0000931763-01-501147.txt : 20011018 0000931763-01-501147.hdr.sgml : 20011018 ACCESSION NUMBER: 0000931763-01-501147 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20010730 ITEM INFORMATION: Other events ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 20010730 FILER: COMPANY DATA: COMPANY CONFORMED NAME: JDN REALTY CORP CENTRAL INDEX KEY: 0000916836 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 581468053 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-12844 FILM NUMBER: 1692921 BUSINESS ADDRESS: STREET 1: 359 EAST PACES FERRY ROAD STREET 2: STE 400 CITY: ATLANTA STATE: GA ZIP: 30305 BUSINESS PHONE: 4042623252 MAIL ADDRESS: STREET 1: 3359 EAST PACES FERRY RD STREET 2: STE 400 CITY: ATLANTA STATE: GA ZIP: 30305 8-K 1 d8k.txt FORM 8-K -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------------ FORM 8-K Current Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported): July 30, 2001 (July 27, 2001) ------------------------------ JDN Realty Corporation (Exact Name of Registrant as Specified in Its Charter) Maryland 1-12844 58-1468053 (State or Other (Commission File (I.R.S. Employer Jurisdiction of Number) Identification Incorporation) Number) 359 East Paces Ferry Road Suite 400 Atlanta, Georgia 30305 (Address of Principal Executive Offices) (Zip Code) (404) 262-3252 (Registrant's Telephone Number, Including Area Code) Not Applicable (Former Name or Former Address, if Changed Since Last Report) ------------------------------------------------------------------------------- Item 5. Other Events. JDN Realty Corporation (the "Company") is filing this Current Report on Form 8-K in order to file with the Securities and Exchange Commission a Letter Agreement, dated as of July 6, 2001, between the Company and Clarion CRA Securities, L.P. as lead plaintiff. The Company is also filing herewith a Memorandum of Understanding, dated as of July 26, 2001, between the Company and the counsel for the plaintiffs for the derivative action. Copies of the Letter Agreement, the Memorandum of Understanding and the related press release issued on July 27, 2001 are included as exhibits to this filing. Consummation of the settlement agreed to in the Memorandum of Understanding will satisfy the Company's obligation to pay up to $2.5 million to the class under paragraph 6 of the Letter Agreement. Item 7. Financial Statements and Exhibits. (c) Exhibits. Exhibit No. Description ----------- ----------- 99.1 Press Release: JDN REALTY CORPORATION REACHES AGREEMENT TO SETTLE SECURITIES CLASS ACTION AND DERIVATIVE SUITS 99.2 Letter Agreement dated as of July 6, 2001 between JDN Realty Corporation and Clarion-CRA Securities, L.P. as lead plaintiff 99.3 Memorandum of Understanding, dated as of July 26, 2001 between JDN Realty Corporation and the counsel for the plaintiffs for the derivative action SIGNATURES ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. JDN REALTY CORPORATION By: /s/ Craig Macnab ---------------------------------------- Craig Macnab President and Chief Executive Officer Date: July 30, 2001 INDEX TO EXHIBITS Exhibit No. Description ----------- ----------- 99.1 Press Release: JDN REALTY CORPORATION REACHES AGREEMENT TO SETTLE SECURITIES CLASS ACTION AND DERIVATIVE SUITS 99.2 Letter Agreement dated as of July 6, 2001 between JDN Realty Corporation and Clarion-CRA Securities, L.P. as lead plaintiff 99.3 Memorandum of Understanding, dated as of July 26, 2001 between JDN Realty Corporation and the counsel for the plaintiffs for the derivative action EX-99.1 3 dex991.txt PRESS RELEASE [LOGO OF JDN] FOR IMMEDIATE RELEASE Contact: Charles N. Talbert Director of Investor Relations (404) 262-3252 JDN REALTY CORPORATION REACHES AGREEMENT TO SETTLE SECURITIES CLASS ACTION AND DERIVATIVE LAWSUITS ATLANTA, Ga. (July 27, 2001) -- JDN Realty Corporation (NYSE: JDN) today announced that a settlement agreement has been entered into by Company and the class, through its lead plaintiff and lead counsel, to settle the securities class action litigation pending against the Company. Under the terms of the agreement, the Company will pay the class members an aggregate of $16.8 million in cash and 1.68 million shares of common stock. Additional terms of the class action agreement require the Company to provide a $4 million guarantee assuring that the class members will receive a minimum of $7.5 million from recoveries or settlements from outside parties, including the Company's insurance carrier. Amounts received from third parties in excess of $3.5 million will reduce this guarantee dollar for dollar. The Company and the class members will share in any recovery from these outside parties above $8 million. In addition, the agreement contains certain restrictions on the issuance of common equity at or below $11.70 per share until the earlier of distribution of shares to the class members or June 30, 2002. The Company has also reached agreement to settle the derivative suits brought against certain of its officers and directors. Under the terms of the agreement, the Company must formally adopt various corporate governance policies, many of which the Company already has in effect, and pay attorneys' fees by issuing 248,000 shares of common stock to plaintiffs' counsel. These agreements are subject to court approval. In addition, the class action settlement is subject to approval of the banks in the Company's secured credit facility. The agreements contain additional settlement terms, which will be filed in a report on Form 8-K with the Securities and Exchange Commission, and should be viewed in their entirety. The Company expects that the cash component of the settlement will be funded with availability from its line of credit by the end of the third quarter 2001, and expects to issue the shares of common stock for the settlement during the fourth quarter 2001. The Company plans to record an expense for these settlement agreements in the second quarter of this year in the amount of approximately $46 million. In addition, the Company intends to accrue in the second quarter of this year an estimate of settlement related legal and other costs that it expects to incur in future periods. The Company anticipates future earnings per share to be lower as a result of additional interest expense associated with debt used to pay the cash portion of the settlement and additional shares outstanding as a result of the common stock to be issued to the class members and to plaintiffs' counsel in the derivative action. The Company is also reviewing its dividend policy as a result of the effect of the settlements. -MORE- JDN REALTY CORPORATION 359 E. PACES FERRY ROAD, NE SUITE 400 ATLANTA, GEORGIA 30305 (404) 262-3252 Fax (404) 364-6444 JDN Realty Corporation Reaches Agreement July 27, 2001 Page Two Commenting on the announcement, Craig Macnab, Chief Executive Officer and President of JDN Realty Corporation, stated, "These settlements, under the terms of their agreements, represent a positive step for the Company and its shareholders. They eliminate the need for costly and protracted litigation and importantly, they allow management to focus all of its resources on building its business and increasing shareholder value." JDN Realty Corporation is a real estate company specializing in the development and asset management of retail shopping centers anchored by value-oriented retailers. Headquartered in Atlanta, Georgia, the Company owns and operates directly or indirectly 109 properties, containing approximately 11.4 million square feet of gross leasable area, located in 20 states. The common stock and preferred stocks of JDN Realty Corporation are listed on the New York Stock Exchange under the symbols "JDN" and "JDNPrA," respectively. JDN Realty Corporation considers the portions of the information contained in this release and statements made in connection with this release, with respect to the Company's beliefs and expectations of the outcome of future events to be forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, both as amended. Such statements are, by their nature, subject to certain risks and uncertainties. Forward-looking statements include statements regarding the following: (1) court and senior secured lenders will approve the agreements. Other risks, uncertainties and factors that could adversely affect the Company and its operations are detailed from time to time in reports filed by the Company with the Securities and Exchange Commission, including Forms 8-K, 10-Q and 10-K. JDN Realty Corporation does not undertake any obligation to release publicly any revisions to forward-looking statements contained herein to reflect events or circumstances occurring after the date hereof or to reflect the occurrence of unanticipated events. For additional information, visit the Company's home page on the Internet at http://www.jdnrealty.com. ### EX-99.2 4 dex992.txt LETTER OF AGREEMENT EXHIBIT 99.2 [CHITWOOD & HARLEY LETTERHEAD] July 6, 2001 John Latham, Esq. VIA FACSIMILE AND U.S. MAIL Alston & Bird, LLP --------------------------- 1201 West Peachtree Street CONFIDENTIAL Atlanta, Georgia 30309-3424 SETTLEMENT COMMUNICATION RE: In re JDN Realty Corp. Securities Litigation -------------------------------------------- Dear John: We are pleased to report that we, working closely with Lead Plaintiff Clarion-CRA Securities, L.P., have worked through the issues resulting from the last mediation session. We outline below the structure of a deal that we and Clarion, as fiduciaries to the Class, can recommend to the Court if these terms are acceptable to JDN. 1. In exchange for the consideration outlined below and with the Court's approval of the settlement, the Class will release: (1) JDN Realty Corporation ("JDN") and JDN Development Company, Inc. (and any subsidiaries thereof) and all of their officers and directors, past and present, except D. Nichols, J. Hughes, and S. Whittelsey; and (2) the underwriters, selling group members and investment bankers that were involved in the sale of JDN securities from February 14, 1997 through April 12, 2000. Nothing contained herein or in any future documentation of a settlement with JDN, however, shall release any claims of the Class or JDN against W. Brunstad. Notwithstanding the foregoing, the settlement shall be null and void if the court's judgment does not become final or if the agreement reached between the parties hereto is modified in any material respect as a result of the approval or appellate process concerning this settlement. 2. JDN will contribute $16,815,789 in cash and 1,681,568 shares of JDN common stock as an original contribution to settle the Class's claims. John Latham July 6, 2001 Page 2 3. The cash component of JDN's original contribution to the settlement fund, plus interest thereon calculated at LIBOR from the date this Agreement is signed, must be deposited within ten business days prior to the date of the Final Approval hearing into an interest-bearing escrow account designated by the Class. JDN shall pay to the Class $100,000 of the cash component of the settlement within three business days following Preliminary Approval of the settlement, for use by the Class to pay all reasonable costs and expenses of class notice and administration of the settlement. (In the event the settlement outlined herein is not approved by the Court, the cash component of JDN's original contribution to the settlement fund plus interest earned thereon shall be returned to JDN, net of any taxes legally due on the earned interest and net of costs of class notice and administration.) 4. JDN must issue the shares represented by the stock component of the settlement to the Class early enough to ensure that the Class receives the dividends paid out by JDN in the fourth quarter of 2001 to common stock shareholders and, in no event, later than ten business days following final approval of the settlement by the trial court (the "Issuance Date"). The dividends paid on all stock held by the Class shall be deposited into an interest-bearing escrow account designated by and on behalf of the Class. JDN further agrees that the stock component of the settlement will be adjusted in the event of a stock split, even if the split occurs before the Issuance Date. JDN shall issue the shares in a bulk certificate in the name of Lead Counsel, on behalf of the Class, on the Issuance Date. The stock issued to the Class shall be exempt securities under section 3(a)(10) of the Securities Act of 1933 and shall be unrestricted and freely tradable. Nevertheless, the Class may not exercise its right to trade the stock until thirty days after the final approval hearing on the settlement. The Stipulation and Agreement of Settlement shall provide that the Class, as determined by its Lead Plaintiff and Lead Counsel, shall have sole discretion whether to sell or hold the stock for any length of time and that neither class members nor JDN nor any of the released parties shall have a claim against Lead Counsel or the Lead Plaintiff based on the disposition of said stock or the distributions made in accordance with the Stipulation and Agreement of Settlement. (In the event the settlement outlined herein is terminated due to failure by the trial court or the appellate court to approve the settlement in any material respect, all stock then being held for the Class, plus all cash being held on behalf of the Class as a result of the stock received in the settlement, shall be returned to JDN net of any taxes legally due as a result of dividends received, interest earned, or transactions engaged in consistent with this settlement.) 5. JDN must agree not to make a further issuance of stock for less than $11.70 per share prior to the distribution to the Class (including any shares that are issued in connection with or as a result of any stock option plan or employee stock purchase program, but excluding any shares issued after the date of this agreement pursuant to the JDN Realty Corporation Long-Term John Latham July 6, 2001 Page 3 Incentive Plan, the JDN Realty Corporation 1993 Incentive Stock Plan, the JDN Realty Corporation 1993 Non-Employee Director Stock Option Plan or the 248,000 shares to be issued in connection with the derivative settlements). For purposes of this paragraph, distribution to the Class means ten days after the time at which the Company's transfer agent mails the stock certificates to those class members who have submitted timely and valid proofs of claim. This prohibition shall expire on June 30, 2002 (the "Expiration Date"), provided, however, that if JDN chooses to issue stock for less than $11.70 per share after the Expiration Date, JDN will issue the Class additional common stock pursuant to the Full Ratchet Formula attached hereto as Exhibit "A." Once the distribution is made, all ratchet obligations terminate as do all further issuance prohibitions. In addition, JDN must agree that if JDN chooses to make an issuance for less than $13.50 per share (but above $11.70 per share) prior to the ninety- first day following the Effective Date, JDN must agree to issue additional shares to the Class pursuant to the modified ratchet formula attached hereto as Exhibit "B." The Effective Date shall be the date on which the Judgment becomes final, including the successful termination of any appeal, if one is filed. This ratchet provision also terminates once distribution has been made. All supplemental issuances to the Class under this paragraph shall be made at the time the further issuances are made by JDN. 6. In addition to the original contribution to the Class as set forth in paragraph 2 above, JDN shall make an additional contribution to the Class in the event that the derivative suit is dismissed or JDN spends less than $2.5 M to settle it. In such event, JDN shall pay to the Class $2.5 M less the amount JDN spent, if anything, to settle the derivative suit and less the amount of actual fees and expenses incurred by JDN in defense of the derivative action after the date hereof up to $750,000. The amount returned to the Class shall bear interest calculated at LIBOR from the date this Agreement is signed. The amount to be paid to the Class under this paragraph shall be due at the time the derivative suit is concluded. For purposes of this paragraph, $2.5 M shall equal $1,184,211 in cash plus 118,432 shares of JDN common stock. Any amount returned to the Class pursuant to this paragraph shall be calculated pro rata. Notwithstanding anything herein to the contrary, JDN may settle the derivative actions without requiring the derivative plaintiffs to dismiss their claims against Ernst & Young, provided that JDN assigns to the Class the right to any proceeds recovered by the derivative plaintiffs on behalf of JDN. 7. JDN and the Class shall separately pursue litigation at the trial level against D. Nichols, J. Hughes, S. Whittelsey and McCullough Sherrill, B. Taylor, and W. Brunstad. JDN may also sue other former McCullough Sherrill partners or any other entity that has liability for McCullough Sherrill's former partners' actions, if it has claims against them. JDN must agree to John Latham July 6, 2001 Page 4 vigorously pursue that separate litigation. JDN shall not be required to pursue Waller Lansden, but shall agree not to argue that the Lynch pleading joining them should be stricken. Finally, the parties must give one another access to all non-privileged information required to prosecute the above-referenced claims. In addition, JDN agrees to cooperate with the Class in its evaluation of the Class's potential claim(s) against Ernst & Young by giving the Class access to all non-privileged information the Class, in its discretion, requires. Similarly, JDN must agree to identify and provide access to those witnesses with information that could assist Plaintiffs in their evaluation and/or prosecution of such claim(s) against Ernst & Young. Notwithstanding the foregoing, JDN agrees to waive the privilege with respect to all communications with McCullough Sherrill relating to the subject matter of the Class Action Litigation or W. Brunstad's role with JDN and with respect to all communications with Ernst & Young. In addition, each party agrees to give the other access to all documents that party intends to use in connection with its litigation against the persons or entities named in this paragraph and in paragraph 9, as well as any documents that party is required or agrees to produce to said persons or entities, and documents which said persons or entities are required to produce to that party. JDN will also give the Class access to all documents JDN intends to use to defend the derivative suit, as well as any documents that JDN is required or agrees to produce or that JDN receives in connection with the derivative suit. 8. The Class and JDN will agree to consult in good faith with each other, through their counsel, regarding settlement of the litigation against the persons or entities listed in the preceding paragraph. Neither the Class nor JDN, however, will be required to accede any decision-making authority to the other or the other's counsel, except as set forth in paragraph 9, below. 9. JDN agrees that it will not abandon any claims for D&O insurance coverage it has with Reliance without the consent of the Plaintiffs, which consent will not be unreasonably withheld. If JDN determines, in good faith, that the enforcement of a claim against Reliance is uneconomical given Reliance's financial condition or the recent placement of Reliance into rehabilitation by the Commonwealth Court of Pennsylvania or possible liquidation, JDN shall be released from the obligation in the first sentence of this paragraph. 10. The Class and JDN agree that the first $8 M of any settlements or recoveries from the persons or entities listed in paragraphs 7 and 9 above shall be contributed to the Class. Any amounts recovered above $8 M shall be split 1/3 to JDN and 2/3 to the Class. 11. In the event the Class recovers less than $7.5 M in additional settlement contributions from the persons or entities listed in paragraphs 7 and 9 above within one hundred and twenty days following the Final Approval hearing, JDN agrees to pay up to an additional $4 John Latham July 6, 2001 Page 5 M in follow-up contributions, without regard to whether JDN must pay any amounts pursuant to paragraph 6 hereof. To collateralize this $4 M guarantee, JDN will give the Class a security interest in real property in a form and amount satisfactory to the Class to ensure that JDN will honor its $4 M guarantee. For every dollar over $3.5 M received by the Class from these additional persons or entities, JDN's $4 M guarantee shall be reduced by a dollar. JDN further agrees that it shall deposit the $4 M follow-up contribution referred to above in cash (plus interest at LIBOR from November 23, 2001) into an interest bearing escrow account designated by the Class on or before the one hundred and twentieth day following the final approval hearing on the terms of this settlement with JDN. If, however, JDN's $4 M guarantee has been reduced pursuant to the terms of this paragraph by the time this cash deposit is due, JDN shall deposit into the escrow account the cash amount remaining on its guarantee at the time the deposit is due. The Class may use the money in said escrow account for purposes of its initial distribution to the Class, which initial distribution shall occur when the Class, in its sole discretion working with the claims administrator, deems appropriate. If the Class receives additional monies from the persons or entities listed in paragraphs 7 and 9 above after the cash deposit due by the terms of this paragraph is made, the Class shall return to JDN the portion of the monies, if any, which the Class has collected from the persons or entities listed in paragraphs 7 and 9 that represents credits against the $4 M guarantee to which JDN is due under this paragraph, with all accrued interest earned on such amounts from the date such monies are received by the Class. No credit against the guarantee occurs until $3.5 M in settlement contributions is received by the Class from the persons in paragraphs 7 and 9. 12. The Class must be able to conduct the confirmatory discovery it determines is necessary. Attached hereto as Exhibit "C" is a list of the confirmatory discovery that JDN must agree to provide the Class within five business days after this Agreement is signed. 13. JDN has filed litigation against D. Nichols, J. Hughes, S. Whittelsey, McCullough Sherrill, W. Brunstad, B. Taylor and James King as contemplated in paragraph 7 hereof and shall vigorously pursue such litigation. In addition, JDN has filed a motion to dismiss the federal derivative case (Rubin), and has filed ----- motions to stay the identical derivative cases pending in the state and superior court (Pastor and Melnyczenko, respectively) on the grounds that only one ------ ----------- derivative case may proceed on behalf of the Company, and that those cases should therefore be stayed in favor of the first-filed federal case. To the extent any of those motions are unsuccessful, JDN agrees to file motions with the court to dismiss and, in the alternative, stay on other grounds the actions as they pertain to D. Nichols, J. Hughes and S. Whittelsey on the grounds that JDN has taken that action directly. Any settlement with the McCullough Sherrill defendants will be submitted to either the full Board of JDN or a Special Litigation Committee for approval. To the extent the derivative plaintiffs add the McCullough Sherrill defendants to one or more derivative actions, JDN agrees to seek a dismissal and, if a dismissal is not granted, a stay of any such John Latham July 6, 2001 Page 6 proceedings, on the grounds that such action is duplicative of the action already being taken by JDN. 14. The parties agree that there shall be no final settlement until such time as a Stipulation and Agreement of Settlement is executed by the Class, through its Counsel and the Lead Plaintiff Clarion, and by JDN and each of those parties to be released who have been named in the Class Action Litigation and until such time as the settlement has been finally approved by the Court and the appeal period has run or, if an appeal is filed, until the appeal is resolved with an affirmance of the trial court's final judgment approving the terms of this settlement in all material respects. In addition, the parties agree that the Stipulation and Agreement of Settlement shall provide, among other material terms, that the failure of JDN or the Class to comply with any term of the settlement, each term of which the parties agree are material and/or customary terms, shall result in JDN or the Class, as applicable, being in material default of the settlement. In addition, but without limitation, the Stipulation shall provide that any settlement proceeds unclaimed by the Class, after the claims administration process is concluded, shall be distributed to one or more educational or charitable institutions designated by the Class, subject to approval and order of the Court. 15. The Class understands that this Agreement is subject to the approval of JDN's banks and Board of Directors, which approval JDN will seek in good faith to obtain. We hope you will respond favorably to these terms so that we can proceed quickly to preparation of the Stipulation and Agreement of Settlement. We are open-minded to the possibility of a high-low arbitration with the parties referenced in paragraphs 7 and 9. The high-low arbitration could facilitate the minimum additional $3.5 M, if not more, and give JDN just as high a likelihood as traditional litigation would that its $4 M guarantee will be replaced by additional contributions from the persons listed in paragraphs 7 and 9. We look forward to hearing from you. Sincerely, Martin D. Chitwood MDC/las enclosures cc: Clarion CRA Securities, L.P. Lauren S. Antonino, Esq. Jonathan Marks, Esq. EXHIBIT A Full ratchet formula: Y = number of shares of JDN common stock issued to Class in connection with settlement X = price below 11.70 at which JDN issues further common stock Number of additional shares to be issued to Class if JDN issues further common stock below $11.70 per share: = Y * (1-(X/11.70)) For example, If JDN issues common stock at $11.00 per share after June 30, 2002 and if JDN has by that time issued to Class 1,681,568 shares in connection with the settlement, then X = 11 and Y = 1,681,568. Accordingly, under this scenario, at the time JDN makes the further issuance below $11.70 per share, JDN will also have to issue to the Class additional exempt, freely tradable shares of JDN common stock as follows: 1,681,568 x (1-(11.00/11.70))= 100,894 Additional shares to be issued to the Class will be 100,894 EXHIBIT B Modified Ratchet Formula: ------------------------ Pre-Offering WASO: 34,300,000/1/ Pre-Offering Equity Value: 34,300,000 shares x $13.50 per share = $463,050,000 Post-Offering Equity Value: Pre-Offering Equity Value ($463,050,000) + shares issued times issuance price per share Post-Offering Equity Value Per Share: Post-Offering Equity Value/Pre-Offering WASO plus number of shares issued Additional Shares to Be Issued to Class per Full Ratchet Formula (X = Shares issued to the Class in Connection with the Settlement): X*(1 - Post Offering Equity Value Per Share/13.50) Example of Modified Ratchet Formula: ----------------------------------- If JDN offers Five Million (5,000,000) shares of common stock at $12 per share before the ninety-first (91st) day following the Effective Date, as that term is defined in the letter agreement to which this exhibit is attached, the following would apply since the further issuance is above $11.70 per share but below $13.50 per share: Pre-Offering Equity Value: $463,050,000 + shares issued times issuance price per share $ 60,000,000 (5M*$12) ---------------------------------------------- ------------ Post-Offering Equity Value Per Share: 523,050,000 Post-Offering Equity Value/Pre-Offering WASO plus shares issued: 523,050,000/39,300,000 = 13.31 Additional Shares to Be Issued to Class, per Modified Ratchet Formula Set forth above: 1,681,568*(1-13.31/13.50) = 23,542 Additional shares to be issued to the Class under this example would be 23,542. ------------- /1/ Rounded number, which includes shares outstanding plus shares to be issued to Class in settlement EXHIBIT C Confirmatory Discovery Settlement with JDN Documents --------- To the extent the documents set forth below exist and have not already been produced in connection with the mediation of this matter, Plaintiffs would like to review the following categories of documents for purposes of confirmatory discovery. If there are no documents that exist for any particular category, beyond those already provided, please let us know. We will agree to treat the documents received in connection with this confirmatory production as confidential, and they will be subject to the letter agreement entered into by the parties limiting the use, and mandating the return of, all documents provided in connection with the mediation. We are not seeking privileged documents, except for McCullough Sherrill communications relating to the issues in the case, for which the privilege is waived for purposes of the Class's evaluation of this settlement and/or pursuit of potential claims against the McCullough Sherrill firm or partners. The parties understand that there is no accountant/client privilege available under the federal rules, and JDN therefore agrees not to assert such a privilege with regard to any documents involving Ernst & Young, L.L.P. 1. All SEC transcripts in JDN's possession, custody or control. 2. All documents that JDN produced formally or informally to the SEC in connection with its investigation of JDN. 3. All documents that JDN has received from the SEC, including the Wells Notice, but excluding correspondence and other documents related to settlement negotiations JDN may have had with the SEC. 4. Documents relating to JDN Development's insurance coverage. 5. Documents, if any exist other than the SEC transcripts, discussing or addressing that JDN's Chief Executive Officer, Donald Nichols, indicated that he had wanted to pay Jeb Hughes and/or Sheldon Whittelsey through ALA or through undisclosed payments or transactions to avoid other employees knowing how much they would be receiving to avoid jealousies. 6. Documents reflecting any discussions of Jeb Hughes's criminal record or disbarment including, but not limited to, documents discussing whether any investment bank told JDN that it would not take it public if Hughes was involved in the company, whether and when Hughes's record would have to be disclosed and whether and how Hughes could work for JDN or JDN Development, despite his criminal past. 7. Documents reflecting any discussions of the creation of an independent contractor or independent consultant relationship between JDN, JDN Development and/or Donnie Nichols and Jeb Hughes. 8. Documents reflecting whether, and to what extent, ALA performed services for JDN or JDN Development at any time before February 14, 2000. 9. Documents sufficient to demonstrate that JDN had a history of capitalizing project development labor costs. 10. Documents evidencing Nichols, Hughes and/or Whittelsey's allegation that they were not aware that, or gave no consideration to whether, the undisclosed compensation arrangement could or would affect JDN's financial reports. 11. Documents sufficient to show what officers and directors knew about Hughes's role and/or his criminal past and/or disbarment prior to June 1996 and any documents reflecting or discussing what actions JDN or Development should take as a result of said criminal record and/or disbarment. 12. Documents reflecting any discussion or consideration of JDN Development's decision to make Hughes a Sr. VP of Development in June, 1996. 13. Documents showing that Ernst & Young had knowledge of Hughes's role and criminal background. 14. Documents reflecting or discussing McCullough Sherrill's alleged advice with regard to and/or participation or role in the compensation arrangements and payments at issue in this lawsuit. 15. Documents sufficient to show that Ernst & Young concluded that JDN's internal controls were sufficient, despite JDN's and Ernst & Young's knowledge of Hughes's criminal past and his involvement with the Company. 16. Documents reflecting any discussions in which Nichols, Hughes and/or Whittelsey participated regarding the undisclosed compensation with anyone besides McCullough Sherrill prior to and during the time the undisclosed compensation and transactions were ongoing, or reflecting why Nichols, Hughes and/or Whittelsey chose not to discuss those matters with anyone other than McCullough Sherrill. 17. Any materials JDN presented to Wal-Mart and/or Lowe's after the February 14, 2000 disclosure. 18. Any documents that would support JDN's contention that the numbers on the financial reports would have allegedly come out the same, or substantially the same such that there would be no material difference, if the payments to Hughes and Whittelsey had been capitalized as project costs at the time they were made. 19. Documents reviewed by the Special Committee in connection with its investigation of JDN and JDN Development. 20. If not previously produced, all Ernst & Young management letters (and all responses thereto) for the period January 1, 1994 through December 31, 2000. 21. All JDN and JDN Development internal audit reports for the period January 1, 1994 through year end 2000, if any exist. 22. All documents reflecting reports to the Audit Committee for the period January 1, 1994 through year end 2000, if any exist. II Interviews Until we review the foregoing documents, we cannot determine what kind of confirmatory interviews should be conducted. We would thus like to reserve the right to interview the following persons: Jay Harris Craig MacNab or one or more Board members Elizabeth Nichols Bill Kerley Michael Quinlan EX-99.3 5 dex993.txt MEMORANDUM OF UNDERSTANDING MEMORANDUM OF UNDERSTANDING IN THE JDN REALTY CORPORATION DERIVATIVE LITIGATION This memorandum of understanding ("MOU"), dated as of July __, 2001, contains the essential terms of a settlement ("the Settlement") agreed to in principle between defendants Craig MacNab, Philip G. Satre, William G. Byrnes, Haywood Cochrane, Jr., and William B. Greene, (collectively the "JDN Defendants") and William J. Kerley, Elizabeth L. Nichols and Ernst & Young, LLP (collectively with the JDN Defendants the "Settling Defendants") and plaintiffs derivatively on behalf of JDN Realty Corporation ("JDN" or the "Company") in Rubin v. J.D. Nichols, Civil Action No. 00-CV-1853, pending before the United States District Court for the Northern District of Georgia (the "Federal Action"), and Pastor v. J.D. Nichols, et al., Civil Action No. 00VS012347E, pending in the Superior Court of Fulton County and Melnyczenko v. J.D. Nichols, et al., Civil Action No. 2000CV28135, pending in the Superior Court of Fulton County (the "State Actions") (collectively, the "Actions"). Plaintiffs in the Actions are collectively referred to as "Plaintiffs." JDN and the JDN Defendants agree that the implementation and/or formalization of the following corporate governance provisions will enhance the governance of the Company and/or independence of the JDN Board and thereby enhance long term value for JDN shareholders. Board Independence 1. At least a majority of the Board of Directors of JDN shall be "Independent Directors," as defined below. 2. To be deemed "independent" in any calendar year, a director would have to satisfy the following qualifications: (a) has not been employed by the Company or its subsidiaries or affiliates in an executive capacity within the last five calendar years; (b) has not received, during the current calendar year or any of the three immediately preceding calendar years, remuneration, directly or indirectly, other than de minimis remuneration, as a result of service as, or being affiliated with an entity that serves as (i) an advisor, consultant, or legal counsel to the Company or to a member of the Company's senior management; or (ii) a significant customer or supplier of the Company; (c) has no personal services contract(s) with the Company, or any member of the Company's senior management; (d) is not affiliated with a not-for-profit entity that receives significant contributions from JDN; (e) during the current calendar year or any of the three immediately preceding calendar years, has not had any business relationship with the Company for which the Company has been required to make disclosure under Regulation S-K of the SEC, other than for service as a director or for which relationship no more than de minimus remuneration was received in any one such year; (f) is not employed by a public company at which an executive officer of JDN serves as a director; (g) has not had any of the relationships described in subsections (a)-(f) above, with any affiliate of the Company; (h) is not a member of the immediate family of any person described in subsections (a)-(g) above; and (i) a director is deemed to have received remuneration, directly or indirectly, if remuneration, other than de minimis remuneration, was paid by JDN, its subsidiaries, or affiliates, to any entity in which the director has a beneficial ownership interest of five percent or more, or to an entity by which the director is employed or self-employed other than as a director. Remuneration is deemed de minimis remuneration if such remuneration is $60,000 or less in any calendar year, or if such remuneration is paid to an entity, it (i) did not for the calendar year exceed the lesser of $3 million, or one percent of the gross revenues of the entity; and (ii) did not directly result in an increase in the compensation received by the director from that entity. Annual Meeting of Outside Directors 3. The JDN Board shall hold an executive session at least once each year at which employee directors are not present. Independence of Committees 4. The Audit Committee, Compensation Committee, Executive Committee and Nominating Committee of the Board of Directors shall each be composed entirely of independent directors. 5. At least one member of the Nominating Committee shall meet with each prospective new Board nominee without inside directors or management present and then shall decide whether or not such individual shall be nominated for membership to the Board. 6. The Compensation Committee shall set annual and long-term performance goals for the Chief Executive Officer based upon the business plan prepared by management and approved by the Board and evaluate their performance against such goals and the performance of the Company's peer companies. 7. The Compensation Committee shall meet at least once each calendar year in executive session, without the Chief Executive Officer. 8. The Board's Executive, Audit and Compensation Committees shall have standing authorization, on their own decision, to retain legal and/or other advisors of their choice as they deem advisable to discharge their fiduciary duties, which advisors shall report directly to the Committee. 9. Any committee other than those detailed herein which now exists or which may later be formed shall be composed by a majority of Independent Directors. Compensation Practices 10. The Board of Directors shall adopt a resolution setting forth the following compensation principles: (a) Compensation arrangements shall emphasize pay for performance and encourage retention of those employees who enhance the Company's performance; (b) Compensation arrangements shall promote ownership of the Company stock to align the interests of management and stockholders; (c) Compensation arrangements shall maintain an appropriate balance between base salary and long-term and annual incentive compensation; (d) In approving compensation, the recent compensation history of the executive, including special or unusual compensation payments, shall be taken into consideration; (e) Cash incentive compensation plans for senior executives shall link pay to achievement of financial goals set in advance by the Compensation Committee; (f) Compensation for directors shall promote ownership of the Company stock to align the interests of directors and stockholders; and (g) The Compensation Committee shall review annually the compensation of directors. Performance Criteria 11. The Board shall establish performance criteria for itself and evaluate itself on an annual basis. Board evaluation shall include an assessment of whether the Board has the necessary diversity of skills, backgrounds, experiences, etc. to meet the Company's ongoing needs, which evaluation shall include high standards for in-person attendance at Board and committee meetings and consideration of absences; 12. The JDN Board shall designate the Chairman of the Executive Committee to act in a lead capacity to coordinate the other independent directors, as described below. The Chair of the Executive Committee is responsible for coordinating the activities of the independent directors. In addition to the duties of all Board members (which shall not be limited or diminished by this role), the specific responsibilities of the Chairman of the Executive Committee are as follows: (a) provide the Chairman of the Board with input as to the preparation of agendas for the Board and Committee meetings; (b) consult with the Chairman of the Board concerning the retention of consultants who report directly to the Board; (c) coordinate, develop the agenda for, and moderate executive sessions of, the Board's independent directors; and (d) recommend to the Board the membership of the various Board Committees. Quarterly Report of Operations 13. At each regularly scheduled JDN Board of Directors meeting following each quarter end, the Company's Chief Financial Officer or his designee shall provide a report as to the Company's financial condition and prospects, including but not limited to, a discussion of all reasons for material increases in expenses and liabilities, if any, and material decreases in revenues and earnings, if any, management plans for ameliorating or reversing such negative trends and the success or failure of any such plans presented in the past. Internal Audit Function 14. Within 60 days of an order approving this settlement, the Company shall engage an Internal Auditor or an Independent Accounting Firm other than Ernst & Young (the "Special Auditor") to evaluate the adequacy of JDN's audit function and the Company's internal control environment and its accounting practices. The Special Auditor shall be responsible for conducting an evaluation and devising an Internal Audit Plan for each fiscal year for at least each of 2002 and 2003, which report and plan shall be presented to the Audit Committee. The Internal Audit Plan shall include assessment of the internal controls environment in order to ensure that appropriate financial reporting procedures are in place and being followed by Company employees, a written report shall be prepared for each internal audit performed by the Special Auditor describing the internal audit's findings, opinions and recommendations, if any. These written reports shall be prepared on or about June 30th of each year in which an Internal Audit Plan is prepared and shall be directed to the Chief Executive Officer, Chief Financial Officer and the Audit Committee of the Board of Directors for their review, and, if necessary, remedial action. Related Party Transactions and Expense Reporting 15. The Chief Financial Officer shall be responsible for ensuring that the Company's related party transactions and expense reporting policy, which conforms to the requirements of Generally Accepted Accounting Principles ("GAAP") as currently in effect or as amended, is implemented and utilized throughout the Company. The Chief Financial Officer shall report to the Board of Directors on a semi-annual basis regarding the implementation and operation of this policy. The Chief Financial Officer shall ensure that the Company related party transactions and expense reporting policy is distributed to each Company employee who records or reviews such transactions and/or expenses. Any questions regarding that policy, or its application, shall be directed to the Company's Chief Financial Officer. The policy shall be adopted by the Company's Board of Directors and provided to Plaintiffs' Derivative Counsel prior to the entry of the Judgment. Implementation, Compensation and Other Matters 16. JDN and the JDN Defendants acknowledge that the Actions were a substantial and material factor in the decision to implement or formalize significant structural modifications and corporate governance enhancements, including changes to the composition and practices of the JDN Board and the Committees thereof which have been and are being implemented. JDN and the JDN Defendants also acknowledge that the Actions were a substantial and material factor in the decisions to: (i) utilize JDN securities, rather than JDN's cash reserves to fund approximately $20 million of the consideration used to settle In Re JDN Class Action Litigation, USDC Master File No. 1:00-CV-0396-RWS the --------------------------------- Federal Class Action; and (ii) commence actions against J. Donald Nichols, Jeb L. Hughes, ALA Associates, Inc., C. Sheldon Whittelsey, IV and McCullough Sherrill on behalf of JDN. 17. "Non-Settling Persons" means J.D. Nichols, Jeb L. Hughes, ALA Associates, Inc., C. Sheldon Whittelsey, IV, and McCullough Sherrill, LLP (including its predecessors, successors and all partners and members thereof, including but not limited to William Brunstad, Bradley Taylor and James King). 18. Plaintiffs agree to dismiss with prejudice all Released Claims. Released Claims for purposes of the Actions shall mean any claims or causes of action that are based upon or related to the facts, transactions, events, occurrences, acts, disclosures, statements, omissions or failures to act which were alleged or could have been alleged in the Actions (based upon the facts that were alleged) through the date of the Settlements by JDN (including JDN Development Company, Inc.) or JDN stockholders on behalf of JDN, or any of them, against the Settling Defendants or released persons (other than the Non-Settling Persons) in the Actions. The final judgments entered in the Actions will bar all Released Claims. Notwithstanding any of the foregoing, no claims against the Non-Settling Persons shall be released or barred and JDN may initiate and/or continue to prosecute the Actions against the Non-Settling Persons. 19. The parties agree that they will cooperate to expeditiously prepare and execute a definitive Stipulation of Settlement and jointly seek preliminary and final court approval of the Settlement by no later than August 15, 2001, and October 1, 2001, respectively, or as soon thereafter as the Court's calendar permits. All costs or expenses incurred in giving notice to JDN shareholders of this Settlement and the final approval hearing to be held in connection with the Settlement shall be borne by JDN. 20. The JDN Defendants agree, on behalf of the Settling Defendants, to cause JDN to transfer to plaintiffs' counsel in the Actions 248,000 shares of JDN common stock as payment for fees and reimbursement of expenses, pursuant to and as part of the settlement. The stock transfer will be made immediately upon approval of the settlement by the Court notwithstanding any objection or appeal, subject to Plaintiffs' counsel's obligation to either return the shares or repay any amount equal to the market value of the stock received on the date the Judgment is entered in the event of a successful objection or appeal. 21. The total number of shares of JDN common stock will be adjusted to reflect any changes due to stock splits, stock dividends, reverse stock splits, or any conversions of Company stock resulting from a merger or acquisition that occur from July 24, 2001, until the time of receipt of the shares. 22. All costs, including those of the Company's transfer agent, incurred in connection with the share transfer shall be borne by JDN. 23. In order that the stock transferred shall be fully and freely traded by the recipients without any restrictions, ten (10) days before the hearing date for final approval of the settlement, Company shall provide Plaintiffs' Counsel with the written opinion of outside counsel or an order in the Federal Action substantially to the effect: (a) that the shares transferred will be issued in compliance with the registration requirements of (S)5 of the Securities Act of 1933 or will be issued in reliance upon an exemption therefrom; (b) that the shares transferred will be fully tradeable without any restriction after distribution; and (c) that such shares are otherwise fully paid, non-assessable and free from all liens and encumbrances. 24. The share transfer to Plaintiffs' counsel shall take place immediately upon court approval of the Settlement, notwithstanding the existence of any timely filed objections thereto, or potential for appeal therefrom, or collateral attack on the Settlement, subject to the obligation of Plaintiffs' counsel to make appropriate refunds or repayments in cash or stock as provided in (P)20 hereof, to JDN, if and when, as a result of any appeal and/or further proceedings on remand, or successful collateral attack, the fee and/or expense amount is reduced or reversed. Thus, if the Settlement does not become final as defined by the Stipulation of Settlement, or if the Stipulation of Settlement is canceled or terminated, any and all contributions paid to Plaintiffs' counsel shall be returned to JDN as detailed in (P)20 herein. 25. While Defendants deny that the claims advanced in the Actions against them were meritorious, Defendants agree that they will not contest the Plaintiffs' assertion that the litigation was filed in good faith and in accordance with the applicable Georgia and Federal Rules of Court, including Rule 11 of the Federal Rules of Civil Procedure, and is being settled voluntarily after consultation with competent legal counsel. Accordingly, the final judgments in the Actions will contain a statement that during the course of the litigation, the parties and their respective counsel at all times complied with their respective requirements of the applicable Georgia and Federal Rules of Court, including Rule 11 of the Federal Rules of Civil Procedure. 26. JDN further agrees to pay an award of $4,500, $3,200 and $2,700, respectively, to derivative plaintiffs Linda Rubin, Larry Pastor and Marion Melnyczenko for their time, effort and expenses, which award is fair and reasonable. 27. The Settlement is conditioned upon final approval of the Settlement by the Court. 28. To the extent JDN and the JDN Defendants have not already implemented the preceding corporate governance changes in response to the Actions, within 90 days after the entry of Judgment, JDN's Board of Directors shall adopt and/or cause JDN to implement via resolutions or amendments to the Company's By-Laws or Articles of Incorporation or otherwise, the preceding changes which shall remain in effect for at least a period of seven years following adoption unless the Company undergoes a change of control as defined below. "Change of Control" means each occurrence of any of the following: ----------------- (i) the acquisition, directly or indirectly, by any individual, entity or "group" (as such term is used in Section 13(d)(3) of the Securities Exchange Act of 1934 (the "Exchange Act") of beneficial ownership (as defined in Rule 13d-3 ------------ under the Exchange Act, except that such individual or entity shall be deemed to have beneficial ownership of all shares that any such individual or entity has the right to acquire, whether such right is exercisable immediately or only after passage of time) of Company securities having more than one-half of the aggregate outstanding voting power of the Company; (ii) (A) the Company consolidates with or merges into another entity or conveys, transfers or leases all or substantially all of its assets (including, but not limited to, real property investments) to any individual or entity, or (B) any entity consolidates with or merges into the Company, which in the case of a consolidation or merger in either (A) or (B) is pursuant to a transaction in which the outstanding Common Stock of the Company is reclassified or changed into or exchanged for cash, securities or other property; (iii) individuals who constitute a majority of the Board of Directors of the Company as of the date hereof (together with the any new directors whose appointment by such Board of Directors or whose nomination for election by the stockholders of the Company was approved by a vote of a majority of the directors of the Company then still in office who were either directors as of the date hereof or whose appointment or nomination for election was previously so approved) cease for any reason to constitute a majority of the Board of Directors then in office; or (iv) the acquisition of direct or indirect "control" of the Company by any person, entity or "group" (as such term is used in Section 13(d)(3) of the Exchange Act), other than persons who are stockholders of the Company as of the date hereof (for purposes of the foregoing definition, "control" shall mean the power, directly or indirectly, to direct or cause the direction of the management and policies of the Company, whether through the ability to exercise voting power, by contract or otherwise). 29. The provisions contained in this MOU shall not be deemed or offered or received in evidence as a presumption, a concession, or an admission of any fault, liability, or wrongdoing, and, except as required to enforce this MOU or the Settlement, they shall not be offered or received in evidence or otherwise used by any party to the Actions, whether civil, criminal, or administrative. The Stipulation of Settlement shall contain identical disclaimers of liability. AGREED TO ON JULY __, 2001. MILBERG WEISS BERSHAD HYNES & LERACH LLP WILLIAM S. LERACH TRAVIS E. DOWNS, III DARREN J. ROBBINS MARY K. BLASY By: --------------------------------- DARREN J. ROBBINS TRAVIS E. DOWNS, III 600 West Broadway, Suite 1800 San Diego, CA 92101 Telephone: 619/231-1058 JOSHUA A. MILLICAN Georgia Bar No. 508998 44 Broad Street, N.W., Suite 600 Atlanta, GA 30303 Telephone: 404/522-5685 STANLEY, MANDEL & IOLA, L.L.P. MARC R. STANLEY ROGER L. MANDEL By: --------------------------------- MARC R. STANLEY ROGER L. MANDEL 3100 Monticello Avenue, Suite 750 Dallas, TX 75205 Telephone: 214/443-4300 ALSTON & BIRD LLP JOHN L. LATHAM Georgia Bar No. 438675 JULIE M. O'DANIEL Georgia Bar No. 549316 By: --------------------------------- JOHN L. LATHAM JULIE M. O'DANIEL One Atlantic Center 1201 West Peachtree Street Atlanta, GA 30309-3424 Telephone: 404/881-7000 Attorney for Defendants JDN Realty Corp., Craig MacNab; Haywood D. Cochrane, Jr.; Philip G. Satre; William G. Byrnes; and William B. Greene LAMAR, ARCHER & COFRIN, LLP ROBERT C. LAMAR Georgia Bar No. 431175 By: --------------------------------- ROBERT C. LAMAR 50 Hurt Plaza, S.E., Suite 900 Atlanta, GA 30350 Telephone: 404/577-1777 Attorney for Defendant William J. Kerley WALKER, BRYANT & TIPPS ROBERT J. WALKER JOHN C. HAYWORTH By: --------------------------------- JOHN C. HAYWORTH 2100 One Nashville Place 150 Fourth Avenue, North Nashville, TN 37219 Telephone: 615/313-6000 Attorney for Defendant Elizabeth L. Nichols