SETTLEMENT AGREEMENT
This settlement agreement ("Agreement") is entered into as of June 8, 2022 by and among VERANO RECOVERY, LLC, a California limited liability company, acting as Debtor and Debtor-in-Possession ("Debtor"), for the bankruptcy estate ("Estate"), in the chapter 11 bankruptcy proceeding bearing case number Case No. 2:21-bk-14127-BB (the "Bankruptcy Case"), pending in the Bankruptcy Court for the Central District of California, and the CITY OF CATHEDRAL CITY, a municipal corporation organized and existing under the laws of the State of California (the "City") (collectively, the "Parties"). This Agreement is subject to Bankruptcy Court approval as described below, and is subject to the following recitals ("Recitals"):
RECITALS
A. Debtor is in the business of developing a project (the "Project") with the name "Verano" in the City of Cathedral City, Riverside County (County"), California ("State").
Debtor has been working on the Project since 2010.
B. In 2015, Debtor purchased certain real property from the City for $2,107,761. A portion of the purchase price was provided to the City in the form of a Promissory Note secured by a deed of trust against four (4) of the parcels purchased by Debtor (Riverside County Assessor's Parcel Numbers 677-050-031-9, 677-050-032-0, 677-050-033-1 and 677-050-034-2).
Debtor and the City also entered into a Purchase and Performance Agreement ("PAPA") relative to the Project in conjunction with Debtor's purchase. The Grant Deed conveying the purchased property to Debtor was recorded on July 29, 2015 in the Riverside County Recorder's Office as Document No. 2015-0337061. The PAPA was recorded on September 23, 2015 in the Riverside County Recorder's Office as Document No. 2015-0422082. On April 8, 2016, Debtor delivered to the City a Non-Recourse Promissory Note Secured By Deed of Trust in the amount of $179,820.68 (the "Note"). A Deed of Trust With Assignment of Rents as Additional Security from Debtor to the City, also dated April 8, 2016, stating that it was for the purpose of securing the Note, was recorded on April 21, 2016 in the Riverside County Recorder's Office as Document No. 2016-0159297 (the "Deed of Trust"). The Deed of Trust lists as security for the Note Riverside County Assessor's Parcel Numbers 677-050-031-9, 677-050-032-0, 677-050- 033-1 and 677-050-034-2. A First Amendment to the PAPA dated September 28, 2016, was recorded on October 18, 2016 in the Riverside County Recorder's Office as Document No. 2016- 0159297 (the "First Amended PAPA"). The First Amended PAPA states that Debtor's outstanding debt to the City was $179,831 and that upon payment, the City would reconvey the Deeds of Trust securing the debt. The Note provides that all sums owing on the Note shall bear interest from June 25, 2016, until paid in full at a rate equal to ten percent 10% per annum. As of June 8, 2022, the amount due on the Note is $286,235.11 and the Note is accruing interest at the rate of approximately $49.27 per day (the "Note Balance").
C. Certain real property parcels within the Project and owned by Debtor are subject to a levy of special taxes that are used to repay the bond indebtedness incurred by Community Facilities District No. 2000-1 (Rio Vista Village) ("CFD 2000-1"). The bond proceeds generated by CFD 2000-1 were used to finance the construction of certain public infrastructure improvements within CFD 2000-1. The real property parcels owned by the Debtor that remain Settlement Agreement City-Verano 051022
subject to CFD 2000-1 special tax levies are identified as Riverside County Assessor's Parcel Numbers ("APN") 677-050-015-5, 677-050-017-7, 677-050-018-8, 677-050-023-2, 677-050- 027-6, 677-050-029-8, 677-050-031-9, 677-050-032-0, 677-050-033-1 and 677-050-034-2 (the "Subject Property").
D. Debtor failed to pay the CFD 2000-1 special taxes levied against the Subject Property for tax years 2015/16 and 2016/17 and those special taxes became delinquent. On July 19, 2017, the City commenced a judicial foreclosure action entitled City of Cathedral City v.
Verano Recovery, et al., (Case No. PSC1703893) in the County of Riverside Superior Court (hereinafter referred to ("Case No. PSC1703893") to recover the delinquent special taxes levied against the Subject Property (excluding 677-050-023-2) for tax years 2015/16 and 2016/17. On August 31, 2018, the City obtained judgment in Case No. PSC1703893 with regard to the delinquent special taxes in CFD 2000-1 for tax years 2015/16 and 2016/17. On October 28, 2020, the City had a writ issued in Case No. PSC1703893, and a judicial foreclosure sale date of May 20, 2021 was set by the Riverside Sheriff's Office. Prior to the judicial foreclosure sale, however, Debtor commenced this Bankruptcy case on May 19, 2021 (the "Petition Date").
Debtor also failed to pay the CFD 2000-1 special taxes levied against the Subject Property for tax years 2017/18, 2018/19 and 2019/20 and those special taxes became delinquent as well. On April 30, 2021, the City commenced a judicial foreclosure action entitled City of Cathedral City v. Verano Recovery, et al., (Case No. CVPS2102141) in the County of Riverside Superior Court (hereinafter referred to as "Case No. CVPS2102141") to recover the delinquent special taxes levied against the Subject Property for tax years 2017/18, 2018/19 and 2019/20.
F. Debtor has also failed to pay the CFD 2000-1 special taxes levied against the Subject Property for tax years 2020/21 and 2021/22 and as of June 30, 2022, both these years of CFD 2000-1 special taxes will be delinquent as well.
G. City estimates that including interest, penalties and costs that may be collected in connection with unpaid and delinquent CFD 2000-1 special taxes for tax years 2015/16, 2016/17, 2017/18, 2018/19, 2019/20, 2020/21, and 2021/22 (the "Delinquent Tax Years"), the total exceeds $13,093,252.14. However, subject to the terms of this Agreement and provided Debtor pays the amount that the City calculates as necessary to prepay all CFD 2000-1 special tax obligations secured by the Subject Property (the "CFD Prepayment Amount"), then the City will accept the CFD Prepayment Amount in satisfaction of the CFD 2000-1 special taxes owed for the Delinquent Tax Years, and will dismiss Case No. PSC1703893 and Case No. CVPS2102141.
The CFD Prepayment Amount is currently calculated to be approximately $7,733,037.08 and such amount is valid through July 13, 2022. After July 13, 2022, the CFD Prepayment Amount will increase by approximately $180,000.
In the Bankruptcy Case, the Bankruptcy Court has approved Debtor's Third Amended Disclosure Statement filed on May 5, 2022 (the "DS"') and Debtor's proposed Third Amended Plan filed on May 5, 2022 (the "Plan") is scheduled for a confirmation hearing on June 22, 2022. The DS and Plan propose that the Project will be sold prior to October 31, 2022 (the "Effective Date"). The DS and Plan categorize City as an impaired creditor, within the meaning of Bankruptcy Code section 1124.
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Debtor has entered into an agreement with Northlight Capital Partners LLC and its assignee NCP Verano LLC (the "Buyer") for the sale of the Project including property within CFD No. 2000-1. The proposed sale is part of Debtor's Chapter 11 Reorganization Plan currently under consideration by the Bankruptcy Court. Buyer's closing conditions include delivery of free and clear title to the Project property, and the extinguishment of the lien of the CFD No. 2000-1 special taxes. The intent of this Agreement is to accomplish the proposed sale of the Property to the Buyer, implement the goals under the approved Bankruptcy Court Confirmation Plan, and allow for the completion of the development of the Property by the Buyer or its designee and address other related interests of the City.
J. As a component of this Agreement and in order to facilitate the sale of the Project to Buyer, the City and Debtor are also prepared to enter into a further amendment to the PAPA.
This amendment will be the third amendment to the PAPA and will be entitled as the Amended and Restated PAPA ("A&R PAPA"). The A&R PAPA is attached hereto as Exhibit A.
K. The Parties have engaged in settlement discussions and without admitting to any fault of their own, have agreed to settle, subject to the settlement terms and conditions provided below. The Parties seek to avoid the burdens, risks, and uncertainty of litigation and to facilitate the sale to Buyer.
ARTICLE 1
AGREEMENT
NOW THEREFORE, pursuant to the foregoing Recitals, all incorporated herein by this reference, and for the consideration described in the Agreement, the Parties agree as follows:
1.1 Bankruptcy Court Approval. This Agreement shall be binding and enforceable on the Parties upon the Bankruptcy Court entering an order approving this Agreement. A motion (pursuant to Rule 9019 of the Federal Rules of Bankruptcy Procedure) to approve this Agreement ("Motion") shall be prepared and filed by the Debtor.
1.2 Contingent Only Upon Court Approval. All of the terms of the Agreement are contingent upon the issuance of a final binding order by the Bankruptcy Court approving the Agreement. If the Agreement is not approved by the Bankruptcy Court, then the Agreement shall automatically terminate and be of no force or effect.
ARTICLE II
SETTLEMENT TERMS
2.1 Settlement Amount. In consideration of all the terms of this Agreement, City has agreed to accept on or before the Effective Date the amount required to pay the Note Balance and the CFD Prepayment Amount (the "Settlement Amount") in full and complete satisfaction of the Note, of the CFD 2000-1 special taxes owed for the Delinquent Tax Years, and to remove the CFD 2000-1 special tax lien against the Subject Property for all future tax 3 Settlement Agreement City-Verano 051022
years, subject to Debtor's Plan being confirmed by the Bankruptcy Court. As long as Debtor remains in compliance with the confirmed Plan, City will not take any action to enforce the Note or collect the delinquent CFD 2000-1 special taxes, except as provided herein.
2.1.1 Use of Settlement Amount. The Settlement Amount shall be used to pay the Note Balance and the CFD Prepayment Amount (the "Settlement Amount") in full and complete satisfaction of the Note, of the CFD 2000-1 special taxes owed for the Delinquent Tax Years, and to remove the CFD 2000-1 special tax lien against the Subject Property for all future tax years, so that the Subject Property will be free and clear of any liens arising from the Deed of Trust securing the Note, and arising from the lien for special taxes for the benefit of CFD 2000-1 upon sale to Buyer.
2.1.2 Notice of Cessation. Prior to the close of escrow of the sale of the Property, the City shall have deposited with escrow an executed Notice of Cessation and Extinguishment of Special Tax Lien of CFD No. 2000-1 with respect to the Subject Property with instructions to the escrow holder at First American Title Company to record the Notice upon the close of escrow and delivery of the Closing Payment to the City.
2.1.3 Reconveyance. Prior to the close of escrow of the sale of the Property, the City shall have deposited with the escrow holder an executed reconveyance of the Deed of Trust securing the Note.
2.1.4 Additional Deposits by City. Prior to the close of escrow of the sale of the Property, the City shall have deposited with escrow Withdrawals of Notices of Pendency of Actions in Case No. PSC1703893 and Case No. CVPS2102141, Satisfaction of the Judgment in Case No. PSC1703893, and any other forms required by First American Title Company to provide clear title all evidencing satisfaction of Debtor's obligations under the Note, Deed of Trust, and for CFD 2000-1 special taxes secured by the Subject Property.
2.1.6 Assignment of PAPA. Prior to the close of escrow of the sale of the Property, City shall have authorized an assignment to Buyer of the A&R PAPA as may be agreed upon by Debtor and the City.
2.1.7 Pre-Closing Consolidation of CFD 2000-1 Special Taxes For All Delinquent Tax Years Into the Judgment For Case No. PSC1703893. In order to facilitate the separation of the CFD 2000-1 special tax obligations from the non-CFD 2000-1 tax obligations on Riverside County's tax roll for the Subject Property, which will enable Riverside County to present a demand to escrow limited to non-CFD 2000- I tax obligations, Debtor and the City agree that the City may take the following actions prior to receipt of the Settlement Payment. First, the City may take all steps necessary to remove CFD 2000-1 special taxes from the Riverside County tax roll for the Subject Property for all Delinquent Tax Years. Second, the City may take all steps necessary to amend the Judgment in Case No. PSC1703893 to add to the Judgment the 4 Settlement Agreement City-Verano 051022
amounts due for the Delinquent Tax Years subsequent to 2015/16 and 2016/17. Upon obtaining such an amendment to the Case No. PSC1703893 Judgment, the City will dismiss Case No. CVPS2102141 without prejudice. Third, Debtor will stipulate to an order by the Bankruptcy Court modifying the automatic stay to permit the actions by the City listed in this paragraph.
2.2 Effect of Non-Payment of the Settlement Amount by the Effective Date. If Debtor remains in compliance with its Court approved DS and confirmed Plan, but City is not paid pursuant to Section 2.1 by the Effective Date, City will have relief from the automatic stay as of November 1, 2022, to proceed with all of its rights and claims under the Note, Deed of Trust, and for CFD 2000-1 special taxes secured by the Subject Property, and will not be limited to the Settlement Amount.
2.3 The DS and Plan. In the DS and Plan, City is classified as an impaired creditor, within the meaning of Bankruptcy Code Section 1124. City agrees to accept and consents to payment of the Settlement Amount pursuant to Section 2.1 hereinabove. Upon Bankruptcy Court approval of the Agreement, the provisions of Section 2.1 hereinabove shall be incorporated into the Plan.
2.4 Release by Debtor. Except as otherwise provided in this Agreement, upon the Effective Date and receipt of the Settlement Amount by City, the Debtor, for and on behalf of the Estate and its members, managing member, successors, agents, attorneys, and accountants, shall release and discharge City, its subsidiaries, related entities, assigns, agents, officers, directors, employees, and attorneys from any and all claims, demands, controversies, actions, causes of action, suits, proceedings, obligations, liabilities, fines, penalties, costs, expenses, attorneys' fees, and damages of whatsoever character, nature, or kind, in law or in equity, whether known or unknown, fixed or contingent, and liquidated or unliquidated, which relate to or arise from the Bankruptcy Case, Claim Objection or the Adversary Proceeding.
2.5 Release by City. Except as otherwise provided in this Agreement, upon the Effective Date and City's receipt of the Settlement Amount, City, for itself and on behalf of its successors, agents, attorneys, accountants, heirs, and assigns, shall release and discharge the Debtor and the Estate and their members, managing member, successors, agents, attorneys, and accountants, from any and all claims, interests, demands, controversies, actions, causes of action, suits, proceedings, obligations, liabilities, fines, penalties, costs, expenses, attorneys' fees, and damages of whatever character, nature, or kind, in law or in equity, whether known or unknown, fixed or contingent, and liquidated or unliquidated, which relate to or arise from the Bankruptcy Case, the Note, Deed of Trust, Case No. PSC1703893, or Case No.
CVPS2102141.
2.6 Scope of Releases. The releases provided in this section shall constitute a waiver by the Parties of any and all rights under section 1542 of the Civil Code of California (or under any law of any state or territory of the United States, or principle of common law that is similar, comparable or equivalent to section 1542 of the California Civil Code), which provides:
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A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS THAT THE
CREDITOR OR RELEASING PARTY DOES NOT KNOW OR SUSPECT
TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING
THE RELEASE AND THAT, IF KNOWN BY HIM OR HER, WOULD
HAVE MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH
THE DEBTOR OR RELEASED PARTY.
The consequences of the foregoing waiver have been explained to the Parties by their respective counsel. The Parties acknowledge that they may hereafter discover facts different from, or in addition to, those which they may now know or believe to be true with respect to the claims being released herein and agree that this Agreement and the releases contained herein shall be and remain effective in all respects notwithstanding such different or additional facts or the discovery thereof.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1 Reliance on Independent Investigation. Except as otherwise provided in this paragraph, the Parties acknowledge that they have entered into this Agreement in reliance on their own independent investigations and analysis of the facts underlying the subject matter of this Agreement, and no representations, warranties, or promises of any kind have been made directly or indirectly to induce them to execute this Agreement other than those that are expressly set forth herein.
3.2 Advice of Counsel. The Parties acknowledge and represent that they have the advice of attorneys of their own choosing in connection with the evaluation and execution of this Agreement, or that after being advised to consult with an attorney of their own choosing, they have voluntarily opted not to do so.
3.3 No Admission of Liability. This Agreement is for the sole purpose of settling the matters described herein. It is expressly understood and agreed that this Agreement does not constitute and is not evidence of any admission by any of the Parties hereto of any liability or the truth of any allegations whatsoever.
3.4 Execution of Documents and Capacity to Enter Into the Agreement. Each Party does hereby state, certify, warrant, and represent to the other that such party has the right, power, capacity, and authority to enter into this Agreement, to fully perform its obligations under this Agreement, and hereby agree to execute all instruments reasonably necessary pursuant to this Agreement, and neither this Agreement nor the release of any claim pursuant to this Agreement violates any agreement by which such Party is bound. The Debtor's power to enter into this Agreement, however, is subject to approval of the Bankruptcy Court and should such approval not be obtained, the Agreement shall not be enforceable against the Debtor. Any individual signing this Agreement on behalf of another individual, corporation, or partnership represents and warrants that he has full authority to do so. 6 Settlement Agreement City-Verano 051022
ARTICLE IV
GENERAL TERMS AND PROVISIONS
4.1 Entire Agreement. This Agreement will constitute the entire agreement between the Parties and supersede all prior or contemporary understandings or agreements. No supplement, modification, waiver or termination shall be binding or enforceable unless executed in writing by the parties to be bound thereby.
4.2 Amendment of Agreement. No modification of, deletion from, or addition to this Agreement shall be effective unless made in writing and executed by the Parties hereto.
4.3 Construction of Agreement. The provisions of this Agreement shall be liberally construed to effectuate the intended settlement of the disputes and the release of all related claims. Section headings have been inserted for convenience only and shall not be given undue consideration in resolving questions of construction or interpretation. For purposes of determining the meaning of, or resolving any ambiguity with respect to, any word, phrase, term, or provision of this Agreement, each Party shall be deemed to have had equal bargaining strength in the negotiation of this Agreement and equal control over the preparation of this document, such that neither the Agreement nor any uncertainty or ambiguity herein shall be arbitrarily construed or resolved against any Party under any rule of construction.
4.4 Further Assurances. Each Party shall promptly execute any and all instruments and documents and take all other actions that may be required to effectuate the contemplated settlement and release.
4.5 Governing Law. This Agreement shall be interpreted and governed by the laws of the State of California. In the event that a dispute arises regarding this Agreement, the Bankruptcy Court in the Central District of California, Los Angeles Division, shall have continuing but not exclusive jurisdiction to interpret and enforce this Agreement.
4.6 Counterparts. This Agreement may be executed in one or more counterparts.
When counterparts have been executed by all the Parties hereto, this Agreement shall become effective, and the counterparts shall together constitute one document.
4.7 Severability. In the event that any term or provision of this Agreement is held by any court of competent jurisdiction to be illegal, invalid, or unenforceable for any reason, then the remaining portions of this Agreement shall nonetheless remain in full force and effect, unless such portion of the Agreement is so material that its deletion would violate the obvious purpose and intent of the Parties.
4.8 Waiver. The failure by any Party to enforce any term or provision of this Agreement shall not constitute a waiver of the right to enforce the same term or provision, or any other term or provision, thereafter. No waiver by any Party of any term or provision of this Agreement shall be deemed or shall constitute a waiver of any other provision of this Agreement, whether or not similar, nor shall any such waiver constitute a continuing waiver unless otherwise expressly provided in writing.
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4.9 Inurement. This Agreement shall inure to the benefit of and be fully binding upon each of the Parties and upon their respective heirs, executors, successors, assigns, and grantees.
4.10 Voluntary Agreement. The undersigned further represent and declare that each has carefully read this Agreement, know the contents thereof, and that each has signed the Agreement freely and voluntarily; and, furthermore, the undersigned by executing this Agreement represent to each of the parties hereto that the validity of this Agreement will not be denied upon the ground that the Agreement was executed under duress or without capacity.
4.11 Attorney's Fees. Each party hereto shall bear all attorney's fees and costs arising from the actions of its own counsel in connection with drafting this Agreement and the matters and the preparation of the documents referred to herein. In the event of any litigation between the Parties to enforce any of the terms of this Agreement, the prevailing party shall be entitled to an award of reasonable attorney's fees and costs.
4.12 Signatures in Counterparts. The undersigned further declare that this agreement may be executed in counterparts. Any counterparts so executed shall constitute one agreement which shall be binding on all parties hereto, even though not all parties may have signed the original or the same counterpart. The parties hereto agree that duplicates of this agreement or the counterparts thereof, showing the execution of all parties shall be of the same validity, force and effect as the original thereof
4.13 Notice. Whenever any party hereto is required or shall desire to give or serve upon the other any notice, demand, request or other communication, each such notice, demand, request or other communication shall be in writing and shall be given or served personally, or by overnight carrier or same-day messenger service, or by telecopy transmission followed immediately by mail, all to be addressed to the addresses set forth below.
If to the Debtor: Verano Recovery, LLO
c/o Inland Communities Corp.
Attn: Jim Ahmad, President
690 East Green Street, Suite 200
Pasadena, CA 91101
Facsimile: (323) 874-8800
With a copy to:
Bruce R. Corbett, Esq.
Corbett, Steelman & Specter
3151 Airway Avenue, Suite A-1
Costa Mesa, CA 92626
Main: (949) 553-9266 ext. 244
Cell: (949) 701-0132
E-mail: [email protected]
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And
Marc C. Forsythe, Esq.
Goe Forsythe & Hodges LLP
18101 Von Karman Ave.
Suite 1200
Irvine, CA 92612
Telephone: 949-798-2460
If to City: City of Cathedral City
Attn: City Manager
City of Cathedral City
68-700 Avenida Lalo Guerrero
Cathedral City, California 92234
With a copy to: Burke, Williams & Sorensen, LLP
Attn: Eric Vail, City Attorney
1770 lowa Avenue, Suite 240
Riverside, California 92507-2479
Facsimile: (951) 788-5785
Service of any such notice, demand or request so made shall be deemed complete on the date of actual delivery. Any party hereto may from time to time, by notice in writing served upon the other party as aforesaid, designate a different mailing address or a different person or additional persons to which all such notices, demand or requests are thereafter to be addressed.
4.1.4 Specific Enforcement. The Parties acknowledge and agree that irreparable damage would occur to Debtor in the event that any of the provisions of the City's obligations are not performed in accordance with their specific terms or are otherwise breached. It is accordingly agreed that the parties shall be entitled to specific performance of the provisions of this Agreement and to enforce the terms and provisions hereof, without the posting of a bond, this being in addition to any other remedy to which Debtor may be entitled by law or equity. [Signatures On Following Page]
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IN WITNESS WHEREOF, the undersigned have executed this Agreement on the dates set forth below, and agree as indicated herein.
Dated: June 2nd. VERANO RECOVERY, LLC, a California limited , 2022
liability company, acting as Debtor and Debtor-in-
Possession
sena
By:
Jim Ahmad, President of its Manager, Inland
Communities Corp.
Dated: June 2022 CITY OF CATHEDRAL CITY
By:
Charles P. McClendon, City Manager
RIV #4873-6209-9746 v4
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