EXHIBIT 10.2
DEFENSE AND ESCROW
AGREEMENT
THIS DEFENSE AND ESCROW AGREEMENT
(this “ Agreement ”) is made as of this 15
th 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
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