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.
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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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<PAGE>
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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<PAGE>
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 modificati
