EXHIBIT 10.5
SECURITY AGREEMENT
THIS SECURITY AGREEMENT ("Security Agreement") is made as of ____________
__, 2008, by American Church Mortgage Company, a Minnesota corporation (the
"Company"), in favor of Herring Bank, a state banking institution, as trustee
under the Indenture described below (the "Trustee").
WHEREAS, the Company has entered into an Indenture dated as of the
approximate date hereof with the Trustee (the "Indenture"), whereby the Trustee
has agreed to act as the indenture trustee under the Trust Indenture Act of 1939
for the benefit of the holders of those certain Series C Secured Investor
Certificates issued by the Company (the "Securities"); and
WHEREAS, under the terms of the Indenture the Company has agreed to pledge
certain collateral as security for the payment of principal and interest on the
Securities.
NOW, THEREFORE, the Company agrees with Trustee as follows:
1. Security Interest. The Company hereby pledges to, and grants to the
Trustee a security interest (herein called the "Security Interest") in, the
Collateral (as described in Section 2 below) to secure the payment and
performance of the following debts, liabilities and obligations of the Company
(such debts, liabilities and obligations being herein collectively referred to
as the "Obligations"):
(a) the payment of principal and interest on the Securities, as
required under the terms and conditions of the Securities;
(b) the Company's obligations under the Indenture, and this
Security Agreement; and
(c) all amounts owed under any modifications, renewals or
extensions of any of the foregoing Obligations.
2. Collateral. As used herein, the term "Collateral" means the
following property:
(a) the promissory notes, church bonds, and investment property
described in Schedule A;
(b) such Additional Notes that are designated by the Company as
Collateral pursuant to Section 3 below;
(c) any Substituted Notes that are substituted by Company for
existing Collateral pursuant to Section 4 below;
(d) supporting obligations of the Notes described in (a), (b), and
(c) above; and
(e) proceeds of any and all of the foregoing.
Each of the items described in (a), (b), and (c) above is referred to
herein as a "Note" and the all of such items are collectively referred to herein
as the "Notes."
The Company shall within five (5) business days of the date hereof, and
in any event prior to the sale of any Securities, deliver to the Trustee the
Notes described in Schedule A, together with endorsements by the Company in
blank for such Notes.
3. Additional Collateral. Subject to the terms of Section 4.9 of the
Indenture, the Company may at any time designate additional promissory notes or
similar instruments or investment property ("Additional Notes") as Collateral
for the Obligations. The Company may make such designation by delivering (a) the
original Additional Notes and (b) an endorsement in blank for the Additional
Notes to the Trustee and upon the Trustee's receipt, the Additional Notes shall
be deemed to be Collateral.
4. Substitution of Collateral.
(a) Provided that no Event of Default has occurred and is
continuing, the Company shall have the right (and, under the terms of the
Indenture, in certain circumstances the obligation) to substitute
promissory notes or other similar instruments or investment property that
meet the terms and conditions of Section 4.9 of the Indenture
("Substituted Notes") for Notes previously pledged as Collateral
("Released Notes").
(b) The Company may make such a substitution by delivering to the
Trustee:
(i) a written notice to the Trustee executed by an officer
of the Company which contains (A) a description of the Substituted
Note(s), (B) a statement that such Substituted Note has been pledged
by the Company as Collateral under this Security Agreement, (C) a
certification by the Company that the representations and warranties
regarding Collateral contained in Section 6 below are true with
respect to the Substituted Note, (D) a description of the Notes to
be released from the Security Interest (i.e., a description of the
Released Note(s)), and (E) a certification by the Company that upon
the release of the Released Notes from the Security Interest, the
value of the Collateral shall be at least 100% of the aggregate
principal amount of the Securities then outstanding (the "Minimum
Value");
(ii) the original Substituted Note(s); and
(iii) an endorsement in blank for the Substituted Notes.
(c) So long as the aggregate value of the Collateral after the
release of the Released Notes is at least the Minimum Value, the value of
the Substituted Note(s) being substituted for the Released Note(s) may be
less than the value of the Released Note(s).
(d) Upon the Trustee's receipt of the documents described in
Section 4(b), the Substituted Note(s) shall be deemed to be Collateral and
the Released Note(s) shall be deemed to be released from the Security
Interest and shall no longer be subject to the terms of this Security
Agreement. The Trustee shall promptly thereafter return the
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Released Note(s) to the Company, together with any endorsement of such
Released Note(s) made by the Company.
(e) In the event that the Trustee has filed (or has caused to be
filed) a financing statement in order to perfect the Security Interest in
a Note that has become a Released Note, the Trustee shall prepare and file
a financing statement amendment which releases the Released Note from the
Security Interest and the Security Agreement (the "Release"). The Trustee
hereby authorizes the Company to file a copy of the Release in the
appropriate filing office if the Trustee has not filed the Release within
ten (10) business days of the Trustee's receipt of the documents described
in Section 4(b). This authorization is intended to comply with the terms
of Minn. Stat. Section 336.9-509 and no further writing is required as
evidence of the Trustee's grant of authority to the Company to file the
Release.
5. Representations, Warranties and Agreements. The Company represents,
warrants and agrees that:
(a) The Company is a corporation organized under the laws of the
state of Minnesota;
(b) The Company's exact legal name is as set forth in the first
paragraph of this Security Agreement;
(c) This Agreement has been duly and validly authorized by all
necessary corporate action and the person executing this Agreement on
behalf of the Company has the requisite authority to act for the Company.
(d) Until the Obligations are paid in full, the Company will:
(i) preserve its corporate existence and not, in one
transaction or a series of related transactions, merge into or
consolidate with any other entity, or sell all or substantially all
of its assets;
(ii) not change its name, its type of organization, the state
of its incorporation or organization, or its organizational
identification number; and
(iii) not change its corporate name without providing the
Trustee with thirty (30) days' prior written notice.
6. Representations, Warranties and Agreements With Respect to
Collateral. The Company represents, warrants and agrees that:
(a) The Company has (or will have at the time the Company acquires
rights in Collateral hereafter arising) absolute title to each item of
Collateral free and clear of all claims, security interests, liens,
encumbrances, and restrictions on transfer or pledge except the Security
Interest and will defend the Collateral against all claims or demands of
all persons other than the Trustee. Except as provided in the Indenture,
the Trustee
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does not authorize, and the Company agrees not to (i) make any sales of
any of the Collateral; or (ii) grant any other security interest in the
Collateral.
(b) Each right to payment and each instrument, document, chattel
paper and other agreement constituting or evidencing Collateral is (or
will be when arising or issued) the valid genuine and legally enforceable
obligation, subject to no defense, set-off or counterclaim (other than
those arising in the ordinary course of business) of the account debtor or
other obligor named therein or in the Company's records pertaining thereto
as being obligated to pay such obligation. The Company will neither agree
to any material modification or amendment nor agree to any cancellation of
any such obligation without the Trustee's prior written consent, and will
not subordinate any such right to payment to claims of other creditors of
such account debtor or other obligor.
(c) The Company covenants that it will:
(i) promptly pay all taxes and other governmental charges
levied or assessed upon or against any Collateral or upon or against
the creation, perfection or continuance of the Security Interest;
(ii) keep all Collateral free and clear of all security
interests, liens and encumbrances except the Security Interest;
(iii) at all reasonable times, permit the Trustee or its
representatives to examine or inspect any Collateral, wherever
located, and to examine, inspect and copy the Company's books and
records pertaining to the Collateral and its business and financial
condition and to send and discuss with account debtors and other
obligors requests for verifications of amounts owed to the Company;
(iv) upon the request of the Trustee, provide photocopies of
any of the Collateral (or, to the extent that such Collateral is not
of a tangible nature, photocopies of documentation evidencing the
Collateral);
(v) promptly notify the Trustee of any loss of or material
damage to any Collateral or of any adverse change, known to the
Company, in the prospect of payment of any sums due on or under any
instrument, chattel paper, or account constituting Collateral;
(vi) not use or keep any Collateral, or permit it to be used
or kept, for any unlawful purpose or in violation of any federal,
state or local law, statute or ordinance; and
If the Company at any time fails to perform or observe any agreement
contained in this Section 6(c), and if such failure shall continue for a period
of ten (10) calendar days after the Trustee gives the Company written notice
thereof, the Trustee may (but need not) perform or observe such agreement on
behalf and in the name, place and stead of the Company (or, at the Trustee's
option, in the Trustee's own name) and may (but need not) take any and all other
actions which the Trustee may reasonably deem necessary to cure or correct such
failure (including, without limitation, the payment of taxes, the satisfaction
of security interests, liens, or
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encumbrances, the performance of obligations under contracts or agreements with
account debtors or other obligors, the procurement and maintenance of insurance,
and the procurement of repairs, transportation or insurance); and, except to the
extent that the effect of such payment would be to render any loan or
forbearance of money usurious or otherwise illegal under any applicable law, the
Company shall thereupon pay the Trustee within fifteen (15) business days of the
Company's receipt of the Trustee's demand, the amount of all moneys expended and
all costs and expenses (including reasonable attorneys' fees for any purpose
relating to the enforcement of the Trustee's rights hereunder including
consultation, drafting documents, sending notices and/or instituting,
prosecuting or defending litigation or arbitration) incurred by the Trustee in
connection with or as a result of the Trustee's performing or observing such
agreements or taking such actions, together with interest thereon from the date
expended or incurred by the Trustee at the highest rate then applicable to any
of the Obligations.
7. Perfection of Security Interests. The Trustee shall have the right
to file, from time to time, such financing statements as the Trustee may
reasonably require in order to perfect the Security Interest. To the extent
permitted by law, the Company hereby authorizes and empowers the Trustee to file
one or more financing statements and any other documents or instruments as are
necessary to perfect the Security Interest, all without the signature or prior
consent of the Company.
8. Events of Default. Each of the following occurrences shall
constitute an event of default under this Agreement (herein called "Event of
Default"):
(a) an "Event of Default" (as defined in the Indenture) shall have
occurred and is continuing beyond any applicable grace or cure period;
(b) any representation or warranty by the Company set forth in
this Agreement shall prove materially false or misleading; or
(c) the Trustee shall receive at any time after the date hereof an
official report from the Secretary of State of the State of Minnesota or
any other state where the Collateral is located indicating that the
Security Interest is not prior to all other security interests or other
interests reflected in the report.
9. Remedies upon Event of Default. Upon the occurrence of an Event of
Default under Section 8 and at any time thereafter, the Trustee may exercise any
one or more of the following rights and remedies:
(a) require the prompt delivery to the Trustee of an assignment of
any mortgage or other supporting obligation in a form sufficient for
recording of such assignment;
(b) notify any account debtor that the Company's right to payment
has been assigned or transferred to the Trustee and that all amounts shall
be paid directly to the Trustee;
(c) exercise and enforce any or all rights and remedies available
upon default to a secured party under the Uniform Commercial Code,
including but not limited to the
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right to take possession of any Collateral, proceeding without judicial
process (without a prior hearing or notice thereof, which the Company
hereby expressly waives), and the right to sell, lease or otherwise
dispose of any or all of the Collateral, and in connection therewith, the
Trustee may require the Company to make the Collateral available to the
Trustee at a place to be designated by the Trustee which is reasonably
convenient to both parties, and if notice to the Company of any intended
disposition of Collateral or any other intended action is required by law
in a particular instance, such notice shall be deemed commercially
reasonable if given at least ten (10) calendar days prior to the date of
intended disposition or other action; or
(d) exercise or enforce any or all other rights or remedies
available to the Trustee by law or agreement against the Collateral,
against the Company or against any other person or property.
Whether or not an Event of Default has occurred, the Company shall pay
when due or reimburse the Trustee on demand for all costs of collection of any
of the Obligations and all other out-of-pocket expenses incurred by the Trustee
in connection with the creation, perfection, satisfaction, protection, defense
or enforcement of the Security Interest or the creation, continuance,
protection, defense or enforcement of this Security Agreement or any or all of
the Obligations, including but not limited to: (i) filing fees; (ii) costs of
foreclosure; (iii) costs of obtaining money damages; and (iv) reasonable
attorney's fees for any purpose relating to the enforcement of this Security
Agreement including consultation, drafting documents, sending notices and/or
instituting, prosecuting or defending litigation or arbitration.
If during a sale of Collateral following an Event of Default, the Trustee
sells any of the Collateral upon credit, the Company will be credited only with
payments actually made by the purchaser, received by the Trustee and applied to
the indebtedness of such purchaser. In the event the purchaser fails to pay for
the Collateral, the Trustee may resell the Collateral and the Company shall be
credited with the proceeds of the Sale. To the extent permitted under applicable
law, the Trustee may disclaim any warranty of title or any other warranty with
respect to any Collateral sold by the Trustee following an Event of Default.
10. Notice.
(a) Any notice, document or other communication from one party to
the other is duly given if in writing and delivered in person or mailed by
first-class mail (registered or certified, return receipt requested),
telex, telecopier or overnight air courier guaranteeing next day delivery,
to the other's address:
If to the Company:
AMERICAN CHURCH MORTGAGE COMPANY
10237 Yellow Circle Drive
Minnetonka, MN 55343
Attention: President
Fax: (952) 945-9433
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If to the Trustee:
HERRING BANK
1608 S. Polk St.
Amarillo, TX 79102
Attention: Corporate Trust Department
Fax:(806) 378-6655
(b) All notices and communications shall be deemed to have been
duly given: at the time delivered by hand, if personally delivered; five
(5) business days after being deposited in the mail, postage prepaid, if
mailed; when answered back, if telexed; when receipt acknowledged, if
telecopied; and the next business day after timely delivery to the
courier, if sent by overnight air courier guaranteeing next day delivery.
(c) Each party, by notice to the other, may designate additional
or different addresses for subsequent notices or communications.
11. Miscellaneous.
(a) This Agreement can be waived, modified, amended, terminated or
discharged and the Security Interest can be released, only explicitly in a
writing signed by the Trustee. A waiver signed by the Trustee shall be
effective only in the specific instance and for the specific purpose
given. Mere delay or failure to act shall not preclude the exercise or
enforcement of any of the Trustee's rights or remedies.
(b) All rights and remedies of the Trustee shall be cumulative and
may be exercised singularly or concurrently, at the Trustee's option, and
the exercise or enforcement of any one such right or remedy shall neither
be a condition to nor bar the exercise or enforcement of any other.
(c) This Agreement shall be binding upon and inure to the benefit
of the Company and the Trustee and their respective heirs,
representatives, successors and assigns and shall take effect when signed
by the Company and delivered to the Trustee, and the Company waives notice
of the Trustee's acceptance hereof. The Trustee may execute this Agreement
if appropriate for the purpose of filing, but the failure of the Trustee
to execute this Agreement shall not affect or impair the validity or
effectiveness of this Agreement. All representations and warranties
contained in this Agreement shall survive the execution, delivery and
performance of this Agreement and the creation and payment of the
Obligations.
(d) To facilitate execution, this Agreement may be executed in as
many separate counterparts as may be convenient or required. It shall not
be necessary that the signature of each party, or that the signature of
all persons required to bind any party, appear on each counterpart. Each
counterpart when so executed and delivered shall be deemed to be an
original, and all counterparts taken together shall constitute but one and
the same instrument. It shall not be necessary in making proof of this
Agreement to produce or account for more than a single counterpart
containing the respective signatures of, or on behalf of, each of the
parties, hereto. Signature pages from any
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counterpart may be detached from the counterpart and attached with other
signature pages to a single copy of the Agreement to physically form one
document.
(e) This Agreement shall be governed by the internal laws of the
State of Minnesota. If any provision or application of this Agreement is
held unlawful or unenforceable in any respect, such illegality or
unenforceability shall not affect other provisions or applications which
can be given effect and this Agreement shall be construed as if the
unlawful or unenforceable provision or application had never been
contained herein or prescribed hereby. Any term not defined herein shall
have, to the extent applicable, the definition set forth in Chapter 336.9
of Minnesota Statutes.
[Remainder of page intentionally left blank.]
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IN WITNESS WHEREOF, the Company and the Trustee hereby execute this
Security Agreement as of the date first written above.
COMPANY:
AMERICAN CHURCH MORTGAGE COMPANY
By:
-----------------------------------
Philip J. Myers, President
TRUSTEE:
HERRING BANK
By:
-----------------------------------
Catana Gray
Vice President
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SCHEDULE A
(Initial Collateral)
Date of Original Principal Outstanding Principal
Note Loan Recipient Value Balance as of , 2008
- --------- -------------- ------------------ ----------------------
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$ $