February 3, 2004
SUBJECT: STANDSTILL AGREEMENT AND MUTUAL RELEASE PERTAINING TO TOWN CENTER MALL
REPORT IN BRIEF
Harvest Partners, owners of the former JC Penney’s building has been negotiating with Lehman Ali, Inc., financial stakeholders in the mall, for the transfer of the JC Penney’s building. That transaction is expected to be completed in early February to facilitate redevelopment of Town Center Mall. Sunnyvale, LLC, mall owner, has been in bankruptcy for some time and has actions pending in bankruptcy court in southern California involving itself, Harvest and Greenwood. The court appointed receiver, James Baron, has a certain role and responsibility with regard to the maintenance of the mall and the City and Agency has an interest in any future development of the property. All these entities have an interest in seeing the sales transaction consummated and approved by the Bankruptcy Court. In addition, there is litigation between Sunnyvale, Lehman, Greenwood, Harvest and a title company in District Court.
As a result of the common interest in a successful sales transaction, it is in the best interest of all the entities named above to enter into what are being called a Standstill Agreement and a Mutual Release Agreement. The Standstill Agreement maintains the status quo until the close of escrow on the JC Penney’s building which is anticipated to occur in early February and puts a halt to the pursuit or institution of any proceeding between now and February 11, 2004 and the Mutual Release eliminates any claims any party to the Standstill Agreement and Release have against any of the other parties with regard to the proposed property transfer. The release enables Greenwood and Harvest to walk away from the project.
DISCUSSION
The Town Center Mall has deteriorated and efforts to revive or revamp it have been stymied by the bankruptcy filing by Sunnyvale, LLC (aka AMP) and subsequent ownership battles between Sunnyvale, LLC, Lehman and Harvest Partners. Although the City and the Redevelopment Agency have taken several actions to establish a framework for future development, nothing can go forward until the Bankruptcy Court approves a reorganization and the issue of ownership rights between Sunnyvale, LLC, Lehman, Harvest and Greenwood are resolved. Approval of the Standstill Agreement and the Mutual Release by each of the parties will facilitate the resolution of these complex matters.
Harvest and Greenwood are both identified in the documents because Greenwood Partners was previously in contract with Sunnyvale, LLC to buy the mall and Harvest was the entity formed to take title to the mall. Sunnyvale, LLC sued Greenwood and Harvest, claiming that Harvest purchased the Penney’s building based upon supposedly confidential information Sunnyvale, LLC shared with Greenwood during their negotiations, which Greenwood then supposedly shared with Harvest. This lawsuit is still pending.
The purpose of the Standstill Agreement is simply to freeze any other actions so that the documents necessary for the purchase and sale transaction of the JC Penney building can be prepared and finalized. The only thing that the City and Agency are agreeing to in the Standstill Agreement is that neither will go forward with the selection of a master developer and redevelopment proposal before February 11, 2004. In the Mutual Release, the City and the Agency release Harvest and Greenwood of any claims they have related to Harvest or Greenwood’s interests in developing any of the property. Staff does not believe the City or Agency has any claims against Harvest or Greenwood related to the Penney’s property or the mall. Consequently, the City’s and Agency’s release of Harvest and Greenwood does not result in the City or Agency giving up any significant rights. Harvest and Greenwood have threatened the City and Agency with litigation over various actions which have been taken with respect to the Penney’s property and the mall. Although staff does not believe any of the threatened litigation has any merit, the release of the City and Agency will eliminate the possibility of any litigation by Harvest and Greenwood.
For the Release to be effective, the following must all occur:
a. The execution of the Standstill Agreement and Mutual Release Agreement by each of the Parties, including the City and Agency;
b. The entry by the Bankruptcy Court of a final order granting and approving the motion of Sunnyvale for authority for Sunnyvale and, as may be required or granted, the Receiver, to execute the Standstill Agreement and the Mutual Release Agreement and to implement and carry out its terms and the settlement of claims by and against Harvest and Greenwood;
c. The execution and delivery of the documents and funds contemplated by the Term Sheet;
d. The consummation of the sale of the Property contemplated by the Term Sheet;
e. The execution and stipulations of dismissal with prejudice of the District Court action and the Partial Appeal of the District Court Action, and;
f. The withdrawal/dismissal of all claims and/or contested matters asserted by Greenwood, Harvest, or any of them, against Sunnyvale, LLC in the bankruptcy action.
The Standstill Agreement and Mutual Release Agreement were drafted by attorneys for Harvest and Lehman and reviewed and approved by the City Attorney.
FISCAL IMPACT
The execution of these Agreements is at no cost to the City or Agency. Presumably, the resolution of issues will eventually benefit both the City and Agency due to the ability of development to move forward.
ALTERNATIVES
a. Approve execution of the Standstill Agreement and the Mutual Release Agreement.
b. Approve execution of the Agreements after modification.
c. Do not approve execution of the Agreements.
RECOMMENDATION
Alternative 1, approve execution of the Standstill Agreement and the Mutual Release Agreement.
Prepared by:
Robert Paternoster
Director, Community Development Department
Approved by:
Amy Chan
Acting City Manager
Attachment
1. Standstill Agreement (pdf format)
2. Mutual Release Agreement (pdf format)