
727 airframes or JT8D engines again become available for use.

	 	 	 
	KITTY HAWK AIRCARGO, INC.

	 	KITTY HAWK COLLATERAL	 
	 
	 	      LIQUIDATING TRUST
	  

	/s/
ROBERT W. ZOLLER, JR.

	 	/s/ GLEN
LANGDON

	By: Robert W. Zoller, Jr.

	 	By: Langdon Asset Management, Inc. as Trust Manager
	Title: Chief Executive Officer and President

	 	Title: Glen Langdon, President

7

 

SCHEDULE A

	 	 	 
	Airframes
	 	Available to Date:

	N278US

	 	March 31, 2006
	N279US

	 	December 31, 2004
	N281KH

	 	March 31, 2006
	N284KH

	 	September 30, 2006
	N69739

	 	June 30, 2005
	N69740

	 	June 30, 2005
	N854AA

	 	December 31, 2006
	N6827

	 	December 31, 2006
	N252US

	 	December 31, 2006
	N6833

	 	December 31, 2005
	N6809

	 	December 31, 2005

 

 

SCHEDULE B

Airframe N278US:

	 	 	 
	Airframe Extension Option Notice Date

	 	December 31, 2005
	 
	 	 
	Trust C check commitment:

	 	Up to — $*****
	 
	 	 
	Extended Available to date:

	 	June 30, 2009
	 
	 	 
	Aircargo Minimum Block Hours Commitment:

	 	Trust C-Check Actual Cost divided by
	

	 	$***** multiplied by ***** 1

1 — Once Aircargo Minimum Block Hour Commitment is achieved by Aircargo, the
Rate per Block Hours is reduced from $***** to $*****

Airframe N281KH:

	 	 	 
	Airframe Extension Option Notice Date

	 	December 31, 2005
	 
	 	 
	Trust C check commitment:

	 	Up to $*****
	 
	 	 
	Extended Available to date:

	 	June 30, 2009
	 
	 	 
	Aircargo Minimum Block Hours Commitment:

	 	Trust C-Check Actual Cost divided by
	

	 	$***** multiplied by ***** 2

2 — Once Aircargo Minimum Block Hour Commitment is achieved by Aircargo, the
Rate per Block Hours is reduced from $***** to $*****

Airframe N284KH:

	 	 	 
	Airframe Extension Option Notice Date

	 	June 30, 2006
	 
	 	 
	Trust C check commitment:

	 	Up to $*****
	 
	 	 
	Extended Available to date:

	 	December 31, 2009
	 
	 	 
	Aircargo Minimum Block Hours Commitment:

	 	Trust C-Check Actual Cost divided by
	

	 	$***** multiplied by ***** 3

3 — Once Aircargo Minimum Block Hour Commitment is achieved by Aircargo, the
Rate per Block Hours is reduced from $***** to $*****

Airframe N279US:

	 	 	 
	Airframe Extension Option Notice Date

	 	November 1, 2004
	 
	 	 
	Trust C check commitment:

	 	Up to $*****
	 
	 	 
	Extended Available to date:

	 	December 31, 2009
	 
	 	 
	Aircargo Minimum Block Hours Commitment:

	 	Trust C-Check Actual Cost divided by
	

	 	$***** multiplied by ***** 4

4 — Once Aircargo Minimum Block Hours Commitment is achieved by Aircargo, the
Rate per Block Hour is reduced from $***** to $*****

CONFIDENTIAL TREATMENT HAS BEEN REQUESTED BY KITTY HAWK, INC. FOR CERTAIN
PORTIONS OF THIS DOCUMENT. CONFIDENTIAL PORTIONS HAVE BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION. OMITTED PORTIONS ARE INDICATED IN
THIS AGREEMENT WITH “*****”.

 

 

SCHEDULE C

	 	 	 	 	 
	No.
	 	Trust Engine Transferred
	 	Aircargo Engine Transferred

	1   
	 	695270	 	655968
	2   
	 	687662	 	674498
	8   
	 	657394	 	696629
	11
	 	700579	 	707329 (9A)
	17
	 	665294	 	665348
	18
	 	665899	 	665230
	20
	 	648989	 	665676
	23
	 	656066	 	648784
	24
	 	665591	 	653365
	27
	 	653835	 	654158
	35
	 	654677	 	653897
	36
	 	654422	 	653619

 

 

SCHEDULE D

Engines Owned by the Trust as of December 31, 2003

 

 

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	AMENDED	 	 
	 	 	 	 	 	 	 	 	 	 	FLIGHT HOUR	 	BLOCK HOUR	 	 	 	 	 	LIMITER	 	 	 	 	 	BLOCK HOUR	 	COST/REV
	 	 	ENGINE S/N
	 	 	 	 	 	LIFE
	 	LIFE
	 	LIMITER
	 	TYPE
	 	REMAINING
	 	RATE
	 	(BH LIFE * RATE)

	1
	 	 	648784-7B	 	 	 	7B	 	 	 	988	 	 	 	1,197	 	 	 	T-1	 	 	CYCLE	 	 	912	 	 	 	*****	 	 	 	*****	 
	2
	 	 	649583-7B	 	 	 	7B	 	 	Unserviceable	 	unserviceable	 	 	C-7	 	 	DATE	 	 	19	 	 	 	*****	 	 	unserviceable
	3
	 	 	653365-7B	 	 	 	7B	 	 	 	2,967	 	 	 	3,595	 	 	 	C-12	 	 	DATE	 	 	47	 	 	 	*****	 	 	 	*****	 
	4
	 	 	653619-7B	 	 	 	7B	 	 	 	1,199	 	 	 	1,453	 	 	 	C-8	 	 	DATE	 	 	19	 	 	 	*****	 	 	 	*****	 
	5
	 	 	653897-7B	 	 	 	7B	 	 	 	821	 	 	 	994	 	 	 	C-5	 	 	DATE	 	 	13	 	 	 	*****	 	 	 	*****	 
	6
	 	 	654305-7B	 	 	 	7B	 	 	 	307	 	 	 	372	 	 	 	C-3	 	 	CYCLE	 	 	321	 	 	 	*****	 	 	 	*****	 
	7
	 	 	654368-7B	 	 	 	7B	 	 	 	455	 	 	 	551	 	 	 	T-4	 	 	CYCLE	 	 	449	 	 	 	*****	 	 	 	*****	 
	8
	 	 	654792-7B	 	 	 	7B	 	 	 	421	 	 	 	510	 	 	 	C-5	 	 	CYCLE	 	 	420	 	 	 	*****	 	 	 	*****	 
	9
	 	 	654914-7B	 	 	 	7B	 	 	 	789	 	 	 	956	 	 	 	C-9	 	 	CYCLE	 	 	739	 	 	 	*****	 	 	 	*****	 
	10
	 	 	657315-7B	 	 	 	7B	 	 	 	649	 	 	 	787	 	 	 	C-6	 	 	CYCLE	 	 	618	 	 	 	*****	 	 	 	*****	 
	11
	 	 	657666-7B	 	 	 	7B	 	 	 	698	 	 	 	845	 	 	 	T-4	 	 	CYCLE	 	 	660	 	 	 	*****	 	 	 	*****	 
	12
	 	 	649269-9A	*	 	 	9A	*	 	 	2,504	 	 	 	3,002	 	 	 	C-11	 	 	DATE	 	 	38	 	 	 	*****	 	 	 	*****	 
	13
	 	 	665188-9A	*	 	 	9A	*	 	 	2,372	 	 	 	2,844	 	 	 	C-7	 	 	DATE	 	 	36	 	 	 	*****	 	 	 	*****	 
	14
	 	 	665356-9A	 	 	 	9A	 	 	 	864	 	 	 	1,036	 	 	 	C-11	 	 	HOURS	 	 	930	 	 	 	*****	 	 	 	*****	 
	15
	 	 	665676-9A	 	 	 	9A	 	 	 	3,163	 	 	 	3,792	 	 	 	C-7	 	 	DATE	 	 	48	†	 	 	*****	 	 	 	*****	 
	16
	 	 	666031-9A	*	 	 	9A	*	 	 	3,163	 	 	 	3,792	 	 	 	C-8	 	 	DATE	 	 	48	 	 	 	*****	 	 	 	*****	 
	17
	 	 	687788-9A	 	 	 	9A	 	 	 	1,977	 	 	 	2,370	 	 	 	C-8	 	 	DATE	 	 	31	 	 	 	*****	 	 	 	*****	 
	18
	 	 	655968-15	 	 	 	15	 	 	 	5,133	 	 	 	5,760	 	 	 	C-11	 	 	DATE	 	 	46	 	 	 	*****	 	 	 	*****	 
	19
	 	 	657070-15	 	 	 	15	 	 	 	2,798	 	 	 	3,141	 	 	 	C-4	 	 	HOURS	 	 	2,910	 	 	 	*****	 	 	 	*****	 
	20
	 	 	674498-15	 	 	 	15	 	 	 	1,674	 	 	 	1,878	 	 	 	C-12	 	 	DATE	 	 	15	 	 	 	*****	 	 	 	*****	 
	21
	 	 	685501-15	 	 	 	15	 	 	 	1,785	 	 	 	2,004	 	 	 	C-7	 	 	DATE	 	 	16	 	 	 	*****	 	 	 	*****	 
	22
	 	 	687659-15	 	 	 	15	 	 	 	3,347	 	 	 	3,757	 	 	 	C-9	 	 	DATE	 	 	30	 	 	 	*****	 	 	 	*****	 
	23
	 	 	687698-15	 	 	 	15	 	 	 	5,246	 	 	 	5,888	 	 	 	C-3	 	 	CYCLE	 	 	2,545	 	 	 	*****	 	 	 	*****	 
	24
	 	 	688689-15	 	 	 	15	 	 	 	4,686	 	 	 	5,259	 	 	 	C-7	 	 	DATE	 	 	42	 	 	 	*****	 	 	 	*****	 
	25
	 	 	696499-15A	 	 	 	15A	 	 	 	5,428	 	 	 	6,000	+	 	 	T-1	 	 	HOURS	 	 	5,428	 	 	 	*****	 	 	 	*****	 
	26
	 	 	696629-15	 	 	 	15	 	 	 	2,120	 	 	 	2,379	 	 	 	C-11	 	 	DATE	 	 	19	 	 	 	*****	 	 	 	*****	 
	27
	 	 	700377-15	 	 	 	15	 	 	 	4,408	 	 	 	4,947	 	 	 	T-1	 	 	CYCLE	 	 	2,147	 	 	 	*****	 	 	 	*****	 
	28
	 	 	700451-15	 	 	 	15	 	 	 	1,932	 	 	 	2,169	 	 	 	T-1	 	 	HOURS	 	 	2,044	 	 	 	*****	 	 	 	*****	 
	29
	 	 	700522-15	 	 	 	15	 	 	 	1,243	 	 	 	1,395	 	 	 	C-3	 	 	HOURS	 	 	1,243	 	 	 	*****	 	 	 	*****	 
	30
	 	 	702952-15	 	 	 	15	 	 	 	1,562	 	 	 	1,753	 	 	 	C-8	 	 	DATE	 	 	14	 	 	 	*****	 	 	 	*****	 
	 
	 	 	 	 	 	 	 	 	 	 	64,702	 	 	 	74,425	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 		*****	 
	 
	 	Postal Engines, NO FLY	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	654158-7B	**	 	 	7B	**	 	 	 	 	 	 	 	 	 	 	C-9	 	 	DATE	 	 	 	 	 	 	*****	 	 	 	 	 
	 
	 	 	654979-7B	**	 	 	7B	**	 	 	 	 	 	 	 	 	 	 	C-10	 	 	DATE	 	 	 	 	 	 	*****	 	 	 	 	 
	 
	 	 	665452-9A	**	 	 	9A	**	 	 	 	 	 	 	 	 	 	 	T-2	 	 	HOURS	 	 	1,881	 	 	 	*****	 	 	 	 	 

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	Actual 2003 Flight hour (*****) & Block hour (*****) data =
	BH/FH Conversion factor (average)

	 	 	 	 	 	*****
	 	*****.	 	 	 	 	 	 	 	 
	MINIMUM ENGINE BLOCK HOURS

	 	 	 	 	 	*****
	 	Pool rate:
	 	*****	 	 	 	 	 	 
	WEIGHTED AVERAGE ENGINE BLOCK HOUR RATE:

	 	$	 		 	*****
	 	(TOTAL COST/TOTAL BH’s)	 	 	 	 	 	 	 	 

                  ENGINE TYPE AVERAGES

	 	 	 	 	 	 	 	 	 	 	 
	 	 	AVG BLK HR	 	AVG FLT HR	 	AVG CYC	 	BLK HR / FLT HR	 	FLT HR/CYC
	 	 	MONTH
	 	MONTH
	 	MONTH
	 	RATIO
	 	RATIO

	JT8D-7B
	 	*****	 	*****	 	*****	 	*****	 	*****
	JT8D-9A
	 	*****	 	*****	 	*****	 	*****	 	*****
	JT8D-15
	 	*****	 	*****	 	*****	 	*****	 	*****

NOTES

**     - Postal Engines per Settlement Agreement

 *      - Postal Engines per Settlement Agreement approved to fly.

 †         Engine time limited to 48 months (1.1.03 -12.31.07)

+         Engine hours limited to 48 month estimate

CONFIDENTIAL TREATMENT HAS BEEN REQUESTED BY KITTY HAWK, INC. FOR CERTAIN
PORTIONS OF THIS DOCUMENT. CONFIDENTIAL PORTIONS HAVE BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION. OMITTED PORTIONS ARE INDICATED IN
THIS AGREEMENT WITH “*****”.

 

SCHEDULE E

	 	 	 
	Airframe Number
	 	Stip Value (TBD):

	N278US
	 	$*****
	N279US
	 	$*****
	N281KH
	 	$*****
	N284KH
	 	$*****
	N69739
	 	$*****
	N69740
	 	$*****
	N854AA
	 	$*****
	N6827
	 	$*****
	N252US
	 	$*****
	N6833
	 	$*****
	N6809
	 	$*****

CONFIDENTIAL TREATMENT HAS BEEN REQUESTED BY KITTY HAWK, INC. FOR CERTAIN
PORTIONS OF THIS DOCUMENT. CONFIDENTIAL PORTIONS HAVE BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION. OMITTED PORTIONS ARE INDICATED IN
THIS AGREEMENT WITH “*****”.exv10w96

 

Exhibit 10.96

LOAN AGREEMENT

     THIS LOAN AGREEMENT (this “Agreement”) is made as of December 29, 2004, by and between TRIAD
SENIOR LIVING I, L.P., a Texas limited partnership, TRIAD SENIOR LIVING, L.P., a Texas limited
partnership, TRIAD SENIOR LIVING IV, L.P., a Texas limited partnership, TRIAD SENIOR LIVING V,
L.P., a Texas limited partnership, CAPITAL SENIOR LIVING A, INC., a Delaware corporation and
CAPITAL SENIOR LIVING ILM-B, INC., a Delaware corporation (together with their successors and
assigns, “Borrowers”, and, individually, a “Borrower”), and GMAC COMMERCIAL MORTGAGE CORPORATION, a
California corporation (together with its successors and assigns, “Lender”).

RECITALS

     A. Borrowers have requested that Lender make fourteen (14) loans, one related to each Facility
in the aggregate principal sum of $128,409,000.

     B. Lender has agreed to make such loans on the terns and conditions hereinafter set forth.

AGREEMENT

     NOW, THEREFORE, it is hereby agreed as follows:

ARTICLE I

DEFINITIONS, ACCOUNTING PRINCIPLES, UCC TERMS.

     1.1 As used in this Agreement, the following terms shall have the following meanings unless
the context hereof shall otherwise indicate:

          “Accounts” has the meaning given to that tern in the Mortgage.

          “Actual Management Fees” means actual management fees paid or incurred in connection with
operation of a Facility.

          “Affiliate” means, with respect to any Person, (a) each Person that controls, is controlled by
or is under common control with such Person, (b) each Person that, directly or indirectly, owns or
controls, whether beneficiary or as a trustee, guardian or other fiduciary, any of the Stock of
such Person, and (c) each of such Person’s officers, directors, members, joint venturers and
partners holding a 50% or greater interest in such Person.

          “Assignment of Licenses” means collectively those certain fourteen (14) Assignments of
Licenses, Permits and Contracts of even date herewith to and for the benefit of Lender.

 

 

          “Assumed Management Fees” means assumed management fees of five percent (5%) of net patient or
resident, as the case may be, revenues of a Facility (after Medicaid and Medicare contractual
adjustments).

          “Business Day” means a day, other than Saturday or Sunday and legal holidays, when Lender is
open for business.

          “Closing Date” means the date on which all or any part of the Loan is disbursed by Lender to
or for the benefit of Borrowers.

          “Combined Debt Service Coverage Ratio” means a ratio in which the first number is the
aggregate sum of “net pre-tax income” of the applicable Borrowers (depending on the particular
covenant) from usual operations of their Facilities as set forth in the financial statements
provided to Lender (without deduction for Actual Management Fees or management expenses paid or
incurred in connection with the operation of the Facilities), calculated based upon the preceding
twelve (12) months (or such lesser period of time as specified in the particular covenant), plus
the applicable Loan interest expense plus Actual Management Fees and non-cash expenses or
allowances for depreciation and amortization of the applicable Facilities for such period, less
Assumed Management Fees for such period and the second number is the sum of the principal
amounts due (even if not paid) on the applicable Borrowers’ respective Loan (but which shall not
include that portion associated with any balloon payment of such Loan) for the applicable period
plus the interest due on the applicable Borrowers’ respective Loan for the applicable
period. In calculating “net pre-tax income,” Extraordinary Income and Extraordinary Expenses shall
be excluded.

          “Commitment Letter” means the commitment letter issued by Lender to Borrower dated December
29, 2004.

          “Cross-Collateralization Agreement” means the Cross-Collateralization, Cross-Default and
Mortgage Modification Agreement of even date herewith by each Borrower to and for the benefit of
Lender (and the trustee, if applicable).

          “Default” means the occurrence or existence of any event which, but for the giving of notice
or expiration of time or both, would constitute an Event of Default.

          “Default Rate” has the meaning given to that term in the Note.

          “EBITDA” means net income plus (minus) depreciation/amortization and other non-cash type
expenses (revenue) plus interest expense plus income taxes.

          “Environmental Permit” means any permit, license, or other authorization issued under any
Hazardous Materials Law with respect to any activities or businesses conducted on or in relation to
the Land and/or the Improvements.

          “Equipment” has the meaning given to that term in the Mortgage.

2

 

          “Event of Default” means any “Event of Default” as defined in Article VII hereof.

          “Exhibit” means an Exhibit to this Agreement, unless the context refers to another document,
and each such Exhibit shall be deemed a part of this Agreement to the same extent as if it were set
forth in its entirety wherever reference is made thereto.

          “Extension Terms(s)” has the meaning given to that term in Section 2.5.

          “Extraordinary Income and Extraordinary Expenses” means material items of a character
significantly different from the typical or customary business activities of a Borrower which would
not be expected to recur frequently and which would not be considered as recurring factors in any
evaluation of the ordinary operating processes of such Borrower’s business, and which would be
treated as extraordinary income or extraordinary expenses under GAAP.

          “Facility”, individually, and collectively, the “Facilities”, means the healthcare facilities
described in Exhibit A attached hereto made a part hereof.

          “GAAP” means, as in effect from time to time, generally accepted accounting principles
consistently applied as promulgated by the American Institute of Certified Public Accountants.

          “Governmental Authority” means any nation or government, any state or other political
subdivision thereof, and any Person exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to such government.

          “Guarantor”, individually, and collectively, “Guarantors”, means the following entities:
Capital Senior Living P-B, Inc., a Delaware corporation, Capital Senior Living Properties, Inc., a
Texas corporation, Capital Senior Living Corporation, a Delaware corporation, and Capital Senior
Living Properties 5, Inc., a Delaware corporation.

          “Guaranty Agreement” means those certain Guaranty Agreements of even date herewith from each
Guarantor to and for the benefit of Lender.

          “Hazardous Materials” means petroleum and petroleum products and compounds containing them,
including gasoline, diesel fuel and oil; explosives; flammable materials; radioactive materials;
polychlorinated biphenyls (“PCBs”) and compounds containing them; lead and lead-based paint;
asbestos or asbestos-containing materials in any form that is or could become friable; underground
storage tanks, whether empty or containing any substance; any substance the presence of which on
the Land and/or the Improvements is prohibited by any federal, state or local authority; any
substance that requires special handling; and any other material or substance now or during the
term of the Loan defined as a “hazardous substance,” “hazardous material,” “hazardous waste,”
“toxic substance,” “toxic pollutant,” “contaminant,” or “pollutant” within the meaning of any
Hazardous Materials Law.

          “Hazardous Materials Laws” means all federal, state, and local laws, ordinances and
regulations and standards, rules, policies and other governmental requirements,

3

 

administrative rulings and court judgments and decrees in effect now or during the term of the
Loan and including all amendments, that relate to Hazardous Materials and apply to a Borrower or to
the Land and/or the Improvements. Hazardous Materials Laws include, but are not limited to, the
Comprehensive Environmental Response, Compensation and Liability Act, 42 V.S.C. Section 9601, et
seq., the Resource Conservation and Recovery Act, 42 V.S.C. Section 6901, et seq., the Toxic
Substance Control Act, 15 V.S.C. Section 2601, et seq., the Clean Water Act, 33 U.S.C. Section
1251, et seq., and the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, and their
state analogs.

          “Improvements” means all buildings, structures and improvements of every nature whatsoever now
or hereafter situated on the Land, including but not limited to, all gas and electric fixtures,
radiators, heaters, engines and machinery, boilers, ranges, elevators and motors, plumbing and
heating futures, carpeting and other floor coverings, water heaters, awnings and storm sashes, and
cleaning apparatuses which are or shall be attached to the Land or said buildings, structures or
improvements.

          “Indebtedness” means any (a) obligations for borrowed money, (b) obligations, payment for
which is being deferred by more than ninety (90) days, representing the deferred purchase price of
property other than accounts payable arising in connection with the purchase of inventory customary
in the trade and in the ordinary course of a Borrower’s business, ( c) obligations, whether or not
assumed, secured by Liens or payable out of the proceeds or production from the Accounts and/or
property now or hereafter owned or acquired, and (d) the amount of any other obligation (including
obligations under financing leases) which would be shown as a liability on a balance sheet prepared
in accordance with GAAP.

          “Initial Interest Rate” has the meaning given to that term in the Note.

          “Interest Rate” means the rate of interest accruing on the Note at any given time, whether the
Initial Interest Rate, or a Performance Interest Rate, or the rates accruing during the Extension
Terms.

          “Inventory” has the meaning given to that term in the Mortgage.

          “Land” means the land described in the Mortgage.

          “Leases” has the meaning given to that term in the Mortgage.

          “Lien” means any voluntary or involuntary mortgage, security deed, deed of trust, lien,
pledge, assignment, security interest, title retention agreement, financing lease, levy, execution,
seizure, judgment, attachment, garnishment, charge, lien or other encumbrance of any kind,
including those contemplated by or permitted in this Agreement and the other Loan Documents, but
not including any leases to residents or commercial leases for resident services incidental to the
operation of the Facility or any lease of all or a portion of the Land and/or Improvements to a
subsidiary of Capital Senior Living Corporation, which lease has been approved by Lender, such
approval not to be unreasonably withheld, conditioned or delayed.

          “Liquidity” means the sum of all unrestricted cash and marketable securities.

4

 

          “Loan” means collectively the loans in the aggregate principal sum of $128,409,000 made by
Lender to Borrowers as of the date hereof, and, individually, in the context used, the individual
Loan amounts to each Borrower set forth on Exhibit A.

          “Loan Documents” means, collectively, the Commitment Letter, this Agreement, the Note, the
Mortgage, the Assignment of Licenses, the Guaranty Agreement, and the Subordination Agreement,
together with any and all other documents executed by Borrower or others, evidencing, securing or
otherwise relating to the Loan.

          “Loan Obligations” means the aggregate of all principal and interest owing from time to time
under the Note and all expenses, charges and other amounts from time to time owing under the Note,
this Agreement or the other Loan Documents and all covenants, agreements and other obligations from
time to time owing to, or for the benefit of, Lender pursuant to the Loan Documents.

          “Managed Care Plans” means any health maintenance organization, preferred provider
organization, individual practice association, competitive medical plan, or similar arrangement,
entity, organization, or Person.

          “Management Agreement” means those certain Management Agreements dated of even date herewith
between Manager and each Borrower, obligating Manager to operate and manage the Facilities.

          “Manager” means Capital Senior Living, Inc., a Texas corporation, and any successor manager of
the Facilities approved by Lender in writing.

          “Maturity Date” means January 2, 2008, unless extended to January 2, 2009, pursuant to Section
2.5 below for the first Extension Term, and, if extended for the second Extension Term, to January
2, 2010.

          “Medicaid” means that certain program of medical assistance, funded jointly by the federal
government and the States; for impoverished individuals who are aged, blind and/or’ disabled,
and/or members of families with dependent children, which program is more fully described in Title
XIX of the Social Security Act (42 D.S.C. §§ 1396 et seq.) and the regulations promulgated
thereunder.

          “Medicare” means that certain federal program providing health insurance for eligible elderly
and other individuals, under which physicians, hospitals, skilled nursing homes, home health care
and other providers are reimbursed for certain covered services they provide to the beneficiaries
of such program, which program is more fully described in Title XVII of the Social Security Act (42
D.S.C. §§ 1395 et seq.) and the regulations promulgated thereunder.

          “Mortgage” means collectively those certain Mortgages or Deeds of Trust, Security Agreements
and Assignments of Leases and Rents of even date herewith or modified of even date herewith, from
each Borrower in favor of or for the benefit of Lender, encumbering the

5

 

Land, as modified by the Cross-Collateralization Agreement and upon which the Facilities are
located.

          “Mortgaged Property” has the meaning given to that term in the Mortgage.

          “Non-Stabilized’ Properties” means Waterford at Huebner, Waterford at Shreveport, Waterford at
Ft. Worth, Waterford at Fairfield, Wellington at Oklahoma City, Waterford at Ironbridge, Canton
Regency, Wellington at Arapaho, and Wellington at North Richland Hills (as such Facilities are
identified on Exhibit A).

          “Note” means collectively the fourteen (14) Promissory Notes of even date herewith in the
aggregate principal amount of the Loan, payable by the applicable Borrower to the order of Lender.

          “O&M Program” means a written program of operations and maintenance established or approved in
writing by Lender relating to any Hazardous Materials in, on or under the Land and/or the
Improvements.

          “OFAC List” means the list of specially designated nationals and blocked Persons subject to
financial sanctions that is maintained by the U.S. Treasury Department, Office of Foreign Assets
Control and any other similar list maintained by the U.S. Treasury Department, Office of Foreign
Assets Control pursuant to any Requirements of Law, including, without limitation, trade embargo,
economic sanctions, or other prohibitions imposed by Executive Order of the President of the United
States. The OF AC List currently is accessible through the internet website
www.treas.gov/ofac/tllsdn.pdf.

          “Performance Interest Rate” has the meaning given to that term in the Note.

          “Permits” means all licenses, permits and certificates used or necessary in connection with
the construction, ownership, operation, use or occupancy of the Mortgaged Property and/or the
Facilities, including, without limitation, business licenses, state health department licenses,
food service licenses, licenses to conduct business, certificates of need and all such other
permits, licenses and rights, obtained from any governmental, quasi-governmental or private person
or entity whatsoever concerning ownership, operation, use or occupancy.

          “Permitted Encumbrances” has the meaning given to that term in Section 5.2 hereof.

          “Person” means any individual, partnership, limited partnership, corporation, limited
liability company, business trust, joint stock company, trust, unincorporated association, joint
venture, governmental authority or other entity of whatever nature.

          “Proceeds” has the meaning given to that term in the Mortgage.

          “Reimbursement Contracts” means all third-party reimbursement contracts relating to a Facility
which are now or hereafter in effect with respect to residents or patients qualifying for coverage
under the same, including Medicare and Medicaid, Managed Care Plans

6

 

and private insurance agreements, and any successor program or other similar reimbursement
program and/or private insurance agreements, now or hereafter existing.

          “Rents” has the meaning given to that term in the Mortgage.

          “Requirements of Law” means (a) the organizational documents of an entity, and (b) any law,
regulation, ordinance, code, decree, treaty, ruling or determination of an arbitrator, court or
other Governmental Authority, or any Executive Order issued by the President of the United States,
in each case applicable to or binding upon such Person or to which such Person, any of its property
or the conduct of its business is subject including, without limitation, laws, ordinances and
regulations pertaining to the zoning, occupancy and subdivision of real property.

          “Single Asset Entity” means a Person which owns no interest or property other than a Mortgaged
Property or Mortgaged Properties or interests in a Borrower.

          “Stabilized Properties” means Waterford at Mesquite, Waterford at Thousand Oaks, Waterford at
Plano, Sedgwick Plaza and Towne Center (as such Facilities are identified on Exhibit A).

          “Stock” means all shares, options, warrants, general or limited partnership interests,
membership interests, participations or other equivalents (regardless of how designated) in a
corporation, limited liability company, partnership or any equivalent entity, whether voting or
nonvoting, including, without limitation, common stock, preferred stock, or any other “equity
security” (as such term is defined in Rule 3all-l of the General Rules and Regulations promulgated
by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended).

          “Subordination Agreement” means collectively those certain Subordinations of Management
Agreement of even date herewith by and among each Borrower, Manager, and Lender.

     1.2 Singular terms shall include the plural forms and vice versa, as applicable, of the terms
defined.

     1.3 Each term contained in this Agreement and defined in the Uniform Commercial Code (the
“DCC”) in effect from time to time in the state in which the Land is located shall have the meaning
given to such term in the UCC, unless the context otherwise indicates, and shall include, without
limitation, the meaning set forth in this Agreement.

     1.4 All accounting terms used in this Agreement shall be construed in accordance with GAAP,
except as otherwise specified.

     1.5 All references to other documents or instruments shall be deemed to refer to such.
documents or instruments as they may hereafter be extended, renewed, modified, or amended and an
replacements and substitutions therefor.

7

 

     1.6 All references herein to “Medicaid” and “Medicare” shall be deemed to include any
successor program thereto.

ARTICLE II

TERMS OF THE LOAN

     2.1 The Loan. Each Borrower has agreed to borrow its respective Loan from Lender, and
Lender has agreed to make the respective Loan to each Borrower, subject to each Borrower’s
compliance with and observance of the terms, conditions, covenants, and provisions of this
Agreement and the other Loan Documents, and each Borrower has made the covenants, representations,
and warranties herein and therein as a material inducement to Lender to make the Loan.

     2.2 Security for the Loan. The Loan will be evidenced, secured and guaranteed by the
Loan Documents.

     2.3 Interest Rate Protection. On or before January 31, 2005, the Borrower shall enter
into an interest rate cap agreement or other acceptable interest rate hedge product (a “Cap”) with

Lender or a Cap provider (a “Cap Provider”) reasonably approved by Lender, to protect against
fluctuations in interest rates, pursuant to which Lender or such Cap Provider, as the case may be,
agrees to make certain payments to or for the benefit of Borrower if the Note Rate exceeds a strike
rate to be negotiated and approved by Lender and Borrower. The Cap shall not terminate earlier than
the date which is (a) the third (3rd) anniversary of the Closing Date for the Non-Stabilized
Properties, and (b) the first (1 ~ anniversary of the Closing Date for the Stabilized Properties.
Each Cap shall be documented on terms and conditions approved by Lender and shall be with a
counterparty (who is obligated to make payments in accordance with the Cap Agreement) acceptable to
Lender, which acceptance shall not be unreasonably withheld. Each Cap shall be evidenced and
governed by such documents as shall be reasonably acceptable to, and which shall be in form and
content reasonably acceptable to, Lender. Lender reserves the right to require a Cap as a condition
to any Extension Term.

     2.4 Limitation on Interest. All agreements between Borrowers and Lender, whether now
existing or hereafter arising and whether written or oral, are hereby limited so that in no
contingency, whether by reason of acceleration of the maturity of any indebtedness governed hereby
or otherwise, shall the interest contracted for, charged or received by Lender exceed the maximum
amount permissible under applicable law. If, from any circumstance whatsoever, interest would
otherwise be payable to Lender in excess of the maximum lawful amount, the interest payable to
Lender shall be reduced to the maximum amount permitted under applicable law; and, if from any
circumstance the Lender shall ever receive anything of value deemed interest by applicable law in
excess of the maximum lawful amount, an amount equal to any excessive interest shall be applied to
the reduction of the principal of the Loan and not to the payment of interest, or, if such
excessive interest exceeds the unpaid balance of principal of the Loan, such excess shall be
refunded to the applicable Borrower. All interest paid or agreed to be paid to Lender shall, to the
extent permitted by applicable law, be amortized, prorated, allocated, and spread throughout the
full period until payment in full of the principal of the Loan (including the period of any renewal
or extension thereof) so that interest thereon for such full period shall

8

 

not exceed the maximum amount permitted by applicable law. This paragraph shall control all
agreements between the Borrowers and Lender.

     2.5 Options to Extend. Borrowers may elect to extend the term of the Loan for two (2),
one (I)-year extensions (the “Extension Terms”) on the following conditions:

          (i) The election is made by written notice to Lender at any time during the 365-days
immediately preceding the then-effective Maturity Date;

          (ii) No Event of Default has occurred hereunder and is continuing;

          (iii) The request shall include evidence satisfactory to Lender that the Combined Debt Service
Coverage Ratios required in Section 4.14 are in compliance at the time of the election; and

          (iv) The Interest Rate for the Extension Term is increased pursuant to the terms of the Note.

All costs and expenses of Lender in connection with the matters addressed in this Section 2.5.
including attorneys’ fees, recording costs and title premiums, shall be borne by Borrowers.

     2.6 Release Provisions. Each of the Facilities is. available for release from the
Mortgage so long as no Event of Default exists, or will occur as a result of the release,
specifically including compliance with the Combined Debt Service Coverage Ratio for the Stabilized
Properties and the Combined Debt Service Coverage Ratio for the Non-Stabilized Properties. The
release price shall be the lesser of i) 100% of the sale or refinancing proceeds attributable to
the to-be-released Facility, or ii) 110% of the to-be-released Facility’s outstanding respective
Loan balance; provided, however, in no event shall Lender be obligated to release a Facility for
less than its then outstanding respective Loan balance (to include all accrued and unpaid
interest). Additionally, the Combined Debt Service Coverage Ratios will be re-calculated after any
Facility release in order to establish the Interest Rate to be charged on the remaining Loan
pursuant to Section 1.4 of the Note.

     2.7 Assumption of Loan. The Loan may be assumed, with approval by Lender, in its sole
discretion, of the assuming party and any potential change in Manager, upon payment of an
assumption fee in the amount of one percent (1 %) of the Loan.

     2.8 Commitment Fee. Borrowers shall pay Lender a commitment fee equal to $898,863,
payable one-half on the date hereof, and one-half on December 1,2005.

ARTICLE III

BORROWER’S REPRESENTATIONS AND WARRANTIES

     To induce Lender to enter into this Agreement, and to make the Loan to Borrowers, each
Borrower for itself represents and warrants to Lender as follows:

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     3.1 Existence. Power and Qualification. Borrower is a duly organized and validly
existing limited partnership or corporation, as applicable, has the power to own its properties and
to carry on its business as is now being conducted, and is duly qualified to do business and is in
good standing in every jurisdiction in which the character of the properties owned by it or in
which the transaction of its business makes its qualification necessary.

     3.2 Power and Authority. Borrower has full power and authority to borrow the
indebtedness evidenced by the Note and to incur the Loan Obligations provided for herein, all of
which have been authorized by all proper and necessary action. All consents, approvals
authorizations, orders or filings of or with any court or governmental agency or body, if any,
required for the execution, delivery and performance of the Loan Documents by Borrower have been
obtained or made.

     3.3 Single Purpose Entity. Borrower is a Single Asset Entity.

     3.4 Pending Matters.

          (a) Operations: Financial Condition. No action or investigation is pending or, to the
best of Borrower’s knowledge, threatened before or by any court or administrative agency which
might result in an Event of Default after the giving of any required notice and the expiration of
all applicable cure periods. Borrower is not in violation of any agreement, the violation of which
might reasonably be expected to result in an Event of Default after the giving of any required
notice and the expiration of all applicable cure periods, and Borrower is not in violation of any
order, judgment, or decree of any court, and has no knowledge of violation by Borrower of, any
statute or governmental regulation to which it is subject.

          (b) Land and Improvements. There are no proceedings pending, or, to the best of
Borrower’s knowledge, threatened, to acquire through the exercise of any power of condemnation,
eminent domain or similar proceeding any part of the Land, the Improvements or any interest
therein, or to enjoin or similarly prevent or restrict the use of the Land or the operation of the
Facility in any manner. None of the Improvements is subject to any unrepaired casualty or other
damage other than as previously disclosed to Lender in writing, including without limitation
anything disclosed in the written reports of any property inspections provided to Lender.

     3.5 Financial Statements Accurate. All financial statements heretofore or hereafter
provided by Borrower are and will be true and complete in all material respects as of their
respective dates and fairly present the financial condition of Borrower, and, to the best of
Borrower’s knowledge, there are no material liabilities, direct or indirect, fixed or contingent,
as of the respective dates of such statements which are not reflected therein or in the notes
thereto or in a written certificate delivered with such statements. To the best of Borrower’s
knowledge, the financial statements of Borrower have been prepared in accordance with GAAP. To the
best of Borrower’s knowledge, there has been no material adverse change in the financial condition
or operations of Borrower since the dates of such statements except as fully disclosed in writing
with the delivery of such statements.

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     3.6 Compliance with Facility Laws. The Facility owned by such Borrower is duly
licensed, if required, under the applicable laws of the state where the Land is located and is
currently operated at the unit and bed capacity set forth on Exhibit A. Borrower is the
lawful owner of all Permits for the Facility, including, without limitation, the Certificate of
Need, if applicable, which (a) are in full force and effect, (b) constitute all of the permits,
licenses and certificates required in all material respects for the use, operation and occupancy
thereof, (c) have not been pledged as collateral for any other loan or Indebtedness, (d) are held
free from any restriction or any encumbrance which would materially adversely affect the use or
operation of the Facility and (e) are not provisional, probationary or restricted in any way.
Borrower and Manager as well as the operation of the Facility are in compliance in all material
respects with the applicable provisions of all laws, rules, regulations and published
interpretations to which the Facility is subject. No waivers of any laws, rules, regulations, or
requirements (including, but not limited to, minimum square foot requirements per bed or unit) are
required for the Facility to operate at the foregoing licensed bed or unit capacity. All
Reimbursement Contracts, to the extent applicable, are in full force and effect with respect to the
Facility, and Borrower and Manager are in good standing with all the respective agencies governing
such applicable Facility licenses, program certification and Reimbursement Contracts, to the extent
applicable. Borrower and Manager are current in the payment of all so-called provider specific
taxes or other assessments with respect to such Reimbursement Contracts. Borrower will maintain the
Certificate of Need, if applicable, and/or any required Permits in full force and effect. In the
event Lender acquires the Facility through foreclosure or otherwise, neither Lender nor a
subsequent manager, a subsequent lessee or any subsequent purchaser (through foreclosure or
otherwise) must obtain a Certificate of Need prior to applying for and receiving a license to
operate the Facility and certification to receive Medicare and Medicaid payments (and its successor
programs) for patients having coverage thereunder provided that no service or bed or unit
complement is changed.

     3.7 Maintain Bed and Unit Capacity. Neither Borrower nor Manager has granted to any
third party the right to reduce the number of licensed beds in the Facility or to apply for
approval to transfer the right to any or all of the licensed Facility beds or units to any other
location.

     3.8 Medicare and Medicaid Compliance. To the extent Borrower participates in Medicare
or Medicaid, (a) the Facility is in compliance in all material respects with all requirements for
participation in Medicare and Medicaid, including without limitation, the Medicare and Medicaid
Patient Protection Act of 1987, and (b) the Facility is in conformance in all material respects
with all insurance, reimbursement and cost reporting requirements and if applicable, has a current
provider agreement which is in full force and effect under Medicare and Medicaid.

     3.9 Third Party Payors. There is no pending or to the best of Borrower’s knowledge
threatened revocation, suspension, termination, probation, restriction, limitation, or nonrenewal
affecting Borrower, Manager or the Facility or any participation or provider agreement with any
third-party payor, including Medicare, Medicaid, Blue Cross and/or Blue Shield, and any other
private commercial insurance managed care and employee assistance program (such programs, the
“Third-Party Payors’ Programs”) to which Borrower or Manager presently is subject. All Medicare (if
any), Medicaid (if any) and private insurance cost reports and financial reports

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submitted by Borrower or Manager are and will be materially accurate and complete and have not
been and will not be misleading in any material respects. No cost reports for the Facility remain
“open” or unsettled except as otherwise disclosed.

     3.10 Governmental Proceedings and Notices. To the best of their knowledge, neither
Borrower nor any Guarantor nor Manager nor the Facility is currently the subject of any proceeding
by any governmental agency, and no notice of any violation has been received from any federal,
state or local government or quasi-governmental body or agency or any administrative or
investigative body that would, directly or indirectly, or with the passage of time:

          (a) have a material adverse impact on Borrower’s or Manager’s ability to accept and/or retain
residents or result in the imposition of a fine, a sanction, a lower rate certification or a lower
reimbursement rate for services rendered to eligible residents;

          (b) modify, limit or annul or result in the transfer, suspension, revocation or imposition of
probationary use of any of the Permits; or

          (c) affect Borrower’s continued participation in the Medicare or Medicaid programs or any
other Third-Party Payors’ Programs, or any successor programs thereto, at current rate
certifications.

     3.11 Physical Plant Standards. The Facility and the use thereof comply in all material
respects with all applicable local, state and federal building codes, fire codes, health care,
nursing/assisted living/senior housing facility (as applicable) and other similar regulatory
requirements (the “Physical Plant Standards”), and no waivers of Physical Plant Standards exist at
the Facility.

     3.12 Pledge of Receivables. Borrower has not pledged its Accounts as collateral
security for any loan or Indebtedness other than the Loan.

     3.13 Payment of Taxes and Property Impositions. Borrower has filed all federal, state,
and local tax returns which it is required to file and has paid, or made adequate provision for the
payment of, all taxes and assessments which are shown pursuant to such returns or are required to
be shown thereon, including, without limitation, provider taxes which are due and owing as of the
date hereof. To the best of Borrower’s knowledge, all such returns are complete and accurate in all
material respects. Borrower has paid or made adequate provision for the payment of all applicable
water and sewer charges, ground rents (if applicable) and Taxes (as defined in the Mortgage) with
respect to the Land and/or the Improvements which are due and owing as of the date hereof.

     3.14 Title to Mortgaged Property. Borrower has good and marketable, or in Texas
indefeasible, title to all of the Mortgaged Property, subject to no lien, mortgage, pledge,
encroachment, zoning violation, or encumbrance, except Permitted Encumbrances or other matters
approved in writing by Lender, which do not ,materially interfere with the security intended to be
provided by the Mortgage or the current use or operation of the Land and the Improvements or the
current ability of the Facility to generate net operating income sufficient to

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service the Loan. All Improvements situated on the Land are situated wholly within the
boundaries of the Land.

     3.15 Priority of Mortgage. The Mortgage constitutes a valid first lien against the
real and personal property described therein, prior to all other liens or encumbrances, including
those which may hereafter accrue, excepting only Permitted Encumbrances specifically set forth in
the Mortgage, none of which Permitted Encumbrances materially and adversely affect (a) the ability
of Borrower to pay in full the principal of and interest on the Note when due, (b) the security
(and its value) intended to be provided by the Mortgage or (c) the current use of the Land and the
Improvements.

     3.16 Location of Principal Place of Business. The location of Borrower’s principal
place of business is set forth on Exhibit “B” hereto. Borrower has no place of business
other than the locations of the Facilities.

     3.17 Disclosure. All information furnished or to be furnished by Borrower to Lender in
connection with the Loan or any of the Loan Documents is, or will be at the time the same is
furnished, accurate and correct in all material respects and complete insofar as completeness may
be necessary to provide Lender with true and accurate knowledge of the subject matter.

     3.18 Trade Names. Neither Borrower nor the Facility has changed its name, been known
by any other name, or been a party to a merger, reorganization or similar transaction within the
last five (5) years, except Sedgwick, Canton, and Merrillville, which were involved in entity
reorganization.

     3.19 ERISA. As of the date hereof and throughout the tern of this Agreement,

          (a) Borrower is not an “employee benefit plan,” as defined in Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended (“ERISA”), subject to Title I of ERISA, and none
of the assets of Borrower constitute “plan assets” (within the meaning of Department of Labor
Regulation Section 2510.3-101) of one or more such plans, and

          (b) Borrower is not a “governmental plan” within the meaning of Section 3(32) of ERISA, and
transactions by or with Borrower are not be subject to state statutes regulating investments of,
and fiduciary obligations with respect to, governmental plans.

          The execution and delivery of the Loan Documents and the borrowing of indebtedness hereunder
do not constitute a non-exempt prohibited transaction under Section 406 of ERISA or Section 4975 of
the Internal Revenue Code of 1986, as amended (the “Code”).

     3.20 Ownership. The ownership interests of the Persons comprising Borrower and each of
the respective interests in Borrower are correctly and accurately set forth on Exhibit “C”
hereto.

     3.21 Compliance With Applicable Laws. To the best of Borrower’s knowledge, the
Facility and its operations and the Land and Improvements comply in all material respects with all
covenants and restrictions of record and applicable laws, ordinances, rules and regulations,

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including, without limitation, the Americans with Disabilities Act and the regulations
thereunder, and all laws, ordinances, rules and regulations relating to zoning, setback
requirements and building codes and there are no waivers of any building codes currently in
existence for the Facility.

     3.22 Solvency. Borrower is solvent for purposes of II D.S.C. § 548, and the borrowing
of the Loan will not render Borrower insolvent for purposes of II D.S.C. § 548.

     3.23 Management Agreement. The Management Agreement is in full force and effect, and
there are no defaults (either monetarily or non-monetarily) by Manager or Borrower thereunder.

     3.24 Other Indebtedness. Other than inter-company debt, Borrower has no outstanding
Indebtedness, secured or unsecured, direct or contingent (including any guaranties), other than
indebtedness which represents trade payables or accrued expenses incurred in the ordinary course of
business of owning and operating the Mortgaged Property; no other debt incurred by Borrower after
the date hereof will be secured (senior, subordinate or pari passu) by the Mortgaged Property.

     3.25 Other Obligations. Borrower has no material financial obligation under any
indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which
Borrower is a party or by which Borrower or the Mortgaged Property is otherwise bound, other than
obligations incurred in the ordinary course of the operation of the Mortgaged Property and other
than obligations under the Mortgage and the other Loan Documents.

     3.26 Fraudulent Conveyances. Borrower (a) has not entered into this Agreement or any
of the other Loan Documents with the actual intent to hinder, delay, or defraud any creditor and
(b) has received reasonably equivalent value in exchange for its obligations under the Loan
Documents. Giving effect to the transactions contemplated by the Loan Documents, the fair saleable
value of Borrower’s assets exceeds and will, immediately following the execution and delivery of
the Loan Documents, be greater than Borrower’s probable liabilities, including the maximum amount
of its contingent liabilities or its debts as such debts become absolute and mature. Borrower’s
assets do not and, immediately following the execution and delivery of the Loan Documents will not,
constitute unreasonably small capital to carry out its business as conducted or as proposed to be
conducted. Borrower does not intend to incur debts and liabilities (including, without limitation,
contingent liabilities and other commitments) beyond its ability to pay such debts as they mature
(taking into account the timing and amounts to be payable on or in respect of obligations of
Borrower).

     3.27 No Change in Facts or Circumstances. All information in any application for the
Loan submitted to Lender (the “Loan Application”) and in all financial statements, rent rolls,
reports, certificates and other documents submitted in connection with the Loan Application are
complete and accurate in all material respects. There has been no material adverse change in any
fact or circumstance known to Borrower on the date hereof that would make any such information
incomplete or inaccurate after the date hereof.

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     3.28 No Illegal Activity as Source of Funds. No portion of the Mortgaged Property has
been or will be purchased, improved, equipped or furnished with proceeds or any illegal activity.

     3.29 Compliance with Anti-Terrorism. Embargo. Sanctions and Anti-Money Laundering
Laws. Borrower, and to the best of Borrower’s knowledge, (a) each Person owning an interest of
20% or more in Borrower and, as applicable, in the Single Asset Entity that is the general partner
of Borrower, (b) each Guarantor, (c) Manager, and (d) any tenant (excluding residents at the
Property and commercial tenants at the Property): (i) is not currently identified on OF AC List,
and (ii) is not a Person with whom a citizen of the United States is prohibited to engage in
transactions by any trade embargo, economic sanction, or other prohibition of United States law,
regulation, or Executive Order of the President of the United States. Borrower has implemented
procedures, and will consistently apply those procedures throughout the term of the Loan, to ensure
the foregoing representations and warranties remain true and correct during the term of the Loan.

     3.30 Fraud and Abuse.

          (a) Anti-Kickback Law. To Borrower’s knowledge, neither Borrower nor its agent have
offered or given any remuneration or thing of value to any person to encourage referral to the
facility nor has Borrower or its agent solicited or received any remuneration or thing of value in
exchange for Borrower’s agreement to make referrals or to purchase goods or services for the
Facility.

          (b) Relationships. No physician or other healthcare practitioner has an ownership
interest in, or financial relationship with, the Borrower, Manager or the Facility.

          (c) Required Adjustments. All cost report periods for all Facility payors have been
closed and settled, and all required adjustments have been fully paid and/or implemented.

ARTICLE IV

AFFIRMATIVE COVENANTS OF BORROWER

     Each Borrower agrees with and covenants unto Lender that until the Loan Obligations have been
paid in full, such Borrower shall:

     4.1 Pavement of Loan Performance of Loan Obligations. Duly and punctually pay or cause
to be paid the principal and interest of the Note in accordance with its terms and duly and
punctually pay and perform or cause to be paid or performed all Loan Obligations hereunder and
under the other Loan Documents.

     4.2 Maintenance of Existence. Maintain its existence as a limited partnership or
corporation, as the case may be, in good standing under the laws of the jurisdiction of its
organization or formation, and, in each jurisdiction in which the character of the property owned
by it or in which the transaction of its business makes qualification necessary, maintain good
standing and qualification to do business.

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     4.3 Maintenance of Single Asset Status. Maintain its existence as a Single Asset
Entity.

     4.4 Accrual and Pavement of Taxes. During each fiscal year, make provision for the
payment in full of all current tax liabilities of all kinds including, without limitation, federal
and state income taxes, franchise taxes, payroll taxes, provider taxes (to the extent necessary to
participate in and receive maximum funding pursuant to Reimbursement Contracts), Taxes (as defined
in the Mortgage), all required withholding of income taxes of employees, all required old age and
unemployment contributions, and all required payments to employee benefit plans, and pay the same
when they become due.

     4.5 Insurance. Maintain, at its expense, the following insurance coverages and
policies with respect to the Mortgaged Property and the Facility, which coverages and policies must
be acceptable to Lender’s insurance consultant in its sole discretion:

          (a) Comprehensive “all risk” insurance, including coverage for windstorms and hail, in an
amount equal to 100% of the full replacement cost of the Facility, which replacement cost shall be
determined by the “Insurable Value” or “Cost Approach to Value” reflected in the most recent Lender
approved appraisal for the Facility, without deduction for depreciation. Such insurance shall also
include (i) agreed insurance amount endorsement waiving all co-insurance provisions, and (ii) an
“Ordinance or Law Coverage” endorsement if the Facility or the use thereof shall constitute a legal
non-conforming structure or use.

          (b) Commercial general liability insurance against claims for sexual harassment abuse of
residents and/or patients, personal injury, bodily injury, death or property damage, in or about
the Facility to be on a so-called “occurrence” basis for at least $1,000,000.00 per occurrence and
$2,000,000.00 in the aggregate with a $5,000,000.00 umbrella coverage.

          (c) Professional liability insurance against claims for personal injury, bodily injury or
death, in or about the Facility to be on a so-called “occurrence” basis for at least $1,000,000.00
per occurrence and $2,000,000.00 in the aggregate.

          (d) Business interruption income insurance for the Facility in an amount equal to 100% of the
net income plus carrying costs and extraordinary expenses of the Facility for a period of twelve
(12) months as projected by Lender, containing a 90-day extended period of indemnity endorsement.

          (e) Flood Hazard insurance if any portion of the Improvements is located in a “flood zone
area,” as identified in the Federal Register by the Federal Emergency Management Agency as a
100-year flood zone or “special flood hazard area” and in which flood insurance is available. In
lieu thereof, Lender will accept proof, satisfactory to it in its sole discretion, that the
Improvements are not within the boundaries of a designated area.

          (f) Workers’ compensation insurance, if applicable and required by state law, subject to
applicable state statutory limits, and employer’s liability insurance with a limit of $1,000,000.00
per accident and per disease per employee with respect to the Facility.

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          (g) Comprehensive boiler and machinery insurance, including property damage coverage and time
element coverage in an amount equal to 100% of the full replacement cost, without deduction for
depreciation, of the Facility housing the machinery, if steam boilers, pipes, turbines, engines or
any other pressure vessels are in operation with respect to the Facility. Such insurance coverage
shall include a “joint loss” clause if such coverage is provided by an insurance carrier other than
that which provides the comprehensive “all risk” insurance described above.

          (h) During the period of any construction and/or renovation of capital improvements with
respect to the Facility or any new construction at the Facility, builder’s risk insurance for any
improvements under construction and/or renovation, including, without limitation, costs of
demolition and increased cost of construction or renovation, in an amount equal the amount of the
general contract plus the value of any existing purchase money financing for improvements and
materials stored on or off the Property, including “soft cost” coverage.

          (i) If the Facility is located in a seismically active area or an area prone to geologic
instability and mine subsidence, Lender may require an inspection by a qualified structural or
geological engineer satisfactory to Lender, and at Borrower’s expense. The Facility must be
structurally and geologically sound and capable of withstanding normal seismic activity or
geological movement. Lender reserves the right to require earthquake insurance or Maximum Probable
Loss insurance on a case by case basis in amounts determined by Lender.

          (j) Such other insurance coverages as may be deemed necessary at any time during the term of
the Loan and as shall be provided within such time periods as Lender may determine, in each case,
in its commercially reasonable discretion.

     All insurance policies shall have a term of not less than one year and shall be in the form
and amount and with deductibles as, from time to time, shall be acceptable to Lender in its sole
discretion. All such policies shall provide for loss payable solely to Lender and shall contain a
standard “non-contributory mortgagee” endorsement or its equivalent relating, among other things,
to recovery by Lender notwithstanding the negligent or willful acts or omissions of Borrower and
notwithstanding (i) occupancy or use of the Facility for purposes more hazardous than those
permitted by the terms of such policy, (ii) any foreclosure or other action taken by Lender
pursuant to the Mortgage upon the occurrence of an Event of Default thereunder, or (iii) any change
in title or ownership of the Facility.

     All insurance policies must be written by a licensed insurance carrier in the State in which
the Facility is located and such insurance carrier must have a long-term senior debt rating of at
least “A” by Standard and Poor’s Rating Service; provided, that if the initial principal balance of
the Loan is in excess of $25,000,000.00, such insurance carrier must have a long-term senior debt
rating of at least “AA” by Standard & Poor’s Rating Service.

     All liability insurance policies must name “GMAC Commercial Mortgage Corporation and its
successors and/or assigns as their interests may appear” as additional insureds, and all property
insurance policies must name “GMAC Commercial Mortgage Corporation and its successors and/or
assigns” as the named mortgage holder entitled to all insurance proceeds. Lender shall have the
right, without Borrower’s consent, by notice to the insurance company, to

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change the additional insured and named mortgagee endorsements in connection with any sale of
the Loan.

     All insurance policies for the above-required insurance must provide for thirty (30) days
prior written notice of cancellation to Lender.

     Policies or binders, together with evidence of the above required insurance on ACORD Form 27
or its equivalent, must be submitted to Lender prior to setting the interest rate on the Loan.

     With respect to insurance policies which require payment of premiums annually, not less than
thirty (30) days prior to the expiration dates of the insurance policies obtained pursuant to this
Agreement, Borrower shall pay such amount, except to the extent Lender is escrowing sums therefor
pursuant to the Loan Documents. Not less than thirty (30) days prior to the expiration dates of the
insurance policies obtained pursuant to this Agreement, originals or certified copies of renewals
of such policies (or certificates evidencing such renewals) bearing notations evidencing the
payment of premiums or accompanied by other evidence satisfactory to Lender of such payment, which
premiums shall not be paid by Borrower through or by any financing) arrangement. shall be delivered
by Borrower to Lender at the address set forth in Section 8.7 hereof. Borrower shall not carry
separate insurance, concurrent in kind or form or contributing in the event of loss, with any
insurance required under this Section 4.5. If the limits of any policy required hereunder are
reduced or eliminated due to a covered loss, Borrower shall pay the additional premium, if any, in
order to have the original limits of insurance reinstated, or Borrower shall purchase new insurance
in the same type and amount that existed immediately prior to the loss.

     If Borrower fails to maintain and deliver to Lender the original policies or certificates of
insurance required by this Agreement. Lender may, at its option, procure such insurance and
Borrower shall payor, as the case may be, reimburse Lender for, all premiums thereon promptly, upon
demand by Lender, with interest thereon at the Default Rate from the date paid by Lender to the
date of repayment and such sum shall constitute a part of the Loan Obligations.

     The insurance required by this Agreement may, at the option of Borrower, be effected by
blanket and/or umbrella policies issued to Borrower or to an Affiliate of Borrower covering the
Facility and the properties of such Affiliate; provided that. in each case, the policies otherwise
comply with the provisions of this Agreement and allocate to the Facility, from time to time, the
coverage specified by this Agreement. without possibility of reduction or coinsurance by reason of,
or damage to, any other property (real or personal) named therein. If the insurance required by
this Agreement shall be effected by any such blanket or umbrella policies, Borrower shall furnish
to Lender original policies or certified copies thereof, with schedules attached thereto showing
the amount of the insurance provided under such policies which is applicable to the Facility.

     Neither Lender nor its agents or employees shall be liable for any loss or damage insured by
the insurance policies required to be maintained under this Agreement; it being understood that (a)
Borrower shall look solely to its insurance company for the recovery of such loss or damage, (b)
such insurance company shall have no rights of subrogation against Lender, its

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agents or employees, and (c) Borrower shall use its best efforts to procure from such
insurance company a waiver of subrogation rights against Lender. If, however, such insurance
policies do not provide for a waiver of subrogation rights against Lender (whether because such a
waiver is unavailable or otherwise), then Borrower hereby agrees, to the extent permitted by law
and to the extent not prohibited by such insurance policies, to waive its rights of recovery, if
any, against Lender, its agents and employees, whether resulting from any damage to the Facility,
any liability claim in connection with the Facility or otherwise. If any such insurance policy
shall prohibit Borrower from waiving such claims, then Borrower must obtain from such insurance
company a waiver of subrogation rights against Lender.

     Borrower appoints Lender as Borrower’s attorney-in-fact to cause the issuance of an
endorsement of any insurance policy to bring Borrower into compliance herewith and, as limited
above, at Lender’s sole option, to make any claim for, receive payment for, and execute and endorse
any documents, checks or other instruments in payment for loss, theft, or damage covered under any
such insurance policy; provided, however, that in no event will Lender be liable for failure to
collect any amounts payable under any insurance policy.

     4.6 Proceeds of Insurance or Condemnation. If, after damage to or destruction of or
condemnation of the Mortgaged Property (or any part thereof), the net Proceeds of insurance or
condemnation (after payment of Lender’s reasonable costs and expenses in connection with the
administration thereof) are:

          (a) less than One Hundred Thousand and 00/100 Dollars ($100,000), Lender so long as no Event
of Default exists, shall deliver such proceeds to Borrower to be applied within thirty (30) days
thereafter to the repair, restoration and replacement by Borrower of the Improvements, Equipment
and Inventory damaged, destroyed or taken,

          or

          (b) One Hundred Thousand and 00/100 Dollars ($100,000) or more and Lender agrees, at its
option, to make such net Proceeds available to Borrower, Lender shall make such net Proceeds
available to Borrower on the following terms:

               (i) The aggregate amount of all such Proceeds shall not exceed the aggregate amount of all
such Loan Obligations;

               (ii) At the time of such loss or damage and at all times thereafter while Lender is holding
any portion of such Proceeds, there shall exist no Default or Event of Default;

               (iii) The Improvements, Equipment, and Inventory to which loss or damage has resulted shall be
capable of being restored to its preexisting condition and utility in all material respects with a
value equal to or greater than that which existed prior to such loss or damage and such restoration
shall be capable of being completed prior to the earlier to occur of (i) the expiration of business
interruption insurance as determined by an independent inspector or (ii) the Maturity Date;

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               (iv) Within 45 days from the date of such loss or damage Borrower shall have given Lender a
written notice electing to have the Proceeds applied for such purpose;

               (v) Within 120 days following the date of notice under the preceding subparagraph (iv) and
prior to any Proceeds being disbursed to Borrower, Borrower shall have provided to Lender all of
the following:

                    (A) complete plans and specifications for restoration, repair and replacement of the
Improvements, Equipment and Inventory damaged to the condition, utility and value required by (iii)
above,

                    (B) if loss or damage exceeds One Hundred Thousand Dollars ($100,000), fixed-price or
guaranteed maximum cost bonded construction contracts for completion of the repair and restoration
work in accordance with such plans and specifications,

                    (C) builder’s risk insurance for the full cost of construction with Lender named under a
standard mortgagee loss-payable clause

                    (D) such additional funds as in Lender’s reasonable opinion are necessary to complete such
repair, restoration and replacement, and

                    (E) copies of all permits and licenses necessary to complete the work in accordance with the
plans and specifications;

               (vi) Lender may, at Borrower’s expense, retain an independent inspector to review and approve
plans and specifications and completed construction and to approve all requests for disbursement,
which approvals shall be conditions precedent to release of Proceeds as work progresses;

               (vii) No portion of such Proceeds shall be made available by Lender for architectural reviews
or for any other purposes which are not directly attributable to the cost of repairing, restoring
or replacing the Improvements, Equipment and Inventory to which a loss or damage has occurred
unless the same are covered by such insurance;

               (viii) Borrower shall diligently pursue such work and shall complete such work prior to the
earlier to occur of the expiration of business interruption insurance or the Maturity Date;

               (ix) Each disbursement by Lender of such Proceeds and deposits shall be funded subject to
conditions and in accordance with disbursement procedures which a commercial construction lender
would typically establish in the exercise of sound banking practices and shall be made only upon
receipt of disbursement requests on an AlA G702l703 form (or similar form approved by Lender)
signed and certified by Borrower and, if required by Lender, its architect and general contractor
with appropriate invoices and lien waivers as required by Lender, and

20

 

               (x) Lender shall have a first lien on and security interest in all building materials and
completed repair and restoration work and in all fixtures and equipment acquired with such
Proceeds, and Borrower shall execute and deliver such mortgages, deeds of trust, security
agreements, financing statements and other instruments as Lender shall request to create, evidence,
or perfect such lien and security interest

     In the event and to the extent that such Proceeds are One Hundred Thousand and 00/100 Dollars
($100,000) or more and are not required to be used for the repair, restoration and replacement of
the Improvements, Equipment and Inventory to which a loss or damage has occurred, or, if the
conditions set forth herein for such application are otherwise not satisfied, then Lender shall be
entitled without notice to or consent from Borrower to apply such Proceeds, or the balance thereof,
at Lender’s option either (a) to the full or partial payment or prepayment of the Loan Obligations
(without premium) in the manner aforesaid or (b) to the repair, restoration and/or replacement of
all or any part of such Improvements, Equipment and Inventory to which a loss or damage has
occurred. Any excess Proceeds after such application by Lender shall be paid to Borrower.

     4.7 Financial and Other Information. Provide Lender, and cause Guarantor and Manager
to provide to Lender, at its address set forth in Section 8.7 and at GMAC Commercial Mortgage
Corporation, 2200 Woodcrest Place, Suite 305, Birmingham, Alabama 35209 the following financial
statements and information on a continuing basis during the tern of the Loan:

          (a) Within one hundred twenty (120) days after the end of each fiscal year of Guarantor
Capital Senior Living Corporation, audited financial statements of Capital Senior Living
Corporation prepared in accordance with GAAP by a nationally recognized accounting firm or
independent certified public accounting firm acceptable to the Lender (Lender hereby pre-approves
Ernst & Young), which statements shall include a balance sheet and a statement of income and
expenses for the year then ended, and upon its filing thereof, a copy of its Form 100K as filed
with the United States Securities and Exchange Commission.

          (b) Within ninety (90) days after the end of each fiscal year of each Facility and each
Borrower (if different from its Facility), unaudited financial statements of each Borrower and each
Facility (if different from its Borrower), internally prepared in accordance with GAAP, which
statements shall include a balance sheet and a statement of income and expenses for the year then
ended, and shall be certified as true and correct in all material respects by a financial officer
of the applicable Borrower.

          (c) Within ninety (90) days after the end of each fiscal year of Manager, unaudited financial
statements of Manager, internally prepared in accordance with GAAP, which statements shall include
a balance sheet and a statement of income and expenses for the year then ended, and shall be
certified as true and correct by a financial officer of Manager.

          (d) Within ninety (90) days after the end of each fiscal year of Guarantor Capital Senior
Living Properties, Inc., unaudited financial statements of Guarantor Capital Senior Living
Properties, Inc., internally prepared in accordance with GAAP, which statements shall include a
balance sheet and a statement of income and expenses for the year then ended,

21

 

and shall be certified as true and correct by a financial officer of Guarantor Capital Senior
Living Properties, Inc.

          (e) Within forty-five (45) days after the end of each fiscal quarter of each Facility,
unaudited interim financial statements of the operations of the Facility, certified as true and
correct in all material respects by a financial officer of the applicable Borrower, prepared in
accordance with GAAP, which statements shall include a balance sheet and statement of income and
expenses for the quarter then ended.

          (f) Within forty-five (45) days after the end of each fiscal quarter of each Borrower (if
different from its Facility), unaudited interim financial statements of Borrower, certified as true
and correct in all material respects by a financial officer of Borrower, prepared in accordance
with GAAP, which statements shall include a balance sheet and statement income and expenses for the
quarter then ended.

          (g) Within forty-five (45) days after the end of each fiscal quarter of Guarantor Capital
Senior Living Properties, Inc., unaudited interim financial statements of Capital Senior Living
Properties, Inc., certified as true and correct in all material respects by a financial officer of
Capital Senior Living Properties, Inc., prepared in accordance with GAAP, which statements shall
include a balance sheet and a statement of income and expenses for the quarter then ended.

          (h) Within forty-five (45) days after the end of each fiscal quarter of Manager, unaudited
interim financial statements of Manager, certified as true and correct in all material respects by
a financial officer of Manager, prepared in accordance with GAAP, which statements shall include a
balance sheet and a statement of income and expenses for the quarter then ended.

          (i) Upon filing, the quarterly 10-Q of Capital Senior Living Corporation.

          (j) Within forty-five (45) days after the end of each month for each of the Facilities owned
by Triad Senior Living I, L.P., Triad Senior Living II, L.P., Triad Senior Living N, L.P., and
Triad Senior Living V, L.P., unaudited interim financial statements of the operations of such
Facilities, including occupancy information, certified as true and correct in all material respects
by a financial officer of the Borrower, prepared in accordance with GAAP, which statements shall
include a balance sheet and statement of income and expenses for the quarter then ended.

          (k) If requested by Lender, within forty-five (45) days after the end of each fiscal quarter,
a statement of the number of bed or unit days available and the actual patient or resident days
incurred for such quarter, together with quarterly census information of each Facility as of the
end of such quarter in sufficient detail to show patient or resident -mix (Le., private,
Medicare, Medicaid, and V.A.) on a daily average basis for such year through the end of such
quarter, certified by the chief financial officer of Borrower or Manager to be true and correct.
Such statements of the Facility shall be accompanied by the Summary of Financial Statements and
Census Data attached hereto as Exhibit “D”.

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          (l) If requested by Lender, within thirty (30) days after the filing deadline, as may be
extended from time to time, copies of all federal, state and local tax returns of Borrowers,
Guarantors and Manager, together with all supporting documentation and required schedules.

          (m) At Lender’s request if and to the extent applicable, within twenty (20) days after filing
or receipt, all Medicaid cost reports and any amendments thereto filed with respect to the Facility
and all responses, audit reports, or other inquiries with respect to such cost reports.

          (n) At Lender’s request if and to the extent applicable, within ten (10) days after receipt,
copies of all licensure and certification survey reports and statements of deficiencies (with plans
of correction attached thereto).

          (o) At Lender’s request, if and to the extent applicable, within ten (10) days after receipt,
a copy of the “Medicaid Rate Calculation Worksheet” (or the equivalent thereof) from the applicable
agency.

          (p) At Lender’s request, if and to the extent applicable, within ten (10) days of receipt, a
statement of the number of resident days for which the Facility has received the Medicare default
rate for any applicable period. For purposes herein, “default rate” shall have the meaning ascribed
to it in that certain applicable Medicare rate notification letter prepared in connection with any
review or survey of the Facility.

          (q) Within ten (10) days after receipt, any and all material notices (regardless of form) from
any and all licensing and/or certifying agencies, including but not limited to, that the Facility’s
license is being downgraded to a substandard category, revoked or suspended, or that action is
pending or being considered to downgrade to a substandard category, revoke or suspend the
Facility’s license or certification.

          (r) If requested by Lender, evidence of payment by Borrower or Manager of any applicable
provider bed taxes or similar taxes.

          (s) If requested by Lender, within forty-five (45) days after the end of each December and
June, an aged accounts receivable report for the Facility in sufficient detail to show amounts due
from each class of patient or resident-mix, if applicable (i&., private, Medicare, Medicaid and
V.A.), by the account age classifications of 30 days, 60 days, 90 days, 120 days, and over 120
days.

     Lender reserves the right to require that the annual and/or quarterly financial statements of
Borrowers, Guarantors and Manager be audited and prepared by a nationally recognized accounting
firm or independent certified public accounting firm acceptable to Lender, at their respective sole
cost and expense, if (i) an Event of Default exists and is continuing, or (ii) if Lender has
reasonable grounds to believe that the unaudited financial statements do not accurately represent
the financial condition of Borrowers, Guarantors and Manager, as the case may be.

23

 

     Lender further reserves the right to require such other financial information of Borrowers,
Guarantors, Manager and/or the Facilities, at such other times (including monthly or more
frequently) as it shall reasonably deem necessary. All financial statements must be in the form and
detail as Lender shall from time to time reasonably request.

     4.8 Compliance Certificate. At the time of furnishing the quarterly operating
statements required under Section 4.7 herein, furnish to Lender a compliance certificate in the
form attached hereto as Exhibit “En executed by a financial officer of each Borrower.

     4.9 Books and Records. Keep and maintain at all times at the Facility or Manager’s
offices, and upon Lender’s request make available at the Facility or Manager’s office, complete and
accurate books of account and records (including copies of supporting bills and invoices) adequate
to reflect correctly the results of the operation of the Facility, and copies of all written
contracts, leases (if any), and other instruments which affect the Mortgaged Property, which books,
records, contracts, leases (if any) and other instruments shall be subject to examination and
inspection at any reasonable time by Lender (upon reasonable advance notice, which for such
purposes shall be given in writing, except in the case of an emergency or following an Event of
Default, in which case no advance notice shall be required); provided, however, that if an Event of
Default has occurred and is continuing, Borrower shall deliver to Lender upon written demand all
books, records, contracts, leases (if any) and other instruments relating to the Facility or its
operation and Borrower authorizes Lender to obtain a credit report on Borrower at any time.

     4.10 Pavement of Indebtedness. Duly and punctually payor cause to be paid all other
Indebtedness now owing or hereafter incurred by Borrower in accordance with the terms of such
Indebtedness, except such Indebtedness owing to those other than Lender which is being contested in
good faith and with respect to which any execution against properties of Borrower has been
effectively stayed and for which reserves and collateral for the payment and security thereof have
been established in sufficient amounts as determined by Lender in its sole commercially reasonable
discretion.

     4.11 Records of Accounts. Maintain all records, including records pertaining to the
Accounts of Borrower, at the principal place of business of Borrower as set forth in this Agreement
or at Manager’s office.

     4.12 Conduct of Business. Conduct, or cause Manager to conduct, the operation of the
Facility at all times in a manner consistent with the level of operation of the Facility as of the
date hereof, including without limitation, the following:

          (a) to maintain the standard of care for the residents of the Facility at all times at a level
necessary to ensure quality care for the residents of the Facility in accordance with customary and
prudent industry standards;

          (b) to operate the Facility in a prudent manner and in compliance in all material respects
with applicable laws and regulations relating thereto and cause all Permits, Reimbursement
Contracts (if any), and any other agreements necessary for the use and operation of the Facility
or, if applicable, as may be necessary for participation in the Medicaid, Medicare, or other
applicable reimbursement programs (if any) to remain in effect without reduction in the

24

 

number of licensed beds authorized for use in the Medicaid, Medicare, or other applicable
reimbursement programs;

          (c) to maintain sufficient Inventory and Equipment of types and quantities at the Facility to
enable Borrower to perform operations of the Facility adequately;

          (d) to keep all Improvements and Equipment located on or used or useful in connection with the
Facility in good repair, working order and condition, reasonable wear and tear excepted, and from
time to time make all needed and proper repairs, renewals, replacements, additions, and
improvements thereto to keep the same in good operating condition; and, specifically, without
limiting the generality of the foregoing, complete the repairs identified on Schedule 4.12(d)
attached hereto within one hundred twenty (120) days from the date hereof;

          (e) to maintain sufficient cash in the operating accounts of the Facility in order to satisfy
the working capital needs of the Facility; and

          (f) to keep all required Permits current and in full force and effect.

     4.13 Periodic Surveys. Furnish or cause Manager to furnish to Lender, within twenty
(20) days of receipt, a copy of any Medicare, Medicaid, or other licensing agency surveyor report
and any statement of deficiencies and/or any other report indicating that any action is pending or
being considered to downgrade the Facility to a substandard category, and within the time period
required by the particular agency for furnishing a plan of correction also furnish or cause to be
furnished to Lender a copy of the plan of correction generated from such surveyor report for the
Facility, and correct or cause to be corrected any deficiency, the curing of which is a condition
of continued licensure or for full participation in Medicaid, Medicare or other reimbursement
program pursuant to any Reimbursement Contract for existing residents or for new residents to be
admitted with Medicaid or Medicare coverage, by the date required for cure by such agency (plus
extensions granted by such agency).

     4.14 Debt Service Coverage Requirements.

          (a) Maintain (commencing with the quarter ending June 30, 2005), and within forty-five (45)
days after the end of each fiscal quarter, provide evidence to Lender of the achievement of, the
following Combined Debt Service Coverage. Ratios for the Stabilized Properties until the Loan is
paid in full:

               (i) For quarters ending June 30, 2005, and September 30, 2005, a Combined Debt Service
Coverage Ratio for the Stabilized Properties, after deduction of Assumed Management Fees, of not
less than 1.2 to 1.0 for the preceding three (3) month period;

               (ii) For quarters ending December 31, 2005, and March 31, 2006, a Combined Debt Service
Coverage Ratio for the Stabilized Properties, after deduction of Assumed Management Fees, of not
less than 1.25 to 1.0 for the preceding six (6) month period; and

25

 

               (iii) For quarters ending June 30, 2006, and each quarter thereafter, a Combined Debt Service
Coverage Ratio for the Stabilized Properties, after deduction of Assumed Management Fees, of not
less than 1.25 to 1.0 for the preceding twelve (12) month period.

          (b) Maintain (commencing with the quarter ending June 30, 2005), and within forty-five (45)
days after the end of each fiscal quarter, provide evidence to Lender of the achievement of, the
following Combined Debt Service Coverage Ratios for the Non-Stabilized Properties until the Loan is
paid in full:

               (i) For quarters ending June 30, 2005, and September 30, -2005; a Combined Debt Service
Coverage Ratio for the Non-Stabilized Properties, after deduction of Assumed Management Fees, of
not less than .9 to 1.0 for the preceding three (3) month period;

               (ii) For quarters ending December 31, 2005, and March 31,2006, a Combined Debt Service
Coverage Ratio for the Non-Stabilized Properties, after deduction of Assumed Management Fees, of
not less than .95 to 1.0 for the preceding three (3) month period;

               (iii) For quarters ending June 30, 2006, and September 30, 2006, a Combined Debt Service
Coverage Ratio for the Non-Stabilized Properties, after deduction of Assumed Management Fees, of
not less than 1.0 to 1.0 for the preceding three (3) month period;

               (iv) For quarters ending December 31, 2006, and March 31, 2007, a Combined Debt Service
Coverage Ratio for the Non-Stabilized Properties, after deduction of Assumed Management Fees, of
not less than 1.10 to 1.0 for the preceding three (3) month period;

               (v) For quarters ending June 30, 2007, and September 30, 2007, a Combined Debt Service
Coverage Ratio for the Non-Stabilized Properties, after deduction of Assumed Management Fees, of
not less than 1.15 to 1.0 for the preceding three (3) month period;

               (vi) For quarters ending December 31, 2007, and March 31, 2008, a Combined Debt Service
Coverage Ratio for the Non-Stabilized Properties, after deduction of Assumed Management Fees, of
not less than 1.20 to 1.0 for the preceding three (3) month period;

               (vii) For quarters ending June 30, 2008, and September 30, 2008, a Combined Debt Service
Coverage Ratio for the Non-Stabilized Properties, after deduction of Assumed Management Fees, of
not less than 1.25 to 1.0 for the preceding three (3) month period;

               (viii) For quarter ending December 31, 2008, a Combined Debt Service Coverage Ratio for the
Non-Stabilized Properties, after deduction of Assumed Management Fees, of not less than 1.25 to 1.0
for the preceding nine (9) month period; and

26

 

               (ix) For quarter ending March 31, 2009, and each quarter thereafter, a Combined Debt Service
Coverage Ratio for the Non-Stabilized Properties, after deduction of Assumed Management Fees, of
not less than 1.25 to 1.0 for the preceding twelve (12) month period.

          (c) If Borrower fails to achieve or provide evidence of achievement of any required Combined
Debt Service Coverage Ratio, Borrower may deposit with Lender, at Borrower’s option within
forty-five (45) days of such failure, additional cash or other liquid collateral in an amount
which, when added to the first number of the Combined Debt Service Coverage Ratio calculation,
would have resulted in the noncomplying Combined Debt Service Coverage Ratio requirement having
been satisfied. If after Borrower has deposited such additional cash or liquid collateral, Borrower
again fails to achieve or provide evidence of the achievement of the Combined Debt Service Coverage
Ratio requirements set forth above and such failure continues for two (2) consecutive quarters,
Borrower may deposit with Lender, at Borrower’s option within forty-five (45) days of such failure,
additional cash or other liquid collateral (with credit for amounts currently being held by Lender
pursuant to the foregoing sentence), in an amount which, if the same had been applied on the first
(1st) day of the first quarter for which such noncompliance of the Combined Debt Service Coverage
Ratio requirement occurred to reduce the outstanding principal indebtedness of the Loan, would have
resulted in the noncomplying Combined Debt Service Coverage Ratio requirement having been
satisfied. Any additional cash or liquid collateral deposited by Borrower hereunder in order to
achieve the required Combined Debt Service Coverage Ratio and cure any existing default with
respect thereto will be held by Lender in a standard custodial account and shall constitute
additional collateral for the Loan Obligations and an “Account” as defined in this Agreement, and,
upon the occurrence of an Event of Default, may be applied by Lender, in such order and manner as
Lender may elect, to the reduction of the Loan Obligations. Borrower shall not be entitled to any
interest earned on such additional collateral. Provided that there is no outstanding Default or
Event of Default, such additional collateral which has not been applied to the Loan Obligations
will be released by Lender at such time as Borrower provides Lender with evidence that the required
Combined Debt Service Coverage Ratio requirements outlined above have been achieved and maintained
(without regard to any cash deposited pursuant to this Section 4.14) for two (2)
consecutive fiscal quarters.

     4.15 Occupancy.

          (a) Commencing with the first test date of June 30,2005, maintain or cause to be maintained,
at all times thereafter, a daily average occupancy for each Facility, individually (excluding
Waterford at Ft. Worth and Sedgwick), as tested quarterly (on the basis of a trailing twelve (12)
months), of eighty percent (80%) or more (based on the number of units or beds available at the
Facility, with the minimum number of units or beds available at the Facility remaining at or in
excess of the units and/or beds specified as available in Exhibit A).

          (b) For each of Waterford at Ft. Worth and Sedgwick, individually, obtain a minimum daily
average occupancy of eighty percent (80%) or more for any month on or before December 31, 2005, and
commencing with the test date of December 31, 2006, maintain or cause to be maintained, at all
times thereafter, a daily average occupancy of eighty percent (80%) or higher (on the basis of a
trailing twelve (12) months), (based on the number of units or beds

27

 

available at the Facility, with the minimum number of units or beds available at the Facility
remaining at or in excess of the units and/or beds specified as available in Exhibit A).

     4.16 Capital Expenditures. Maintain, and/or cause Manager to maintain, each Facility
in good condition and make minimum capital expenditures for each Facility in each fiscal year, in
an amount equal to $300 per unit or bed, as applicable (or the appropriate prorated amount for any
partial fiscal year), (which capital expenditures may include ordinary repairs and routine
maintenance), commencing the first year of the Loan term and continuing throughout the Loan term,
and, within forty-five (45) days after the end of each fiscal year, provide evidence thereof
satisfactory to Lender. If Borrower makes capital expenditures in any year in excess of the annual
amount required hereunder, the excess shall be applied as a credit against the next year’s
requirement. In the event that Borrower shall fail to meet such requirement or to provide such
evidence, Borrower shall, upon Lender’s written request, establish and maintain, within thirty (30)
days of such notice, a capital expenditures reserve fund with Lender equal to the difference
between the required amount per unit and the amount per unit actually spent by Borrower. Borrower
grants to Lender a lien on and a right of setoff against all moneys in the capital expenditures
reserve fund, and Borrower shall not permit any other Lien to exist upon such fund. Moneys on
deposit in such capital expenditures reserve fund will be disbursed to Borrower monthly upon
Lender’s receipt of satisfactory evidence that Borrower has caused to be made the required capital
expenditures. Upon Borrower’s or Manager’s failure to adequately maintain the Facility in good
condition, Lender may, but shall not be obligated to, make such capital expenditures and may apply
the moneys in the capital expenditures reserve fund for such purpose. To the extent there are
insufficient moneys in such capital expenditures reserve fund for such purposes, all funds advanced
by Lender to make such capital expenditures shall constitute a portion of the Loan Obligations,
shall be secured by the Mortgage and shall accrue interest at the Default Rate until paid. Upon the
occurrence of an Event of Default, Lender may apply any moneys in the capital expenditures reserve
fund to the Loan Obligations, in such order and manner as Lender may elect For any partial fiscal
year during which the Loan is outstanding, the required expenditure amount shall be prorated by
multiplying the required amount per unit amount by a fraction, the numerator of which is the number
of days during such year for which all or part of the Loan is outstanding and the denominator of
which is the number of days in such year. During the term of the Loan, Lender may, from time to
time, engage a professional building inspector to conduct an inspection of the Facility. If the
inspector’s report indicates that repairs or replacements are necessary over and above the $300 per
unit requirement in this Section 4.16, then Lender shall require a non-interest bearing
repair escrow fund to ensure completion of such necessary repairs or replacements. The amount of
any such repair escrow fund shall be one hundred twenty-five percent (125%) of the estimated cost
of repairs as determined by such inspector and Lender. Lender also shall require an agreement
satisfactory to Lender, in its commercially reasonable discretion, which will provide for
completion of the repairs and the disbursement of the escrow funds. All commercially reasonable
fees and costs associated with the inspection, report and subsequent inspections (if required)
shall be paid by Borrower.

     4.17 Management Agreement. Maintain the Management Agreement in full force and effect
and timely perform all of Borrower’s obligations thereunder and enforce performance of all
obligations of Manager thereunder and not permit the termination, amendment or assignment of the
Management Agreement unless the prior written consent of Lender is first obtained, which

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consent may be in the sole and absolute discretion of Lender; provided however that Manager
may assign a Management Agreement to a subsidiary of Capital Senior Living Corporation if such
subsidiary signs a Subordination of Management Agreement required by Lender. Borrower will enter
into and cause Manager to enter into the Subordination Agreement. Borrower will not enter into any
other management agreement without Lender’s prior written consent, which consent may be in the sole
and absolute discretion of Lender.

     4.18 Updated Appraisals. For so long as the Loan remains outstanding, if any Event of
Default shall occur and be continuing hereunder, then in any such event, Lender, may cause the Land
and Improvements to be appraised by an appraiser selected by Lender, and in accordance with
Lender’s appraisal guidelines and procedures then in effect, and Borrower agrees to cooperate in
all reasonable respects with such appraisals and furnish to the appraisers all reasonably requested
information regarding the Land and Improvements and the Facility. Borrower agrees to pay all
reasonable costs incurred by Lender in connection with such appraisal which costs shall be secured
by the Mortgage and shall accrue interest at the Interest Rate until paid.

     4.19 Comply with Covenants and Laws. Comply, in all material respects, with all
applicable covenants and restrictions of record and all laws, ordinances, rules and regulations and
keep the Facility and the Land and Improvements in compliance, in all material respects, with all
applicable laws, ordinances, rules and regulations, including, without limitation, the Americans
with Disabilities Act and regulations promulgated thereunder, and laws, ordinances, rules and
regulations relating to zoning, health, building codes, setback requirements, Medicaid and Medicare
laws and keep the Permits for the Facility in full force and effect.

     4.20 Taxes and Other Charges. Subject to Borrower’s right to contest the same as set
forth in Section 9( c) of the Mortgage, pay all taxes, assessments, charges, claims for labor,
supplies, rent, and other obligations which, if unpaid, would give rise to a Lien against real or
personal property of the Borrower, except Liens to the extent permitted by this Agreement.

     4.21 Commitment Letter. Provide all items and pay all amounts required by the
Commitment Letter. If any term of the Commitment Letter shall conflict with the terms of this
Agreement, this Agreement shall govern and control. As to any matter contained in the Commitment
Letter, and as to which no mention is made in this Agreement or the other Loan Documents, the
Commitment Letter shall continue to be in effect and shall survive the execution of this Agreement
and all other Loan Documents.

     4.22 Certificate. Upon Lender’s written request, furnish Lender with a certificate
stating that to Borrower’s knowledge Borrower has complied with and is in compliance with, in all
material respects, all terms, covenants and conditions of the Loan Documents to which Borrower is a
party and that there exists no Default or Event of Default or, if such is not the case, that one or
more specified events have occurred, and that the representations and warranties contained herein
are true and correct with the same effect as though made on the date of such certificate.

     4.23 Notice of Fees or Penalties. Notify Lender, within a reasonable time period, upon
Borrower’s knowledge thereof, of the assessment by any state or, if applicable, any Medicare,

29

 

Medicaid, health or licensing agency of any fines or penalties against Borrower, Manager, or
the Facility.

     4.24 Loan Closing Certification. Immediately notify Lender in writing, in the event
any representation or warranty contained in that certain Loan Closing Certification of even date
herewith, executed by Borrower for the benefit of Lender, becomes untrue or there shall have been
any material adverse change in any such representation or warranty.

     4.25 Compliance with Anti-Terrorism. Embargo. Sanctions and Anti-Money Laundering
Laws. Borrower shall comply with all Requirements of Law relating to money laundering,
anti-terrorism, trade embargos and economic sanctions, now or hereafter in effect Upon Lender’s
request from time to time during the term of the Loan, Borrower shall certify in writing to Lender
that Borrower’s representations, warranties and obligations under Sections 3.28 and 3.29 and this
Section 4.25 remain true and correct and have not been breached. Borrower shall immediately notify
Lender in writing if any of such representations, warranties or covenants are no longer true or
have been breached or if Borrower has a reasonable basis to believe that they may no longer be true
or have been breached. In connection with such an event, Borrower shall comply with all
Requirements of Law and directives of Governmental Authorities and, at Lender’s request, provide to
Lender copes of all notices, reports and other communications exchanged with, or received from,
Governmental Authorities relating to such an event. Borrower shall also reimburse Lender any
expense incurred by Lender in evaluating the effect of such an event on the Loan and Lender’s
interest in the collateral for the Loan, in obtaining any necessary license from Governmental
Authorities as may be necessary for Lender to enforce its rights under the Loan Documents, and in
complying with all Requirements of Law applicable to Lender as the result of the existence of such
an event and for any penalties or fines imposed upon Lender as a result thereof.

     4.26 Compliance Program. At all times maintain procedures which meet some of the
guidelines published by Office of the Inspector General at 65 Fed. Reg. 14289 (March 16,2000), as
amended nom time to time. Upon Lender’s request, Borrower shall (a) provide a written explanation
of its procedures, (b) identify its compliance officer, and (c) summarize its training and other
activities conducted pursuant to such procedures during the preceding year.

     4.27 Guarantor Financial Covenants. (a) Maintain a minimum quarterly Liquidity equal
to at least $4,000,000 for Capital Senior Living Corporation; and (b) maintain a minimum quarterly
EBITDA of $15,000,000, calculated on a rolling twelve (12) month basis, for Capital Senior Living
Corporation.

ARTICLE V

NEGATIVE COVENANTS OF BORROWER

     Until the Loan Obligations have been paid in full, no Borrower shall:

     5.1 Assignment of Licenses and Permits. Assign or transfer any of its interest in any
Permits or Reimbursement Contracts (including rights to payment thereunder) pertaining to the
Facility, or assign, transfer, or remove or permit any other Person to assign, transfer, or remove
any records pertaining to the Facility including, without limitation, resident records, medical and

30

 

clinical records (except for removal of such patient resident records as directed by the
residents owning such records), without Lender’s prior written consent, which consent may be
granted or refused in Lender’s sole discretion.

     5.2 No Liens: Exceptions. Create, incur, assume or suffer to exist any Lien upon or
with respect to the Facility, any of its properties, rights, income or other assets relating
thereto, including, without limitation, the Mortgaged Property whether now owned or hereafter
acquired, other than the following permitted Liens (“Permitted Encumbrances”):

          (a) Liens at any time existing in favor of Lender;

          (b) Liens reflected as permitted in the Mortgage;

          (c) Leases to residents and commercial leases for resident services incidental to the
operation of the Facility (e.g., barber shop, beauty parlor) provided such commercial leases, in
the aggregate, do not generate more than 20% of gross income of the Facility and any lease of all
or part of the Property to a subsidiary of Capital Senior Living Corporation, which lease has been
approved by Lender, such approval not to be unreasonably withheld, conditioned or delayed;

          (d) Easements, rights of way, restrictions, minor defects or irregularities in title and other
similar charges or encumbrances, which Lender has determined upon Borrower’s request, in Lender’s
commercially reasonable discretion, will not interfere in any material respect with the ordinary
conduct of the business of the Facility or the value of the Mortgaged Property or Lender’s interest
in the Mortgaged Property, and Borrower pays to Lender, upon demand, all costs and expenses
incurred by Lender in connection with reviewing Borrower’s request;

          (e) Inchoate Liens arising by operation of law for the purchase of labor, services, materials,
equipment or supplies, provided payment shall not be delinquent and, if such Lien is a lien upon
any of the Land or Improvements, such Lien must be fully disclosed to Lender and bonded off and
removed from the Land and Improvements within thirty (30) days of its creation, in a manner
satisfactory to Lender;

          (f) Liens incurred in the ordinary course of business in connection with workers’
compensation, unemployment insurance or other forms of governmental insurance or benefits, or to
secure performance of tenders, statutory obligations, leases and contracts (other than for money
borrowed or for credit received with respect to property acquired) entered into in the ordinary
course of business as presently conducted or to secure obligations for surety or appeal bonds; and

          (g) Liens for current year’s taxes, assessments or governmental charges or levies provided
payment thereof shall not be delinquent

          (h) Purchase money loans or leases financing Equipment for a Facility in the ordinary course
of business, not to exceed $100,000 in the aggregate per Facility at any time.

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     5.3 Merger Consolidation. etc. Except as otherwise provided in the Mortgage,
consummate any merger, consolidation or similar transaction, or sell, assign, lease or otherwise
dispose of (whether in one transaction or in a series of transactions), all or substantially all of
its assets (whether now or hereafter acquired), without the prior written consent of Lender, which
consent may be granted or refused in Lender’s sole discretion.

     5.4 Fall To Maintain Single Asset Entity Status.

          (a) Engage in any business or activity other than the ownership, operation and maintenance of
the Mortgaged Property or Properties, and activities incidental thereto;

          (b) Acquire or own any material assets other than (i) the Mortgaged Property or Properties,
and (ii) such incidental machinery, equipment, fixtures and other personal property as may be
necessary for the operation of the Mortgaged Property or Properties;

          (c) Merge into or consolidate with any Person or dissolve, terminate or liquidate in whole or
in part, transfer or otherwise dispose of all or substantially all of its assets (except as
permitted in the Loan Documents) or change its legal structure, without in each case Lender’s
consent;

          (d) Without the prior written consent of Lender, amend, modify, terminate or fail to comply
with the provisions of its Partnership Agreement, Articles or Certificate of Incorporation,
Operating Agreement or similar organizational document, as same may be further amended or
supplemented, if such amendment, modification, termination or failure to comply would adversely
affect its status as a Single Asset Entity or its ability to perform its obligations hereunder,
under the Note or any other document evidencing or securing the Loan;

          (e) Own
any subsidiary or make any investment in, any Person without the
consent of Lender;

          (f) Commingle its assets with assets of, or pledge its assets with or for, any of its
shareholders, Affiliates, principals or any other Person except for loans, advances, dividends and
distributions to shareholders of Borrower or Affiliates;

          (g) Incur any debt, secured or unsecured, direct or contingent (including guaranteeing any
obligation), other than intercompany loans and the Loan and trade payables incurred in the ordinary
course of business, payable within 90 days of the date incurred, based on historical amounts or
purchase money loans or leases financing Equipment for a Facility in the ordinary course of
business, not to exceed $100,000 in the aggregate per Facility at any time;

          (h) Fail to maintain its records, books of account and bank accounts separate and apart from
those of its general partners, members, shareholders, principals and Affiliates, the Affiliates of
any of its general partners, members, shareholders, principals, and any other Person;

          (i) Except for the Management Agreements, enter into any contract or agreement with any of its
general partners, members, shareholders, principals or Affiliates, or the Affiliates of any of its
general partners, members, shareholders, principals, except upon terms

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and conditions that are intrinsically fair and substantially similar to those that would be
available on an arms-length basis with third parties;

          (j) Seek its dissolution or winding up in whole, or in part;

          (k) Maintain its assets in such a manner that it will be costly or difficult to segregate,
ascertain or identify its individual assets from those of any of its general partners, members,
shareholders, principals and Affiliates, the Affiliates of any of its general partners, members,
shareholders, principals or any other Person;

          (l) Except under this Agreement and the Loan Documents, hold itself out to be responsible for
the debts of another Person or pay another Person’s liabilities out of its own funds;

          (m) Make any loans or advances to any third party, including any of its general partners,
members, shareholders, principals or Affiliates, or the Affiliates of any of its general partners,
members, shareholders, principals;

          (n) Fail to have prepared and filed its own tax returns;

          (o) Fail either to hold itself out to the public as a legal Person separate and distinct from
any other Person or to conduct its business solely in its own name, in order not (i) to mislead
others as to the identity with which such other party is transacting business, or (ii) to suggest
that it is responsible for the debts of any third party (including any of its members or
Affiliates, or any general partner, member, principal or Affiliate thereof); or

          (p) Fail to maintain adequate capital for the normal obligations reasonably foreseeable in a
business of its size and character and in light of its contemplated business operations.

     5.5 Change of Business. Make any material change in the nature of its business as it
is being conducted as of the date hereof except that Borrower may lease all or part of its Property
to a subsidiary of Capital Senior Living Corporation, subject to Lender’s consent to the lease, not
to be unreasonably withheld, conditioned or delayed.

     5.6 Changes in Accounting. Change its methods of accounting, unless such change is
permitted by GAAP, and provided such change does not have the effect of curing or preventing what
would otherwise be an Event of Default or Default had such change not taken place.

     5.7 ERISA.

          (a) Agree to, enter into or consummate any transaction which would render it unable to confirm
that (i) it is not an “employee benefit plan” as defined in Section 3(32) of ERISA, which is
subject to Title I of ERISA, or a “governmental plan” within the meaning of Section 3(32) of ERISA;
(ii) it is not subject to state statutes regulating investments and fiduciary obligations with
respect to governmental plans; and (iii) except with respect to Capital Senior Living Corporation
(which is publicly traded) less than twenty-five percent (25%) of each of its

33

 

outstanding class of equity interests are held by ‘‘benefit plan investors” within the meaning
of 29 C.F.R. § 2510.3-10l(f)(2);

          (b) Engage in a non-exempt prohibited transaction described in Section 406 of ERISA or Section
4975 of the Code, as such sections relate to Borrower, or in any transaction that would cause any
obligation or action taken or to be taken hereunder (or the exercise by Lender of any of its rights
under the Loan Documents) to be a non-exempt prohibited transaction under ERISA.

     5.8 Transactions with Affiliates. Enter into any transaction with a Person which is an
Affiliate of Borrower other than in the ordinary course of its business and on fair and reasonable
terms no less favorable to Borrower, than those they could obtain in a comparable arms-length
transaction with a Person not an Affiliate except that Borrower may lease all or part of its
Property to a subsidiary of Capital Senior Living Corporation, subject to Lender’s consent to the
lease, not to be unreasonably withheld, conditioned or delayed. The Management Agreements are
hereby approved by Lender.

     5.9 Transfer of Ownership Interests. Permit a change in the percentage ownership
interest of the Persons owning the Borrower, unless the written consent of Lender is first
obtained, which consent may be granted or refused in Lender’s sole discretion.

     5.10 Change of Use. Materially alter or change the use of the Facility or enter into
any management agreement for the Facility other than the Management Agreement or enter into any
operating lease for the Facility except leases to residents and commercial leases for resident
services incidental to the operation of the Facility and except for any lease of all or part of any
Property to a subsidiary of Capital Senior Living Corporation, subject to Lender’s consent to the
lease, not to be unreasonably withheld, conditioned or delayed unless Borrower first notifies
Lender and provides Lender a copy of the proposed lease agreement or management agreement, obtains
Lender’s written consent thereto, which consent may be withheld in Lender’s sole discretion, and
obtains and provides Lender with a subordination agreement in form satisfactory to Lender, as
determined by Lender in its sole discretion, from such manager or lessee subordinating to all
rights of Lender.

     5.11 Place of Business. Change its chief executive office or its principal place of
business without first giving Lender at least thirty (30) days prior written notice thereof and
promptly providing Lender such information and amendatory financing statements as Lender may
request in connection therewith.

     5.12 Acquisitions. Directly or indirectly, purchase, lease, manage, own, operate, or
otherwise acquire any property or other assets (or any interest therein) which are not used in
connection with the operation of the Facility.

     5.13 Dividends. Distributions and Redemptions. Except as hereinafter provided or as
otherwise consented to by Lender in writing, if the Debt Service Coverage Ratio described in
paragraph (a) or (b), as applicable, of Section 4.14 is not being maintained (exclusive of any
deposits made by Borrower and held by Lender pursuant to Section 4.14 of this Agreement) declare or
pay any distributions to its shareholders, members or partners, as applicable, or

34

 

purchase, redeem, retire, or otherwise acquire for value, any ownership interests in Borrower
now or hereafter outstanding, return any capital to its shareholders, members or partners, as
applicable, or make any distribution of assets to its shareholders, members, or partners, as
applicable.

ARTICLE VI

ENVIRONMENTAL HAZARDS

     6.1 Prohibited Activities and Conditions. Except for matters covered by a written
program of operations and maintenance approved in writing by Lender (an “O&M Program”) or matters
described in Section 6.2, Borrower shall not cause or permit to exist any of the following:

          (a) The presence, use, generation, release, treatment, processing, storage (including storage
in above ground and underground storage tanks), handling, or disposal of any Hazardous Materials
in, on or under the Land, any Improvements, or any other property of Borrower that is adjacent to
the Land in violation of applicable Hazardous Materials Laws;

          (b) The transportation of any Hazardous Materials to, from, or across the Land;

          (c) Any occurrence or condition on the Land or in the Improvements or any other property of
Borrower that is adjacent to the Land, which occurrence or condition is in violation of Hazardous
Materials Laws;

          (d) Any violation of or noncompliance with the terms of any Environmental Permit with respect
to the Land, the Improvements or any property of Borrower that is adjacent to the Land; or

          (e) Any Lien (whether or not such Lien has priority over the Lien created by the Mortgage)
upon the Land or any Improvements imposed pursuant to any Hazardous Materials Laws.

The matters described in clauses (a) through (e) above are referred to collectively in this Article
VI as “Prohibited Activities and Conditions” and individually as a “Prohibited Activity and
Condition. “

     6.2 Exclusions. Notwithstanding any other provision of Article VI to the contrary,
“Prohibited Activities and Conditions” shall not include the safe and lawful use and storage of
quantities of (a) pre-packaged supplies, medical waste, cleaning materials and petroleum products
customarily used in the operation and maintenance of comparable facilities, (b) cleaning materials,
personal grooming items and other items sold in pre-packaged containers for consumer use and used
by occupants of the Facility, and (c) petroleum products used in the operation and maintenance of
motor vehicles from time to time located on the Land’s parking areas, so long as all of the
foregoing are used, stored, handled, transported and disposed of in compliance with Hazardous
Materials Laws.

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     6.3 Preventive Action. Borrower shall take all appropriate steps (including the
inclusion of appropriate provisions in any Leases approved by Lender which are executed after the
date of this Agreement) to prevent its employees, agents, contractors, tenants and occupants of the
Facility from causing or permitting any Prohibited Activities and Conditions.

     6.4
O & M Program Compliance. If an O&M Program has been established with respect to
Hazardous Materials, Borrower shall comply in all material respects in a timely manner with, and
cause all employees, agents and contractors of Borrower and any other Persons (excluding
trespassers) present on the Land to comply with the O&M Program. All costs of performance of
Borrower’s obligations under any O&M Program shall be paid by Borrower, and Lender’s out-of-pocket
costs incurred in connection with the monitoring and review of the O&M Program and Borrower’s
performance shall be paid by Borrower upon demand by Lender. Any such out-of-pocket costs of Lender
which Borrower fails to pay promptly shall become an additional part of the Loan Obligations.

     6.5 Borrower’s Environmental Representations and Warranties. Borrower represents and
warrants to Lender that, except as previously disclosed by Borrower to Lender in writing:

          (a) Borrower has not at any time knowingly caused or knowingly permitted any Prohibited
Activities and Conditions.

          (b) To the best of Borrower’s knowledge, no Prohibited Activities and Conditions exist or have
existed.

          (c) To the best of Borrower’s knowledge, the Land and the Improvements do not now contain any
underground storage tanks, and, to the best of Borrower’s knowledge, the Land and the Improvements
have not contained any underground storage tanks in the past If there is an underground storage
tank located on the Land or the Improvements which has been previously disclosed by Borrower to
Lender in writing, that tank complies with all requirements of Hazardous Materials Laws.

          (d) To the best of Borrower’s knowledge, Borrower has complied with all Hazardous Materials
Laws, including all requirements for notification regarding releases of Hazardous Materials,
relating to the Land Without limiting the generality of the foregoing, to the best of Borrower’s
knowledge, Borrower has obtained all Environmental Permits required for the operation of the Land
and the Improvements in accordance with Hazardous Materials Laws now in effect and all such
Environmental Permits are in full force and effect. During Borrower’s ownership of the Land, and,
to the best of Borrower’s knowledge, no event has occurred with respect to the Land and/or
Improvements that constitutes or, with the passing of time or the giving of notice, would
constitute, noncompliance with the terms of any Environmental Permit.

          (e) There are no actions, suits, claims or proceedings pending or, to the best of Borrower’s
knowledge, threatened that involves the Land and/or the Improvements and allege, arise out of, or
relate to any Prohibited Activity and Condition.

          (f) Borrower has not received any written complaint, order, notice of violation or other
communication from any Governmental Authority with regard to air

36

 

emissions, water discharges, noise emissions or Hazardous Materials, or any other
environmental, health or safety matters affecting the Land, the Improvements or any other property
of Borrower that is adjacent to the Land. The representations and warranties in this Article VI
shall be continuing representations and warranties that shall be deemed to be made by Borrower
throughout the term of the Loan evidenced by the Note and until all of the Loan Obligations have
been paid in full.

     6.6 Notice of Certain Events. Borrower shall promptly notify Lender in writing of any
and all of the following that may occur:

          (a) Borrower’s knowledge of any Prohibited Activity and Condition.

          (b) Borrower’s receipt of or knowledge of any written complaint, order, notice of violation or
other communication from any Governmental Authority or other Person with regard to present or
future alleged Prohibited Activities and Conditions or any other environmental, health or safety
matters affecting the Land, the Improvements or any other property of Borrower that is adjacent to
the Land

          (c) Any representation or warranty in this Article VI which to Borrower’s knowledge becomes
untrue at any time after the date of this Agreement.

          Any such notice given by Borrower shall not relieve Borrower of, or result in a waiver of, any
obligation under this Agreement, the Note, or any of the other Loan Documents.

     6.7 Costs of Inspection. Borrower shall pay promptly the reasonable costs of any
environmental inspections, tests or audits (“Environmental Inspections”) required by Lender in
connection with any foreclosure or deed in lieu of foreclosure or, if required by Lender, as a
condition of Lender’s consent to any “Transfer” (as defined in the Mortgage), or required by Lender
following a commercially reasonable determination by Lender that Prohibited Activities and
Conditions may exist. Any such reasonable costs incurred by Lender (including the fees and
out-of-pocket costs of attorneys and technical consultants whether incurred in connection with any
judicial or administrative process or otherwise) which Borrower fails to pay promptly shall become
an additional part of the Loan Obligations. The results of all Environmental Inspections made by
Lender shall at all times remain the property of Lender, and Lender shall treat such information as
confidential and shall not disclose such information unless required by law. Lender hereby reserves
the right, and Borrower hereby expressly authorizes Lender, to make available to any party,
including any prospective bidder at a foreclosure sale of the Mortgaged Property, the results of
any Environmental Inspections made by Lender with respect to the Mortgaged Property. Borrower
acknowledges that Lender cannot control or otherwise assure the truthfulness or accuracy of the
results of any of its Environmental Inspections and that the release of such results to prospective
bidders at a foreclosure sale of the Mortgaged Property may have a material and adverse effect upon
the amount which a party may bid at such sale. Borrower agrees that Lender shall have no liability
whatsoever as a result of delivering the results of any of its Environmental Inspections to any
third party, and Borrower hereby releases and forever discharges Lender from any and all claims,
damages, or causes of action, arising out of, connected with or incidental to the results of, the
such delivery of any of Lender’s Environmental Inspections.

37

 

     6.8 Remedial Work. If any investigation, site monitoring, containment, clean-up,
restoration or other remedial work (“Remedial Work”) is necessary to bring Borrower into compliance
with any Hazardous Materials Law or order of any Governmental Authority that has or acquires
jurisdiction over the Land, the Improvements or the use, operation or improvement of the Land under
any Hazardous Materials Law, Borrower shall, by the earlier of (a) the applicable deadline required
by Hazardous Materials Law or (b) sixty (60) days after notice from Lender demanding such action,
begin performing the Remedial Work, and thereafter diligently prosecute it to completion, and shall
in any event complete such work by the time required by applicable Hazardous Materials Law. If
Borrower fails to begin on a timely basis or diligently prosecute any required Remedial Work,
Lender may, at its option, cause the Remedial Work to be completed, in which case Borrower shall
reimburse Lender on demand for the cost of doing so. Any reimbursement due from Borrower to Lender
shall become part of the Loan Obligations. Borrower shall control any and all dealings with any
governmental authority (unless or until Lender causes such Remedial Work to be completed as
provided herein).

     6.9 Cooperation with Governmental Authorities. Borrower shall cooperate with any
inquiry by any Governmental Authority and shall comply with any governmental or judicial order
which arises from any alleged Prohibited Activity and Condition offering the Land.

     6.10 Indemnity.

          (a) During the term of the Loan, Borrower shall hold harmless, defend and indemnify (i)
Lender, (ii) any prior owner or holder of the Note, (iii) any Person who is or will have been
involved in the servicing of the Note, (iv) the officers, directors, partners, agents,
shareholders, employees and trustees of any of the foregoing, and (v) the heirs, legal
representatives, successors and assigns of each of the foregoing (together, the “Indemnitees”) nom
and against all proceedings, claims, damages, losses, reasonable expenses, penalties and costs
(whether initiated or sought by any Governmental Authority or private parties), including
reasonable fees and reasonable out of pocket expenses of attorneys and expert witnesses,
investigatory fees, and remediation costs, whether incurred in connection with any judicial or
administrative process or otherwise, arising directly or indirectly nom any of the following
(unless any of the following result from the gross negligence or willful misconduct of Lender):

               (i) Any breach of any representation or warranty of Borrower in this

               (ii) Any failure by Borrower to perform any of its obligations under

               (iii) The existence or alleged existence of any Prohibited Activity and

               (iv) The presence or alleged presence of Hazardous Materials in, on, around or under the Land,
the Improvements or any property of Borrower that is adjacent to the Land; or

               (v) The actual or alleged violation of any Hazardous Materials Law.

38

 

          (b) Counsel selected by Borrower to defend Indemnities shall be subject to the approval of
those Indemnitees. Notwithstanding anything contained herein, any Indemnitee may elect to defend
any claim or legal or administrative proceeding at Borrower’s expense if any Indemnitee has
reasonable grounds to believe that its interests are not being adequately represented by such
counsel (but Borrower shall be obligated to bear the expense of at most only one such separate
counsel). Nothing contained herein shall prevent an Indemnitee nom employing separate counsel in
any such action at any time and participating in the defense thereof at its own expense.

          (c) Borrower shall not, without the prior written consent of those Indemnitees who are named
as parties to a claim or legal or administrative proceeding (a “Claim”) settle or compromise the
Claim if the settlement (i) results in the entry of any judgment that does not include as an
unconditional term the delivery by the claimant or plaintiff to Lender of a written release of
those Indemnitees, satisfactory in form and substance to Lender; or (ii) may materially and
adversely affect any Indemnitee, as determined by such Indemnitee in its sole discretion.

          (d) The liability of Borrower to indemnify the Indemnitees shall not be limited or impaired by
any of the following, or by any failure of Borrower or any guarantor to receive notice of or
consideration for any of the following:

               (i) Any amendment or modification of any Loan Document;

               (ii) Any extensions of time for performance required by any of the Loan Documents;

               (iii) The accuracy or inaccuracy of any representations and warranties made by Borrower under
this Agreement or any other Loan Document;

               (iv) The release of Borrower or any other Person, by Lender or by operation of law, from
performance of any obligation under any of the Loan Documents;

               (v) The release or substitution in whole or in part of any security for the Loan Obligations;
or

               (vi) Lender’s failure to properly perfect any lien or security interest given as security for
the Loan Obligations; or

               (vii) Any provision in any of the Loan Documents limiting Lender’s recourse to property
securing the Loan or limiting the personal liability of Borrower or any party for payment of all or
any part of the Loan.

          (e) Borrower shall, at its own cost and expense, do all of the following:

               (i) Payor satisfy any judgment or decree that may be entered against any Indemnitee or
Indemnitees in any legal or administrative proceeding incident to any matters against which
Indemnitees are entitled to be indemnified under this Article VI;

39

 

               (ii) Reimburse Indemnitees for any expenses paid or incurred in connection with any matters
against which Indemnitees are entitled to be indemnified under this Article VI; and

               (iii) Reimburse Indemnitees for any and all expenses, including fees and costs of attorneys
and expert witnesses, paid or incurred in connection with the enforcement by Indemnitees of their
rights under this Article VI, or in monitoring and participating in any legal or administrative
proceeding.

          (f) In any circumstances in which the indemnity under this Article VI applies, Lender may
employ its own legal counsel and consultants to prosecute, defend or negotiate any claim or legal
or administrative proceeding and Lender, with the prior written consent of Borrower (which shall
not be unreasonably withheld, delayed or conditioned) may settle or compromise any action or legal
or administrative proceeding. As provided in Section 6.10(b), Borrower shall reimburse Lender upon
demand for all costs and expenses incurred by Lender, including all costs of settlements entered
into in good faith, and the reasonable fees and reasonable out of pocket expenses of such attorneys
and consultants.

          (g) The provisions of this Article VI shall be in addition to any and all other obligations
and liabilities that Borrower may have under the applicable law or under the other Loan Documents,
and each Indemnitee shall be entitled to indemnification under this Article VI without regard to
whether Lender or that Indemnitee has exercised any rights against the Land and/or the Improvements
or any other security, pursued any rights against any guarantor, or pursued any other rights
available under the Loan Documents or applicable law. If Borrower consists of more than one Person
or entity, the obligation of those Persons or entities to indemnify the Indemnitees under this
Article VI shall be joint and several. The obligations of Borrower to indemnify the Indemnitees
under this Article VI shall survive any repayment or discharge of the Loan Obligations, any
foreclosure proceeding, any foreclosure sale, any delivery of any deed in lieu of foreclosure, and
any release of record of the lien of the Mortgage in each case, for a period of two (2) years.

ARTICLE VII

EVENTS OF DEFAULT AND REMEDIES

          7.1 Events of Default. The occurrence of anyone or more of the following shall
constitute an “Event of Default” hereunder:

               (a) The failure by any Borrower to pay any installment of principal, interest, or other
payments required under the Note or any other Loan Document within ten (10) days after the same
becomes due;

               (b) Any failure by any Borrower to provide and maintain in full force and effect the insurance
coverage required by Section 4.5(a) - (j), inclusive, of this Agreement, and such failure is not
cured within thirty (30) days following Lender’s written notice to Borrower thereof;

40

 

               (c) The violation by any Borrower of any covenant set forth in Article V hereof;

               (d) The failure by any Borrower to deliver or cause to be delivered the financial statements
and information set forth in Section 4.7 of this Agreement within the times required, and such
failure is not cured within thirty (30) days following Lender’s written notice to Borrower thereof;

               (e) The failure by any Borrower or any Guarantor to establish and maintain any capital
expenditures reserve fund required in accordance with Section 4.16 of this Agreement;

               (f) The failure of any Borrower properly and timely to perform or observe any covenant or
condition set forth in this Agreement (other than those specified in this Section 7.1) or any of
the other Loan Documents which failure is not cured within any applicable cure period as set forth
herein or in such other Loan Document, or, if no cure period is specified therefor, is not cured
within thirty (30) days after notice to Borrower of such Default; provided, however, that if such
Default cannot be cured within such thirty (30) day period, such cure period shall be extended for
an additional seventy-five (75) days, as long as Borrower is diligently and in good faith
prosecuting said cure to completion;

               (g) The filing by any Borrower, any Guarantor or Manager of a. voluntary petition, or the
adjudication of any of the aforesaid Persons, or the filing by any of the aforesaid Persons of any
petition or answer seeking or acquiescing in any reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar relief for itself under any present or future
federal, state or other statute, law or regulation relating to bankruptcy, insolvency or other
relief for debtors, or if any of the aforesaid Persons should seek or consent to or acquiesce in
the appointment of any trustee, receiver or liquidator for itself or of all or any substantial part
of its property or of any or all of the rents, revenues, issues, earnings, profits or income
thereof, or the mailing of any general assignment for the benefit of creditors or the admission in
writing by any of the aforesaid Persons of its inability to pay its debts generally as they become
due;

               (h) The entry by a court of competent jurisdiction of an order, judgment, or decree approving
a petition filed against any Borrower, any Guarantor or Manager which petition seeks any
reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief
under any present or future federal, state or other statute, law or regulation relating to
bankruptcy, insolvency, or other relief for debtors, which order, judgment or decree remains
unvacated and unstayed for an aggregate of ninety (90) days (whether or not consecutive) from the
date of entry thereof, or the appointment of any trustee, receiver or liquidator of any of the
aforesaid Persons or of all or any substantial part of its properties or of any or all of the
rents, revenues, issues, earnings, profits or income thereof which appointment shall remain
unvacated and unstayed for an aggregate of ninety (90) days (whether or not consecutive);

               (i) Unless otherwise permitted hereunder or under any other’ Loan Documents, the sale,
transfer, lease, assignment, or other disposition, voluntarily or involuntarily, of the Mortgaged
Property, or any part thereof, except for Permitted Encumbrances as described in Section 5.2 above,
or any further encumbrance of the Mortgaged

41

 

Property (except for Permitted Encumbrances), unless the prior written consent of Lender is
obtained;

          (j) Any certificate, statement, representation, warranty or audit heretofore or hereafter
furnished by or on behalf of any Borrower, any Guarantor or Manager or any of their respective
officers, directors or trustees pursuant to or in connection with this Agreement (including,
without limitation, representations and warranties contained herein or in any Loan Documents) or as
an inducement to Lender to make the Loan to Borrower, (i) proves to have been false in any material
respect at the time when the facts therein set forth were stated or certified, or (ii) proves to
have omitted any substantial contingent or unliquidated liability or claim against Borrower,
Guarantor or Manager known to them or (iii) on the date of execution of this Agreement there shall
have been any materially adverse change in any of the facts previously disclosed .by any such
certificate, statement, representation, warranty or audit, which change shall not have been
disclosed to Lender in writing at or prior to the time of such execution and in the case of any of
(i), (ii) or (iii) above, (A) is contained in the Loan Closing Certification or (B) if not
contained in the Loan Closing Certification, results in a breach in a financial covenant as set
forth in Section 4.14 or 4.15;

          (k) The failure of any Borrower to correct or to cause Manager to correct, within the time
deadlines set by any applicable Medicare, Medicaid or licensing agency, any deficiency which would
result in the following actions by such agency with respect to the Facility;

               (i) a termination of any Reimbursement Contract or any Permit; or

               (ii) a ban on new admissions generally or, if applicable, on admission of patients otherwise
qualifying for Medicare or Medicaid coverage;

          (l) The assessment against any Borrower, Manager, or any Facility of any fines or penalties by
any state or any Medicare, Medicaid, health or licensing agency having jurisdiction over such
Persons or the Facility in excess of $100,000 where such assessment is not paid or otherwise
resolved within thirty (30) days after expiration of the final appeal period for assessment;

          (m) A final judgment is rendered by a court of law or equity against any Borrower, any
Guarantor or Manager in excess of $250,000.00, and the same remains undischarged for a period of
thirty (30) days, unless such judgment is either (i) fully covered by collectible insurance and
such insurer has within such period acknowledged such coverage in writing, or (ii) although not
fully covered by insurance, enforcement of such judgment has been effectively stayed, such judgment
is being contested or appealed by appropriate proceedings and Borrower, any Guarantor or Manager as
the case may be, has established reserves adequate for payment in the event such Person is
ultimately unsuccessful in such contest or appeal and evidence thereof is provided to Lender;

          (n) The Management Agreement is terminated without the prior written approval of Lender.

42

 

     Notwithstanding anything in this Section, all requirements of notice shall be deemed
eliminated if Lender is prevented from declaring an Event of Default by bankruptcy or other
applicable law. The cure period, if any, shall then run from the occurrence of the event or
condition of Default rather than from the date of notice.

     7.2 Remedies. Upon the occurrence and during the continuance of anyone or more of the
foregoing Events of Default, Lender may, at its option:

          (a) Declare the entire unpaid principal of the Loan Obligations to be, and the same shall
thereupon become, immediately due and payable, without presentment, protest or further demand or
notice of any kind, all of which are hereby expressly waived; and/or

          (b) Proceed to protect and enforce its rights by action at law (including, without limitation,
bringing suit to reduce any claim to judgment), suit in equity and other appropriate proceedings
including, without limitation, for specific performance of any covenant or condition contained in
this Agreement; and/or

          (c) Exercise any and all rights and remedies afforded by the laws of the United States, the
states in which any of the Mortgaged Property is located or any other appropriate jurisdiction as
may be available for the collection of debts and enforcement of covenants and conditions such as
those contained in this Agreement and the Loan Documents; and/or

          (d) Exercise the rights and remedies of setoff and/or banker’s lien against the interest of
Borrower in and to every account and other property of Borrower which is in the possession of
Lender or any Person who then owns a participating interest in the Loan, to the extent of the full
amount of the Loan; and/or

          (e) Exercise its rights and remedies pursuant to any other Loan Documents.

ARTICLE VII

MISCELLANEOUS

     8.1 Waiver. No remedy conferred upon, or reserved to, Lender in this Agreement or any
of the other Loan Documents is intended to be exclusive of any other remedy or remedies, and each
and every remedy shall be cumulative and shall be in addition to every other remedy given hereunder
or now or hereafter existing in law or in equity. Exercise of or omission to exercise any right of
Lender shall not affect any subsequent right of Lender to exercise the same. No course of dealing
between Borrower and Lender or any delay on Lender’s part in exercising any rights shall operate as
a waiver of any of Lender’s rights. No waiver of any Default under this Agreement or any of the
other Loan Documents shall extend to or shall affect any subsequent or other, then existing,
Default or shall impair any rights, remedies or powers of Lender.

     8.2 Costs and Expenses. Borrower will bear all taxes, fees and expenses (including
reasonable attorneys’ fees and expenses of counsel for Lender) in connection with the Loan, the
Note, the preparation of this Agreement and the other Loan Documents (including any

43

 

amendments hereafter made), and in connection with any modifications thereto and the recording
of any of the Loan Documents. If, at any time, a Default occurs or Lender becomes a party to any
suit or proceeding in order to protect its interests or priority in any collateral for any of the
Loan Obligations or its rights under this Agreement or any of the Loan Documents, or if Lender is
made a party to any suit or proceeding by virtue of the Loan, this Agreement or any Mortgaged
Property and as a result of any of the foregoing, Lender employs counsel to advise or provide other
representation with respect to this Agreement, or to collect the balance of the Loan Obligations,
or to take any action in or with respect to any suit or proceeding relating to this Agreement, any
of the other Loan Documents, any Mortgaged Property, Borrower, Guarantor or Manager, or to protect,
collect, or liquidate any of the security for the Loan Obligations, or attempt to enforce any
security interest or lien granted to Lender by any of the Loan Documents, then in any such events,
all of the reasonable attorney’s fees arising from such services, including reasonable attorneys’
fees for preparation of litigation and in any appellate or bankruptcy proceedings, and any
reasonable expenses, costs and charges relating thereto shall constitute additional obligations of
Borrower to Lender payable on demand of Lender. Without limiting the foregoing, Borrower has
undertaken the obligation for payment of, and shall pay, all recording and filing fees, revenue or
documentary stamps or taxes, intangibles taxes, and other taxes, expenses and charges payable in
connection with this Agreement, any of the Loan Documents, the Loan Obligations, or the filing of
any financing statements or other instruments required to effectuate the purposes of this
Agreement, and should Borrower fail to do so, Borrower agrees to reimburse Lender for the amounts
paid by Lender, together with penalties or interest, if any, incurred by Lender as a result of
underpayment or nonpayment. Such amounts shall constitute a portion of the Loan Obligations, shall
be secured by the Mortgage and shall bear interest at the Default Rate (as defined in the Note)
from the date advanced until repaid.

     8.3 Performance of Lender. At its option, upon Borrower’s failure to do so, Lender may
make any payment or do any act on Borrower’s behalf that Borrower or others are required to do to
remain in compliance with this Agreement or any of the other Loan Documents, and Borrower agrees to
reimburse Lender, on demand, for any payment made or reasonable expense incurred by Lender pursuant
to the foregoing authorization, including, without limitation, reasonable attorneys’ fees, and
until so repaid any sums advanced by Lender shall constitute a portion of the Loan Obligations,
shall be secured by the Mortgage and shall bear interest at the Default Rate (as defined in the
Note) from the date advanced until repaid.

     8.4 Indemnification. Borrower shall, at its sole cost and expense, protect, defend,
indemnify and hold harmless the Indemnified Parties from and against any and all claims, suits,
liabilities (including, without limitation, strict .liabilities), actions, proceedings,
obligations, debts, damages, losses, costs, expenses, diminutions in value, fines, penalties,
charges, fees, expenses, judgments, awards, amounts paid in settlement, punitive damages,
foreseeable and unforeseeable consequential damages, of whatever kind or nature (including but not
limited to reasonable attorneys’ fees and other costs of defense) imposed upon or incurred by or
asserted against Lender by reason of (a) ownership of the Note, the Mortgage, the Mortgaged
Property or any interest therein or receipt of any Rents, (b) any amendment to, or restructuring
of, the Loan Obligations and/or any of the Loan Documents, (c) any and all lawful action that may
be taken by Lender in connection with the enforcement of the provisions of the Mortgage or the Note
or any of the other Loan Documents, whether or not suit is filed in connection with same, or in
connection with Borrower, any Guarantor, Manager and/or any partner, joint venturer, member

44

 

or shareholder thereof becoming a party to a voluntary or involuntary federal or state
bankruptcy, insolvency or similar proceeding, (d) any accident, injury to or death of persons or
loss of or damage to property occurring in, on or about the Land, the Improvements or any part
thereof or on the adjoining sidewalks, curbs, adjacent property or adjacent parking areas, streets
or ways, ( e) any use, nonuse or condition in, on or about the Land, the Improvements or any part
thereof or on the adjoining sidewalks, curbs, adjacent property or adjacent parking areas, streets
or ways, (f) any failure on the part of Borrower, any Guarantor or Manager to perform or comply
with any of the terms of this Agreement or any of the other Loan Documents, (g) any claims by any
broker, Person or entity claiming to have participated in arranging the making of the Loan
evidenced by the Note, (h) any failure of the Land and/or Improvements to be in compliance with any
applicable laws, (i) performance of any labor or services or the furnishing of any materials or
other property with respect to the Land, the Improvements or any part thereof, (j) the failure of
any Person to file timely with the Internal Revenue Service an accurate Form I099-b, statement for
recipients of proceeds from real estate, broker and barter exchange transactions, which may be
required in connection with the Mortgage,. or to supply a copy thereof in a timely fashion to the
recipient of the proceeds of the transaction in connection with which the Loan is made, (k) any
misrepresentation made to Lender in this Agreement or in any of the
other Loan Documents, (l) any
tax on the making and/or recording of the Mortgage, the Note or any of the other Loan Documents;
(m) the violation of any requirements of the Employee Retirement Income Security Act of 1974, as
amended, (n) any fines or penalties assessed or any corrective costs incurred by Lender if the
Facility or any part of the Land and/or Improvements is determined to be in violation of any
covenants, restrictions of .record, or any applicable laws, ordinances, rules or regulations, or
(o) the enforcement by any of the Indemnified Parties of the provisions of this Section 8.4.
Any amounts payable to Lender by reason of the application of this Section 8.4, shall
become immediately due and payable, and shall constitute a portion of the Loan Obligations, shall
be secured by the Mortgage and shall accrue interest at the Default Rate (as defined in the Note).
The obligations and liabilities of Borrower under this Section 8.4 shall survive for a
period of two (2) years any termination, satisfaction, assignment. entry of a judgment of
foreclosure or exercise of a power of sale or delivery of a deed in lieu of foreclosure of the
Mortgage. For purposes of this Section 8.4, the term “Indemnified Parties” means Lender and
any Person who is or will have been involved in the origination of the Loan. any Person who is or
will have been involved in the servicing of the Loan. any Person in whose name the encumbrance
created by the Mortgage is or will have been recorded. any Person who may hold or acquire or will
have held a full or partial interest in the Loan (including, without limitation, any investor in
any securities backed in whole or in part by the Loan) as well as the respective directors,
officers, shareholder, partners, members, employees, agents, servants, representatives,
contractors, subcontractors, affiliates, subsidiaries, participants, successors and assigns of any
and all of the foregoing (including, without limitation, any other Person who holds or acquires or
will have held a participation or other full or partial interest in the Loan or the Mortgaged
Property, whether during the term of the Mortgage or as a part of or following a foreclosure of the
Loan and including, without limitation, any Successors by merger, consolidation or acquisition of
all or a substantial portion of Lender’s assets and business).

     8.5 Headlines. The headings of the Sections of this Agreement are for convenience of
reference only, are not to be considered a part hereof, and shall not limit or otherwise affect any
of the terms hereof.

45

 

     8.6 Survival of Covenants. All covenants, agreements, representations and warranties
made herein and in certificates or reports delivered pursuant hereto shall be deemed to have been
material and relied on by Lender, notwithstanding any investigation made by or on behalf of Lender,
and shall survive the execution and delivery to Lender of the Note and this Agreement.

     8.7 Notices. etc. Any notice or other communication required or permitted to be given
by this Agreement or the other Loan Documents or by applicable law shall be in writing and shall be
deemed received (a) on the date delivered. if sent by hand delivery (to the person or department if
one is specified below) with receipt acknowledged by the recipient thereof, (b) three (3) Business
Days following the date deposited in U.S. mail, certified or registered. with return receipt
requested. or ( c) one (l) Business Day following the date deposited with Federal Express or other
national overnight carrier, and in each case addressed as follows:

	 	 	 
	

	If to Borrower:
	 
	 	 
	

	 	14160 Dallas Parkway, Suite 300
	

	 	Dallas, Texas 75254
	

	 	Attention: David R. Brickman
	 
	 	 
	

	With a copy to:
	 
	 	 
	

	 	Winston W. Walp II, Esq. Jenkens & Gilchrist
	

	 	1445 Ross Ave, Suite 3200
	

	 	Dallas, TX 75202-2799
	

	 	Phone: (214) 855-4354
	

	 	Fax: (214) 855-4300
	 
	 	 
	

	If to Lender:
	 
	 	 
	

	 	GMAC Commercial Mortgage Corporation
	

	 	200 Witmer Road
	

	 	Horsham, Pennsylvania 19044-0809
	

	 	Attn: Servicing Department
	 
	 	 
	

	with a copy to:
	 
	 	 
	

	 	GMAC Commercial Mortgage Corporation
	

	 	2200 Woodcrest Place, Suite 305
	

	 	Birmingham, Alabama 35209
	 
	 	 
	

	with a copy to:
	 
	 	 
	

	 	Kay K. Bains, Esq.
	

	 	Walston, Wells, Anderson & Bains, LLP
	

	 	1819 Fifth Avenue North, Suite 1100
	

	 	Birmingham, AL 35203
	

	 	Phone: 205-244-5206
	

	 	Fax: 205-244-5406

46

 

Either party may change its address to another single address by notice given as herein provided,
except any change of address notice must be actually received in order to be effective.

     8.8 Benefits. All of the terms and provisions of this Agreement shall bind and inure
to the benefit of the parties hereto and their respective successors and assigns. No Person other
than Borrower or Lender shall be entitled to rely upon this Agreement or be entitled to the
benefits of this Agreement.

     8.9 Participation. Borrower acknowledges that Lender may, at its option, sell
participation interests in the Loan or to other participating banks or Lender may (but shall not be
obligated to) assign its interest in the Loan to its affiliates, or to other assignees (the
“Assignee”) to be included as a pool of properties to be financed in a proposed Real Estate
Mortgage Investment Conduit (REMIC); provided, however, that Lender must be the administrative
agent for such group of lenders. Borrower agrees with each present and future participant in the
Loan or Assignee of the Loan that if an Event of Default should occur, each present and future
participant or Assignee shall have all of the rights and remedies of Lender with respect to any
deposit due from Borrower. The execution by a participant of a participation agreement with Lender,
and the execution by Borrower of this Agreement, regardless of the order of execution, shall
evidence an agreement between Borrower and said participant in accordance with the terms of this
Section. If the Loan is assigned to the Assignee, the Assignee will engage an underwriter (the
“Underwrite!”), who will be responsible for the due diligence, documentation, preparation and
execution of certain documents required in connection with the offering of interests in the REMIC.
Borrower agrees that Lender may, at its sole option and without notice to or consent of Borrower,
assign its interest in the Loan to the Assignee for inclusion in the REMIC and, in such event,
Borrower agrees to provide the Assignee with such information as may be reasonably required by the
Underwriter in connection therewith or by an investor in any securities backed in whole or in part
by the Loan or any rating agency rating such securities. Borrower irrevocably waives any and all
right it may have under applicable law to prohibit such disclosure, including, but not limited to,
any right of privacy, and consents to the disclosure of such information to the Underwriter, to
potential investors in the REMIC, and to such rating agencies.

     8.10 Supersedes Prior Agreements: Counterparts. This Agreement and the instruments
referred to herein supersede and incorporate all representations, promises and statements, oral or
written, made by Lender in connection with the Loan. A portion of the Loan had been previously
advanced to some of Borrowers under prior loan documents, and this Agreement expressly supercedes
and replaces all prior loan agreements except where such prior documents are modified as part of
this Agreement. This Agreement may not be varied, altered, or amended except by a written
instrument executed by an authorized officer of Lender. This Agreement may be executed in any
number of counterparts, each of which, when executed and delivered, shall be an original, but such
counterparts shall together constitute one and the same instrument.

     8.11 Loan Agreement Governs. The Loan is governed by the terms and provisions set
forth in this Loan Agreement and the other Loan Documents and in the event of any irreconcilable
conflict between the terms of the other Loan Documents and the terms of this Loan Agreement, the
terms of this Loan Agreement shall control; provided, however, that in the event that there is any
apparent conflict between any particular term or provision which appears

47

 

in both this Loan Agreement and the other Loan Documents and it is possible and reasonable for
the terms of both this Loan Agreement and the Loan Documents to be performed or complied with,
then, notwithstanding the foregoing, both the terms of this Loan Agreement and the other Loan
Documents shall be performed and complied with.

     8.12 CONTROLLING LAW. THE PARTIES HERETO AGREE THAT THE VALIDITY, INTERPRETATION,
ENFORCEMENT AND EFFECT OF THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF TEXAS AND THE PARTIES HERETO SUBMIT (AND WAIVE ALL RIGHTS TO OBJECT) TO
NON-EXCLUSIVE PERSONAL JURISDICTION IN THE STATE OF TEXAS FOR THE ENFORCEMENT OF ANY AND ALL
OBLIGATIONS UNDER THE LOAN DOCUMENTS EXCEPT THAT IF ANY SUCH ACTION OR PROCEEDING ARISES UNDER THE
CONSTITUTION, LAWS OR TREATIES OF THE UNITED STATES OF AMERICA, OR IF THERE IS A DIVERSITY OF
CITIZENSHIP BETWEEN THE PARTIES THERETO, SO THAT IT IS TO BE BROUGHT IN A UNITED STATES DISTRICT
COURT, IT SHALL BE BROUGHT IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF TEXAS
OR ANY SUCCESSOR FEDERAL COURT HAVING ORIGINAL JURISDICTION.

     8.13 WAIVER OF JURY TRIAL. BORROWER AND LENDER HEREBY WAIVE ANY RIGHT THAT EITHER OR
BOTH MAY HAVE TO A TRIAL BY JURY ON ANY CLAIM, COUNTERCLAIM, SETOFF, DEMAND, ACTION OR CAUSE OF
ACTION (A) ARISING OUT OF OR IN ANY WAY RELATED TO THIS AGREEMENT OR THE LOAN, OR (B) IN ANY WAY
CONNECTED WITH OR PERTAINING OR RELATED TO OR INCIDENTAL TO ANY DEALINGS OF LENDER AND/OR BORROWER
WITH RESPECT TO THE LOAN DOCUMENTS OR IN CONNECTION WITH THIS AGREEMENT OR THE EXERCISE OF EITHER
PARTY’S RIGHTS AND REMEDIES UNDER THIS AGREEMENT OR OTHERWISE OR THE CONDUCT OR THE RELATIONSHIP OF
THE PARTIES HERETO, IN ALL OF THE FOREGOING CASES WHETHER NOW EXISTING OR HEREAFTER ARISING AND
WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE. BORROWER AGREES THAT LENDER MAY FILE A COPY OF
THIS AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF THE KNOWING, VOLUNTARY, AND BARGAINED
AGREEMENT OF BORROWER IRREVOCABLY TO WAIVE ITS RIGHTS TO TRIAL BY JURY AS AN INDUCEMENT TO LENDER
TO MAKE THE LOAN, AND THAT, TO THE EXTENT PERMITTED BY APPLICABLE LAW, ANY DISPUTE OR CONTROVERSY
WHATSOEVER (WHETHER OR NOT MODIFIED HEREIN) BETWEEN BORROWER AND LENDER SHALL INSTEAD BE TRIED IN A
COURT OF COMPETENT JURISDICTION BY A JUDGE SITTING WITHOUT A JURY.

[SIGNATURES BEGIN ON NEXT PAGE)

48

 

     IN WITNESS WHEREOF, the undersigned has caused this instrument to be executed by its duly
authorized representative as of the date first set forth above.

	 	 	 	 	 	 	 	 	 
	 	 	TRIAD SENIOR LIVING I, L.P.,	 	 
	 	 	a Texas limited partnership	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	By:	 	Capital Senior Living Properties 5, Inc.,
	 	 	 	 	a Delaware corporation
	 	 	Its:	 	General Partner
	 
	 	 	 	 	 	 	 	 
	WITNESS:
	 	 	 	 	 	 	 	 
	

	 	 	 	By:
	 	/s/ Gloria M. Holland (SEAL)	 	 
	/s/ Patrick Sutton

	 	 	 	 	
	 	 
	

	 	 	 	Name:
	 	Gloria M. Holland	 	 
	Patrick Sutton

	 	 	 	Title:
	 	Vice President	 	 

 

 

     IN WITNESS WHEREOF, the undersigned has caused this instrument to be executed by its duly
authorized representative as of the date first set forth above.

	 	 	 	 	 	 	 	 	 
	 	 	TRIAD SENIOR LIVING II, L.P.,	 	 
	 	 	a Texas limited partnership	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	By:	 	Capital Senior Living Properties 5, Inc.,
	 	 	 	 	a Delaware corporation
	 	 	Its:	 	General Partner
	 
	 	 	 	 	 	 	 	 
	WITNESS:
	 	 	 	 	 	 	 	 
	

	 	 	 	By:
	 	/s/ Gloria M. Holland (SEAL)	 	 
	/s/ Patrick Sutton

	 	 	 	 	
	 	 
	

	 	 	 	Name:
	 	Gloria M. Holland	 	 
	Patrick Sutton

	 	 	 	Title:
	 	Vice President	 	 

 

 

     IN WITNESS WHEREOF, the undersigned has caused this instrument to be executed by its duly
authorized representative as of the date first set forth above.

	 	 	 	 	 	 	 	 	 
	 	 	TRIAD SENIOR LIVING IV, L.P.,	 	 
	 	 	a Texas limited partnership	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	By:	 	Capital Senior Living Properties 5, Inc.,
	 	 	 	 	a Delaware corporation
	 	 	Its:	 	General Partner
	 
	 	 	 	 	 	 	 	 
	WITNESS:
	 	 	 	 	 	 	 	 
	

	 	 	 	By:
	 	/s/ Gloria M. Holland (SEAL)	 	 
	/s/ Patrick Sutton

	 	 	 	 	
	 	 
	

	 	 	 	Name:
	 	Gloria M. Holland	 	 
	Patrick Sutton

	 	 	 	Title:
	 	Vice President	 	 

 

 

     IN WITNESS WHEREOF, the undersigned has caused this instrument to be executed by its duly
authorized representative as of the date first set forth above.

	 	 	 	 	 	 	 	 	 
	 	 	TRIAD SENIOR LIVING V, L.P.,	 	 
	 	 	a Texas limited partnership	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	By:	 	Capital Senior Living Properties 5, Inc.,
	 	 	 	 	a Delaware corporation
	 	 	Its:	 	General Partner
	 
	 	 	 	 	 	 	 	 
	WITNESS:
	 	 	 	 	 	 	 	 
	

	 	 	 	By:
	 	/s/ Gloria M. Holland (SEAL)	 	 
	/s/ Patrick Sutton

	 	 	 	 	
	 	 
	

	 	 	 	Name:
	 	Gloria M. Holland	 	 
	Patrick Sutton

	 	 	 	Title:
	 	Vice President	 	 

 

 

     IN WITNESS WHEREOF, the undersigned has caused this instrument to be executed by its duly
authorized representative as of the date first set forth above.

	 	 	 	 	 
	 	 	CAPITAL SENIOR LIVING A, INC.,
	 	 	a Delaware corporation
	 
	 	 	 	 
	WITNESS:
	 	 	 	 
	

	 	By:
	 	/s/ Ralph Beattie (SEAL)
	/s/ Linda Roberts

	 	 	

	

	 	Name:
	 	Ralph Beattie
	Linda Roberts

	 	Title:
	 	EVP/CFO

 

 

     IN WITNESS WHEREOF, the undersigned has caused this instrument to be executed by its duly
authorized representative as of the date first set forth above.

	 	 	 	 	 
	 	 	CAPITAL SENIOR LIVING ILM-B, INC.,
	 	 	a Delaware corporation
	 
	 	 	 	 
	WITNESS:
	 	 	 	 
	

	 	By:
	 	/s/ Ralph Beattie (SEAL)
	/s/ Linda Roberts

	 	 	

	

	 	Name:
	 	Ralph Beattie
	Linda Roberts

	 	Title:
	 	EVP/CFO

 

 

     IN WITNESS WHEREOF, the undersigned has caused this instrument to be executed by its duly
authorized representative as of the date first set forth above.

	 	 	 	 	 
	 	 	LENDER:
	 
	 	 	 	 
	 	 	GMAC COMMERCIAL MORTGAGE
	 	 	CORPORATION, California corporation
	 
	 	 	 	 
	WITNESS:
	 	 	 	 
	

	 	By:
	 	/s/ William E. Shine (SEAL)
	/s/ Emily M. Smith

	 	 	

	

	 	Name:
	 	William E. Shine
	Emily M. Smith

	 	Title:
	 	EVP

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