ATLANTA-JDN Realty Corp., a locally based, New York Stock Exchange-traded firm, is settling a year-old, securities class action lawsuit for an aggregate $46 million. That is the total amount JDN will record as an expense on its second-quarter earnings results, the company says in a prepared statement.
The settlement is one of the largest securities actions involving a commercial real estate company in the US, real estate lawyers familiar with the case tell GlobeSt.com on condition of anonymity.
“These settlements, under the terms of their agreements, represent a positive step for the company and its shareholders,” Craig Macnab, JDN’s president and CEO, says in a prepared statement. “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.”
The suit represents investors who had purchased JDN securities between March 28, 1997 and Feb. 14, 2000.
JDN is agreeing to pay an undisclosed number of individual investors a total $16.8 million in cash; 1.68 million shares of common stock valued today (July 27) at $20.46 million; provide a $4 million guarantee that the settlement will be made; attorneys’ fees in the form of 248,000 shares of common valued today at $3.02 million; and pay or guarantee an additional $1.72 million for items that will be disclosed in an 8-K filing JDN plans to file shortly with the Securities and Exchange Commission.
In its statement, JDN says the $4-million guarantee will assure class members of the suit that they will receive a minimum $7.5 million from recoveries or settlements from outside parties, including the company’s insurance carrier.
Amounts over $3.5 million received by investors from third parties will reduce this guarantee dollar-for-dollar. The plaintiffs will share in any recovery above $8 million from outside parties.
Additionally, “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 plaintiffs on June 30, 2002.
JDN’s common was trading at 2 pm today (July 27) at $12.18 per share, down 72 cents from the July 26 price of $12.90. The company’s 52-week high-low prices are $13.64 and $9 per share.
One of the big winners in the case is Berger & Montague, a 25-year-old, 50-lawyer, nationally-known Philadelphia firm that represented the investors. The law firm will be receiving 248,000 shares of JDN common stock valued today at $3.02 million.
The settlement agreement must still be approved by the banks in the company’s secured credit facility by the US District Court for the Northern District of Georgia where the suit was filed on Feb. 16, 2000.
The suit accused JDN corporately and certain officers and directors individually of not disclosing that certain JDN executives received $4.9 million in bonuses on various development projects from 1994 to 1998.
The complaint also alleges the company and certain of its officers issued “false and mislelading financial statements which failed to record the payments as expenses or to identify the related party transactions,” Berger & Montague says in a prepared statement when it filed the suit.
Two days before the suit was filed, the law firm’s statement says, JDN “revealed publicly for the first time that the previously unreported payments would cause it to default on its main credit line and the company’s 1999 fourth-quarter earnings announcement would be delayed in order to restate its earnings for each of the past five years.”
JDN also announced on Feb. 14, 2000 that its chief executive officer had resigned, along with the two executives who had received the alleged unlawful compensation.
The suit specifically alleges JDN violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934.
JDN expects the cash component of the settlement will be funded from its line of credit by the end of this year’s third quarter. The company anticipates issuing the common stock shares for the settlement in the fourth quarter.
In its statement today, JDN cautions that future earnings per share will be lower “as a result of additional interest expense associated with debt used to pay the cash portion of the settlement” and from additional shares outstanding that will be used in the settlement to pay both the plaintiffs and their law firm.
JDN’s dividend policy could also be restructured as a result of the settlement payouts, the company’s statement says. JDN owns and operates directly or indirectly 109 properties containing 11.4 million sf of gross leasable area in 20 states.
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