Document:

EXHIBIT
10.2

 

DEFENSE AND ESCROW AGREEMENT

 

THIS DEFENSE AND ESCROW
AGREEMENT (this “Agreement”) is
made as of this 15th day of July , 2004 (the “Effective
Date”), by and among (i) GOLF HOST RESORTS, INC., a Colorado
corporation (“Borrower”), (ii) GTA-IB, LLC, a Florida limited liability
company (“GTA-IB”), (iii) GOLF
TRUST OF AMERICA, L.P., a Delaware limited partnership (“Lender”), (iv) GOLF TRUST OF AMERICA, INC.,
a Maryland corporation (“GTA Parent”),
and (v) Chicago Title Insurance Company (“Escrow Agent”). GTA-IB,
Lender and GTA Parent shall be referred to collectively as “GTA” in this Agreement.

 

THE PARTIES TO THIS
AGREEMENT enter into this Agreement on the basis of the following facts,
intentions and understandings:

 

A.                                   Simultaneously
herewith, Borrower, GTA-IB, Lender and certain other parties are entering into
a Settlement Agreement, dated as of the date hereof (the “Settlement Agreement”) which,
among other things, sets forth the respective rights and obligations of
Borrower and GTA-IB relating to (i) certain real and personal property (as more
particularly described in the Settlement Agreement, the “Property”), (ii) Borrower’s
obligations to Lender, regarding Borrower’s obligations to Lender in connection
with that certain loan in the original principal amount of Seventy-Eight
Million Nine Hundred Seventy-Five Thousand Dollars ($78,975,000), and maturing
on June 19, 2027 (the “Loan”), and (iii) such other matters as
more specifically set forth therein. 
Capitalized terms used, but not otherwise defined herein, shall have the
meanings set forth in the Settlement Agreement.

 

B.                                     Borrower
and other entities are currently defending that certain lawsuits filed by
William J. and Harriet J. Ball, et al., on behalf of themselves and other
similarly situated parties, in the Circuit Court for the Sixth Judicial Circuit
in Pinellas County, Florida, Case Numbers 99-7532-CI-007 and/or
01-008582-CI-015 (the “Ball Claims”), and may in the future defend
other claims which are brought (or could have been brought) against Borrower,
and which derive from or relate to the same facts and circumstances as the Ball
Claims (collectively, such additional claims are referred to as the “Related
Claims,” each such claim is individually a “Related Claim”) (collectively
the Ball Claims and the Related Claims and any appeals thereof are referred to
as the “Lawsuits;”
and each of the Ball Claims and the Related Claims (any an appeal thereof) is
individually a “Lawsuit”).  The
settlement of the Lawsuits may require, among other things, the granting of
certain operational benefits to those plaintiffs in the Lawsuits (or to those
who have intervened or seek to intervene in one or more Lawsuits)
(collectively, such plaintiffs and intervenors are referred to as the “Plaintiffs;” and each is individually a “Plaintiff”), subject to the
settlement of the Lawsuits.

 

C.                                     Borrower
also owns a parcel of real property commonly known as “Parcel F” and which
is more particularly described on Exhibit A attached hereto (“Parcel F”).

 

D.                                    As
a condition to GTA-IB’s and Lender’s execution of the Settlement Agreement, GTA
has required (i) that Borrower and GTA agree upon their respective rights
and liabilities with respect to the Lawsuits and the defense thereof, and
(ii) that certain of the proceeds from any sale of Parcel F by
Borrower (or any affiliate thereof) be held in escrow pending distribution in
accordance with this Agreement.

 

 

E.                                      Borrower
and GTA desire to enter into this Agreement to establish their respective
rights and obligations with respect to (i) the defense of the Lawsuits,
and (ii) the use and distribution of proceeds from any sale of
Parcel F by Borrower.

 

NOW THEREFORE, in
consideration of the foregoing premises, the covenants in this Agreement and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, Borrower, GTA and Escrow Agent hereby agree as follows:

 

1.                                       Appointment of Escrow Agent. 
Escrow Agent is hereby appointed to act as escrow agent in accordance
with the terms of this Agreement, and Escrow Agent hereby accepts such
appointment.  Escrow Agent shall have
all the rights, powers, duties and obligations set forth in this Agreement and
no others.

 

2.                                       Defense of the Lawsuits; Participation by
GTA.  Subject to the terms of the Settlement
Agreement and that certain operational benefits agreement dated July 15,
2004, by and among Borrower, GTA-IB, Lender and Golf Hosts, Inc., a Florida
corporation (the “Operational Benefits
Agreement”), Borrower shall conduct, control and be responsible for
the defense and potential settlement of the Lawsuits.  GTA-IB shall have the right to consult with Borrower regarding
the Lawsuits and Borrower be obligated to keep GTA-IB regularly informed on a
current basis on the status of the Lawsuits, including, without limitation,
providing GTA-IB (and its counsel) with copies of all pleadings filed and
received, and deposition transcripts produced in connection therewith, and
Borrower and its counsel shall be generally available to answer all questions
of GTA-IB and its counsel relating to the Lawsuits.  Further, Borrower acknowledges and agrees that it shall cause its
counsel of record with respect to the Lawsuits, as well as any other counsel
engaged by Borrower with respect to the defense of the Lawsuits (together, “Borrower’s
Counsel”) to promptly and regularly (i) inform Peter T. Healy, Esq.
and/or Michael Tubach, Esq. of O’Melveny & Myers LLP, counsel to GTA (“OMM”)
on a current basis on the status of the Lawsuits and any negotiations regarding
the settlement thereof, and (ii) provide to OMM copies of all settlement
proposals, correspondence and documents related thereto and to the
Lawsuits.  Borrower shall also give
GTA-IB, Lender and OMM prior notice of all settlement discussions relating to
the Lawsuits and allow GTA-IB, Lender and their counsel to observe (and
participate in from time to time as is reasonably practicable) all such
settlement discussions. GTA-IB shall cooperate (at no economic cost to it or
its affiliates) and shall cause Lender to cooperate (at no economic cost to
Lender or its affiliates) in all reasonable respects in seeking to settle the
Lawsuits, which may include, in GTA-IB’s discretion, the offering of certain
rights, or the offering to alter certain existing rights, to use the Innisbrook
Golf Course, as provided in the Operational Benefits Agreement.  No such grants shall be made to a Plaintiff,
except in the event that Borrower and such Plaintiff execute and deliver a
complete and final settlement agreement, which provides for (i) the unconditional
dismissal of such Plaintiff’s Lawsuit or Lawsuits, any and all claims raised in
or related to such Plaintiff’s Lawsuit, with prejudice, and (ii) the
unconditional release of each of Guarantor, Borrower, GTA-IB, Lender, GTA
Parent and their respective affiliates, officers, directors, shareholders,
partners, members, successors, employees, and agents from any and all liability
for claims raised in or related to such Plaintiff’s Lawsuit (each such
settlement agreement, a “Lawsuit Settlement Agreement”), and subject
to the further conditions set forth in Section 5.2 below.  Furthermore, such settlements may include a
waiver of rights of Borrower to offset any sums owed to the

 

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originally named Plaintiffs under the Innisbrook
Rental Pool Master Lease Agreement effective January 1, 2002, as amended.

 

3.                                       Proceeds from the Sale of Parcel F. 
The parties to this Agreement agree that any and all amounts received in
respect of any deposit, purchase price or purchase money mortgage payments in
connection with the sale or transfer or the proposed sale or transfer of Parcel
F (including, without limitation, any funds received from GTA in the event it
purchases Parcel F or purchaser reimbursement of sums advanced by Borrower
pursuant to Section 5.1(iii)), less:  all of Borrower’s reasonably and actually incurred third-party
costs and expenses incurred solely in connection with such sale, including,
without limitation, all documentary, filing, recording, conveyance, transfer
and intangible taxes/fees; all charges for or in connection with the recording
and filing of any instrument or document to be recorded or filed; costs and
expenses of or related to the issuance of the policies of title insurance; the
premiums for the same and the costs of any preliminary title reports and
surveys required in connection with the same; Borrower’s closing attorneys’
fees payable solely in connection with services related to the sale and
conveyance of title to Parcel F; Borrower’s brokerage and conveyance fees
payable to Lochmere Realty, Inc. (which fees payable to Lockmere Realty, Inc.
shall not exceed 6.87% of net cash proceeds of the sale of Parcel F as and when
paid by the purchaser of Parcel F); and the buyer’s agent/broker’s acquisition
fee/brokerage fee, not to exceed Two Hundred Thousand Dollars ($200,000) in the
aggregate (such sale proceeds less all such costs and expenses deducted
therefrom, are hereinafter referred to as the “Proceeds”) shall be deposited
directly into the Escrow Account (as hereinafter defined), without demand,
deduction, offset or delay, and shall be disbursed only in accordance with the
terms of this Agreement, without demand, deduction, offset or delay.  Borrower shall not make or seek to cause any
disbursement from the Escrow Account to be made, directly or indirectly, except
as expressly permitted by this Agreement and only upon five (5) days’ prior
written notice thereof to Lender, in each instance, together with all relevant
detail.  

 

3.1                                 The Escrow Account. 
Escrow Agent shall establish a collateral account, upon the availability
of clear funds to be distributed pursuant to this Agreement, in Borrower’s name
at Bank of America, National Association, which account shall be denominated
“Bank of America Golf Host Resorts, Inc. by Chicago Title Insurance Company as
Escrow Agent” for the benefit of Borrower and GTA (the “Escrow Account”).  Borrower shall (i) pay on a regular and
current basis any and all fees and expenses incurred in connection with the
maintenance and the administration of the Escrow Account, and (ii) advise GTA
on a regular and current basis of Borrower’s satisfaction of such obligations.

 

3.2                                 Control of Escrow Account. 
Escrow Agent shall administer the Escrow Account, shall be the sole
signatory on the Escrow Account and shall disburse the Proceeds only in
accordance with the terms of this Agreement and only upon five (5) days’ prior
written notice thereof to Lender, in each instance, together with all relevant
detail. Borrower shall have no right or ability to effect withdrawals from the
Escrow Account and shall have no right to exercise dominion or control over the
Escrow Account.

 

3.3                                 Notice to GTA. 
Prior to making any distribution under this Agreement, including,
without limitation, under Sections 3 and 5, Escrow Agent shall notify GTA and
its counsel in writing of such intended distribution, in accordance with this
Section 3, allowing GTA reasonable opportunity to object to any such
distribution.

 

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4.                                       Proceeds Held in Escrow.

 

4.1                                 Investment of Proceeds. 
Funds in the Escrow Account shall be invested and/or reinvested by
Escrow Agent exclusively in Permitted Investments.  As used herein, “Permitted
Investments” shall mean any of the following liquid secondary market
investments of excess cash with a maximum life of any one security not to
exceed one year:  (a) marketable
securities issued by the United States of America and agencies thereof or
guaranteed by the United States of America; (b) marketable securities issued by
any state of the United States of America or any political subdivision of any
such state or any public instrumentality with a minimum rating of A1/P1;AA/Aa2
or MIG-1, VMIG1; (c) certificates of deposit and time deposits issued by
commercial banks organized under the laws of the United States of America or
any state thereof or by any other domestic depository institution if such
certificates of deposit are fully insured by the Federal Deposit Insurance
Corporation; (d) commercial paper maturing not more than one year from the date
of issue, and rated not lower than “P-1” or the then-equivalent rating by
Moody’s Investors Service, “A-1” or the then-equivalent rating by Standard
& Poor’s Corporation, or the then equivalent rating by Fitch or Duff &
Phelps; (e) repurchase agreements with financial institutions organized under
the laws of the United States of America or any state thereof, provided that,
such institution is rated not lower than A1/P1; (f) auction rate products
provided that such products are rated not lower than A1/P1; (g) collateralized
mortgage obligations and asset backed securities provided that such obligations
or securities are rated not lower than A1/P1; (h) corporate debt obligations ,
provided that such obligations are rated not lower than double A (Aa) (AA) or
equivalent; and (i) shares of money market funds that have at least ninety-five
percent (95%) of their assets invested continuously in the types of investments
referred to in clauses (a) through (h) above. 
Any income earned on the Escrow Account shall be held in the Escrow
Account and shall constitute and be added to the Proceeds, and all income taxes
and other taxes thereon shall be allocated to and shall be payable by Borrower
in a prompt and timely manner.  To the
extent that Borrower actually and unconditionally pays such taxes, the amounts
of Proceeds it receives shall be increased in an amount sufficient to
compensate Borrower (“grossed-up”) for such taxes paid, provided
that such amount shall not exceed the total amount of interest earned on the
Escrow Account.

 

5.                                       Use and Disposition of Proceeds.

 

5.1                                 Closing Date Disbursements. 
On the date of the sale of Parcel F to a third party (the “Closing Date”)
pursuant to a purchase and sale agreement (the “Purchase Agreement”), Escrow
Agent shall disburse a portion of the Proceeds as follows:

 

(i)                                     FIRST,
One Hundred Thousand Dollars ($100,000) to GTA-IB (or GTA-IB’s designee), in
respect of fees and related costs, including, without limitation, attorneys’
fees, incurred by GTA-IB in connection with GTA-IB’s negotiation, preparation
and review of any iteration of a Parcel F Development Agreement, whether
incurred before or after the Effective Date (the “Parcel F Development Agreement”), by and among GTA-IB,
Borrower and Bayfair Innisbrook, L.L.C., a Florida limited liability
corporation or any other purchaser (subject to the provisions of
Section 8.2(b) of the Settlement Agreement) to be consented to by Lender
in writing, and all other documents attached thereto, regardless whether such
agreement is ultimately executed or is effective;

 

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(ii)                                  SECOND,
One Million Dollars ($1,000,000) distributed 70% to Lender and 30% to Borrower;
and

 

(iii)                               THIRD,
to Borrower (or Borrower’s designee), (a) an amount respecting the reasonable
and actually incurred attorneys’ fees and related costs paid or payable to
Borrower’s Counsel in connection with the defense of the Lawsuits, which amount
shall not  exceed Two Million Four
Hundred Thousand Dollars ($2,400,000) in the aggregate for such attorneys’ fees
and related costs incurred for the period from June 30, 2002 through the
Effective Date (the “Maximum Amount”); and (b) any reasonable and actually incurred attorneys’ fees and
related costs paid or payable to Borrower’s Counsel in connection with the
defense of the Lawsuits which are incurred after the Effective Date, which
amount (as described in this subpart (b) of Section 5.1(iii) shall not be
subject to any maximum limitation. 
Notwithstanding anything to the contrary in this Agreement, the
Settlement Agreement or the Operational Benefits Agreement, in the event that
Borrower (or its affiliates) recover attorneys’ fees and related costs (or a
portion thereof) from the Plaintiffs of the Lawsuits, such recovered amount
shall be fully disclosed to GTA-IB and shall automatically reduce the Maximum
Amount dollar for dollar to the extent received.

 

5.2                                 Disbursement
of Net Proceeds.  The Proceeds
remaining after the disbursement of the amounts set forth in Section 5.1
above (such remaining proceeds, together with any amounts received by Borrower
or Grantor relating to the Litigation Interest (as defined in the Settlement
Agreement), without offset, are collectively referred to as the “Net Proceeds”)
shall continue to be held in the Escrow Account by Escrow Agent and shall be
disbursed to the persons set forth below in the order of priority set forth
immediately below within five (5) days after the date upon which GTA notifies
Escrow Agent in writing (the “Release Notice”) that it has received
evidence satisfactory to GTA, in its reasonable discretion, that a Lawsuit has
been settled by the parties thereto pursuant to a fully executed settlement
agreement and a properly filed dismissal with prejudice, wherein GTA and its
affiliates, agents, employees, officers, directors and members or partners have
been unconditionally released with prejudice with respect to the Lawsuit and
any and all claims or potential claims relating to the subject matter thereof),
or that the Lawsuit has been fully and finally adjudicated (with no possibility
of further appeal) (collectively, such settlement or full and final
adjudication are herein referred to as a “Final Lawsuit Resolution”).  GTA shall deliver the Release Notice in a
reasonably prompt manner upon GTA’s receipt of a Final Lawsuit Resolution.  Upon Escrow Agent’s receipt of a Release
Notice, Escrow Agent shall promptly disburse a portion of the Net Proceeds
(without demand, deduction, offset or delay) as shall be reasonably determined
in good faith by Borrower, to the extent available (provided, however, that
Borrower shall have (i) first considered reasonably and in good faith (and
taking into account such relevant facts and circumstances in making its
determination) all the relevant facts and circumstances, including, without
limitation, the best interests of GTA, Borrower and Borrower’s affiliates, and
shall expressly not act in the sole best interests of Borrower or Borrower’s
affiliates, and (ii) given prompt written notice of such determination to
GTA-IB) in the amounts and in the order set forth immediately below (together
with concurrent written notice to Lender):

 

(i)                                     FIRST,
to Escrow Agent for any amounts due and payable to Escrow Agent under this
Agreement;

 

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(ii)                                  SECOND,

 

(a)  to Borrower, (i) an amount up to One Hundred
Thousand Dollars ($100,000) to reimburse Borrower those certain engineering
costs actually incurred by Borrower in connection with the sale of Parcel F and
not otherwise reimbursed, and (ii) an amount up to Two Hundred Thousand Dollars
($200,000) to reimburse Borrower for its reasonable legal fees incurred after
Borrower’s filing of that certain Parcel F Final Site Plan with Pinellas
County, Florida, to the extent not otherwise reimbursed; and then,

 

(b)  in the event any of the GTA Parties (as
defined in the Settlement Agreement) are joined as parties to the Lawsuits by
one or more of the Plaintiffs to the Lawsuits, an amount for the GTA Parties’
third party legal fees and costs incurred with respect to the Lawsuits, subject
to a maximum aggregate amount of Fifty Thousand Dollars ($50,000);

 

(iii)                               THIRD,
to the Plaintiffs in a Lawsuit (or to Borrower to the extent that Borrower has
actually and unconditionally paid such amount to Plaintiffs in a Lawsuit and
has received and filed a dismissal with prejudice with respect thereto) an
amount reasonably determined by Borrower  in good faith to be paid pursuant to
the Lawsuit Settlement Agreement;

 

(iv)                              FOURTH,
subject to the provisions of Section 5.2 of this Agreement, to the GTA
Parties, all amounts which represent the costs and expenses incurred by GTA
and/or the GTA Parties, including, without limitation, attorneys’ fees, other
than in relation to the Lawsuits, which Borrower and/or Guarantor are required
to pay to the GTA Parties pursuant to the indemnification provisions of
Sections 5.1, 5.2 and 7.2(a) of the Settlement Agreement, provided that such
amount when added to Borrower’s Tax Payment shall not exceed the Indemnified
Amount (as defined in Section 10.3(c) of the Settlement Agreement);

 

(v)                                 FIFTH,
subject to the provisions of Section 5.2 of this Agreement, to the GTA
Parties, an amount equal to any and all costs, expenses (including, without
limitation, legal and investigatory fees, costs and expenses payable to Dechert
LLP and/or Borrower’s Local Counsel, but specifically excluding any counsel
retained by any of the GTA Parties (unless Dechert LLP shall not agree to
defend, or is not able to defend for ethical or other reasons, the GTA Parties
and except as provided below), liability, claim, loss, judgment or damage of
any kind or nature arising out of or in connection with the Lawsuits, not
including any indirect or consequential damages incurred by any of the GTA
Parties;

 

(vi)                              SIXTH,
subject to the provisions of Section 5.2 of this Agreement, to the GTA
Parties, all amounts which Borrower and/or Guarantor are required to pay to the
GTA Parties pursuant to the indemnification provisions of this Agreement, the
Parcel F Development Agreement, the Operational Benefits Agreement and that
certain Joint Defense Agreement by and among Borrower, Guarantor, GTA-IB, the
GTA Parent and certain other parties to the extent not otherwise paid to the
GTA Parties; provided that such amount paid under this Section 5.2(vi)
when added to the amounts, if any, distributed under Section 5.2(v) and
the Borrower’s Tax Payment shall not exceed the Indemnified Amount (excluding from
the Indemnified Amount Losses arising from the Lawsuits); and

 

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(vii)                           SEVENTH,
subject to the provisions of Section 5.2 of this Agreement, after any and
all claims have been satisfied and/or contingent or threatened claims have been
reserved for in the reasonable judgment of GTA and Borrower, Escrow Agent shall
pay all remaining Net Proceeds
as follows:  (1) seventy percent
(70%) of such remaining amount to GTA, and (2) thirty percent (30%) to
Borrower; provided, however, that
if the amount paid under paragraph (iii) of this Section 5.2 is less than
Three Million Two Hundred Fifty Thousand Dollars ($3,250,000), then, prior to
distributing the remaining Net Proceeds as earlier provided in this paragraph
(vii), Escrow Agent shall first distribute a dollar amount which equals
the difference between (a) Three Million Two Hundred Fifty Thousand Dollars
($3,250,000), and (b) the amounts paid under paragraph (iii) of this
Section 5.2 as follows: 
(1) fifty percent (50%) of such amount to Borrower, and
(2) fifty percent (50%) to GTA.

 

5.3                                 Promissory Notes. 
In the event that any portion of the Parcel F sales price shall be paid
in the form of a promissory note (any “Parcel F Note”) in favor of Borrower,
Lender shall have the right to (i) review the proposed Parcel F Note, the
credit and collateral securing the same, and other loan documents, and
(ii) provide commercially reasonable comments thereto regarding the terms
and conditions contained in such documents (the “GTA Financing Comments”), and
Borrower shall, in a writing signed by the purchaser of Parcel F,  endorse to GTA-IB the Parcel F Note (and
assign all security and other legal instruments to GTA-IB) and deliver the
Parcel F Note (and the security and other legal instruments) to Escrow
Agent.  GTA-IB and Borrower shall direct
the payor under the Parcel F Note to deliver all payments to Escrow Agent,
which sums, for purposes of this Agreement, shall be considered Proceeds.  Borrower shall in good faith use
commercially reasonable efforts to incorporate the GTA Financing Comments into
the Parcel F Note and shall, prior to finalizing the Parcel F Note (and the
security and other legal instruments related thereto), notify Lender of which,
if any, of the GTA Financing Comments were not agreed to by the Parcel F buyer
on a good faith, commercially reasonable basis, and Lender shall have an
additional opportunity to provide its commercially reasonable comments to the
revised draft Parcel F Note and the security and other legal instruments (the “Revised GTA
Financing Comments”). 
Borrower shall be entitled to disbursements from the Net Proceeds being
held in the Escrow Account, any and all reasonable and customary costs and
expenses actually incurred by Borrower in connection with the collection of any
obligations under the Parcel F Note, including, without limitation, reasonable
attorneys’ fees and related costs.  It
is understood and agreed that Borrower shall have sole responsibility for collecting
amounts due under any Parcel F Note (and/or under the security and other legal
instruments related thereto) and shall remit such collections to the Escrow
Account; provided, however,
Borrower shall use diligent, good faith efforts to collect all sums due under
any Parcel F Note (and/or under the security and other legal instruments
related thereto) on or before the later of (i) two (2) years after the closing
of the sale of Parcel F, and (ii) December 31, 2005.  GTA-IB shall reasonably cooperate and
provide Borrower with documents which may be reasonably required by Borrower to
enable or assist Borrower in collecting sums due under any Parcel F Note
(and/or under the security and other legal instruments related thereto), which
shall expressly not include a power of attorney.  Borrower shall have no liability to Lender for failure to collect
any amounts due under any Parcel F Note (and/or under the security and other
legal instruments related thereto), except to the extent resulting from
Borrower’s failure to diligently and in good faith seek to collect the same in
a commercially reasonable manner, gross negligence, self-dealing, any willful
misconduct or fraud of Borrower.

 

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6.                                       Other Liens, Encumbrances or Agreements.

 

6.1.                              Grants of Rights. Except as otherwise provided in the
Settlement Agreement, Borrower shall not directly or indirectly grant or agree
to grant any person (i) any lien or any other right in the Proceeds or Net
Proceeds, or (ii) any right in or to Borrower or any assets of Borrower.  Notwithstanding anything contained in this
Agreement or in the Settlement Agreement, Borrower may enter into that certain
purchase agreement for the sale of Parcel F, which is more particularly
described on Exhibit B attached hereto.

 

6.2.                              Intentionally deleted.

 

6.3.                              Sale of Parcel F.

 

(a)                                  If at any time after the Effective Date,
Borrower desires to sell Parcel F to a bona fide, unaffiliated, creditworthy
third-party for a price less than Six Million Nine Hundred Thousand Dollars
($6,900,000) (an “Asset Sale”), Borrower (in, and only in,
such case of a sale for a price less than Six Million Nine Hundred Thousand
Dollars ($6,900,000)) shall have the right to consummate the sale thereof at
that price provided Borrower shall first give to GTA written notice thereof (an
“Offer
Notice”), which Offer Notice shall set forth the cash price (the “ROFO Price”),
Borrower would be willing to accept to consummate such sale.  The Offer Notice shall also set forth the
following information with respect to the terms Borrower would be willing to
accept to consummate such sale (the “Other Terms”):  (i) the anticipated closing date; (ii) the amount, if any,
Borrower would be willing to finance (i.e., purchase money financing in
the form of a promissory note secured by Parcel F); (iii) a form of deed which
is substantially in the form which Borrower would provide with respect to such
sale; and (iv) the terms regarding the obligation (as between Borrower and
potential buyer) to pay the following closing costs:  title insurance stamp/transfer taxes.  Within sixty (60) days of receipt of an Offer Notice (the “Exercise
Period”), GTA shall have the right to offer to purchase Parcel F at
the ROFO Price and subject to the Other Terms (except as regards the closing
date which is set forth in the Offer Notice only for informational purposes),
by giving written notice of such election within the Exercise Period (the “ROFO
Election”), which offer shall be irrevocable and accompanied by a
non-refundable deposit equal to five percent (5%) of the ROFO Price, subject to
Borrower’s performance.

 

(b)                                 If GTA does not timely make a ROFO
Election, GTA shall be deemed to have elected not to purchase Parcel F.  If no timely ROFO Election is made by GTA,
Borrower shall be free to initiate and consummate the Asset Sale within one
hundred eighty (180) days after the expiration of the Exercise Period at a
price determined by Borrower, but which price must in no event be less than
ninety-five percent (95%) of the ROFO Price and, except as set forth herein,
subject to the Other Terms.  The parties
hereto agree that the amount of financing, if any, provided by Borrower as well
as the terms regarding the obligation to pay the closing costs (title insurance
and stamp/transfer taxes) may differ by five percent (5%) from that set forth
in the Other Terms without any obligation of Borrower, or right of GTA,
triggered by virtue of such deviations from the Other Terms.  Such Asset Sale shall be consummated within
nine (9) months after the expiration of the Exercise Period.

 

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(c)                                  If GTA has timely delivered a ROFO
Election, Borrower shall accept such offer at the ROFO Price and subject to the
Other Terms set forth in the Offer Notice. 
Borrower and GTA shall consummate the ROFO Sale on an “as is” and “where
is” basis, except for materially, but not necessarily exactly, the warranties,
if any, contained in the form of deed which is part of the Other Terms, within
ninety (90) days after the date of the ROFO Election.  If GTA has timely delivered a ROFO Election, but thereafter the
sale contemplated thereby fails to close within a sixty (60) day period by
reason of GTA’s sole default (and not any default by Borrower), then GTA shall
be in material default under this provision hereof (and no others) and the five
percent (5%) deposit shall be forfeited as Borrower’s sole remedy and as GTA’s
sole liability.  In the event of GTA’s
material default hereunder as aforesaid, which GTA has not substantially cured
after written notice from Borrower and the passage of a cure period of not to
exceed ten (10) business days, without limiting any of the rights of Borrower
or GTA hereunder, at law or in equity, Borrower shall have the right to
consummate the ROFO Sale described in the Offer Notice to non-affiliated third
parties for a cash price determined by Borrower (without regard to the ROFO
Price) and on such other terms and conditions as Borrower reasonably
determines, and shall have a nine (9) month period to consummate such or any
other ROFO Sale.  Further, GTA shall not
thereafter be entitled to give a ROFO Election and Borrower shall have no
further obligations whatsoever under this provision.

 

(d)                                 Promptly after the execution of a
contract for an Asset Sale, Borrower shall deliver to GTA a true, correct and
complete copy of the contract therefor (including all exhibits and schedules).

 

(e)                                  If an Asset Sale is not initiated or
consummated within the nine (9) month period described above, the rights of GTA
under this Section 6.3, provided it has not defaulted hereunder (and such
default has not been cured), shall be fully restored and reinstated.

 

(f)                                    Subject to GTA’s rights set forth herein
and otherwise, with respect to an Asset Sale, Borrower shall have the right to
execute customary contracts, agreements or certifications to effectuate the
consummation of the Asset Sale.

 

6.4.                              Original Bayfair Agreement. Borrower represents and warrants that
(a) it has provided a true, correct and complete copy of the Original Bayfair
Agreement to GTA-IB, (b) the Original Bayfair Agreement, as amended and
restated as of June 29, 2004, remains in full force and effect, and has
not been amended, (c) there exists no default (and no event or existing
condition that, with the passage of time, would be considered a default) under
the Original Bayfair Agreement, (d) except for the Original Bayfair Agreement
and the agreements provided for therein, Borrower has not entered into any
other agreement, side letter, or understanding, in writing or otherwise, with
respect to the sale of Parcel F, and (e) it shall provide true, correct
and complete copies of all amendments to the Original Bayfair Agreement to
GTA-IB promptly upon execution.

 

7.                                       Books, Records, and Statements. 
Escrow Agent shall at all times during the term of this Agreement keep
and maintain true, correct, complete and current books and records with respect
to the Escrow Account, and all investments thereof, earnings thereon and
disbursements therefrom.  Escrow Agent
shall provide monthly statements to Borrower and GTA showing the balance of the
Escrow Account, the earnings thereof and the disposition of earnings.

 

9

 

8.                                       Expenses.  All fees and
expenses of Escrow Agent, including its reasonable and actually incurred
attorneys’ fees and related costs as may be incurred by Escrow Agent in
connection with the administration of the Escrow Account and this Agreement,
any amendment, modification, interpretation, collection, enforcement of this
Agreement and the investment of the Net Proceeds, shall be payable to Escrow
Agent as provided in Section 5 above.

 

9.                                       Hold Harmless. 
Borrower and GTA, jointly and severally, hereby agree to indemnify,
protect, save and hold harmless Escrow Agent, and its successors and assigns,
pursuant to this Agreement, from any and all liabilities, obligations, losses,
damages, claims, actions, suits, costs or expenses (including, without
limitation, reasonable attorneys’ fees) of whatsoever kind or nature imposed
on, incurred by or asserted against Escrow Agent which in any way relate to or
arise out of the execution and delivery of this Agreement and any action taken
under this Agreement; provided, however,
that neither Borrower nor GTA shall have any such obligation to indemnify,
protect, save and hold harmless Escrow Agent or its successors or assigns, from
or against any liability incurred by, imposed upon or established against
Escrow Agent for its own willful misconduct, gross negligence or fraud.

 

10.                                 Security Interest. 
Borrower hereby grants to GTA (and/or GTA’s designee) a first priority
security interest in the Escrow Account equal to one hundred twenty percent
(120%) of GTA’s interest in the Net Proceeds described in Section 5.2
above, and Borrower agrees that it shall take any and all further actions,
including, without limitation, executing security agreements, account control
agreements and/or UCC financing statements as may be reasonably required and
prepared by GTA to effect the foregoing or in furtherance of implementing the
same.

 

11.                                 Relationship. 
Borrower agrees that none of GTA or any of its officers, directors,
managers, partners, shareholders, members, employees or agents, shall have any
fiduciary obligations or trust obligations with respect to the Proceeds or Net
Proceeds or other amounts received or with respect to the sale of Parcel
F.  GTA agrees that none of Borrower,
Guarantor or any of their respective officers, directors, managers, partners,
shareholders, members, employees or agents, shall have any fiduciary
obligations or trust obligations with respect to the Proceeds or Net Proceeds
or other amounts received or with respect to the sale of Parcel F.  This Agreement does not constitute a
partnership agreement, or any other association between GTA and Borrower.

 

12.                                 Notices.  All notices
required hereunder shall be in writing and delivered or mailed (by registered
or certified mail, return receipt requested and postage prepaid), addressed to
the respective parties as set forth below:

 

	
  If to GTA:

  
	
   

  
	
  Golf Trust of America, L.P.

  
	
  14 North Adger’s Wharf

  
	
  Charleston, South Carolina 
  29401

  
	
  Tel.:

  	
  (803) 723-4653

  
	
  Fax:

  	
  (803) 723-0479

  
	
  Attn:

  	
  Mr. W. Bradley Blair, II

  

 

10

 

	
  Copy to:

  
	
   

  
	
  O’Melveny & Myers LLP

  
	
  Embarcadero Center West

  
	
  275 Battery Street, Suite 2600

  
	
  San Francisco, California 
  94111

  
	
  Attn:

  	
  Peter T. Healy, Esq.

  
	
  Tel.:

  	
  (415) 984-8833

  
	
  Fax:

  	
  (415) 984-8701

  
	
   

  	
   

  
	
  If to Borrower:

  
	
   

  
	
  Golf Host Resorts, Inc.

  
	
  591 West Putnam Avenue

  
	
  Greenwich, Connecticut  06830

  
	
  Attn:

  	
  Mr. Merrick R. Kleeman

  
	
  Tel.:

  	
  (203) 422-7710

  
	
  Fax:

  	
  (203) 422-7810

  
	
   

  	
   

  
	
  Copies to:

  
	
   

  
	
  Dechert LLP

  
	
  90 State House Square

  
	
  Hartford, Connecticut  06103

  
	
  Attn:

  	
  John J. Gillies, Jr., Esq.

  
	
  Tel.:

  	
  (860) 524-3938

  
	
  Fax:

  	
  (860) 524-3930

  
	
   

  	
   

  
	
   

  	
  and

  
	
   

  
	
  Rinaldi, Finkelstein & Franklin

  
	
  591 West Putnam Avenue

  
	
  Greenwich, Connecticut  06830

  
	
  Attn:

  	
  Steven Finkelstein, Esq.

  
	
  Tel.:

  	
  (203) 422-7767

  
	
  Fax:

  	
  (203) 422-7867

  
	
   

  
	
   

  
	
  If to Escrow Agent:

  
	
  Chicago Title Insurance Company

  South Florida Business Center

  
	
  2701 Gateway Drive, Pompano Beach,

  
	
  Florida 33069

  
	
  Attn:

  	
  Earline Woods, Escrow Manager

  
	
  Tel.:

  	
  (954) 971-2200

  
	
  Fax:

  	
  (954) 971-4111

  

 

11

 

13.                                 Termination of Escrow. 
This Agreement, and the Escrow Account provided for in this Agreement,
shall automatically terminate upon (a) disbursement by Escrow Agent of all of
the Net Proceeds pursuant to Section 5 hereof, excepting in the event of
any pending or threatened litigation pertaining to any of the issues herein or
with respect to this Agreement, or (b) receipt by Escrow Agent of joint
written instructions by Borrower and GTA indicating both parties’ election to
terminate this Agreement.

 

14.                                 No Personal Liability. 
In no event, and notwithstanding anything contained herein or elsewhere,
shall any of the respective past, present or future officers, directors,
managers, partners, members, stockholders, employees, representatives,
trustees, advisors, attorneys or other agents of each of Borrower, Guarantor,
GTA-IB, Lender and the GTA Parent (or any of their respective affiliates) be
personally liable under or in connection with this Agreement, the Settlement
Agreement or the Operational Benefits Agreement whatsoever. Each of the parties
to this Agreement, the Settlement Agreement or the Operational Benefits
Agreement and each of such parties’ respective successors and assigns does
hereby waive any such personal liability or any right to make such a claim
against any of the others.

 

15.                                 Construction. 
Borrower and GTA acknowledge that each such party and its counsel have
reviewed and revised this Agreement, and that the rule of construction to the
effect that any ambiguities are to be resolved against the drafting party shall
not be employed in the interpretation of this Agreement or any document
executed and delivered by either party in connection with the transactions
contemplated by this Agreement.  The
captions in this Agreement are for convenience or reference only and shall not
be used to interpret this Agreement.

 

16.                                 Terms Generally. 
The defined terms in this Agreement shall apply equally to both the
singular and the plural forms of the terms defined.  Whenever the context may require, any pronoun shall include the
corresponding masculine, feminine and neuter forms. The term “person” includes
individuals, corporations, partnerships, trusts, other legal entities,
organizations and associations, and any government or governmental agency or
authority.  The words “include,”
“includes” and “including” shall be deemed to be followed by the phrase
“without limitation.”  The words
“approval,” “consent” and “notice” shall be deemed to be preceded by the word
“written.”

 

17.                                 Confidentiality. 
For so long as no party under this Agreement is in default under the
terms of this Agreement, GTA, Borrower and Escrow Agent shall keep the
existence of, the terms and conditions of this Agreement and the information or
documentation provided in connection with this Agreement, the Settlement
Agreement and the Operational Benefits Agreement, strictly confidential, except
as follows: (i) such disclosures as are necessary to consummate the
transactions contemplated hereunder; (ii) such internal disclosures,
disclosures to attorneys, accountants, advisors and servicers, and disclosures
to investors and rating agencies as are required by the respective parties’
operating policies and procedures and as may be required by the Securities and
Exchange Commission; and (iii) such disclosures as are required by law,
including pursuant to the service of judicial process.  The parties acknowledge that this provision
constitutes material consideration for their respective obligations hereunder,
and the breach thereof may result in irreparable injury to a party, entitling
such party to specific performance of the terms hereof.

 

12

 

18.                                 Waivers.  No waiver of
any provision of this Agreement or any breach of this Agreement shall be
effective unless such waiver is in writing and signed by the waiving party, and
any such waiver shall not be deemed a waiver of any other provision of this
Agreement or any other or subsequent breach of this Agreement.

 

19.                                 Applicable Law. 
This Agreement shall be governed by and interpreted in accordance with
the internal laws of the State of Delaware. Any action or proceeding arising
from or relating to this Agreement shall be brought in the State of Delaware,
and each party irrevocably submits to the jurisdiction and venue of any such
court in any such action or proceeding.

 

20.                                 Severability. 
If any provision of this Agreement, or the application thereof to any
person, place, or circumstance, shall be held by a court of competent
jurisdiction to be invalid, unenforceable or void, the remainder of this
Agreement and such provisions as applied to other persons, places and
circumstances shall remain in full force and effect.

 

21.                                 Entire Agreement. 
This Agreement constitutes the entire and final agreement among the
parties with respect to the terms of the Escrow Account and there are no
agreements, understandings, warranties, or representations among the parties
with respect thereto except as set forth herein.

 

22.                                 Miscellaneous. 
The Exhibits attached to this Agreement are hereby made a part of this
Agreement.  This Agreement shall benefit
and bind Borrower, GTA and Escrow Agent and their respective representatives,
successors and assigns.  This Agreement
may be executed in counterparts, each of which shall be an original, but all of
which shall constitute one and the same Agreement.  This Agreement may not be amended or modified except by a written
instrument signed by Borrower, GTA and Escrow Agent.

 

23.                                 Attorneys’ Fees and Costs. 
In the event of any dispute between the parties hereto in connection
with this Agreement, the prevailing party in any judicial action shall be
entitled to reasonable attorneys’ fees and costs.

 

[Signatures commence on the following page]

 

13

 

IN
WITNESS WHEREOF, Borrower, GTA and Escrow Agent have
executed this Agreement as of the Effective Date.

 

	
   

  	
  “BORROWER”

  
	
   

  	
   

  
	
   

  	
  GOLF HOST RESORTS, INC.,

  
	
   

  	
  a Colorado corporation

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Merrick Kleeman

  	
   

  
	
   

  	
   

  	
   Name: Merrick Kleeman

  
	
   

  	
   

  	
   Title: President

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  “GTA-IB”

  
	
   

  	
   

  
	
   

  	
  GTA-IB, LLC,

  
	
   

  	
  a Florida limited liability company

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ W. Bradley Blair, II

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ W. Bradley Blair, II

  	
   

  
	
   

  	
   

  	
   

  	
   Name: W. Bradley Blair, II

  
	
   

  	
   

  	
   

  	
   Title: President

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  “LENDER”

  
	
   

  	
   

  
	
   

  	
  GOLF TRUST OF
  AMERICA, L.P.,

  
	
   

  	
  a Delaware limited partnership

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  GTA GP, Inc., a
  Maryland corporation, its

  general partner

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ W. Bradley Blair, II

  	
   

  
	
   

  	
   

  	
   

  	
   Name: W. Bradley Blair, II

  
	
   

  	
   

  	
   

  	
   Title: President

  
						

 

S-1

 

	
   

  	
  “GTA Parent”

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  GOLF TRUST OF
  AMERICA, INC., a Maryland

  corporation

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ W. Bradley Blair, II

  	
   

  
	
   

  	
   

  	
   Name: W. Bradley Blair, II

  
	
   

  	
   

  	
   Title: President and Chief Executive Officer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  “ESCROW AGENT”

  
	
   

  	
   

  	
   

  
	
   

  	
  CHICAGO TITLE INSURANCE COMPANY

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Earline Woods

  	
   

  
	
   

  	
   

  	
   Name: Earline Woods

  
	
   

  	
   

  	
   Title: Escrow Manager

  

 

S-2EXHIBIT 10.3

 

OPERATIONAL
BENEFITS AGREEMENT

 

THIS
OPERATIONAL BENEFITS AGREEMENT (this “Agreement”)
is made as of July 15, 2004 (the “Effective
Date”), by and among (i) Golf Host Resorts, Inc., a Colorado
corporation (“Borrower”), (ii)
Golf Hosts, Inc., a Florida corporation (“Guarantor”),
(iii) GTA-IB, LLC, a Florida limited liability company (“GTA-IB”), and (iv) Golf Trust of
America, L.P., a Delaware limited partnership (“Lender”).  Borrower,
Guarantor, GTA-IB and Lender shall collectively be referred to as the “Parties” or each individually, as a “Party”.

 

THE
PARTIES TO THIS AGREEMENT enter into this Agreement on the basis of the
following facts, intentions and understanding:

 

A.                                   On the Effective
Date, the Parties and certain other parties, shall enter into a settlement
agreement to resolve certain outstanding matters by and among such persons, as
more particularly set forth therein (the “Settlement
Agreement”);

 

B.                                     On the Effective
Date, Borrower, GTA-IB, Chicago Title Insurance Company (the “Escrow Agent”) and certain other parties
shall enter into a defense and escrow agreement, to establish Borrower and
GTA-IB’s respective rights and obligations with respect to (i) the defense of
the Lawsuits (defined below), and (ii) the use and distribution of proceeds
from any sale of certain real property by Borrower, as more particularly set
forth in such agreement (the “Defense and
Escrow Agreement”) in conjunction with the Settlement Agreement;

 

C.                                     Borrower and other
entities are currently defending those certain lawsuits filed by William J. and
Harriet J. Ball, et al., on behalf of themselves and other similarly situated
parties, in the Circuit Court for the Sixth Judicial Circuit in Pinellas
County, Florida, Case Numbers 99-7532-CI-007 and/or 01-008582-CI-015 (the “Ball Claims”),
and may in the future defend other claims which are brought (or could have been
brought) against Borrower (including claims brought by intervenors in the same
Lawsuit), and which derive from or relate to the same facts and circumstances
as the Ball Claims (collectively, such additional claims are referred to as the
“Related
Claims,” each such claim is individually a “Related Claim”) (collectively
the Ball Claims and the Related Claims, and any appeals thereof, are referred
to as the “Lawsuits;” and each of the Ball Claims and the Related Claims,
and any appeal thereof, is individually a “Lawsuit”);

 

D.                                    The settlement of
the Lawsuits may require, among other things, the granting of certain
operational benefits to those plaintiffs in the Lawsuits (or to those who have
intervened or seek to intervene in one or more Lawsuits) (collectively, such
plaintiffs and intervenors are referred to as the “Plaintiffs;”
and each is individually a “Plaintiff”), subject to the settlement of
the Lawsuits; and

 

E.                                      The items set
forth on Attachment 1 attached hereto, together with the reasonable
related costs associated with the granting of such items, are together defined
as the “Operational Benefits.”

 

 

NOW
THEREFORE, in consideration of the foregoing premises, the covenants in this
Agreement and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Parties hereby agree as
follows:

 

1.                                       Operational Benefits.

 

1.1                                 Subject to the terms and
conditions of this Agreement, including, without limitation, the provisions of
Sections 2 and 4 below, Borrower shall have the right to grant the Operational
Benefits to a Plaintiff solely in the event that Borrower and a Plaintiff
execute a complete and final settlement agreement, which provides for (i) the
unconditional dismissal of a Lawsuit, any and all claims raised in or related
to a Lawsuit, with prejudice, and (ii) the unconditional release of each of
Guarantor, Borrower, GTA-IB, Lender, Golf Trust of America, Inc. (the “GTA Parent”) and their respective
affiliates, officers, directors, shareholders, partners, members, successors,
employees, and agents from any and all liability for claims raised in or
related to a Lawsuit (such a settlement agreement, a “Lawsuit  Settlement
Agreement”).  Borrower may
vary, in its good faith, reasonable discretion, which  of Operational Benefit 3, 4, 6, and/or 9 (as such Operational
Benefits are defined in Attachment 1 hereto) are granted to each
Plaintiff.  Borrower must offer to all
Plaintiffs Operational Benefits 2, 5, 7 and 1 if its offers any of such
Operational Benefits to any Plaintiff; provided, however, that with respect to
Operational Benefit 1, Borrower shall use its good faith, reasonable efforts to
only grant such benefit as may be necessary after diligent negotiations to
finally conclude a Settlement Agreement.

 

1.2                                 The Operational Benefits
granted by Borrower in accordance with the terms and conditions of this
Agreement shall not:

 

(i)   
be considered “Losses” under Section 10.3 of the Settlement
Agreement as such term is defined therein;

 

(ii)  
trigger any indemnity obligations of Borrower, including, without
limitation, the obligations set forth in Section 5.1 of the Settlement
Agreement;

 

(iii)  
be considered an “economic cost” to GTA-IB or its affiliates under
Section 2 (Defense of the Lawsuits; Participation by GTA) of the Defense
and Escrow Agreement; and

 

(iv) 
be taken into account, or in any way considered to be part of, any sums
due or potentially due to GTA-IB (or/to GTA-IB’s designees) under
Section 5 (Use and Disposition of Proceeds) of the Defense and Escrow
Agreement.

 

1.3                                 For the purposes of
calculating GTA-IB’s interest in the “Net Proceeds” under Section 5 of the
Defense and Escrow Agreement, no amount shall be added to, or included in,
GTA-IB’s interest in such Net Proceeds, by virtue of the Operational Benefits
granted in accordance with the terms and conditions of this Agreement.

 

1.4                                 Notwithstanding anything to
the contrary, GTA-IB and Lender shall have the right to decline to grant or
revoke any Operational Benefit upon a judicial determination in accordance with
Section 8 below: (i) that the grant of such Operational Benefit was
granted by Borrower in violation of this Agreement; or (ii) in the event of a
breach of the Settlement 

 

 

Agreement and/or the Defense and Escrow Agreement by Borrower; provided, however, that Borrower shall
have ten (10) days from receipt of notice from GTA-IB or Lender of such
violation in (i) or breach in (ii) above to cure such violation or breach. This
Section 1.4 shall survive the termination of this Agreement.

 

2.                                       Covenants of Borrower.

 

2.1                                 Notwithstanding anything to
the contrary, Borrower (i) shall use its commercially reasonable good faith
efforts to negotiate one or more complete and final settlements of the Lawsuits
as described in Section 1.1 of this Agreement, requiring as few as
possible Operational Benefits to be granted to the Plaintiffs with the most
limited scope and extent as is reasonably practicable in the good faith,
reasonable judgment of Borrower, and (ii) shall thoroughly consider in
good faith the views of GTA-IB, Lender and their counsel regarding the granting
(and the scope and extent of the grant) of any such Operational Benefits.

 

2.2                                 Borrower shall, to the
extent that to do so would not waive an attorney-client privilege:

 

2.2.1                        keep GTA-IB regularly
informed on a current basis on the status of the Lawsuits, including, without
limitation, promptly providing GTA-IB (and its counsel) with copies of all
pleadings filed or received and deposition transcripts produced in connection
therewith and Borrower and its counsel shall be available to answer all
questions of GTA-IB and its counsel relating to the Lawsuits;

 

2.2.2                        cause its counsel of record
with respect to the Lawsuits, as well as any other counsel engaged by Borrower
with respect to the defense of the Lawsuits to promptly and regularly (i)
inform Peter T. Healy, Esq. and/or Michael Tubach, Esq. of O’Melveny &
Myers LLP, counsel to GTA-IB (“OMM”)
on a current basis on the status of the Lawsuits and any negotiations regarding
the settlement thereof, and (ii) provide to OMM copies of all settlement
proposals, correspondence and documents related thereto;

 

2.2.3                        give GTA-IB, Lender and OMM
monthly written status reports regarding settlement discussions relating to the
Lawsuits and allow GTA-IB, Lender and their counsel to observe (from time to
time as is reasonably practicable) all such settlement discussions; and

 

2.2.4                        use commercially reasonable
good faith efforts to enter into a joint defense agreement with GTA-IB and
Lender in form and substance reasonably acceptable to such Parties to allow
GTA-IB, Lender and their respective counsel to receive all copies of all
pleadings, court documents, deposition transcripts, legal memoranda, settlement
proposals and other information or documentation related to the Lawsuits,
including, without limitation, all such privileged and work product information
and documentation.

 

2.3                                 With respect to the
provisions of Section 2.2 above, Borrower shall inform GTA-IB and its
counsel in writing when it asserts such attorney-client privilege.

 

 

2.4                                 Borrower shall only grant,
or have the power to grant, pursuant to this Agreement or otherwise,
Operational Benefits contemporaneously with and subject to the Plaintiffs’
execution of a Lawsuit Settlement Agreement.

 

3.                                       Covenants of GTA-IB and
Lender.  GTA-IB and Lender, at no cost
to such Parties, shall reasonably cooperate and provide Borrower with documents
necessary to the granting of the Operational Benefits in accordance with the
terms and conditions in this Agreement.

 

4.                                       Conditions
to GTA-IB’s and Lender’s Obligations; Suspension or Termination of Obligations.

 

4.1                                 Conditions
to GTA-IB’s and Lender’s Obligations. GTA-IB’s and Lender’s requirement to
consummate their respective obligations under this Agreement, and Borrower’s
right to grant any Operational Benefits under this Agreement, shall be
conditioned upon the following:

 

4.1.1                        each of Borrower, Guarantor,
GH Management and Condo Owner (as defined in the Settlement Agreement), as
applicable, shall have timely fulfilled their respective obligations under this
Agreement, the Settlement Agreement and the Defense and Escrow Agreement, to
the extent such obligations are then due;

 

4.1.2                        none of Borrower, Guarantor,
GH Management or Condo Owner, as applicable, shall be in default under this
Agreement, the Settlement Agreement or the Defense and Escrow Agreement (in
each case, as determined in a final judicial determination); and

 

4.1.3                        GTA-IB and Lender shall have
received a Lawsuit Settlement Agreement, executed by each of Borrower and a
Plaintiff.

 

4.2                                 Suspension or Termination of
Obligations. GTA-IB and Lender’s obligations under this Agreement shall be
suspended and/or terminated upon the occurrence of the following:

 

4.2.1                        if, at any time, any of the
conditions set forth in Section 4.1 above relating to monetary obligations
of Borrower, Guarantor, GH Management and/or Condo Owner have not been met (or
alleged not to have been met), in GTA-IB’s and/or Lender’s good faith,
reasonable judgment and is asserted in writing to Borrower; or

 

4.2.2                        upon a final judicial
determination that any of the conditions set forth in Section 4.1 above
relating to non-monetary obligations of Borrower, Guarantor, GH Management
and/or Condo Owner have not been met.

 

5.                                       Events of Default.  Each of the following shall be an event of
default under this Agreement (each, an “Event
of Default”):

 

5.1                                 if a Party to this Agreement
fails to perform any of its obligations under this Agreement, and such Party
fails to cure such default for a period of ten (10) days after a non-defaulting
Party notifies the defaulting Party of such failure in writing; and

 

 

5.2                                 if any Party to this
Agreement, GH Management or Condo Owner is in default under the Settlement
Agreement and/or the Defense and Escrow Agreement.

 

6.                                       Termination.  This Agreement shall automatically terminate
on the occurrence of any of the following: 
(a) upon the disbursement by Escrow Agent of all of the Net Proceeds
pursuant to Section 5 of the Defense and Escrow Agreement; (b) upon the
termination of the Defense and Escrow Agreement; (c) upon the termination of
the Settlement Agreement; or (d) upon an Event of Default; provided  that
the Lawsuits have been settled at such time. 
However, in the case of an Event of Default by Borrower, GTA-IB and/or
Lender may terminate this Agreement, subject to the procedures set forth in
Sections 4.2 and 5 of this Agreement.

 

7.                                       Limits of Responsibility;
Indemnity.

 

7.1                                 Indemnified Parties.  None of GTA-IB, Lender, the GTA Parent or
any of their respective past, present or future partners, members,
stockholders, officers, directors, employees, agents, attorneys, contractors,
representatives, successors and assigns or any subsidiary, affiliate or parent
of any of them, or any of their predecessors in interest (collectively, the “Indemnified Parties”) shall have any
responsibility under this Agreement other than as specifically set forth in
this Agreement, including, without limitation, any obligation to offer and/or
grant any Operational Benefits or other right or benefits to any person or
entity.  Notwithstanding anything to the
contrary (including, without limitation, the provisions of the Settlement
Agreement and Defense and Escrow Agreement), Borrower and Guarantor shall
jointly and severally defend, reimburse, indemnify and hold harmless the
Indemnified Parties from and against any and all expenses, losses, costs,
damages, liabilities, demands, charges and claims of any nature whatsoever,
actual or threatened (including, without limitation, reasonable attorneys’
fees), arising from or in respect of (i) any breach of this Agreement by
Borrower or Guarantor, or (ii) any Operational Benefits offered or granted by (or
on behalf of) Borrower in violation of the terms and/or conditions of this
Agreement. This Section shall survive the termination of this
Agreement.  Additionally, the
Indemnified Parties shall indemnify and hold Borrower and Guarantor harmless
from and against any and all expenses, losses, costs, damages, liabilities,
demands and claims of any nature whatsoever, actual or threatened (including,
without limitation, reasonable attorneys’ fees) arising from any breach of this
Agreement by the Indemnified Parties.

 

7.2                                 Indemnity
Limitation.  The indemnity
obligations of the parties hereto and their respective affiliates shall solely
be payable out of each Party’s respective share of Net Proceeds under
Section 5.2(vii) “Seventh” of the Defense and Escrow Agreement.

 

8.                                       Remedies.  The Parties hereto agree that money damages
would not be an adequate remedy for any actual or threatened breach of this
Agreement by a non-defaulting Party and that each non-defaulting Party shall be
entitled as a non-exclusive remedy to equitable relief, including, without
limitation, injunctions (temporary and permanent) and specific performance, as
a remedy for any such breach and the defaulting Party or Parties hereby agree
to waive any requirement for the securing or posting of any bond in connection
with the non-defaulting Parties’ pursuit of any of such remedies.  Such remedies shall not be deemed to be the
exclusive remedies for a breach by a non-defaulting Party of this Agreement (or
any part thereof) but shall be in addition to all other rights and remedies
otherwise available at law or equity to a non-

 

 

defaulting Party.  If, in the
event of litigation relating to this Agreement among the Parties, a court of
competent jurisdiction determines in a final, non-appealable order that this
Agreement has been breached by any Party, then the breaching Party or Parties
shall be liable for and pay to the non-breaching Party or Parties its costs and
expenses (including, without limitation, the reasonable legal fees and
expenses) incurred in connection with all such litigation.

 

9.                                       Notices.  All notices required hereunder shall be in
writing and delivered or mailed (by registered or certified mail, return
receipt requested and postage prepaid), addressed to the respective Parties as
set forth below:

 

If to Lender and/or GTA-IB:

 

Golf Trust of America, L.P.

14 North Adger’s Wharf

Charleston, South Carolina 
29401

Tel.:                         (803)
723-4653

Fax:                           (803)
723-0479

Attn:                    Mr.
W. Bradley Blair, II

 

Copy to:

 

O’Melveny & Myers LLP

Embarcadero Center West

275 Battery Street, Suite 2600

San Francisco, California  94111

Attn:                    Peter
T. Healy, Esq.

Tel.:                         (415)
984-8833

Fax:                           (415)
984-8701

 

If to Borrower and/or Guarantor:

 

Golf Host Resorts, Inc.

591 West Putnam Avenue

Greenwich, Connecticut  06830

Attn:                    Mr.
Merrick R. Kleeman

Tel.:                         (203)
422-7710

Fax:                           (203)
422-7810

 

Copies to:

 

Dechert LLP

90 State House Square

Hartford, Connecticut  06103

Attn:                    John
J. Gillies, Jr., Esq.

Tel.:                         (860)
524-3938

Fax:                           (860)
524-3930

 

 

and

 

Rinaldi, Finkelstein & Franklin

591 West Putnam Avenue

Greenwich, Connecticut  06830

Attn:                    Steven
Finkelstein, Esq.

Tel.:                         (203)
422-7767

Fax:                           (203)
422-7867

 

10.                                 Construction.  The Parties acknowledge that each Party and
its counsel have reviewed and revised this Agreement, and that the rule of
construction to the effect that any ambiguities are to be resolved against the
drafting Party shall not be employed in the interpretation of this Agreement or
any document executed and delivered by either Party in connection with the
transactions contemplated by this Agreement. 
The captions in this Agreement are for convenience or reference only and
shall not be used to interpret this Agreement.

 

11.                                 Terms Generally.  The defined terms in this Agreement shall
apply equally to both the singular and the plural forms of the terms
defined.  Whenever the context may
require, any pronoun shall include the corresponding masculine, feminine and
neuter forms. The term “person” includes individuals, corporations, partnerships,
trusts, other legal entities, organizations and associations, and any
government or governmental agency or authority.  The words “include,” “includes” and “including” shall be deemed
to be followed by the phrase “without limitation.”  The words “approval,” “consent” and “notice” shall be deemed to
be preceded by the word “written.”

 

12.                                 Confidentiality.  Except with respect to Section 19, the
Parties shall keep the existence of, and the terms and conditions of this
Agreement, strictly confidential, except as follows: (i) such disclosures as
are necessary to consummate the transactions (including negotiations and
discussions with respect to the settlement of the Lawsuits) contemplated
hereunder; (ii) such internal disclosures, disclosures to attorneys,
accountants, advisors and servicers, and disclosures to investors and rating
agencies as are required by the respective Parties’ operating policies and
procedures and as may be required by the Securities and Exchange Commission;
and (iii) such disclosures as are required by law, including pursuant to the
service of judicial process.  The
Parties acknowledge that this provision constitutes material consideration for
their respective obligations hereunder, and the breach thereof may result in
irreparable injury to a Party, entitling such Party to specific performance of
the terms hereof.

 

13.                                 Waivers.  No waiver of any provision of this Agreement
or any breach of this Agreement shall be effective unless such waiver is in
writing and signed by the waiving Party, and any such waiver shall not be
deemed a waiver of any other provision of this Agreement or any other or
subsequent breach of this Agreement.

 

14.                                 Applicable Law.  This Agreement shall be governed by and
interpreted in accordance with the internal laws of the State of Delaware,
without regard to conflicts of law doctrines. 
Any action or proceeding arising from or relating to this Agreement
shall be brought

 

 

in the State of Delaware, and each party irrevocably submits to the
jurisdiction and venue of any such court in any such action or proceeding.

 

15.                                 No Personal Liability.  In no event, and notwithstanding anything
contained herein or elsewhere, shall any of the respective past, present or
future officers, directors, managers, partners, members, stockholders,
employees, representatives, trustees, advisors, attorneys or other agents of
each of Borrower, Guarantor, GTA-IB, Lender and/or the GTA Parent (or any of
their respective affiliates) be personally liable under or in connection with
this Agreement, the Defense and Escrow Agreement the Joint Defense Agreement or
the Settlement Agreement whatsoever. 
Each of the parties to this Agreement, the Defense and Escrow Agreement
or the Settlement Agreement, and each of such parties’ respective successors
and assigns does hereby waive any such personal liability or any right to make
such a claim against any of the others.

 

16.                                 Severability.  If any provision of this Agreement, or the
application thereof to any person, place, or circumstance, shall be held by a
court of competent jurisdiction to be invalid, unenforceable or void, the
remainder of this Agreement and such provisions as applied to other persons,
places and circumstances shall remain in full force and effect.

 

17.                                 Entire Agreement.  This Agreement constitutes the entire and
final agreement among the Parties with respect to matters set forth herein and
there are no agreements, understandings, warranties, or representations among
the Parties, with respect thereto except as set forth herein.

 

18.                                 Miscellaneous.  Attachment 1 to this Agreement is
hereby incorporated by reference in this Agreement in its entirety.  In addition, this Agreement (i) shall
benefit and bind the Parties and their respective representatives, successors
and assigns, (ii) may be executed in counterparts, each of which shall be an
original, but all of which shall constitute one and the same Agreement, and
(iii) may not be amended or modified except by a written instrument signed by
all the Parties hereto.

 

19.                                 Attorneys’ Fees and Costs.  In the event of any dispute between the
Parties hereto in connection with this Agreement, the prevailing Party or
Parties in any judicial action or arbitration shall be entitled to reasonable
attorneys’ fees and costs.

 

20.                                 Further Assurances.  The Parties hereto agree that they shall
take such actions as the other may reasonably request from time to time in
order to implement the specific provisions of this Agreement; provided, however, nothing herein shall
expand or modify the obligations of any of the Parties hereto.

 

[Signatures commence on the following page]

 

 

IN WITNESS WHEREOF, the Parties have executed
this Agreement as of the Effective Date.

 

 

	
   

  	
  “BORROWER”

  
	
   

  	
   

  
	
   

  	
  GOLF HOST RESORTS, INC.,

  
	
   

  	
  a Colorado corporation

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Merrick Kleeman

  	
   

  
	
   

  	
   

  	
   Name: Merrick Kleeman

  
	
   

  	
   

  	
   Title: President

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  “GUARANTOR”

  
	
   

  	
   

  
	
   

  	
  GOLF HOSTS, INC.,

  
	
   

  	
  a Florida corporation

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Merrick Kleeman

  	
   

  
	
   

  	
   

  	
   Name: Merrick Kleeman

  
	
   

  	
   

  	
   Title: President

  
	
   

  	
   

  	
   

  
	
   

  	
  “GTA-IB”

  
	
   

  	
   

  
	
   

  	
  GTA-IB, LLC,

  
	
   

  	
  a Florida limited liability company

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ W. Bradley Blair, II

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ W. Bradley Blair, II

  	
   

  
	
   

  	
   

  	
   

  	
   Name: W. Bradley Blair, II

  
	
   

  	
   

  	
   

  	
   Title: President

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  “LENDER”

  
	
   

  	
   

  
	
   

  	
  GOLF TRUST OF
  AMERICA, L.P.,

  
	
   

  	
  a Delaware limited partnership

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  GTA GP, Inc., a
  Maryland corporation, its

  general partner

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ W. Bradley Blair, II

  	
   

  
	
   

  	
   

  	
   Name: W. Bradley Blair, II

  
	
   

  	
   

  	
   Title: President

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