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 Xxxxx XxxXxx, Xxxxxx X. Xxxxx, Xxxxxxx X. Xxxxxx,
Xxxxxxx Xxxxxxxx, Xx., and Xxxxxxx X. Xxxxxx, (collectively the "JDN
Defendants") and Xxxxxxx X. Xxxxxx, Xxxxxxxxx X. Xxxxxxx and Xxxxx & Xxxxx, LLP
(collectively with the JDN Defendants the "Settling Defendants") and plaintiffs
derivatively on behalf of JDN Realty Corporation ("JDN" or the "Company") in
Xxxxx x. X.X. Xxxxxxx, 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. X.X. Xxxxxxx, et al., Civil Action No. 00VS012347E,
pending in the Superior Court of Xxxxxx County and Xxxxxxxxxxx v. X.X. Xxxxxxx,
et al., Civil Action No. 2000CV28135, pending in the Superior Court of Xxxxxx
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
Xxxxx & Xxxxx (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
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Federal Class Action; and (ii) commence
actions against X. Xxxxxx Xxxxxxx, Xxx X. Xxxxxx, ALA Associates, Inc., X.
Xxxxxxx Xxxxxxxxxx, XX and XxXxxxxxxx Xxxxxxxx on behalf of JDN.
17. "Non-Settling Persons" means X.X. Xxxxxxx, Xxx X. Xxxxxx, ALA
Associates, Inc., X. Xxxxxxx Xxxxxxxxxx, XX, and XxXxxxxxxx Xxxxxxxx, LLP
(including its predecessors, successors and all partners and members thereof,
including but not limited to Xxxxxxx Xxxxxxxx, Xxxxxxx Xxxxxx and Xxxxx Xxxx).
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 Xxxxx Xxxxx, Xxxxx Xxxxxx and Xxxxxx
Xxxxxxxxxxx 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:
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(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.
XXXXXXX XXXXX XXXXXXX
XXXXX & XXXXXX LLP
XXXXXXX X. XXXXXX
XXXXXX X. XXXXX, III
XXXXXX X. XXXXXXX
XXXX X. XXXXX
By:
---------------------------------
XXXXXX X. XXXXXXX
XXXXXX X. XXXXX, III
000 Xxxx Xxxxxxxx, Xxxxx 0000
Xxx Xxxxx, XX 00000
Telephone: 619/000-0000
XXXXXX X. XXXXXXXX
Georgia Bar No. 000000
00 Xxxxx Xxxxxx, X.X., Xxxxx 000
Xxxxxxx, XX 00000
Telephone: 404/000-0000
XXXXXXX, XXXXXX & XXXX, L.L.P.
XXXX X. XXXXXXX
XXXXX X. XXXXXX
By:
---------------------------------
XXXX X. XXXXXXX
XXXXX X. XXXXXX
0000 Xxxxxxxxxx Xxxxxx, Xxxxx 000
Xxxxxx, XX 00000
Telephone: 214/000-0000
XXXXXX & BIRD LLP
XXXX X. XXXXXX
Georgia Bar No. 438675
XXXXX X. X'XXXXXX
Xxxxxxx Xxx No. 549316
By:
---------------------------------
XXXX X. XXXXXX
XXXXX X. X'XXXXXX
One Atlantic Center
0000 Xxxx Xxxxxxxxx Xxxxxx
Xxxxxxx, XX 00000-0000
Telephone: 404/000-0000
Attorney for Defendants JDN Realty Corp.,
Xxxxx XxxXxx; Xxxxxxx X. Xxxxxxxx, Xx.;
Xxxxxx X. Xxxxx; Xxxxxxx X. Xxxxxx; and
Xxxxxxx X. Xxxxxx
XXXXX, XXXXXX & XXXXXX, LLP
XXXXXX X. XXXXX
Georgia Bar No. 431175
By:
---------------------------------
XXXXXX X. XXXXX
00 Xxxx Xxxxx, X.X., Xxxxx 000
Xxxxxxx, XX 00000
Telephone: 404/000-0000
Attorney for Defendant Xxxxxxx X. Xxxxxx
XXXXXX, XXXXXX & XXXXX
XXXXXX X. XXXXXX
XXXX X. XXXXXXXX
By:
---------------------------------
XXXX X. XXXXXXXX
0000 Xxx Xxxxxxxxx Xxxxx
000 Xxxxxx Xxxxxx, Xxxxx
Xxxxxxxxx, XX 00000
Telephone: 615/000-0000
Attorney for Defendant Xxxxxxxxx X. Xxxxxxx
