SECURITY AGREEMENT
THIS SECURITY AGREEMENT ("Security Agreement") is made as of September 28,
2004, by American Church Mortgage Company, a Minnesota corporation (the
"Company"), in favor of The Herring National Bank, a national banking
association, 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 B Secured Investor
Certificates issued by the Company, which may include rollovers (the
"Securities"); and
WHEREAS, the Company has previously entered into an Indenture dated as of
April 26, 2002, with the Trustee (the "Prior 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 A Secured Investor
Certificates issued pursuant to the Company's registration statement on Form
S-11 (Reg. No. 333-75863) declared effective by the Securities and Exchange
Commission on or about April 30, 2002, which come due this year, and which are
eligible for rollover renewal for maturities ranging from two (2) to three (3)
years (the "Renewable Securities"); and
WHEREAS, under the terms of the Indenture and the Prior Indenture, the
Company has agreed to pledge certain collateral as security for the payment of
principal and interest on the Securities and the Renewable 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;
-1-
(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 120% of the aggregate principal amount of the
Securities then outstanding (the "Minimum Value");
-2-
(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 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.ss. 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
-3-
(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 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;
-4-
(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 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.
-5-
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 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.
-6-
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
If to the Trustee:
THE HERRING NATIONAL BANK
1001 South Harrison Street
Amarillo, TX 79101
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.
-7-
(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 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.]
-8-
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: /s/ Philip J. Myers
------------------------------------
Philip J. Myers, President
TRUSTEE:
THE HERRING NATIONAL BANK
By: /s/ Catana Gray
--------------------------------------
Catana Gray
Vice President and Manager
SCHEDULE A
(Initial Collateral)
Date of Loan Recipient Original Principal Outstanding Principal Balance as of
Note Value August 4, 2004
05/15/96 Fountain of Life Church 375,000.00 164,962.75
05/06/96 River of Life Church 425,000.00 187,625.36
09/24/98 Mt. Ararat Baptist Church 170,000.00 150,733.27
03/02/99 Praise Chapel International 115,000.00 102,519.49
05/20/99 Greater Hill Zion Baptist Church 500,000.00 446,577.94
07/04/99 Bethel Temple of Longview 500,000.00 451,253.70
09/08/99 Greater Fort Lauderdale 605,000.00 543,022.43
11/22/99 New Growth in Christ 460,000.00 417,680.88
01/21/00 Praise Christian Center 500,000.00 455,646.83
11/02/00 St. Paul AME Church 200,000.00 193,085.59
06/19/01 Second Missionary Baptist Church 225,000.00 210,746.52
05/31/02 Unity of Faith Worship Center 426,000.00 408,293.75
06/26/02 Peniel Baptist Church 555,000.00 535,993.67
07/10/02 New Light Fellowship, Inc. 350,000.00 15,386.41
11/27/02 Full Life Gospel Center 327,000.00 317,880.42
12/30/02 House of Joy & Praise Outreach Center 435,000.00 423,587.21
12/30/02 House of Praise Ministries 610,000.00 597,745.28
02/07/03 New Creation Family Church 500,000.00 487,701.85
02/19/03 United Apostolic Church 950,000.00 936,763.01
02/21/03 Bread of Life Baptist Church of Houston 763,000.00 744,233.02
03/12/03 Life Changing Faith Christian Church 460,000.00 448,338.05
03/13/03 Good News Family Worship Center 567,000.00 559,318.00
06/19/03 Bend Christian Center 445,000.00 439,747.30
05/28/03 United for Christ 267,000.00 263,627.76
05/30/03 Zion Hill Baptist Church 255,000.00 249,143.17
06/30/03 Glad Tidings Community Church 663,000.00 655,966.51
06/30/03 Pembroke Park C.O.G.I.C. 520,000.00 490,923.27
06/30/03 Roanoke Chapel M.B. Church 1,955,000.00 1,955,000.00
08/01/03 Assured Faith C.O.G.I.C. 355,000.00 349,260.25
09/11/03 All Faith's Christian Center 645,000.00 635,648.39
09/11/03 Landmark Apostolic Church 400,000.00 394,200.55
09/19/03 Ekklesia Fellowship Ministries 227,500.00 224,578.67
10/14/03 Grace Christian Center 640,000.00 632,370.81
11/25/03 Praise Tabernacle Jamaica 600,000.00 594,263.24
11/25/03 All Saints Community Church 210,000.00 207,303.41
12/16/03 Word of the Living God 650,000.00 643,785.19
12/19/03 Praise Tabernacle Deliverance Church 500,000.00 496,968.37
04/21/04 Faith Christian Center 475,000.00 472,753.65
04/22/04 Christian Discipleship Ministries 410,000.00 408,799.75
04/29/04 Shilo Temple House of God 500,000.00 497,514.50
05/21/04 Inter-Denominational Fellowship Ministries 240,000.00 239,246.08
------------------------------------------------------------
$22,060,500.00 $18,513,138.39