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