1
EXHIBIT 10.2
MASTER LOAN PARTICIPATION AND
SERVICING AGREEMENT
This Master Loan Participation and Servicing Agreement (the "Agreement")
is entered into by and among Specialty Mortgage Trust, Inc., a Maryland
corporation, (Beneficiary") and Gonzo Financial, Inc. a Nevada corporation
("Gonzo"), with reference to the following facts:
A. Beneficiary desires that Gonzo service certain real estate and other
loans (the "Loans") evidenced by various loan documents (the "Loan Documents"),
which may include, without limitation, promissory notes (the "Notes"), secured
by security agreements and deeds of trust (the "Deed of Trust") encumbering
certain real property and other collateral (the "Collateral").
B. The parties hereto desire to set forth the terms and conditions for
the servicing of the Loans by Gonzo.
Based upon the foregoing, and in consideration of the mutual promises
and covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties agree as
follows:
1. Loan Participation and Ownership. Beneficiary agrees that, subject to
the satisfaction of all conditions to the funding of the respective Loans,
Beneficiary's ownership of the respective Loans shall be as set forth in a
certificate of participation (the "Participation Certificate") to be executed by
Beneficiary upon funding of Beneficiary's share of each respective Loan in the
form of the Participation Certificate attached hereto as Exhibit "A" or as
otherwise agreed by Beneficiary and the other participants (the "Participants")
in the Loans. The percentage ownership interests of the Participants in the
Loans are hereafter referred to as the participants' "Participation
Percentages." Ownership in the Loans shall include participation in the
commitment to make the Loans, the principal and interest of the Loans, the Loan
-1-
2
Documents, and any Collateral for the Loans, all for the prorata account,
benefit and risk of the Participants in accordance with their relative
Participation Percentages. Beneficiary shall be vested, upon funding of the
respective Loans as set forth in Article 2., to the extent of its relative
Participation Percentage, with beneficial ownership of and equitable title to
the Loans and all documents of every nature relating to the Loans. The interest
of Beneficiary and the other Participants in the Loans shall be of equal
priority unless otherwise agreed by the Participants.
2. Loan Fundings. Beneficiary agrees to fund its proportionate share of
the Loans in accordance with its relative Participation Percentage in each Loan.
The determination of the satisfaction of all funding conditions for the Loans
shall be made by Gonzo, in accordance with the terms of this Agreement. Upon
notice from Gonzo that the conditions of the Loan Documents for the particular
Loan have been satisfied, Beneficiary agrees to fund the Loan by sending cash
payment, in immediately available funds, to Gonzo or as designated not later
than 12:00 p.m. P.S.T. on the day immediately following receipt of the funding
notice.
3. Disclaimer of Warranties; Risk of Loss. Except as set forth herein,
no representations and warranties are made with respect to the Loans and all
Loan participations shall be made without recourse to Gonzo, its shareholders,
directors, officers, agents, representatives, and assigns. All losses in the
Loans shall be borne by Beneficiary in accordance with its Participation
Percentage in the respective Loan. Beneficiary hereby agrees to pay its
respective prorata share (based upon relative Participation Percentages) of any
and all losses, damages, expenses or claims or demands, including reasonable
counsel fees incurred in investigating or defending the same and caused by,
relating to, arising out of, resulting from, or in any way connected with the
Loans, the servicing thereof and the transactions contemplated therein or on
account of any act or omission to act except to the extent that damages are
caused solely by Gonzo's intentional act or omission, in which event such
losses, damages, and expenses shall be paid by Gonzo. Gonzo does not assume and
shall have no responsibility or liability, express or implied, for the
collectability, enforceability, genuineness or validity of the Loan Documents,
for the value or physical conditions of
-2-
3
any Collateral, or for the financial condition of any Borrower and/or guarantor
or other obligor on all or any portion of the Loans. Beneficiary assumes the
obligation to determine independently the validity and enforceability of the
Loan Documents and to make its own appraisal of the Collateral and the credit
worthiness of the borrowers of the Loans (the "Borrowers") and any guarantor or
other obligor on all or any portion of the Loans. Without limiting the
generality of the foregoing, Beneficiary represents and warrants that it,
independently and without reliance upon Gonzo or any information provided or to
be provided by Gonzo, shall determine to its satisfaction the suitability of its
joining in the making of the Loans and all other matters relating to the credit
worthiness of each Borrower, any guarantor of the Loans, or any portion thereof,
the value of all or any portion of the Collateral and the terms and conditions
of the Loan Documents, and that Beneficiary is not and shall not rely on any
representations or statements made by Gonzo or any information provided by Gonzo
with respect thereto.
4. Administration and Servicing of Loans.
4.1 Relationship of Gonzo, Beneficiary, and other Participants.
Beneficiary and Gonzo each agree and intend that the relationship created by
this Agreement and participations in the Loans shall be only as owners of the
undivided participation interests in the Loans and shall not be that of lender
and borrower, joint ventures, or partners. Neither the execution of this
Agreement, nor the selling of any interest in the Loans and the security
therefore, nor any agreement to share in profits or losses as provided herein,
is intended to be, nor shall it be construed to be, the formation of a
partnership or joint venture, or the issuance or sale of a security, between the
parties to this Agreement or any of the other Participants. Beneficiary
represents that it is a sophisticated investor possessing experience in
transactions such as the Loans and is not acquiring its interest in the Loans
with a view toward resale thereof. It is agreed that Gonzo is not to act as
agent for Beneficiary, but is to act in all loan administration and servicing
matters hereunder as an independent contractor on behalf of Beneficiary and the
other Participants in the Loans.
-3-
4
4.2 Servicing Responsibilities. Gonzo hereby assumes the
responsibility for administering and servicing the Loans, as specified in this
Agreement, and shall retain such responsibility while this Agreement remains in
effect, unless a new servicer is designated. In its management and
administration of the Loans or in connection with the exercise of any rights or
remedies under the Loan Documents or at law, Gonzo shall use the same diligence
and care as customarily used by Gonzo with respect to loans held entirely for
its own account, In no event shall Gonzo be liable for any action taken at the
direction of the requisite Participation Percentage of the Participants as set
forth in Section 4.3 below or as otherwise set forth in this Agreement. Subject
to the other provisions of this Agreement, Gonzo shall have all of the rights of
a holder of the Notes and as Lender under the Loan Documents and is specifically
authorized, without limitation, to execute with binding effect all Loan
Documents on behalf of Beneficiary. As servicer of the Loans, Gonzo specifically
agrees to perform the following.
(1) to monitor and deal with the Loan Documents on behalf
of the Participants;
(2) to disburse the proceeds of the Loans in accordance
with the Loan Documents;
(3) to service and manage the Loans and the Collateral in
the ordinary course of business and in accordance with its usual practices in
managing loans for its own account;
(4) to examine the Collateral and the books and records of
Borrowers relating to the Loans as it shall deem necessary;
(5) to request such additional financial or other
information and/or detail as to any item or items contained in any financial
information tendered by Borrowers upon the request of Beneficiary as long as
such request for additional information is reasonable;
(6) to remit to Beneficiary, upon request, all financial
information received by Gonzo which is material to the Loans, the Borrowers, or
any guarantor;
-4-
5
(7) to remit to Beneficiary periodic accounting of the
Loans in accordance with its normal and usual servicing practices; and
(8) to disburse to Beneficiary its prorata share of Loan
payments received net of fees and costs (including, without limitation, the
servicer and other fees specified in Article 7. below), on or before the
twentieth (20th) day of each month after receipt by Gonzo.
4.3 Actions Requiring Participant Approval. Except as provided
below, Gonzo shall have the right to make all decisions and take all action
respecting the Loans, including such actions set forth in Section 4.2 above, the
Loan Documents and the Collateral without obtaining the prior approval of
Beneficiary and the other Participants. Notwithstanding the foregoing, Gonzo
shall not, without first obtaining the prior consent of Participants
representing interest in excess of fifty percent (50%) of the Participation
Percentages of the applicable Loan:
(1) waive prompt payment of principal and/or interest or
fees on the Note or agree to any extension of time for such payments or change
the interest rate provided for in the Note or increase the amount of the Loan;
(2) make or consent to any release of any Borrower, any
payment of obligor or any guarantor from any liability under the Loan Documents;
(3) make or consent to any release, satisfaction or
discharge of any of the Collateral except in accordance with the Loan Documents;
(4) make any advance on the Loan with actual knowledge of
an existing material default by Borrower or waive any known material default
under the Loan Documents;
(5) make any extension of the funding period under the
Loan Documents;
-5-
6
(6) make or consent to any material modification of any of
the Loan Documents other than as set forth hereinabove;
(7) waive in writing any covenant against Borrower under
the Loan Documents;
(8) give any consent or approval to Borrower, not
otherwise specifically provided for herein;
(9) commence any foreclosure sale or other action for the
recovery of collateral; or
(10) sell any Collateral acquired by any foreclosure sale
or other action for the recovery of collateral on the price and terms directed
by such interests.
Notwithstanding the foregoing, Gonzo may perform any of the foregoing actions
without obtaining the prior consent of Participants representing interest in
excess of fifty percent (50%) of the participation Percentages of the applicable
Loan in the event Gonzo, in its sole discretion, deems it necessary to take such
action in order to protect or preserve all or any portion of the Collateral for
any Loan.
4.4 Acquisition of Title to Collateral. Should the Participants
acquire title to any Collateral, either through foreclosure or acceptance of an
assignment in lieu of foreclosure, Beneficiary agrees to contribute, within ten
(10) days of billing or other notification by Gonzo prorata share of the cost of
such acquisition, including, without limitation, fees of referees, trustees,
title company charges, costs, disbursements and counsel fees, and its prorata
share of expenses for maintenance, taxes, and building costs, and any and all
other expenses necessary in connection with the holding, operating and/or sale
of such Collateral. In the event of the acquisition of title to any collateral,
and upon the subsequent sale thereof, Gonzo shall at that time or as soon
thereafter as is practicable, account and pay over to Beneficiary and each of
the other Participants, each of their respective proportionate shares of the net
proceeds of such sale(s) based upon their respective interest in the Loan. If a
purchase money encumbrance shall be taken in part for the sale of the Collateral
upon written consent pursuant to
-6-
7
Section 4.3 hereof, the Participants shall enter into an agreement with respect
to said encumbrance defining the rights of the Participants in the same prorata
shares as in the Deed of Trust foreclosed, which agreement shall be in all
material respects similar to this Agreement insofar as this Agreement is
appropriate or applicable. In the absence of such agreement, such encumbrance
shall be held by Gonzo for the benefit of Participants and shall be subject to
the terms of this Agreement to the extent applicable. All such proceeds of the
Collateral shall be applied in the manner set forth in the applicable Loan
Documents.
4.5 Payment and Proceeds. Beneficiary agrees not to accept any
payments, or proceeds and/or collection directly from any Borrower in connection
with the Loan Documents (or any third party except from Gonzo) including an
exercise of the right of set off unless Beneficiary immediately forwards such
payment or proceeds of collection to Gonzo for application and distribution in
accordance with the terms of this Agreement. Beneficiary shall not exercise its
right of setoff against any Borrower without first receiving the written consent
of the other Participants in the applicable Loan. Any losses on any Loan shall
be shared by the Participants in accordance with their relative Participation
Percentages in the Loan as set forth above.
4.6 Consents Deed given if Not withheld. If Beneficiary fails to
deliver to Gonzo written notice of its approval or disapproval of any action
proposed to be taken by Gonzo under Section 4.3 above, or any other action,
within five (5) days after the day upon which Beneficiary receives written
notice from Gonzo of the action it proposes to take, then the proposed action to
be undertaken by Gonzo shall be deemed to have been approved by Beneficiary.
Beneficiary agrees that Beneficiary's consent and approval to any action by
Gonzo or otherwise required under this Agreement or in connection with the Loans
shall not be unreasonably withheld.
5. Access to Books of Account and Records. Gonzo shall at all
times keep proper books of account and records reflecting the interest of
Beneficiary and each other Participant and reflecting the disbursements made and
payments received on the Loans and shall make all of its records and files
respecting the Loans available for
-7-
8
inspection by Beneficiary at all reasonable hours and upon reasonable notice to
Gonzo.
6. Assignment and Delegation.
6.1 Assignment of Loan Participation. Beneficiary may assign its
respective interest in the Loans without the consent of any of the other
Participants, but in such event written notice of the assignment shall be
forthwith provided to Gonzo providing the name and address of the assignee.
Until such notice is effective as set forth herein and the assignee has executed
(by notarized signature) any documentation reasonably requested by Gonzo,
including, without limitation, a counterpart of this Agreement as amended from
time to time and any disclosure and other documentation required by law,
Beneficiary shall be presumed to continue to be the owner of the interest in the
Loan and Gonzo shall be fully protected in continuing to make payment of
principal and interest to Beneficiary as the owner of the interest in the Loan.
Once such written notice is effective and the assignee has executed all
documentation required by Gonzo as set forth above, the assignee named therein
shall be presumed to be the owner in making payment of principal and interest to
such assignee. This Agreement shall inure to the benefit of and obligate the
parties hereto and their respective successors and assigns with the same force
and effect as if said assignee had been named herein and had executed this
Agreement.
6.2 Assignment, Delegation, and Termination of Servicing Rights
and Obligations. This Agreement may be terminated with respect to any Loan by
either party either for cause or without cause upon thirty (30) days prior
written notice to the other party of such intention to terminate. The term "for
cause" shall mean the intentional misconduct or omission to act of either party
to this Agreement. Any termination notice from Beneficiary must also be approved
in writing by Participants representing fifty-one percent (51%) of the
Participation Percentages of the Loan for which this Agreement is to be
terminated. Any termination notice for cause shall state specifically the cause
for such intention to terminate and shall provide that if reasonable corrective
action is taken within such thirty (30) day period then such intention to
terminate shall be rescinded. Upon termination Gonzo shall account for and turn
over to Participants all funds collected from the Borrowers and guarantors (for
the
-8-
9
applicable Loan (s)), less any compensation due Gonzo, and copies of such
records as may be necessary for the continuous servicing of the Loan (s). Should
this Agreement be terminated as above provided, Gonzo agrees to assign and
deliver the Loan(s) for Participants to Participants or to any servicing agent
the Participants should designate. Should this Agreement be terminated by
Beneficiary and the requisite Participants without cause, then, in addition to
the other compensation and reimbursements set forth herein, Gonzo shall be
entitled to receive an amount equal to its annual ordinary fee set forth in
Article 7. below for an additional one (1) year period from the effective date
of the termination. All compensation or reimbursement due Gonzo under this
Agreement shall be fully paid to Gonzo as a condition of transferring the Loan
(s) to the Participants or to any servicing agent designated by the
Participants. In addition, Gonzo may, without terminating this Agreement and
without the prior consent of Beneficiary assign and delegate (without release of
Gonzo hereunder) all or a portion of its rights, duties, and obligations
hereunder to a subservicer or other service provider.
7. Servicer and Loan Origination Fees. Gonzo shall be entitled to an
annual ordinary fee as set forth in the Participation Certificate for each
respective Loan, and in the absence thereof, to an ordinary fee equal to one
percent (1%) of the outstanding principal amount of the Loans from time to time,
for the servicing of the Loans. The amount of such fee shall be the
responsibility of Beneficiary in proportion with its relative Participation
Percentage in each Loan. Such fees will be proportionately deducted by Gonzo
from each remittance to Beneficiary. Any and all late and default charges,
returned check charges, loan cancellation charges, and prepayment charges paid
in connection with the Loans shall be retained by Gonzo as further compensation,
and Gonzo shall be reimbursed by Beneficiary for any and all expenses incurred
by Gonzo in connection with servicing the Loans as set forth below. It is
further agreed that any necessary transitory services which may be proper under
this Agreement, including, but not limited to, the foreclosure of mortgages,
property maintenance and improvement, property management, the sale of any
foreclosed real estate and other extraordinary expenses, shall be contracted for
or done by Gonzo at its customary cost for such services, provided such costs is
reasonable and customary in the jurisdiction where the
-9-
10
Collateral is located, and that Gonzo shall ▇▇▇▇ Beneficiary for its prorata
share of such expense, and Beneficiary shall be required to pay promptly its
prorata share of such extraordinary expenses incurred and billed under this
Agreement. Beneficiary agrees that Gonzo shall be entitled to loan origination
fees as agreed to by Gonzo and the Borrowers of each Loan which shall be paid to
and retained by Gonzo upon the closing of each Loan.
8. Miscellaneous Provisions.
8.1 Effect of Article and Section Headings. The Article and
Section headings are for convenience only and shall not affect the construction
of this Agreement.
8.2 Entire Agreement. This document contains the entire agreement
between the parties hereto and cannot be modified in any respect except by an
agreement in writing. This Agreement will remain in effect until the Loans are
liquidated completely unless earlier terminated as set forth herein.
8.3 Severability. If any provision of this Agreement is held to
be invalid, the legality and enforceability of all remaining provisions shall
not in any way be affected or impaired, and this Agreement shall be interpreted
as if such invalid provision was not contained herein.
8.4 Notices. Except as otherwise provided herein or by law, all notices
required or permitted to be given by law or by the terms of this Agreement shall
be in writing and shall be considered given upon (1) personal service of a copy
on the party to be served, (2) three (3) business days after proper deposit of a
copy of such notice in the United States Mail, by certified or registered mail,
postage prepaid, receipt for delivery requested, addressed to the party to be
served, or (3) transmission of such notice by telefax transmission during normal
business hours. Notices shall be given to the respective party at the addresses
and/or telefax numbers set forth below their respective signatures to this
Agreement. Notices given pursuant to clause (3) above shall also be immediately
thereafter transmitted by certified mail or personal service as provided above.
Any change in the address or telefax number of any party shall be given by the
party having such change to the other parties in the manner
-10-
11
provided above. Thereafter, all notices shall be given in accordance with the
notice of change of address or telefax number. Notices given before actual
receipt of the notice of change of address shall not be invalidated by the
change of address.
8.5 Counterparts. This Agreement may be executed in counterparts, each
of which when so executed and delivered shall be deemed an original, but all
such counterparts together shall constitute but one and the same instrument.
8.6 Attorney's Fees. If either party brings any action or proceeding to
interpret or enforce this Agreement, or for damages for any alleged breach
hereof, the prevailing party shall be entitled to recover reasonable attorneys'
fees and costs.
8.7 Governing Law. This Agreement and all of the rights and obligations
hereunder shall be governed by and construed in accordance with the laws of the
United States and the State of Nevada, as applicable. The parties further agree
that the full and exclusive forum for the determination of any action relating
to this Agreement shall be either an appropriate court of the State of Nevada or
the United States District Court for the District of Nevada.
[ Signature Page to Follow ]
-11-
12
GONZO FINANCIAL, INC., a Nevada corporation
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ III
---------------------------------- --------------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇, III,
Manager/Corporate Secretary President
Dated: February 5, 1998
Post ▇▇▇▇▇▇ ▇▇▇ ▇▇▇
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Telefax: (▇▇▇) ▇▇▇-▇▇▇▇
SPECIALTY MORTGAGE TRUST, INC., as Beneficiary
/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
-----------------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Assistant
Secretary
Date: 2/05/98
/s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ III
-----------------------------------------
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ III,
President
Date: 2/05/98
-----------------------------------------
Name
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
-----------------------------------------
▇▇▇▇▇▇▇
▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇
-----------------------------------------
Address
(▇▇▇) ▇▇▇-▇▇▇▇
-----------------------------------------
Telephone Number
-----------------------------------------
Fax Number (if applicable)
-----------------------------------------
Social Security # or Tax I.D. #
-12-