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HELPS DUNBAR
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Lo T, s Florida I Alabama North Carolina London

JOHN D. MULLEN
Partner
(813) 472-7867 January 26, 2020
John.Mullen@phelps.com

Via Email to: saranatAeol.net

Sean Granat, Esq.

Deputy General Counsel
City of Jacksonville, Office of General Counsel
1 17 West Duval Street, Suite 480
Jacksonville, FL 32202

Re: JEA and Aaron Zahn

Dear Mr. Granat:

I write to address:(1) The pending JEA Board action relating to Mr. Zahn's employment
agreement, and (2) Public misconceptions concerning JEA's strategic planning process and
deliberations. Mr. Zahn has tried persistently to take a high road relative to political and media
rhetoric. Additionally, as Mr. Zahn's personal counsel, Phelps Dunbar is loath to enter the media
frenzy surrounding JEA and Mr. Zahn. However,false accusations circulating in the media cannot
be tolerated while a narrative is manufactured about JEA and Mr. Zahn's employ at JEA over the
last two years. We believe this to be especially true as Board members of JEA, who may be
influenced by incorrect media reports and political demands, contemplate the terms of separation
with Mr. Zahn.

The policy decisions made by JEA over the last two years have clearly become extremely
politically unpopular. However, we firmly believe that both JEA's Board members and Mr. Zahn
can, and should, be proud of the diligent research and analysis they performed throughout the
strategic planning and long-term incentive compensation planning processes that the Board and
JEA staffengaged in throughout the second halfof2018 and all of2019. We understand the Office
of General Counsel's important role in aiding the Board of Directors of JEA in considering the
contractual matter of termination under Mr. Zahn's employment agreement (the "Agreement"),
independent of media reports and political interference.

As previously stated in my January 13, 2020 letter, the underlying facts and evidence
demonstrate that there is no legitimate basis for terminating Mr. Zahn's employment for 'Cause'
under the terms ofthe Agreement dated July 23,2019. The Agreement defines 'Cause' as follows:

"Cause"for termination ofemployment means: N a willful breach by Employee

of material duties, obligations and policies ofJEA which Employee fails to cure
within ten (10) days after written notice from JEA specifically identifying such

COUNSELORS Al LAW

100 South Ashley Drive, Suite 2000 I Tampa, Florida 33602-5311 I 813-472-7550 I 813-472-7570 Fax I phelpsdunbar.com

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 January 26, 2020
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breach; (ii) Employee's gross negligence or gross neglect ofduties and obligations
required in performance of Employee 's duties, or willful misconduct; (ill)
Employee's continued violation of written rules and policies of the Board after
written notice of same and reasonable opportunity to cure; (iv) conviction of
Employeefor any criminal act which is afelony;(v) commission by Employee in a
public or private capacity oftheft,fraud, or misappropriation or embezzlement of
funds; or (vi) misconduct as defined in Florida Statutes§ 443.036(29).

Upon a thorough review of the facts shown through the relevant documents and publicly
presented materials, it is abundantly clear that no conduct or action of Mr. Zahn meets the
definition of'Cause' provided for in categories (i), (iii),(iv),(v), or (vi). Therefore, the Board is
left with some interpretation of item (ii) as a means to reach a termination for 'Cause' conclusion.

Category (ii) of the definition of 'Cause' sets an extremely high legal bar for a
determination of `Cause:'

1. "Gross negligence or gross neglect of duties" means the party's "conduct was
so reckless or wanting in care that it constituted a conscious disregard or
indifference" to the party's duties;

2. "Willful misconduct" means the party "had actual knowledge of the

wrongfulness of the conduct and the high probability that injury or damage"
would result "and, despite that knowledge, intentionally pursued that course of
conduct, resulting in injury or damage." See, e.g., Fla. Stnd. Civil Jury
Instruction 503.1.

None of Mr. Zahn's conduct throughout his tenure at JEA can colorably be said to have violated
these 'for Cause' standards.

Despite the unfortunate turn of unfavorable public opinion toward JEA over recent events,
it is of critical importance that the Board assure the public, rating agencies, JEA's bondholders,
and JEA's stakeholders that JEA, its Board members, and Mr. Zahn always unequivocally sought
to adhere to all local, state, and federal laws and ethics codes.

Laying blame solely at Mr. Zahn's feet by reaching a termination for 'Cause' conclusion
under category (ii) would be without legal basis for reasons including, but not limited to, the
following:

1. Collaborative,transparent and comprehensive information sharing: From

the very beginning of Mr. Zahn's tenure as CEO of JEA, public records show
he collaboratively worked on every initiative with JEA's Board members,
collectively and individually;

2. Inclusion of expert counsel and advisors for major policy

recommendations: Throughout Mr. Zahn's entire tenure, public records show
he diligently sought and incorporated the counsel and input of: 1)the OGC;2)
special legal counsel (e.g., Holland & Knight, Pillsbury Winthrop, Foley

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 January 26, 2020
Page 3

Lardner, etc.); 3) industry leading consultants (e.g., McKinsey & Co., Willis
Towers Watson, etc.); 4) financial advisors (e.g., Morgan Stanley, JP Morgan,
etc.); 5)teams of JEA employees; and,6)community leaders and organizations
(collectively, the "JEA Community"); and

3. Pursuit of thorough diligence and'good business judgment 'as CEO:

Before and even after major policy decisions made by the Board, Mr. Zahn
acted in good faith, with loyalty and with due care.

The first two reasons are self-evident from public records.

A great example of #3 above is demonstrated by Mr. Zahn's conduct and JEA's actions
relative to the long-term incentive compensation planning process, including the performance unit
component. Throughout this process, Mr. Zahn ensured that the Board discussed and provided
direction in no fewer than five public meetings over the course of seven months. Prior to
presenting the performance unit proposal to the Board for decision, Mr. Zahn engaged and relied
upon the advice of OGC, special counsel, expert consultants, and JEA staff to investigate and
develop a performance unit plan. In doing so, Mr. Zahn obtained written legal authorization from
appropriate counsel to move forward. Phelps Dunbar has reviewed the board package materials
and the video recording of the Board's discussion at the July 23, 2019 Board meeting (available
on jea.com). The materials, the presentation by JEA staff, the Board's deliberations, and the
definitive language of Resolution 2019-10 are clear, concise, and comprehensive on the matter.
Yet even after receiving Board authorization, Mr.Zahn instructed counsel and advisors in the JEA
Community to continue to conduct thorough diligence to ensure that a performance unit plan was
developed in the best interest of JEA and JEA's employees. This included, but was not limited to,
additional OGC and special counsel review,submission ofa formal opinion request to the Attorney
General ofthe State of Florida, and preparation of a formal opinion request to the State ofFlorida's
Ethics Commission. This contingent approach also was reflected in the July 22, 2019
Memorandum authored by Jason Gabriel and other OGC counsel advising that the performance
unit plan "was legal" but at the same time noting such advice was subject to ongoing review by
OGC and third-party experts. (See the attached July 22, 2019 Memorandumfrom OGC).

The Board vote on July 23, 2019 was not a definitive order to implement a finished
incentive compensation plan, but instead was an approval contingent on ultimate confirmation that
the incentive plan was legal, ethical, and appropriate to accomplish the intended goals of long-
term employee engagement. The JEA Community continued its detailed work to develop the plan
after July 23, 2019. Indeed, Mr. Zahn was the first to recommend, together with Jason Gabriel's
counsel, that the performance unit plan be terminated. The rationale for this was due to legal and
practical concerns that had become apparent since the July 23 Board meeting. Mr. Zahn and Mr.
Gabriel continued to discuss the matter and ultimately agreed that terminating the plan was the
best course of action, as reflected in Mr. Zahn's letter to Mr. Gabriel dated November 12, 2019.
(See the attached November 12,2019 Memorandumfrom Ma•. Zahn). It is worth noting that Mr.
Zahn's recommendation to the Board occurred a week ahead of public and political scrutiny
beginning on November 18, 2019.

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January 26, 2020
Page 4

Another example of Mr. Zahn's proper conduct around a now unpopular policy decision
ofthe JEA Board is in the thoroughness ofthe analysis relative to all five strategic planning options
for JEA, which were termed "Scenarios: (1) Status Quo Plan; (2) Traditional Utility Response
Plan; (3) Community Ownership Plan; (4) Initial Public Offering (IPO) Plan; and (5) Strategic
Alternative from ITN 127-19." Without bias to any one scenario, Mr. Zahn, with substantial
assistance and input from the entire JEA Community, properly and comprehensively developed
information and analysis concerning each of the five scenarios for the Board's review. This fact
is evident in the Board meeting materials, the Board meeting videos, and minutes available on
www.jea.com — as well as the substantial material now available on
https://www.jea.com/microsite/promise/promise.html. Prior to beginning any of the strategic
planning, the Board was provided a detailed presentation on the process and encouraged to provide
input (e.g., the January 2019 Board meeting). The Board was frequently kept apprised on the
status of all strategic scenario planning before and during each of the subsequent Board meetings
through November 2019. The Board was provided ample opportunity, in public meetings, to
deliberate and inquire about the results of each scenario as well as provide direction to JEA staff.
Finally, the Board, individually and collectively, received updates on the analysis provided by
consultants and JEA staff, and the expected next steps in the timeline of events throughout the
strategic planning process.

We are concerned that unfounded criticism and political pressure around the long,
complex, but properly executed JEA strategic planning process has caused involved parties to be
forgetful or fearful. A full and accurate explanation — although it takes patience to present and
patience to hear — is essential to a fair understanding. One example is in the concept that the cost
ofthe performance unit plan would be capped at $3,400,000 for all 2,000 JEA employees. Such a
statement must be a misunderstanding, which unfortunately has led to substantial confusion. Ryan
Wannemacher, then JEA's CFO, literally told Board members during the televised July 23, 2019
JEA Board meeting (prior to the Board's approval ofthe plan)that the plan could cost $30,000,000
under a specific hypothetical illustration he provided.

Finally, there is a matter of basic governance of JEA. Political pressures have led to
significant confusion regarding the actual governance process necessary for a sale of JEA or any
performance unit plan payments. Any sale of JEA or performance unit award would have
necessitated numerous public reviews and approvals by independent parties. Both would have
required specific public actions, including but not limited to:(1)the vote and approval ofthe JEA
Board,(2)the vote and approval ofthe Jacksonville City Council,(3)the vote and approval ofthe
voters of Jacksonville in a public referendum, and (4) State and Federal regulatory approvals.
There appears to be very little awareness in the public conversation that major policy outcomes
regarding JEA could never have occurred without numerous independent checks and balances.

In summary, concluding with any other outcome than a termination 'without cause' would
be the epitome of 'political interference' in the affairs of JEA and the decisions of JEA's Board.
Mr. Zalm continues to desire an amicable and swift separation that will allow JEA to move forward
on its new direction and for Mr. Zahn's family to begin to heal. Thank you for your consideration.
As always, please feel free to contact me to discuss an amicable path forward and resolution.

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January 26,2020
Page 5

Sincerely,

PHELPS DUNBAR LLP

John D. Mullen

JDM:bms

Enclosures

cc: JEA,21 West Church Street, Jacksonville, FL 32202

PD.27885914.3
 OFFICE OF GENERAL COUNSEL
CITY OF JACKSONVILLE
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CITY HALL,ST.JAMES BUILDING

117 WEST DUVAL STREET,SUITE 480
JACKSONVILLE,FLORIDA 32202

MEMORANDUM
JULY 22,2019

TO: FILE
FROM: LAWSIKIA J. HODGES,DEPUTY GOVERNMENT OPERATIO
LYNNE C.RHODE,JEA CHIEF LEGAL OFFICER
JASON R. GABRIEL,GENERAL COUNSEL,
RE: STRATEGIC PLANNING ACTIONS TAKEN BY THE JEA BOARD BASED ON SCENARIO-BASED PLANNING
OPTIONS PRESENTED BY THE JEA SENIOR LEADERSHIP TEAM

The JEA Senior Leadership Team'("SLT") has presented, and intends to present scenario-based planning options to
the JEA Board ("Board") to assist the Board in making strategic planning decisions regarding JEA's future. In
scenario-based strategic planning, SLT presents various scenarios regarding JEA's future to the Board, and
depending on the scenario chosen by the Board, the Board makes strategic planning decisions based on the scenario
selected.
SLT presented scenario-based planning option 1 (Scenario 1 - Status Quo) to the Board on May 28, 2019. SLT
intends to present three additional scenario-based planning options to the Board at its regular meeting on July 23,
2019: Scenario 2A - Traditional Utility Response, Scenario 2B - Traditional Utility Response (with traditional
legislative approach) and Scenario 3 - Non-Traditional Utility Response (collectively "Options" or individually
"Option").

Any decision by the Board to proceed with implementing one of the Options presented by SLT will require formal
actions by the Board in the form of various Board resolutions and/or motions. The Office of General Counsel, in
consultation with outside counsel,2 has reviewed the proposed resolutions associated with each Option (Resolutions
2019-06 through 2019-10), and we believe that the Board is authorized under its charter provisions, subject to
applicable laws,to proceed with implementing through formal action one ofthe Options, as presented.
The decision to proceed with implementing one of the Options, as presented, is a business decision for the Board to
make and within its authority under the City Charter.

The Senior Leadership Team consists primarily ofthe Managing Director and Chief Executive Officer, the Chief Operating Officer, the Chief
Administrative Officer and the Chief Financial Officer.
2 Office of General Counsel engaged and relied on various outside specialized counsel to assist JEA in the preparation of the resolutions and
underlying documents required for each Option presented by SLT. Accordingly, the scope of this memorandum does not address the legality of
the underlying documents drafted to implement such resolutions, as such legality has been confirmed, and will continue to be developed and
approved by special counsel to JEA appointed and supervised by the Office of General Counsel pursuant to the course ofaction approved by the
JEA Board.

GC-#1295639-v3-OGC memo to file re BOD 7 23 2019 Resolutions.docx

 Attachment A

21 West Church Street

Hot 322 3 3

November 12, 2019

M r. Jason Gabriel
City of Jacksonville General Counsel
1 17 W Duval St, Suite 400
Jacksonville, FL 32202

Re: JEA Long Term Performance Unit Plan (the "Plan")

Mr. Gabriel:

This letter pertains to the Plan 'approved by the JEA Board of Directors
("Board") by Resolution 2019-10 on July 23., 2019. The stated purpose of the Plan is
E p to provide a means by which employees of JEA may be incentivized to: (i) remain at
JEA,(ii) drive value for customers,(iii) drive value for the community of Northeast
Florida,(iv) drive environmental value, and (v) drive financial value for JEA and the
City of Jacksonville. The Board developed the Plan out of a desire to develop a long-
term incentive program, in line with market standards, that furthered the Board's total
compensation policy approved in January 2019. The Board reviewed the Plan
framework as recommended by a third party compensation consultant, Willis Towers
Watson, in June 2019. Finally, the Board adopted the Plan in July 2019 and instructed .
JEA 'executive leadership to work with the Chair of the Compensation Committees
("Plan Administrator") to implement the Plan.

This letter is to inform you that JEA leadership, in consultation with the Chair
of the Board ("Chair"), the Plan Administrator and OGC, has decided to postpone
indefinitely the implementation of the Plan.

As you are aware, JEA executive leadership has been diligently working to
implement the Plan with the Office of General Counsel ("OGC"), Pillsbury Winthrop
Shaw Pittman, LLP, Foley Lardner LLP, and relevant state and local bodies. Given
the long-term nature of the Plan and the Plan obligations, JEA leadership wanted to
ensure all employment, corporate, ethics, tax, and other related matters associated with
the Plan were in accordance With applicable statues and regulations. To that end, JEA
greatly appreciates the deliberate, methodical and meticulous work of OGC and all of
its advisors.

The decision to not implement the Plan is based in the incongruity ofthe Plan's
long-term nature and the very real potential short-term implications of the JEA's
strategic planning process. As such, the Chair, Plan Administrator and JEA leadership
believe the Plan would be best implemented, if ever, post decision on the strategic
direction of JEA as determined by the Board.
 Accordingly, the Board is expected to recommend one of the following five
options as a strategic direction for JEA:
1) Scenario #1: Status Quo Plan;
2) Scenario #2: Traditional Utility Response Plan;
3) Scenario #3: Community Ownership Plan;
4) Scenario #4: Initial Public Offering (IPO)Plan; or,
5) Scenario #5: Strategic Alternative from ITN 127-19.

Should the Board choose Scenarios 3, 4, or 5 the Plan would be moot from a
long-term incentive basis. Should the Board choose Scenario 1 or .2, the Plan has a
more appropriate role in driving employee behavior to increase customer, community,
environmental and ultimately financial value of JEA.

Please accept this letter as a final decision on this matter until further notice.
As always, JEA, and specifically the Plan Administrator, welcomes OGC input and
advice on how to appropriately administer the Plan absent a full implementation with
its employees.

Sincerely:

. Aaron F. Zahn
Managing Director & Chief Executive Officer

Cc:
JEA Board of Directors