As filed with the Securities and Exchange Commission on May 27, 1998
Registration No. 333-
=============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-11
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
_________________________
JER Asia Corp.
(Exact name of registrant as specified in governing instruments)
1650 Tysons Boulevard, Suite 1600
McLean, Virginia 22102
(Address of principal executive offices)
Daniel T. Ward, Esq.
Managing Director and General Counsel
J.E. Robert Company, Inc.
1650 Tysons Boulevard, Suite 1600
McLean, Virginia 22102
(703) 714-8000
(Name and address of agent for service)
_________________________
Copies to:
Thomas H. Bell, Esq. J. Warren Gorrell, Jr., Esq.
Simpson Thacher & Bartlett Steven A. Museles, Esq.
425 Lexington Avenue Hogan & Hartson L.L.P.
New York, New York 10017 555 Thirteenth Street, N.W.
(212) 455-2000 Washington, D.C. 20004
(202) 637-5600
Approximate date of commencement of the proposed sale of the securities
to the public: As soon as practicable after the effective date of this
Registration Statement.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, please check the
following box and list the Securities Act of 1933 registration statement
number of the earlier effective registration statement for the same
offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, check the following box and list the
Securities Act of 1933 registration statement number of the earlier effective
registration statement for the same offering. / /
<PAGE>
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. / /
CALCULATION OF REGISTRATION FEE
Proposed Proposed
Title of Maximum Maximum
Securities Amount Offering Aggregate Amount of
Being Being Price Per Offering Registration
Registered Registered(1) Share(2) Price(2) Fee
Common Stock
par value
$.01 per share 5,750,000 $20 $115,000,000 $33,925
(1) Includes 750,000 shares that may be purchased pursuant to an over-
allotment option granted to the Underwriters.
(2) Estimated based on a bona fide estimate of the maximum offering price of
$20 solely for purposes of calculating the registration fee pursuant to Rule
457(a) promulgated under the Securities Act of 1933.
_________________________
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this
registration statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933, as amended, or until this
registration statement shall become effective on such date as the Commission,
acting pursuant to said Section 8(a), may determine.
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<PAGE>
_______________________________________________________________________________
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
_______________________________________________________________________________
PROSPECTUS Subject to Completion, Dated May 27, 1998
5,000,000 Shares
JER ASIA CORP.
Common Stock
_________________________
JER Asia Corp. (the "Company") is a newly organized corporation
established to invest in nonperforming, subperforming, distressed and other
real estate and real estate related assets, including mortgage loans, mortgage
backed securities, real estate properties, companies with significant real
estate assets and companies involved in the business of real estate ownership,
real estate services or other real estate related operating businesses. The
Company intends to focus its investment activities primarily in East Asia and
Southeast Asia as well as other markets on an opportunistic basis. JER Asia
Advisors, LLC (the "Manager"), an affiliate of J.E. Robert Company, Inc.
(together with its affiliates, "JER"), will oversee the operations of the
Company, subject to the supervision of the Company's Board of Directors.
All of the shares of common stock, par value $.01 per share (the "Common
Stock"), being offered hereby (the "Offering") are being offered by the
Company. The Company has also agreed to sell, and FBR Asset Investment
Corporation ("FBR Asset"), an affiliate of Friedman, Billings, Ramsey & Co.,
Inc., one of the representatives of the several underwriters, has agreed to
purchase, a minimum of $25 million of Common Stock in a private placement which
will close concurrently with the Offering. In addition, the Company has agreed
to sell, and JER and certain directors and executive officers of JER (the "JER
Investors") have agreed to purchase, in a second private placement to close
concurrently with the Offering, a number of shares of Common Stock (assuming
that the Underwriters' option to purchase up to an additional 750,000 shares to
cover overallotments is not exercised) equal to 2% of the shares of the
Company's Common Stock then outstanding, up to a maximum of $20 million (the
private placements to the JER Investors and FBR Asset are referred to herein as
the "Concurrent Offerings"). The price of the shares of Common Stock to be
placed in the Concurrent Offerings will be equal to the initial public offering
price net of underwriting discounts and commissions.
It is currently anticipated that the initial public offering price for the
Common Stock will be $20 per share. Prior to this Offering, there has been no
market for the Common Stock. The public offering price will be determined by
negotiation between the Company and the Representatives (as defined herein).
See "Underwriting." The Company intends to apply for listing of the Common
Stock on the Nasdaq National Market.
_________________________
<PAGE>
See "Risk Factors" beginning on page 15 for certain factors relevant to an
investment in the Common Stock including, among others, the following:
- The Company has no prior operating history, and none of the Company's
investments has been identified.
- A substantial portion of the Company's assets are expected to be
located in Asian countries which are currently experiencing
significant and protracted financial and economic difficulties.
- Certain of the countries in Asia and other regions in which the
Company may invest have experienced in the past, are experiencing
currently, and may in the future experience, political and social
instability that could adversely affect the Company's investments in
such countries.
- The Company will be dependent on the Manager for its successful
operations. The Manager and its affiliates do not have prior
experience in real estate investments in Asia and do not currently
have offices or employees located in Asia.
(Continued on next page)
_________________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION OF THE
CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
Price to Underwriting Proceeds to
Public Discount<F1> Company<F2>
<S> <C> <C> <C>
Per Share . . . . . . . . . $ $ $
Total<F3> . . . . . . . . . $ $ $
<FN>
<F1> The Company has agreed to indemnify the several Underwriters against
certain liabilities, including liabilities under the Securities Act of
1933, as amended. See "Underwriting."
<F2> Net of expenses in connection with the Offering estimated at $ , which
will be payable by the Company.
<F3> The Company has granted the several Underwriters a 30-day option to
purchase up to 750,000 additional shares of Common Stock to cover
overallotments. If all such shares of Common Stock are purchased the total
Price to Public, Underwriting Discount and Proceeds to Company, before
expenses of this Offering, will be $ , $ and $ ,
respectively. See "Underwriting."
</TABLE>
The shares of Common Stock are offered by the Underwriters subject to
receipt and acceptance by the Underwriters, approval of certain legal matters
by counsel for the Underwriters and certain other conditions. The Underwriters
<PAGE>
reserve the right to withdraw, cancel or modify such offers and to reject
orders in whole or in part. It is expected that delivery of the shares of
Common Stock will be made in New York, New York on or about , 1998.
Friedman, Billings, Ramsey & Co., Inc. Schroder & Co. Inc.
The date of this Prospectus is , 1998.
<PAGE>
(Continued from previous page)
- Investments in Asia and other foreign countries may expose the
Company to currency exchange risks, adverse changes in foreign tax
laws, foreign law enforceability risks and other uncertainties of
foreign laws and legal systems.
- The Company expects to leverage its assets significantly, which is
likely to increase the volatility of the Company's income and net
asset value and could magnify the extent of any losses.
- The Company intends to invest in distressed real estate, mortgage
loans, real estate operating companies and other investments that
will require significant management resources, will be illiquid, may
not be income producing on a current basis and may decrease in value
because of changes in economic conditions and other factors.
- The Company also intends to invest in noninvestment grade,
subordinated mortgage backed securities, which are sensitive to
events of loss, such as credit losses due to borrower default, hazard
losses and enforceability issues.
- The Company's investments will be sensitive to changes in prevailing
interest rates.
- The Manager will be entitled to a substantial termination fee upon
the termination or nonrenewal of the Management Agreement other than
for cause.
- The Company and the Manager have common officers and directors and
may face conflicts of interest in relation to business decisions
regarding the Company and its investments, including the allocation
of investment opportunities and provision of other services in
connection with the Company's real estate assets.
<PAGE>
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING PURCHASES OF THE COMMON STOCK TO STABILIZE THE MARKET PRICE, THE
PURCHASE OF COMMON STOCK TO COVER SYNDICATE SHORT POSITIONS AND THE IMPOSITION
OF PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
CERTAIN INFORMATION CONTAINED IN THIS PROSPECTUS CONSTITUTES "FORWARD-
LOOKING STATEMENTS," WHICH CAN BE IDENTIFIED BY THE USE OF FORWARD-LOOKING
TERMINOLOGY SUCH AS "MAY," "WILL," "SHOULD," "EXPECT," "ANTICIPATE,"
"ESTIMATE," "INTEND," "CONTINUE," OR "BELIEVE" OR THE NEGATIVES THEREOF OR
OTHER VARIATIONS THEREON OR COMPARABLE TERMINOLOGY. THE STATEMENTS IN "RISK
FACTORS" IN THIS PROSPECTUS CONSTITUTE CAUTIONARY STATEMENTS IDENTIFYING
IMPORTANT FACTORS, INCLUDING CERTAIN RISKS AND UNCERTAINTIES, WITH RESPECT TO
SUCH FORWARD-LOOKING STATEMENTS THAT COULD CAUSE THE ACTUAL RESULTS,
PERFORMANCE OR ACHIEVEMENTS OF THE COMPANY TO DIFFER MATERIALLY FROM THOSE
REFLECTED OR CONTEMPLATED IN SUCH FORWARD-LOOKING STATEMENTS.
<PAGE>
TABLE OF CONTENTS
Page Page
PROSPECTUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
PROSPECTUS SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Foreign Investments May Pose a Greater Risk of Loss . . . . . . . . . 21
The Value of the Company's Foreign Investments Will Fluctuate
Based on Exchange Rates Between Foreign Currencies and the
U.S. Dollar. . . . . . . . . . . . . . . . . . . . . . . . 21
Economic and Financial Instability May Adversely Affect the
Company's Foreign Investments . . . . . . . . . . . . . . . 21
Political and Social Events May Adversely Affect the Company's
Foreign Investments . . . . . . . . . . . . . . . . . . . . 22
Foreign Restrictions on Investment and Repatriation of
Investment Income May Adversely Affect the Company . . . . 22
The Availability and Quality of Foreign Financial Information
and Standards May Adversely Affect the Company's Ability to
Find and Manage Foreign Investments . . . . . . . . . . . . 22
Foreign Laws and Legal Systems May Adversely Affect the Value of
the Company's Foreign Investments . . . . . . . . . . . . . 23
Foreign Taxation May Decrease Returns on the Company's
Investments . . . . . . . . . . . . . . . . . . . . . . . . 23
General Investment Activity Risks May Adversely Affect the Company . 23
Limited Available Investments May Inhibit Realization of the
Company's Objectives . . . . . . . . . . . . . . . . . . . 23
Real Estate is Illiquid and Its Value May Decrease . . . . . . . 23
Value of Real Estate is Dependent on Conditions Beyond the
Company's Control . . . . . . . . . . . . . . . . . . . . . 24
Property Taxes Decrease Returns on Real Estate . . . . . . . . . 24
Real Properties with Hidden Environmental Problems Will Increase
Costs and May Create Liability for the Company . . . . . . 24
Distressed Mortgage Loans Are More Likely to Cause Losses to the
Company . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Greater Risks of Loss May Arise From Construction Lending Activi-
ties and Bridge and Mezzanine Loans . . . . . . . . . . . . 25
Limited Recourse Loans May Limit the Company's Recovery to the
Value of the Mortgaged Property . . . . . . . . . . . . . . 25
Volatility of Real Estate Values May Adversely Affect the Value
of the Company's Investments . . . . . . . . . . . . . . . 26
Ownership of Noninvestment Grade Mortgage Assets Is Subject to
Increased Risk of Loss . . . . . . . . . . . . . . . . . . 26
Investments with Third Parties, Non-Controlling Investments and
Investments in Companies with Assets Other than Real Estate
or Real Estate Related Assets May Adversely Affect the
Company's Ability to Achieve its Investment Objectives . . 26
<PAGE>
Economic and Business Risks . . . . . . . . . . . . . . . . . . . . . 27
Leverage Increases Exposure to Loss . . . . . . . . . . . . . . 27
The Company Has No Established Financing and the Failure to
Secure Financing Could Adversely Affect the Company's
Ability to Achieve Its Investment Objectives . . . . . . . 28
Concentration of the Company's Assets in a Limited Geographic
Location or Types of Investments May Adversely Affect the
Business of the Company . . . . . . . . . . . . . . . . . . 28
Adverse Changes in General Economic Conditions Can Adversely
Affect the Company's Business . . . . . . . . . . . . . . . 28
Interest Rate Changes May Adversely Affect the Company's
Investments and Hedging Activities . . . . . . . . . . . . 28
Conflicts of Interest . . . . . . . . . . . . . . . . . . . . . . . . 29
Conflicts of Interest in the Business of the Company May Result
in Decisions that Do Not Fully Reflect Stockholders' Best
Interests . . . . . . . . . . . . . . . . . . . . . . . . . 29
JER's Other Businesses May Create Conflicts in the Allocation of
Management Resources . . . . . . . . . . . . . . . . . . . . 31
Other Risks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Certain Provisions of the Company's Certificate of Incorporation
and Bylaws and the Issuance of Preferred Stock May Prevent
a Change in Control . . . . . . . . . . . . . . . . . . . . 32
Board of Directors May Change Certain Policies Without
Stockholder Consent . . . . . . . . . . . . . . . . . . . . 32
Loss of Investment Company Act Exemption Would Adversely Affect
the Company . . . . . . . . . . . . . . . . . . . . . . . . 32
Limitation on Liability of Manager and Officers and Directors of
the Company May Result in Costs to the Company Due to the
Actions of the Manager and Officers and Directors of the
Company . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Failure of Market for Common Stock to Develop Could Adversely
Affect the Value of the Common Stock . . . . . . . . . . . 33
Potential Future Offerings Could Dilute the Interest of Holders
of Common Stock . . . . . . . . . . . . . . . . . . . . . . 34
Status of the Company as a Newly Organized Corporation Could
Adversely Affect the Development of the Company's Business 34
Dependence on the Manager Could Adversely Affect the Company's
Business . . . . . . . . . . . . . . . . . . . . . . . . . 34
The Manager's Lack of Experience Investing in Asia May Adversely
Affect the Business of the Company . . . . . . . . . . . . 34
Termination of the Management Agreement Could Adversely Affect
the Company . . . . . . . . . . . . . . . . . . . . . . . . 35
Failure to be Year 2000-Compliant Could Adversely Affect the
Company . . . . . . . . . . . . . . . . . . . . . . . . . . 35
USE OF PROCEEDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
DIVIDEND POLICY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
CAPITALIZATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
<PAGE>
THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Investment Opportunities in Asia . . . . . . . . . . . . . . . . . . 38
Investment Strategy . . . . . . . . . . . . . . . . . . . . . . . . . 40
Operating Policies . . . . . . . . . . . . . . . . . . . . . . . . . 44
Investment Review and Asset Management Process . . . . . . . . . . . 46
Investment Review . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Investment Review in Connection with Particular Assets. . . . . . . . 46
Asset Management Process . . . . . . . . . . . . . . . . . . . . . . 49
MANAGEMENT OF OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . 52
The Manager and JER . . . . . . . . . . . . . . . . . . . . . . . . . 52
The Management Agreement . . . . . . . . . . . . . . . . . . . . . . 56
Management Compensation . . . . . . . . . . . . . . . . . . . . . . . 57
Company Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Stock Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Limits of Responsibility . . . . . . . . . . . . . . . . . . . . . . 64
Negotiations with Nomura . . . . . . . . . . . . . . . . . . . . . . 64
Thai Property Fund . . . . . . . . . . . . . . . . . . . . . . . . . 64
Certain Relationships; Conflicts of Interest . . . . . . . . . . . . 65
MANAGEMENT OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . 67
Directors and Executive Officers . . . . . . . . . . . . . . . . . . 67
DESCRIPTION OF CAPITAL STOCK . . . . . . . . . . . . . . . . . . . . . . . 69
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
Registration Rights . . . . . . . . . . . . . . . . . . . . . . . . . 70
Reports to Stockholders . . . . . . . . . . . . . . . . . . . . . . . 70
Transfer Agent and Registrar . . . . . . . . . . . . . . . . . . . . 70
CERTAIN PROVISIONS OF DELAWARE LAW AND
OF THE COMPANY'S CERTIFICATE OF INCORPORATION AND BYLAWS . . . . . . . . 70
Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . 70
Stockholder Action by Written Consent . . . . . . . . . . . . . . . . 71
Calling of Meetings of Stockholders . . . . . . . . . . . . . . . . . 71
Amendment of the Bylaws . . . . . . . . . . . . . . . . . . . . . . . 71
Advance Notice of Director Nominations and New Business . . . . . . . 71
COMMON STOCK AVAILABLE FOR FUTURE SALE . . . . . . . . . . . . . . . . . . 71
FEDERAL INCOME TAX CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . 72
UNDERWRITING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
LEGAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
ADDITIONAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . 75
GLOSSARY OF TERMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information included elsewhere in this Prospectus. Unless otherwise indicated,
the information contained in this Prospectus assumes that the Underwriters'
overallotment option is not exercised and that the offering price of the Common
Stock is $20 per share. Capitalized terms used but not defined herein shall
have the meanings set forth in the Glossary of Terms beginning on page 51.
The Company
General
The Company is a newly formed corporation organized to invest in
nonperforming, subperforming, distressed and other real estate and real estate
related assets, including mortgage loans, mortgage backed securities, real
estate properties, companies with significant real estate assets and companies
involved in the business of real estate ownership, real estate services or
other real estate related operating businesses. The Company intends to focus
its investment activities primarily in East Asia and Southeast Asia
(principally Japan, Korea, Singapore, Hong Kong and Thailand) to take advantage
of the opportunities for real estate investment that the Company believes have
been created by the economic and financial crises that are currently affecting
these regions. See "The Company--Investment Opportunities in Asia." The Company
may also make investments in other markets on an opportunistic basis to
capitalize on inefficiencies in such markets. The Company will be externally
managed by JER Asia Advisors, LLC (the "Manager"), a newly formed affiliate of
J.E. Robert Company, Inc. (together with its affiliates, "JER"), subject to the
direction and oversight of the Company's Board of Directors. See "Management of
Operations." Since 1991, JER has managed on behalf of, or purchased with,
various major financial institutions and government agencies, such as Goldman
Sachs, Credit Suisse First Boston, Lehman Brothers, GE Capital, Cargill
Financial Services, The Blackstone Group and the Federal Deposit Insurance
Corporation, over 15,000 assets totaling approximately $22 billion in sellers'
book value. These assets include performing, subperforming and nonperforming
mortgage loans, commercial mortgage backed securities, stabilized and
subperforming real property and real estate operating companies.
Investment Opportunities in Asia
The Company believes that the collapse of the real estate and financial
markets in East Asia and Southeast Asia will generate investment opportunities
comparable to, and potentially much larger in size than, the investment
opportunities generated by the crisis experienced by the U.S. real estate
markets and banking sector in the late 1980s and early 1990s. There is
currently a severe liquidity crisis in much of Asia, with little funding
available within these regions for the acquisition, maintenance or development
of real estate assets. Many publicly traded companies with significant real
estate investments are trading at deep discounts to net asset value, and many
companies are caught in liquidity crises which may force them to liquidate
assets in order to continue their operations. In addition, many of the banks
and other lenders in these regions are burdened with high levels of
<PAGE>
nonperforming assets. The Company believes that few of these institutions
possess the capability, experience or skills necessary to manage or resolve
such assets. Moreover, given the speed and severity with which these crises
occurred and the uncertain outlook for economic and financial stability, there
is currently relatively little interest or ability on the part of many
traditional real estate lenders and investors outside these regions in
acquiring these nonperforming or distressed assets. The Company believes that
to date, investors interested in acquiring financially weakened companies and
businesses within these regions have typically shown a preference for avoiding
exposure to troubled real estate assets. For these reasons, the Company
believes that opportunities exist to realize attractive returns by investing in
nonperforming, subperforming and distressed real estate and real estate related
assets and in real estate services and operating companies in East Asia and
Southeast Asia. See "The Company--Investment Opportunities in Asia."
Investment Strategy and Operating Policies
The Company intends to pursue a strategy which focuses on acquiring,
restructuring, managing and, where deemed appropriate, selling or securitizing
undervalued real estate and real estate related assets in East Asia, Southeast
Asia and elsewhere. The Company believes that the financial and economic crises
affecting most of the countries in East Asia and Southeast Asia, together with
the related lack of liquidity being experienced by local investors and what the
Company perceives as limited distressed real estate asset management experience
on the part of banks and other lending institutions in these markets, has
created significant investment opportunities to generate attractive returns. To
capitalize on these opportunities, the Company intends to utilize JER's 17
years of experience in real estate investment, asset management and
securitization in the United States, Canada and France, and its specialized
expertise in real estate loan workouts for governmental agencies, private
lenders and investors. The Company also believes it will be able to benefit
from the comprehensive investment evaluation, due diligence analysis, pricing,
asset management, securitization and risk management processes developed by
JER.
In addition, in 1995, in response to a deepening real estate recession in
France, JER entered into a joint venture with a French investment management
firm to pursue real estate investment opportunities in France. The Company
believes that this joint venture illustrates that JER's investment and asset
management systems and technology can be modified and adapted to facilitate
opportunistic investment in real estate assets in countries other than the
United States.
The Company is in the process of developing country specific operating and
investment strategies which are being designed to take into account the
different economic, cultural, political and legal environments of the countries
in which it will be investing. The Company may execute these strategies either
on its own or in joint ventures with local partners and/or with international
financial institutions. In general, the Company will seek to acquire performing
and nonperforming mortgage loans and distressed real estate, which the Company
expects to acquire primarily from (i) banks and other lenders (both on an
individual asset basis and through purchases of portfolios), (ii) real property
and construction companies, (iii) other companies facing liquidity problems
<PAGE>
which need to sell assets to meet cash flow needs and (iv) government agencies
which have acquired nonperforming and subperforming assets from the banking
sector and other sources. In appropriate situations, the Company may also
originate and fund mortgage loans, construction loans, bridge loans, mezzanine
loans and other types of real estate related financings. The Company also may
make investments in real estate operating companies and companies with
significant real estate and real estate related assets through purchases of
stock or debt in publicly traded Asian companies which are trading at a
substantial discount to net asset value or financially weakened privately held
companies. The Company may also participate in "white knight" transactions
involving negotiated settlements between borrowers and lenders regarding
distressed loans using funds provided in part by the Company. The Company may
also invest in real estate services companies engaged in development,
management, leasing and other real estate related activities.
The Company believes that a commercial mortgage backed securities ("CMBS")
market similar to that of the CMBS market in the United States may develop in
East Asia and Southeast Asia and plans to participate in the creation and
development of such a market. To the extent that such a market develops, the
Company intends to acquire, from various sources, primarily non-investment
grade classes of CMBS, including, when and if available, unrated "first loss"
classes of subordinated CMBS. The Company also may, from time to time, hedge
its foreign currency exposure (such as by entering into forward, futures or
options contracts to purchase or sell foreign currencies) to the extent
feasible and cost effective, and, from time to time, may hedge its exposure to
interest rate fluctuations through derivative instruments such as interest rate
swaps, caps, floors and other interest rate exchange contracts.
The Company will finance the acquisition of its assets with the net proceeds
of this Offering and the Concurrent Offerings, future offerings of equity
securities (including preferred stock) and borrowings. The Company expects to
leverage its assets significantly, and the Company's governing documents do not
explicitly limit the amount of leverage that the Company may employ. Instead,
the Board of Directors will adopt an indebtedness policy for the Company that
will give the Manager extensive discretion as to the amount of leverage to be
employed, depending on the Manager's assessment of acceptable risk in light of
the nature of the assets then held by the Company, subject to periodic review
by the Company's Board of Directors.
Risk Factors
An investment in the Common Stock involves various risks, and prospective
investors should consider carefully the matters discussed under "Risk Factors"
prior to an investment in the Company. Such risks include, among others:
The Company has no prior operating history, and none of the Company's
investments has been identified.
A substantial portion of the Company's assets are expected to be located
in Asian countries which are currently experiencing significant and
protracted financial and economic difficulties.
<PAGE>
Certain of the countries in Asia and other regions in which the Company
may invest have experienced in the past, are experiencing currently, and
may in the future experience, political and social instability that
could adversely affect the Company's investments in such countries.
The Company will be dependent on the Manager for its successful
operation. The Manager and its affiliates do not have prior experience
in real estate investments in Asia and do not currently have offices or
employees located in Asia.
Investments in Asia and other foreign countries may expose the Company
to currency exchange risks, adverse changes in foreign tax laws, foreign
law enforceability risks and other uncertainties of foreign laws and
foreign legal systems.
The Company expects to leverage its assets significantly, which is
likely to increase the volatility of the Company's income and net asset
value and could magnify the extent of any losses.
The Company intends to invest in distressed real estate, mortgage loans,
real estate operating companies and other investments that will require
significant management resources, will be illiquid, may not be income
producing on a current basis and may decrease in value because of
changes in economic conditions and other factors.
The Company also intends to invest in noninvestment grade, subordinated
mortgage backed securities, which are sensitive to events of loss, such
as credit losses due to borrower default, hazard losses and
enforceability issues.
The Company's investments will be sensitive to changes in prevailing
interest rates.
The Manager will be entitled to a substantial termination fee upon the
termination or nonrenewal of the Management Agreement other than for
cause.
The Company and the Manager have common officers and directors and may
face conflicts of interests between the Company and the Manager in
relation to business decisions regarding the Company, including the
allocation of investment opportunities and the provision of other
services in connection with the Company's assets.
The Company has no established financing sources and there can be no
assurance that financing can be obtained on favorable terms.
The directors and officers of the Company and the Manager will have
other calls on their time. Except for certain real estate and real
estate related investment opportunities which are located in the Asia
Pacific Region (as defined herein), the Management Agreement with the
Manager does not limit the Manager's right (or its affiliates' right) to
engage in other business activities or to provide services to others,
including other real estate investment vehicles.
<PAGE>
To maintain its exemption from regulation under the Investment Company
Act (as defined herein), the Company, among other things, must be
primarily engaged, directly or through majority-owned subsidiaries, in
the business of purchasing or otherwise acquiring mortgages and other
liens on and interests in real estate (from which at least 25% of its
gross income during each fiscal year must be derived) and additional
businesses other than investing, reinvesting, owning, holding or trading
in securities. To maintain its exemption therefrom, the Company
generally must meet such test within one year from the closing of the
Offering, and any failure to do so would adversely affect the Company.
The Company's Board of Directors has adopted, and can amend and revise,
the investment and operating policies and strategies of the Company
without a vote of stockholders.
The Manager
The business and investment affairs of the Company will be managed by JER
Asia Advisors, LLC (the "Manager"), a newly formed affiliate of J.E. Robert
Company, Inc. JER was founded in 1981 by Joseph E. Robert, Jr. in response to
the need of public and private financial institutions for expertise in
resolving real estate loan workouts. Originally, the firm was primarily engaged
in the management, liquidation and capital recovery of distressed commercial
real estate mortgages on behalf of financial institutions and government
agencies. During the 1980s and early 1990s, JER was awarded asset management
contracts by the Federal Savings and Loan Insurance Corporation, the Resolution
Trust Corporation and the Federal Deposit Insurance Corporation. These
contracts built the foundation for JER's principal investment and asset
management businesses. Since 1991, JER has managed on behalf of, or purchased
with, various major financial institutions and government agencies, such as
Goldman Sachs, Credit Suisse First Boston, Lehman Brothers, GE Capital, Cargill
Financial Services, The Blackstone Group and the Federal Deposit Insurance
Corporation, over 15,000 assets totaling approximately $22 billion in sellers'
book value. These assets include performing, subperforming and nonperforming
mortgage loans, commercial mortgage backed securities, stabilized and
subperforming real property and real estate operating companies. As a principal
investor, JER sources investment opportunities, oversees the due diligence,
valuation and acquisition processes, implements asset management and value
enhancement strategies, and coordinates the disposition of the assets. Over the
past seven years, JER has participated as an issuer, purchaser or due diligence
contractor of securitizations of commercial mortgage loans encompassing over
1,000 assets totaling approximately $3.2 billion in sellers' book value. Since
1991, JER has also served as the Special Servicer (as defined in the Glossary)
or asset manager for 23 securitized pools of nonperforming and performing
commercial loans with a par value at issuance of $8.9 billion and has received
Special Servicer ratings of "Superior" and "Above Average" from Fitch Investors
Service, Inc. and Standard & Poor's Corporation, respectively.
JER also manages two domestic private investment funds, JER Real Estate
Partners, L.P. and JER Real Estate Qualified Partners, L.P (collectively,
"JER's Private Funds"), which were organized in 1997 to invest
opportunistically in parallel in real estate and real estate related assets,
<PAGE>
including operating companies, in the United States, Canada, Mexico and Western
Europe. JER's Private Funds had their final closing in December 1997 with total
capital commitments of $435 million from approximately 20 institutional and
individual investors. JER's Private Funds, in conjunction with financial
partners, have made real estate and real estate related investments of
approximately $660 million in total gross asset value, representing 19 separate
transactions and 397 assets. The investments by JER's Private Funds to date
have been diversified in terms of geography and product type; the 19 closed
transactions include 12 single real estate asset transactions, three CMBS
transactions, two portfolio acquisitions, one investment in a real estate
operating company and one mezzanine loan. To date, none of JER's Private Funds'
investments has been disposed of.
In addition, JER believes it has taken significant steps to expand its
investment and asset management business to Europe. In 1995, in response to a
deepening real estate recession in France, JER entered into a joint venture
(the "JER French Joint Venture") with a French investment management firm to
pursue real estate investment opportunities in France. As part of this joint
venture arrangement, JER modified and adapted its investment and asset
management systems and investor reporting and asset performance tracking
technology to facilitate investment in French real estate assets. Since 1996,
the JER French Joint Venture has managed and purchased with financial partners
one real estate portfolio comprising 110 assets totalling French Franc ("FF")
170 million, and two single asset transactions totaling 20,000 square meters of
office space representing a book value of FF 70 million. The JER French Joint
Venture has also been the asset manager for a non-performing loan portfolio
consisting of 170 assets representing FF 900 million.
JER currently conducts its operations primarily from its Washington, D.C.
area headquarters located in McLean, Virginia. JER also has offices in Stamford
and Milford, Connecticut; Dallas, Texas; Los Angeles, California; New York, New
York; and Paris, France. The Manager anticipates that it may open one or more
additional offices, on either a temporary or permanent basis, in Hong Kong and
other Asian cities to the extent appropriate in connection with the expansion
of the Company's business. The Company and its subsidiary or affiliated
companies may also in the future hire their own personnel to perform certain
functions otherwise provided by the Manager, its affiliates and other third
parties, and may open and maintain offices in Asian cities as deemed necessary.
While taking this action would not reduce the base management fee (as described
below) which the Manager is entitled to receive, such a decision may reduce the
amounts paid to the Manager, its affiliates or other third parties for the
provision of Other Services (as defined herein).
Management Agreement
The Company will enter into an agreement (the "Management Agreement") with
the Manager pursuant to which the Manager, subject to the supervision of the
Company's Board of Directors, will: (i) serve as the Company's consultant with
respect to formulation of investment criteria and preparation of policy
guidelines by the Board of Directors; (ii) investigate, source and select
potential investment opportunities for the Company; (iii) make all decisions
concerning the commitment to, purchase, negotiation, structuring, monitoring,
<PAGE>
and disposition of investments by the Company; (iv) evaluate, recommend and
approve all decisions regarding any financings, securitizations, hedging
activities or borrowings undertaken by the Company or its subsidiaries; (v)
make available to the Company its knowledge and experience with respect to real
estate, real estate related assets and real estate operating companies; (vi)
counsel the Company in connection with policy decisions to be made by the Board
of Directors; (vii) upon request by and in accordance with the directions of
the Board of Directors, invest or reinvest any money of the Company pending
identification of appropriate assets consistent with the Company's investment
policies in which to invest or other uses; (viii) supervise other service
providers to the Company; and (ix) provide certain general management services
to the Company relating to the day-to-day operations and administration of the
Company in the United States.
For performing these services, the Manager will receive:
(i) a base management fee, which is intended to cover the Manager's
costs of providing its services under the Management Agreement, calculated
and paid quarterly, in an amount equal to 0.125% per quarter
(0.5% per annum) of the Average Invested Assets (as defined herein) of the
Company for such quarter; provided that, for the first four fiscal quarters
of the Company's operations following the closing of the Offering, the base
management fee shall be not less than the greater of (x) $1,250,000 per
quarter ($5,000,000 per annum) or (y) the Manager's actual costs of
providing its services to the Company under the Management Agreement for
such period), and
(ii) a quarterly incentive fee in an amount equal to the product of (A)
25% of the dollar amount by which (1) the Pre-Tax/Pre-Depreciation and
Amortization Net Income (as defined herein) (before the incentive fee, but
including gains from sales and restructurings of the Company's assets) of
the Company for such quarter per share of Common Stock (based on the
weighted average number of shares outstanding for such quarter) exceeds (2)
an amount equal to (a) the weighted average of the price per share of Common
Stock in the initial public offering and the prices per share of Common
Stock in any secondary offerings by the Company multiplied by (b) the
Ten-Year U.S. Treasury Rate plus five percent per annum (expressed as a
quarterly percentage) for such quarter, multiplied by (B) the weighted
average number of shares of Common Stock outstanding for such quarter. The
Board of Directors of the Company may adjust the base management fee in the
future if necessary to align the fee more closely with the actual costs of
the Manager's services.
In addition to the base management fee described in the preceding paragraph,
the Company will reimburse the Manager and its affiliates for (i) all costs
incurred by the Manager or its affiliates (including, without limitation,
travel, salaries, bonuses, benefits and related overhead and out-of-pocket
expenses) in researching, investigating, negotiating, structuring and
developing investment opportunities in Asia on behalf of the Company prior to
the sale of the Common Stock offered hereby and (ii) any additional start-up
costs and expenses the Manager or its affiliates may incur on behalf of the
Company subsequent to the closing of the Offering with respect to additional
<PAGE>
staffing, the establishment of new offices in Asia and the purchase of new
technology and equipment.
In addition, the Company may engage the Manager or its affiliates to provide
(i) services outside of the United States related to the day-to-day operations
and administration of the Company and to the performance and supervision of
such other administrative functions necessary in the management of the Company
as may be agreed upon by the Manager and Board of Directors, (ii) due diligence
and acquisition related services on assets purchased or considered for purchase
by the Company and (iii) asset management services, loan servicing, master or
special servicing, legal or accounting services, leasing services or property
management services with respect to assets acquired by the Company
(collectively, "Other Services"), for which Other Services the Manager and its
affiliates will be entitled to be compensated at reasonable arms-length rates
(see "Management of Operations--Management Compensation"). Finally, the Manager
and its affiliates also will be reimbursed for out-of-pocket expenses incurred
on behalf of the Company. See "Management of Operations--Company Expenses."
The Company may terminate, or decline to renew the term of, the Management
Agreement without cause at any time after the second anniversary of the Closing
Date (as defined in the Glossary) upon 60 days written notice by a majority
vote of the Unaffiliated Directors. Although no termination fee is payable in
connection with a termination for cause, in connection with a termination other
than for cause, the Company must pay the Manager a termination fee, which could
be substantial. The amount of the termination fee will be determined by
independent appraisal of the value of the Management Agreement for the four
years succeeding the date of termination. The Manager may decline to renew the
Management Agreement after its initial two-year term or after any subsequent two
year renewal term thereof. See "Management of Operations."
Negotiations with Nomura
The Manager, on behalf of the Company, is currently in preliminary
negotiations with Nomura Securities International, Inc. ("Nomura") to obtain a
credit facility in the amount of approximately $500 million which would be
secured by the assets of the Company. In addition, Nomura has indicated that it
intends to pursue other relationships with the Company, including the provision
of services relating to, among other things, identification of suitable
investments for the Company in Asia, certain co-investment rights with respect
to assets so identified, aiding the Company in securing permanent financing for
the Company's real estate assets and contributing nonperforming real estate
assets owned by affiliates of Nomura to the Company.
There can be no assurance, however, that negotiations with Nomura will
result in a definitive agreement being entered into or consummated or as to the
terms thereof.
Conflicts of Interest
The Company will be managed by the Manager and will be subject to various
potential conflicts of interest including, among others, the following:
<PAGE>
(i) the Manager and its affiliates are permitted to pursue investment
opportunities appropriate for the Company for their own account and for the
account of other clients except for performing, nonperforming,
subperforming, distressed and other real estate and real estate related
assets, including mortgage loans, mortgage backed securities, real estate
properties, companies with significant real estate assets and companies
involved in the business of real estate ownership, real estate services or
other real estate related operating businesses which are located in the Asia
Pacific Region (defined as Hong Kong, Indonesia, Malaysia, the Philippines,
Singapore, Taiwan, Thailand, China, India, Australia, Bangladesh, Cambodia,
Japan, South Korea, Laos, Mongolia, Myanmar, New Zealand, Pakistan, Sri
Lanka and Vietnam) unless (A) the Company does not have the financial
capacity (as determined in good faith by the Manager) to make such
investment or (B) a majority of the Unaffiliated Directors have determined
that such investment or the general category of investments to which such
investment relates is not appropriate for the Company in light of the
Company's investment strategies and policies at the time such investment is
identified, and, although the Company intends to focus its investment
activities primarily in East Asia and Southeast Asia, if the Company were to
pursue investment opportunities in the United States, Canada, Mexico or
Western Europe, JER is currently required to present such investment
opportunities to JER's Private Funds rather than to the Company (see "Risk
Factors--Other Risks--Conflicts of Interest in the Business of the
Company");
(ii) the incentive fee, which is based on the Company's income, may
create an incentive for the Manager to make investments on behalf of the
Company with greater income or gain potential, but which are also riskier or
more speculative than investments the Manager might otherwise recommend if
its fee did not include a "performance" component;
(iii) the structure of the base management fee, which is based upon the
Average Invested Assets of the Company rather than the net assets of the
Company, will provide an incentive to the Manager to effect borrowings by
the Company and thereby increase the amount of total assets which are
subject to the base management fee; and
(iv) the executive officers and certain of the directors of the Company
will be directors, officers and employees of the Manager and (v) the Manager
and its affiliates may provide Other Services to the Company for which
services the Manager and its affiliates will be entitled to be compensated
at reasonable arms-length rates (see "Management of Operations--Management
Compensation").
In addition, the Company may purchase assets for investment from JER. Many
of such assets will not have a readily determinable fair market value and
independent valuations may not be sought. The Company intends to adopt
operating policies to minimize the effect of such conflicts. The Unaffiliated
Directors will review any such transactions prior to completion to ensure that
they are fair and on reasonable arms-length terms. However, the Unaffiliated
Directors are expected to rely primarily on the advice of and information
provided by the Manager in deciding whether to approve such transactions, and
there can be no assurance that the price and other terms of such transactions
will be fair to the Company. In addition, the Board of Directors intends to
<PAGE>
approve certain operating and investing guidelines, which may be amended from
time to time.
For a description of certain limitations on the activities of certain
members of the Manager, see "Risk Factors--Conflicts of Interest" and
"Management of Operations--Certain Relationships; Conflicts of Interest."
Certain Benefits to Related Parties
Pursuant to the 1998 Stock Option Plan (as defined in the Glossary), the
Company will authorize the issuance of options to purchase 1,500,000 shares of
Common Stock. Out of such authorized options, the Company will grant to the
Manager, as of the Closing Date, options to purchase an aggregate number of
shares of Common Stock (which the Manager may allocate to its directors,
officers and employees) equal to 10% of the shares of Common Stock outstanding
after the Offering and the Concurrent Offerings. The exercise price of such
options will be equal to the initial public offering price. See "Management of
Operations--Stock Options." Such options will expire on the tenth anniversary
of the Closing Date, and 25% of such options will become exercisable upon each
of the first four anniversaries of the Closing Date.
The Company has also agreed to sell, and FBR Asset has agreed to purchase, a
minimum of $25 million of Common Stock in the Concurrent Offerings. In
addition, the Company has agreed to sell, and the JER Investors have agreed to
purchase in the Concurrent Offerings, a number of shares of Common Stock such
that the JER Investors' aggregate investment constitutes the lesser of (i) 2%
of the total number of shares outstanding immediately following consummation of
the Offering and the Concurrent Offerings (assuming that the Underwriters'
overallotment option is not exercised) and (ii) $20 million in total value. The
price of the shares of Common Stock to be placed in the Concurrent Offerings
will be equal to the initial public offering price net of underwriting
discounts and commissions. The Company has granted certain "demand" and
"piggyback" registration rights to the JER Investors and FBR Asset with respect
to the Common Stock acquired by them in the Concurrent Offerings (see
"Description of Capital Stock--Registration Rights"). The JER Investors and FBR
Asset have agreed not to offer, sell or contract to sell or otherwise dispose
of the Common Stock acquired by them pursuant to the Concurrent Offerings
without the prior consent of the Underwriters, for a period of one year from
the Closing Date, provided that if the Manager at any time during such period
no longer serves as the manager of the Company, such restriction shall apply
only for a period of 120 days from the date of this Prospectus.
<PAGE>
The Offering
<TABLE>
<S> <C>
Shares offered to the public<F1><F2> . . . . . . 5,000,000 shares
Shares to be outstanding after Offering and the
Concurrent Offerings<F1><F2> . . . . . . . . . . 6,377,551 shares
____________________
<FN>
<F1> Assumes that the Underwriters' option to purchase up to an additional
750,000 shares to cover overallotments is not exercised.
<F2> See "Description of Capital Stock" and "Capitalization." Includes
1,377,551 shares to be purchased by the JER Investors and FBR Asset in
the Concurrent Offerings.
</TABLE>
Use Of Proceeds
The Company intends to invest the net proceeds of this Offering and the
Concurrent Offerings temporarily in readily marketable, interest-bearing
securities until the Company identifies appropriate assets consistent with its
investment policies in which to invest. See "Use of Proceeds."
Dividend Policy
The Company currently intends to retain all or a significant portion of its
net earnings and cash flow to be used for future investments. Any future
dividends or distributions will be made by the Company at the discretion of the
Board of Directors and will depend on the earnings and financial condition of
the Company, prospective investments by the Company, and such other factors as
the Board of Directors deems relevant. The Company does not expect to pay cash
dividends on its Common Stock in the foreseeable future.
Tax Status of the Company
The Company does not intend to elect to be taxed as a real estate investment
trust, or "REIT," under the Internal Revenue Code of 1986, as amended (the
"Code"). Instead, the Company expects to be taxed as a corporation under the
Code.
The Company may be required to pay taxes in foreign jurisdictions and, in
certain circumstances, may not be able to credit these foreign taxes against
United States taxes. As such, although the Company will take tax
considerations into account when making investment decisions, the Company may
be subject to tax at effective rates higher than the maximum United States
federal income tax rate in certain circumstances.
<PAGE>
RISK FACTORS
An investment in the Common Stock involves various risks. Before
purchasing shares of the Common Stock offered hereby, prospective investors
should give special consideration to the information set forth below, in
addition to the information set forth elsewhere in this Prospectus.
Foreign Investments May Pose a Greater Risk of Loss
The Value of the Company's Foreign Investments Will Fluctuate Based on
Exchange Rates Between Foreign Currencies and the U.S. Dollar. The Company
intends to invest a substantial portion of its assets in investments located
in Asia and other markets. The Company expects that substantially all the
investments it makes in foreign countries will be made in the local
currencies of those countries and that the income on, and gains on the
disposition of, such investments will also be in such foreign currencies.
Accordingly, the value of the Company's foreign investments and any income or
gains received thereon will fluctuate based on changes in the exchange rates
between such foreign currencies and the U.S. dollar. These risks are
especially significant for investments in certain of the Asian countries in
which the Company expects to invest since the currencies of these countries
have experienced substantial devaluations compared to the U.S. dollar over
the past year and may experience further devaluations in the future. A
decrease in the value of a foreign currency compared to the U.S. dollar would
decrease the value of the Company's investments denominated in that currency
when translated into U.S. dollars. In addition, the Company will generally
incur transaction costs when it exchanges U.S. dollars for a foreign currency
for investment or a foreign currency for U.S. dollars for repatriation back
to the Company for reinvestment in a different country or for distribution to
stockholders. The Company may hedge its foreign currency exposure (such as by
entering into forward, futures or options contracts to purchase or sell
foreign currencies) to the extent it deems it to be feasible and cost
effective. However, the Company will be required to incur the expenses
associated with entering into such hedging agreements, which will reduce its
operating returns, and there can be no assurance that the Company's hedging
strategies will be effective.
Economic and Financial Instability May Adversely Affect the
Company's Foreign Investments. Certain of the countries in Asia and other
regions in which the Company expects to invest are currently experiencing
severe deteriorations in their economies, led by collapses in real estate
prices, credit markets, stock market indices, currency valuations and
consumer spending. While the Company believes that these negative economic
conditions have created significant investment opportunities that could
produce attractive returns, there can be no assurance that the current
economic and financial difficulties in these countries will not continue or
worsen, or spread to other countries in which the Company has invested, and
thereby adversely affect the value of the Company's investments or make it
more difficult for the Company to locate appropriate investment
opportunities. Furthermore, the economies of certain countries in East Asia
and Southeast Asia are heavily dependent on international trade and,
accordingly, have been and continue to be adversely affected by trade
<PAGE>
barriers, managed adjustments in relative currency values, other
protectionist measures imposed or negotiated by the countries with which they
trade and international economic developments generally. Any such
developments could adversely affect the value of the Company's investments or
its ability to locate appropriate investment opportunities.
Political and Social Events May Adversely Affect the Company's
Foreign Investments. Certain of the countries in Asia and other regions in
which the Company may invest have experienced in the past, are experiencing
currently, and may in the future experience, political and social instability
that could adversely affect the Company's investments in such countries. Such
instability could result from, among other things, popular unrest associated
with demands for improved political, economic and social conditions,
including those related to the current economic and financial crises
affecting certain countries. For example, although the Company does not
currently intend to focus its investment activities on Indonesia, Indonesia
is currently experiencing significant political and social instability
resulting from popular unrest that is a result, at least in part, of
Indonesia's economic and financial instability. This political and social
instability in Indonesia may have an adverse impact on economic and financial
stability in East Asia and Southeast Asia generally, thus exacerbating the
economic situations of the other countries in these regions (see "--Economic
and Financial Instability May Adversely Affect the Company's Foreign
Investments," above).
Foreign Restrictions on Investment and Repatriation of Investment
Income May Adversely Affect the Company. Certain of the countries in which
the Company may invest currently have restrictions on the repatriation of
investment income or capital or impose procedural requirements, such as the
need for governmental consent, on the repatriation of such amounts. It is
possible that other countries in which the Company may invest could adopt
similar restrictions in the future. In addition, some of these countries
impose restrictions on the ability of foreign persons to invest in companies,
assets or properties deemed important to the national interest, or limit
investment by foreign persons to specified classes of securities of companies
that may have less advantageous terms than those available for purchase by
nationals of those countries. These restrictions may adversely affect the
Company's ability to make investments on advantageous terms or to repatriate
income or capital from investments.
The Availability and Quality of Foreign Financial Information and
Standards May Adversely Affect the Company's Ability to Find and Manage
Foreign Investments. Companies and businesses in Asia and other markets
outside the United States generally are subject to accounting, auditing and
financial disclosure standards that differ, in some cases significantly, from
those in effect in the United States. In particular, the asset values and
profits appearing on the financial statements of an Asian or other foreign
company or business may not be comparable to the asset values and profits
that would be reflected under GAAP (as defined in the Glossary). Moreover,
substantially less information may be publicly available about companies and
businesses in Asian countries and other foreign countries than is available
with respect to comparable publicly traded American companies. These
differences and limitations may adversely affect the Company's ability to
<PAGE>
find and manage appropriate investment opportunities in Asian countries and
other foreign countries and may adversely affect the value and liquidity of
the Company's investments.
Foreign Laws and Legal Systems May Adversely Affect the Value of
the Company's Foreign Investments. Investments in assets, businesses and
securities in Asian countries and other countries outside the United States
will be subject to the laws and regulations of those countries, which may be
substantially different than those of the United States. Among other things,
the laws with respect to the rights of creditors and other investors may not
be as comprehensive or as well developed as in the United States and the
procedures for the judicial or other enforcement of such rights may not be as
effective as in the United States. In particular, in certain countries, the
Company could experience significant legal difficulties and impediments in
taking possession of, or otherwise in enforcing its rights with respect to,
certain kinds of collateral. These factors may adversely affect the value and
collectibility of the Company's investments in such countries.
Foreign Taxation May Decrease Returns on the Company's Investments.
Taxation of interest, dividends and capital gains received by foreign
investors varies among the countries within East Asia and Southeast Asia and,
in some cases, is comparatively high. In addition, developing countries
typically have less well defined tax laws and procedures than does the United
States. Such less developed laws may permit retrospective taxation so that
the Company could in the future become subject to a local tax liability that
had not reasonably been anticipated by the Company prior to making the
investment. Any such retrospective tax could adversely affect the return
received by the Company on investments affected thereby.
General Investment Activity Risks May Adversely Affect the Company
Limited Available Investments May Inhibit Realization of the Company's
Objectives. The results of the Company's operations will be dependent upon
the availability of opportunities for the acquisition of real estate and real
estate related assets. The Company has not identified any specific assets in
which to invest, and it may take considerable time for the Company to find
appropriate investment opportunities. The Company intends to invest the net
proceeds of this Offering and the Concurrent Offerings in readily marketable,
interest bearing securities until such time as the Company identifies
appropriate real estate and real estate related assets in which to invest.
Such short-term investments are expected to provide a significantly lower net
return to the Company than the Company seeks to achieve from its intended
real estate and real estate related investments. No assurances can be given
that the Company will be successful in acquiring economically attractive
assets or that the assets, once acquired, will maintain their economic
desirability. To the extent that the Company acquires assets other than those
detailed herein, such other assets may pose risks to the Company and to the
value of the Company's Common Stock that are different from or in addition to
the risks enumerated herein.
<PAGE>
Real Estate is Illiquid and Its Value May Decrease. Real estate assets
are relatively illiquid. Accordingly, the ability of the Company to vary its
portfolio of real estate assets in response to changes in economic and other
conditions will be limited. No assurances can be given that the fair market
value of any of the Company's real estate assets will not decrease in the
future.
Value of Real Estate is Dependent on Conditions Beyond the Company's
Control. The Company expects to invest principally in real estate and real
estate related assets, which are subject to varying degrees of risk generally
incident to the ownership of real property. A significant portion of these
investments may consist of distressed real estate assets which have
significant amounts of unleased space and thus may not generate revenues
sufficient to pay operating expenses and meet debt service obligations. The
underlying value of such real estate and real estate related assets and the
Company's income may be dependent upon the ability of the Manager to operate
such assets in a manner sufficient to maintain or increase revenues in excess
of operating expenses and debt service or, in the case of real property
leased to a single lessee, the ability of the lessee to make rent payments.
Revenues may be adversely affected by adverse changes in regional, national
or local economic conditions, competition from other properties offering the
same or similar services, changes in interest rates and in the availability,
cost and terms of mortgage funds, the impact of present or future
environmental legislation and compliance with environmental laws, the ongoing
need for capital improvements (particularly in older structures), changes in
real estate tax rates and other operating expenses, adverse changes in
governmental rules and fiscal policies, civil unrest, acts of God, including
earthquakes, typhoons and other natural disasters (which may result in
uninsured losses), acts of war, adverse changes in zoning laws, and other
factors which are beyond the control of the Company.
Property Taxes Decrease Returns on Real Estate. Real estate assets may
be subject to real and, in some instances, personal property taxes. The real
and personal property taxes on properties in which the Company invests may
increase or decrease as property tax rates change and as the properties are
assessed or reassessed by taxing authorities.
Real Properties with Hidden Environmental Problems Will Increase Costs
and May Create Liability for the Company. Operating costs and the value of
real estate and real estate related assets may be affected by the obligation
to pay for the cost of complying with existing environmental laws, ordinances
and regulations, as well as the cost of any future legislation. Under the
environmental laws, ordinances and regulations of certain countries in which
the Company expects to invest, a current or previous owner or operator of
real property may be liable for the costs of removal or remediation of
hazardous or toxic substances on, under or in such property. Such laws may
impose liability whether or not the owner or operator knew of, or was
responsible for, the presence of such hazardous or toxic substances.
Therefore, an environmental liability could have a material adverse effect on
the underlying value of the real estate and the Company's income and
financial condition.
<PAGE>
Distressed Mortgage Loans Are More Likely to Cause Losses to the
Company. The Company may purchase nonperforming and subperforming mortgage
loans, as well as mortgage loans that have had a history of delinquencies or
defaults. These mortgage loans may be in default or may have a greater than
normal risk of future defaults, delinquencies, bankruptcies or fraud losses,
as compared to a pool of newly originated, high quality loans of comparable
type, size and geographic concentration. Returns on an investment of this
type depend on the borrower's ability to make required payments (or, with
respect to subperforming loans, the modified monthly payments required under
any applicable forbearance plan) or, in the event of default, the ability of
the loan's servicer to foreclose and liquidate the mortgage loan. In the
event of any default under mortgage loans held by the Company, the Company
will bear the risk of loss of principal to the extent of any deficiency
between the value of the mortgage collateral and the principal amount of the
mortgage loan. There can be no assurance that the Company will be able to
liquidate a defaulted mortgage loan successfully or in a timely fashion.
Greater Risks of Loss May Arise From Construction Lending Activities and
Bridge and Mezzanine Loans. The Company may originate or acquire loans
secured by existing commercial real estate or multifamily residential real
estate, including loans that are subordinate to first liens on such real
estate. Multifamily residential and commercial real estate lending,
particularly construction and rehabilitation lending, is considered to
involve a higher degree of risk than single family residential lending
because of a variety of factors, including generally larger loan balances,
dependency on successful completion or operation of the project for
repayment, difficulties in estimating construction costs and loan terms that
often require little to no amortization of the loan over its term (typically
five years) and, instead, provide for a balloon payment at stated maturity.
Loans that are subordinate to first liens on real estate are subject to
greater risks of loss than first lien mortgage loans. An overall decline in
the real estate market could adversely affect the value of the property
securing the loans such that the aggregate outstanding balance of the loan
made by the Company and the balance of the more senior loan on the property
exceed the value of the property. The Company may, in some cases, seek to
mitigate this risk by providing a mezzanine loan to the entity that owns a
property, secured by a controlling equity interest in such owner, so that, in
the event of a default, the Company can take over the management of the
property and seek to reduce the amount of losses. Alternatively, the
mezzanine loans could take the form of a non-voting preferred equity
investment in a single purpose entity. There can be no assurance, however,
that the Company will be able to structure transactions in such manner in
order to mitigate the risks described above.
Limited Recourse Loans May Limit the Company's Recovery to the Value of
the Mortgaged Property. The Company anticipates that some of the mortgage
loans that it will acquire may contain limitations on the mortgagee's
recourse against the borrower. In other cases, the mortgagee's recourse
against the borrower may be limited by applicable provisions of the laws of
the jurisdictions in which the mortgaged properties are located or by the
mortgagee's selection of remedies and the impact of those laws on that
selection. In any of those cases, in the event of a borrower default,
recourse may be limited to only the specific mortgaged property and other
<PAGE>
assets, if any, pledged to secure the relevant mortgage loan. As to those
mortgage loans that provide for recourse against the borrower and its assets
generally, there can be no assurance that such recourse will provide the
Company with a recovery in respect of a defaulted mortgage loan greater than
the liquidation value of the mortgaged property securing that mortgage loan.
Volatility of Real Estate Values May Adversely Affect the Value of the
Company's Investments. Real estate values and net operating income derived
therefrom are subject to volatility and may be affected adversely by a number
of factors, including, but not limited to, national, regional and local
economic conditions (which may be adversely affected by plant closings,
industry slowdowns and other factors as well as general macro-economic
trends); local real estate conditions (such as an oversupply of housing,
retail, industrial, office or other commercial space); changes or continued
weakness in specific industry segments; perceptions by prospective tenants,
retailers and shoppers of the safety, convenience, services and
attractiveness of the property; the willingness and ability of the property's
owner to provide capable management and adequate maintenance; construction
quality, age and design; demographic factors; retroactive changes to building
or similar codes; and increases in operating expenses (such as energy costs).
Ownership of Noninvestment Grade Mortgage Assets Is Subject to Increased
Risk of Loss. The Company intends to acquire noninvestment grade mortgage
assets, including, when and if available, CMBS and unrated "first loss"
classes of subordinated CMBS. A first loss class is the most subordinate
class in a CMBS structure and accordingly is the first to bear the loss upon
a default on restructuring or liquidation of the underlying collateral and
the last to receive payment of interest and principal. Such classes are
subject to special risks, including a substantially greater risk of loss of
principal and non-payment of interest than more senior, rated classes. The
market values of subordinated CMBS tend to be more sensitive to changes in
economic conditions than more senior, rated classes. As a result of these and
other factors, subordinated CMBS generally are not actively traded and may
not provide holders thereof with liquidity of investment. The yield to
maturity on subordinated CMBS of the type the Company intends to acquire,
when and if available, will be extremely sensitive to the default and loss
experience of the underlying mortgage loans and the timing of any such
defaults or losses. Because these types of subordinated CMBS generally have
no credit support, to the extent there are realized losses on the mortgage
loans, the Company may not recover the full amount or, in extreme cases, any
of its initial investment in such subordinated CMBS.
Investments with Third Parties, Non-Controlling Investments and
Investments in Companies with Assets Other than Real Estate or Real Estate
Related Assets May Adversely Affect the Company's Ability to Achieve its
Investment Objectives. The Company may co-invest with third parties through
partnerships, joint ventures or other entities, or acquire ownership
positions in public or private operating companies, including non-controlling
interests. The Company may have shared control or no control over these
investments and therefore, may have limited ability to protect its interests
in such investments, although the Company will seek to negotiate appropriate
rights with any such third-party partner or co-venturer to protect the
Company's interests and the Company will seek to obtain the right to
<PAGE>
participate in the management of operating companies in which it invests.
Nevertheless, such investments may involve risks not present in investments
where a third party is not involved or where the Company controls management
of the operating company, including the possibility that a third-party
partner, co-venturer or management of the operating company may have
financial difficulties resulting in a negative impact on such investment, may
have economic or business interests or goals which are inconsistent with
those of the Company, or may be in a position to take action contrary to the
Company's objectives. In addition, the Company may in certain circumstances
be liable for the actions of its third-party partners or co-venturers.
Furthermore, in certain circumstances, the Company may only acquire a
participation in an asset underlying an investment and therefore may not be
able to exercise any degree of control over the management of such
investment. Moreover, an investment by the Company in a company that has
significant real estate assets but also has significant non-real estate
assets or operations will expose the value of such an investment to the
general business risks to which such company's other assets are subject.
Economic and Business Risks
Leverage Increases Exposure to Loss. After the initial "start-up"
period, the Company intends to leverage its portfolio through borrowings,
generally through the use of commercial paper borrowings, bank credit
facilities, warehouse lines of credit on pools of real estate and mortgage
loans, mortgage loans on real estate and other borrowings. The percentage of
leverage used will vary depending on the Company's estimate of the stability
of the portfolio's cash flow. To the extent that changes in market conditions
cause the cost of such financing to increase relative to the income that can
be derived from the assets acquired, the Company may reduce the amount of
leverage it utilizes.
Although there is no specified limitation on the Company's indebtedness,
generally the Company expects the ratio of the Company's overall indebtedness
(as defined below) to its equity (as defined below) not to exceed 9 to one.
For these purposes "indebtedness" includes only full recourse debt of the
Company, but not any debt issued in a securitization transaction or otherwise
for which recourse is limited to a fixed pool of assets, and "equity"
excludes any assets pledged to secure any such non-recourse debt. However,
the Company's Certificate of Incorporation and Bylaws do not limit the amount
of indebtedness the Company can incur, and the Board of Directors has
discretion to deviate from or change this indebtedness policy at any time,
without consent from or notice to the Company's stockholders.
Leverage creates an opportunity for increased net income, but at the
same time creates risks. For example, if the interest rate expense on the
Company's indebtedness exceeds the return on the assets financed by such
indebtedness, the Company's leveraged capital structure will result in lower
net income than if the Company were not so leveraged. The Company will
leverage assets only when the Company expects that the use of leverage will
enhance returns, although there can be no assurance that the Company's use of
leverage will prove to be beneficial. Moreover, there can be no assurance
that the Company will be able to meet its debt service obligations and, to
the extent that it cannot, the Company risks the loss of some or all of its
assets.
<PAGE>
The Company Has No Established Financing and the Failure to Secure
Financing Could Adversely Affect the Company's Ability to Achieve Its
Investment Objectives. The Company has not established any lines of credit or
collateralized financing, and, if such financing is available, there is no
assurance that it will be available on favorable terms.
Concentration of the Company's Assets in a Limited Geographic Location
or Types of Investments May Adversely Affect the Business of the Company. The
Company has no predetermined limitations for concentration of investments by
(i) asset type, (ii) geographic location or (iii) issuer or industry and, the
Company may change its concentration of asset type, assets in a geographic
location or assets in an issuer or industry as the Manager, with the Board of
Directors' approval, may deem appropriate. To the extent that the Company's
investments become concentrated in a particular asset type, in a limited
number of countries or a particular region or in a limited number of issuers
or industries, the return on an investment in the Common Stock will become
more susceptible to developments affecting that particular asset type, the
economies of such countries or region or that particular issuer or industry.
There can be no assurance that the Manager's efforts to diversify the
Company's portfolio of investments to avoid undue concentration will be
successful.
Adverse Changes in General Economic Conditions Can Adversely Affect the
Company's Business. The Company's success will be dependent upon the general
economic conditions in the geographic areas in which its investments will be
located. Adverse changes in national economic conditions or in the economic
conditions of the regions in which the Company intends to conduct business
likely would have an adverse effect on real estate values, interest rates
and, accordingly, the Company's business. A substantial number of the
Company's investments are expected to be located in Asian countries which are
currently experiencing significant and protracted economic and financial
difficulties, and there can be no assurance that conditions in these
countries will stabilize or improve.
Interest Rate Changes May Adversely Affect the Company's Investments and
Hedging Activities. Interest rates are highly sensitive to many factors,
including governmental monetary and tax policies, domestic and international
economic and political considerations, and other factors beyond the control
of the Company. The Company's operating results will depend in part on the
difference between the interest income earned on interest earning assets and
the interest expense incurred in connection with its interest bearing
liabilities. Changes in the general level of interest rates can affect the
Company's income by affecting the spread between the Company's interest
earning assets and interest bearing liabilities, as well as, among other
things, the value of the Company's interest earning assets and its ability to
realize gains from the sale of assets and the average life of the Company's
interest earning assets. The Company may employ a hedging strategy to limit
the effects of changes in interest rates on its operations, including
engaging in interest rate swaps, caps, floors and other interest rate
exchange contracts. The use of these types of derivatives to hedge a
portfolio carries certain risks, including the risk that losses on a hedge
<PAGE>
position will reduce the Company's net income and, indeed, that such losses
may exceed the amount invested in such instruments. There is no perfect hedge
for any investment, and a hedge may not perform its intended use of
offsetting losses on an investment. Moreover, with respect to certain of the
instruments used as hedges for the Company's portfolio, the Company is
exposed to the risk that the counterparties with which the Company trades may
cease making markets and quoting prices in such instruments, which may render
the Company unable to enter into an offsetting transaction with respect to an
open position. The profitability of the Company may be adversely affected
during any period as a result of changing interest rates.
Hedging instruments often are not traded on regulated exchanges,
guaranteed by an exchange or its clearing house, or regulated by any
governmental authorities. Consequently, there may be no requirements with
respect to record keeping, financial responsibility or segregation of
customer funds and positions. The Company will enter into these transactions
only with counterparties which are believed to be creditworthy in the good
faith judgment of the Manager. The business failure of a counterparty with
which the Company has entered into a hedging transaction will most likely
result in a default, which may result in the loss of unrealized profits,
expose the Company to interest rate risk and force the Company to cover its
resale commitments, if any, at the then current market price. Although
generally the Company will seek to reserve for itself the right to terminate
its hedging positions, it may not always be possible to dispose of or close
out a hedging position without the consent of the counterparty, and the
Company may not be able to enter into an offsetting contract in order to
cover its risk. There can be no assurance that a liquid secondary market will
exist for hedging instruments purchased or sold, and the Company may be
required to maintain a position until exercise or expiration, which could
result in losses. Moreover, unlike the more developed securities market in
the United States, many securities markets in East Asia and Southeast Asia do
not yet permit, or have not developed substantial bodies of regulatory and
market practice and experience in, the trading of hedging instruments. As a
result, the Company may not be able to implement its hedging and investment
strategies fully, thereby impeding the ability of the Company to reduce risks
or maximize investment returns through hedging activities.
Conflicts of Interest
Conflicts of Interest in the Business of the Company May Result in
Decisions that Do Not Fully Reflect Stockholders' Best Interests. The Company
will be subject to various potential conflicts of interest arising from its
relationship with the Manager and its affiliates. With a view toward
protecting the interests of the Company's stockholders, the Certificate of
Incorporation of the Company provides that, beginning 90 days after this
Offering, a majority of the Board of Directors must be Unaffiliated
Directors.
The execution of the Management Agreement will be approved by a majority
of Unaffiliated Directors. Moreover, each renewal of the Management Agreement
after the initial two-year term will require the affirmative vote of a
majority of the Unaffiliated Directors, and a majority of the Unaffiliated
Directors may terminate the Management Agreement at any time after two years
<PAGE>
upon 60 days' notice and payment (where applicable) of a termination fee. See
"Management of Operations--The Management Agreement." The Company believes
that the compensation provisions of the Management Agreement will provide an
incentive for the Manager and its personnel to seek to maximize stockholder
value, by tying the Manager's incentive compensation to Pre-Tax/Pre-
Depreciation and Amortization Net Income per share, calculated on a basis
which is before the incentive fee and adjusted by adding gains (or
subtracting losses) from restructurings and sales of assets. See "Management
of Operations--Management Compensation." For the definition of Pre-Tax/Pre-
Depreciation and Amortization Net Income see "Management of Operations--
Management Compensation" below. Pre-Tax/Pre-Depreciation and Amortization Net
Income does not represent cash generated from operating activities in
accordance with GAAP and should not be considered as an alternative to cash
flow as a measure of liquidity or ability to make distributions.
The incentive fee provided for by the Management Agreement, which is
based on the Company's income, may create an incentive for the Manager to
make investments on behalf of the Company with greater income or gain
potential, but which are also riskier or more speculative than investments
the Manager might otherwise recommend if its fee did not include a
"performance" component. The structure of the base management fee, which is
based upon the Average Invested Assets of the Company rather than the net
assets of the Company, will provide an incentive to the Manager to effect
borrowings by the Company and thereby increase the amount of total assets
which are subject to the base management fee.
Other than as described in this paragraph, the Management Agreement does
not limit or restrict the right of the Manager or any of its officers,
directors, employees or affiliates from engaging in any business or rendering
services of any kind to any other person, including the purchase of or
rendering advice to others purchasing real estate assets that meet the
Company's policies and criteria. During the term of the Management Agreement,
the Company will have an exclusive right to any investment opportunity
identified by the Manager, its officers, directors, employees and affiliates
with respect to performing, nonperforming, subperforming, distressed and
other real estate and real estate related assets, including mortgage loans,
mortgage backed securities, real estate properties, companies with
significant real estate assets and companies involved in the business of real
estate ownership, real estate services or other real estate related operating
businesses which are located in the Asia Pacific Region (as defined below),
unless, (i) the Company does not have the financial capacity (as determined
in good faith by the Manager) to make such investment or (ii) a majority of
the Unaffiliated Directors have determined that such investment or the
general category of investments to which such investment relates is not
appropriate for the Company in light of the Company's investment strategies
and policies at the time such investment is identified. The term "Asia
Pacific Region" means Hong Kong, Indonesia, Malaysia, the Philippines,
Singapore, Taiwan, Thailand, China, India, Australia, Bangladesh, Cambodia,
Japan, South Korea, Laos, Mongolia, Myanmar, New Zealand, Pakistan, Sri Lanka
and Vietnam.
<PAGE>
Although the Unaffiliated Directors will approve the Management
Agreement, daily operations between the Company and the Manager and its
affiliates will not be required to be approved by the Board of Directors.
The Manager and its affiliates expect to continue to purchase real
estate and real estate related assets in the future for their own account and
for the accounts of other clients, and, other than as described above, have
no obligation to make investment opportunities available to the Company. As a
consequence, the opportunity for the Company to invest in real estate and
real estate related assets will be limited if such investment opportunities
would be attractive to JER or its clients. Furthermore, pursuant to the
organizational documents of JER's Private Funds, JER is currently required,
under most circumstances, to present investment opportunities in the United
States, Canada, Mexico and Western Europe to JER's Private Funds. As a
consequence, although the Company intends to focus its investment activities
primarily in East Asia and Southeast Asia, if the Company were to pursue
investment opportunities in the United States, Canada, Mexico or Western
Europe, the Company's opportunity to make such investments would be limited.
The obligation of JER to present investment opportunities in the United
States, Canada, Mexico and Western Europe to JER's Private Funds will expire
upon the earlier to occur of January 2001 or the full investment of such
investment vehicles. In addition, investment vehicles organized, sponsored or
advised by JER after the date hereof may also contain restrictions and
limitations on the ability of JER to offer investment opportunities to the
Company, provided that no such restriction or limitation shall restrict the
ability of the Company to pursue investment opportunities in East Asia and
Southeast Asia or conflict with the Company's exclusivity rights set forth in
the second preceding paragraph above.
The Company also is subject to conflicts of interest with the Manager
because the Company may purchase assets for investment from JER. Any such
assets purchased may not have a readily determinable fair market value and
independent valuations may not be sought. The Company intends to adopt
operating policies to minimize the effect of such conflicts. The Unaffiliated
Directors will review any such transactions prior to completion to ensure
that they are on fair and reasonable arms-length terms. However, the
Unaffiliated Directors are expected to rely primarily on the advice of and
information provided by the Manager in deciding whether to approve such
transactions, and there can be no assurance that the price and other terms of
such transactions will be fair to the Company.
JER's Other Businesses May Create Conflicts in the Allocation of
Management Resources. The directors and officers of the Company and the
Manager have other calls on their time. Except as set forth above, the
Management Agreement with the Manager does not limit the Manager's right (or
its affiliates' rights) to engage in other business activities or to provide
services to others, including other real estate investment vehicles. JER
advises other entities that invest in the types of assets in which the
Company will invest and, except as set forth above, the Management Agreement
does not limit or restrict the right of JER or any of its officers,
directors, employees or affiliates from engaging in any business or rendering
services of any kind to any other person, including the purchase of or
rendering advice to others purchasing real estate assets that meet the
<PAGE>
Company's policies and criteria. Furthermore, real estate investments of the
type that the Company expects to make will require a substantial commitment
of management time and resources. As a result, conflicts may arise in the
allocation of management resources. In addition, pursuant to the
organizational documents of JER's Private Funds, until the earlier to occur
of January 2001 or the full investment of JER's Private Funds, Joseph E.
Robert, Jr. is obligated to devote approximately 80% of his business time and
attention to the business of JER's Private Funds.
Other Risks
Certain Provisions of the Company's Certificate of Incorporation and
Bylaws and the Issuance of Preferred Stock May Prevent a Change in Control.
The Company's Certificate of Incorporation and Bylaws provide that (i)
stockholder action may be taken only at an annual or special meeting of
stockholders and prohibit stockholder action by written consent, (ii)
vacancies in the Board of Directors that occur between annual meetings of
stockholders will be filled by the Board of Directors, (iii) stockholders may
not take actions by written consent or call special meetings of stockholders
and (iv) nominations of persons for election to the Board of Directors and
proposals of business to be considered by stockholders may be made by
stockholders only if they comply with certain advance notice procedures.
These provisions may have the effect of delaying or preventing a change in
control of the Company even if holders of a majority of the Company's Common
Stock believed such change of control was in their best interest. See
"Certain Provisions of Delaware Law and of the Company's Certificate of
Incorporation and Bylaws."
The Certificate of Incorporation authorizes the Board of Directors to
issue up to 100 million shares of preferred stock and to establish the
preferences and rights of any shares of preferred stock issued. Although the
Company has no current intention to issue any series of preferred stock in
the foreseeable future, the issuance of any series of preferred stock could
have the effect of delaying or preventing a change in control of the Company
even if a majority of the Company's Common Stockholders believed such change
of control was in their best interest. See "Description of Capital Stock--
Preferred Stock."
Board of Directors May Change Certain Policies Without Stockholder
Consent. The major policies of the Company, including its investment policy
and other policies with respect to acquisitions, financing, growth and
operations are determined by its Board of Directors. The Board of Directors
may amend or revise these and other policies, or approve transactions that
deviate from these policies, from time to time without a vote of the
Company's stockholders. The effect of any such changes may be positive or
negative.
Loss of Investment Company Act Exemption Would Adversely Affect the
Company. The Company believes that it will not be, and intends to conduct its
operations so as not to become, regulated as an investment company under the
Investment Company Act of 1940, as amended (the "Investment Company Act").
The Investment Company Act exempts entities that, directly or through
majority-owned subsidiaries, are primarily engaged in the business of
<PAGE>
purchasing or otherwise acquiring mortgages and other liens on and interests
in real estate (from which at least 25% of their gross income during each
fiscal year must be derived) and additional businesses other than investing,
reinvesting, owning, holding or trading in securities. To maintain its
exemption therefrom, the Company generally must meet the foregoing test
within one year from the closing of the Offering and any failure to do so
would adversely affect the Company. The assets that the Company may acquire
therefore may be limited by the provisions of the Investment Company Act. In
addition, if a change in the Investment Company Act, or applicable
regulations thereunder, were to occur the effect of which would be to
eliminate or change the Company's ability to claim the above-described
exemption, the Company could, among other things, be required either (i) to
change the manner in which it conducts its operations to avoid being required
to register as an investment company or (ii) to register as an investment
company, either of which could have an adverse effect on the Company and the
market price for the Common Stock.
Limitation on Liability of Manager and Officers and Directors of the
Company May Result in Costs to the Company Due to the Actions of the Manager
and Officers and Directors of the Company. The Certificate of Incorporation
of the Company contains a provision which eliminates or limits the personal
liability of a director to the corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director, provided that such
provision does not eliminate or limit the liability of a director: (i) for
any breach of the director's duty of loyalty to the corporation or its
stockholders; (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law; (iii) unlawful payments
of dividends as unlawful stock purchases or redemptions; or (iv) for any
transaction from which the director derived an improper personal benefit.
The Company will indemnify the Manager and its officers and directors
from any action or claim brought or asserted by any party by reason of any
allegation that the Manager or one or more of its officers or directors is
otherwise accountable or liable for the debts or obligations of the Company
or its affiliates. In addition, the Manager and its officers and directors
will not be liable to the Company, and the Company will indemnify the Manager
and its officers and directors, for acts performed pursuant to the Management
Agreement, except for claims arising from acts constituting bad faith,
willful misconduct, gross negligence or reckless disregard of their duties
under the Management Agreement. See "Management of Operations--Limits of
Responsibility."
Failure of Market for Common Stock to Develop Could Adversely Affect the
Value of the Common Stock. Prior to this Offering, there has not been a
public market for the shares of Common Stock offered hereby. The initial
public offering price will be determined by the Company and the
Representatives. There can be no assurance that the price at which the shares
of Common Stock will sell in the public market after the Offering will not be
lower than the price at which they are sold by the Underwriters. The Company
intends to apply for a listing of the Common Stock on the Nasdaq National
Market. This listing, if obtained, does not ensure, however, that an active
market will develop for the Company's Common Stock. In addition, the U.S.
equity markets have from time to time experienced significant price and
<PAGE>
volume fluctuations that are unrelated or disproportionate to the operating
performance of individual companies. Any such fluctuations, or other changes
in general market conditions that occur in the future could adversely affect
the market price of the Common Stock.
Potential Future Offerings Could Dilute the Interest of Holders of
Common Stock. The Company expects in the future to increase its capital
resources by making additional offerings of equity and debt securities,
including classes of preferred stock, Common Stock, commercial paper, medium
term notes and senior or subordinated notes. All debt securities and other
borrowings, as well as all classes of preferred stock, will be senior to the
Common Stock in a liquidation of the Company. The effect of additional equity
offerings may be the dilution of the equity of stockholders of the Company or
the reduction of the price of shares of the Common Stock, or both. The
Company is unable to estimate the amount, timing or nature of additional
offerings as they will depend upon market conditions, its capital and funding
needs and other factors.
Status of the Company as a Newly Organized Corporation Could Adversely
Affect the Development of the Company's Business. The Company has no
operating history, and its operating policies and strategies are untried. The
Company will be dependent upon the experience and expertise of the Manager in
administering its day-to-day operations. There can be no assurance that the
Manager will be able to implement successfully the strategies that the
Company intends to pursue. It is anticipated that many of the entities with
which the Company will compete for investments may be significantly larger
than the Company, may have established operating histories and procedures,
may have access to greater capital and other resources, and may have other
advantages over the Company in conducting certain businesses and providing
certain services.
Dependence on the Manager Could Adversely Affect the Company's Business.
The Company will be heavily dependent for the selection, structuring and
monitoring of its investments and associated borrowings on the diligence and
skill of the Manager and its personnel, primarily those named under
"Management of the Company" elsewhere herein. The Company does not anticipate
requiring the Manager to employ specific personnel or dedicate employees
solely to the Company. The Manager in turn is dependent on the efforts of its
senior management personnel. While the Company believes that the Manager
could find replacements for its key executives, the loss of their services
could have an adverse effect on the operations of the Manager and the
Company. Moreover, the Company's success depends in part on the continuing
ability of the Manager to hire and retain knowledgeable personnel.
The Manager's Lack of Experience Investing in Asia May Adversely Affect
the Business of the Company. The Company will be dependent on the Manager for
its successful operation. The Manager and its affiliates do not have prior
experience in real estate investments in Asia and do not currently have
offices or employees located in Asia, and are under no obligation to
establish any offices or locate any employees in Asia. There can be no
assurance that the Manager will be able to implement successfully the
strategies that the Company intends to pursue.
<PAGE>
Termination of the Management Agreement Could Adversely Affect the
Company. The Company is subject to the risk that the Manager will decline to
renew the Management Agreement after its initial two-year term or after any
subsequent two-year renewal term thereof and that no suitable replacement can
be found to manage the Company. While the Company may terminate, or decline
to renew the term of, the Management Agreement without cause after the second
anniversary of the Closing Date at any time upon 60 days' written notice by a
majority vote of the Unaffiliated Directors, the Company would be obligated
in such event to pay the Manager a substantial termination fee except in the
case of a termination for cause. Payment of this termination fee, which will
be equal to the value of the Management Agreement for four years, could have
an adverse effect on the Company's financial condition, cash flows and
results of operation, may adversely affect the Company's ability to terminate
the Manager without cause. In addition, following any such termination the
Manager would be free to compete directly with the Company or create and/or
advise other investment vehicles with respect to opportunities in Asia. In
the future, the Company may consider the effect of transactions whereby the
Manager could be merged into the Company, or other means by which the Company
may become self-managed and self-administered. The Company has no current
intention, however, to pursue any such transaction and there can be no
assurance that the Company will become self-managed and self-administered in
the future.
Failure to be Year 2000-Compliant Could Adversely Affect the Company. As
the year 2000 approaches, an issue has emerged regarding how existing
application software programs and operating systems can accommodate this date
value. Failure to adequately address this issue on the part of the Company's
service providers could have potentially serious repercussions to the
Company. The Manager is in the process of working with its service providers
to prepare for the year 2000. Based on information currently available, the
Manager does not expect that it will face material impediments or incur
material costs to be year 2000-compliant.
<PAGE>
USE OF PROCEEDS
The Company has not identified any initial assets in which to invest and
intends to invest the net proceeds of this Offering and the Concurrent
Offerings, estimated to be approximately $ million ($ million if
the Underwriters' overallotment option is exercised in full), temporarily in
readily marketable interest bearing assets until appropriate real estate and
other real estate related assets are identified and acquired. Pending full
investment in the desired mix of assets, funds will be committed to short
term investments that are expected to provide a lower net return than the
Company hopes to achieve from its intended real estate and real estate
related investments.
DIVIDEND POLICY
The Company currently intends to retain all or a significant portion of
its net earnings and cash flow to be used for future investments. Any future
dividends or distributions will be made at the discretion of the Board of
Directors and will depend on the earnings and financial condition of the
Company, prospective investments by the Company, and such other factors as
the Board of Directors deems relevant. The Company does not expect to pay
cash dividends on its Common Stock in the foreseeable future.
CAPITALIZATION
The capitalization of the Company, as of May 15, 1998, and as adjusted
to reflect the sale of the shares of Common Stock offered hereby, is as
follows:
<TABLE>
<CAPTION> Actual As Adjusted<F1>
--------------- ---------------
(in millions)
<S> <C> <C>
Preferred Stock, par value $.01 $ 0 $ 0
Authorized--100 million shares
None outstanding
Common Stock, par value $.01 . . . 1 63,776
Authorized--400 million shares
Outstanding--100 shares,
6,377,551 shares as adjusted<F2>
Additional Paid-in Capital . . . 1,999
------ -------
Total . . . . . . . . . . . . $2,000 $
====== =======
____________________
<FN>
<F1> After deducting Offering expenses estimated to be $ , payable by
the Company, includes 127,551 shares to be purchased by the JER
Investors and 1,250,000 shares to be purchased by FBR Asset in the
Concurrent Offerings, and assumes no exercise of the Underwriters'
overallotment option.
<PAGE>
<F2> Does not include 1,500,000 shares of Common Stock reserved for
issuance upon exercise of options to be issued under the 1998 Stock
Option Plan, including options to purchase 708,617 shares (791,950
shares if the Underwriters' overallotment option is exercised in full)
to be granted to the Manager at the closing of the Offering. See
"Management of Operations--Stock Options."
</TABLE>
<PAGE>
THE COMPANY
General. The Company is a newly formed corporation organized to invest
in nonperforming, subperforming, distressed and other real estate and real
estate related assets, including mortgage loans, mortgage backed securities,
real estate properties, companies with significant real estate assets and
companies involved in the business of real estate ownership, real estate
services or other real estate related operating businesses. The Company
intends to focus its investment activities primarily in East Asia and
Southeast Asia (principally Japan, Korea, Singapore, Hong Kong and Thailand)
to take advantage of the opportunities for real estate investment that the
Company believes have been created by the economic and financial crises that
are currently affecting these regions. The Company may also make investments
in other markets on an opportunistic basis to capitalize on inefficiencies in
such markets. The Company will be externally managed by the Manager, subject
to the direction and oversight of the Board of Directors. The Company and its
subsidiary or affiliated companies may in the future hire their own personnel
to perform certain functions otherwise provided by the Manager, its
affiliates and other third parties, and may open and maintain offices in
Asian cities as deemed necessary.
The Company cannot anticipate with any certainty the percentage of the
proceeds of the Offering and the Concurrent Offerings that will be invested
in any category of assets or in any single country. The Company has a great
deal of discretion in the manner in which to invest the proceeds of the
Offering and the Concurrent Offerings. There can be no assurance that the
Company will be successful in its investment strategy.
Although the Company expects to concentrate its investments in East Asia
and Southeast Asia (principally Japan, Korea, Singapore, Hong Kong and
Thailand), the Company will have no predetermined limitations or targets for
concentration of asset type or geographic location and the Company may change
its allocation of asset type or geographic location as the Manager, with the
Board of Directors' approval, may deem appropriate. Instead, the Company
plans to make acquisition decisions through asset and collateral analysis,
evaluating investment risks on a case-by-case basis. To the extent that the
Company's assets become concentrated in a particular property type or in a
limited number of countries or a particular region, the return on an
investment in the Common Stock will become more susceptible to developments
affecting that particular property type or the economies of such countries or
region.
Investment Opportunities in Asia
Beginning in the early 1990s, Japan began to experience a deep and
continuing economic recession, which has included a collapse in real estate
prices as well as sharp drops in the trading markets for corporate
securities, weak consumer spending and deflationary trends in many price
indexes. For example, in 1989, the Nikkei Stock Index reached a high of
nearly 40,000, but since then it has fallen dramatically, and as of May 1998
it has ranged between 15,000 and 16,000. Since the early 1990s, the real
estate market in Tokyo has also experienced falling prices and rents due to
<PAGE>
the overbuilding of the late 1980s. In the early 1990s, average net office
rents in Tokyo are reported to have reached nearly Y185,000 (per square
meter, per annum), and by year-end 1997 had reportedly declined by 51% to
approximately Y90,000 per square meter, according to reports prepared by
Jones Lang Wootton. Similarly, commercial real estate values in the Tokyo
central business district fell from a reported high in the early 1990s of
just over Y4,000,000 per square meter, to a reported value of little over
Y1,000,000 per square meter as of December 31, 1997, according to reports
prepared by Jones Lang Wootton. As a result of these and other factors, the
Japanese banking system has come under great stress, with the amount of
domestic nonperforming assets held by banks currently estimated by the
government of Japan to be approximately $600 billion. Estimates by private
sources range considerably higher.
Until 1997, the economies of the other East Asian and Southeast Asian
countries generally were growing rapidly as a result of increased worldwide
demand for products produced and manufactured in these regions. However, in
the second half of 1997, many of the countries in these regions began to
experience rapid and steep deterioration in their economies, including a
collapse in real estate prices, currencies and stock and credit markets,
extreme fluctuations in the trading markets for financial instruments and
corporate securities, weak consumer spending and deflationary trends in many
key price indices. Thailand, for example, was severely affected by the
crisis, as in the second half of 1997, its stock market declined in value by
25% and its currency, the Thai Baht, declined 46% against the U.S. dollar.
Furthermore, property values in Bangkok experienced similar declines during
such period. In U.S. dollar terms, commercial real estate values in Bangkok
are reported to have fallen by 56% and residential values to have fallen by
45%. Even countries which remained relatively less affected and whose
currencies retained all or much of their value, such as Hong Kong and
Singapore, are estimated to have experienced property value declines of 27%
and 15%, respectively, in the office sector and 22% and 19%, respectively, in
the residential sector. Both countries also witnessed some decline in their
stock markets: Hong Kong's Hang Seng Index fell 29% from the end of June to
December 31 of 1997 and the Singapore Straits Times Industrial Price Index
fell 24% from the end of June to December 31 of 1997. As a result of these
and other factors, many of the banks and financial institutions in the
countries of East Asia and Southeast Asia have experienced increases in the
amount of nonperforming debts and other nonperforming assets. This in turn
has increased the level of nonperforming assets at the major Japanese banks,
which had lent extensively in these Asian countries.
The Company believes that the collapse of the real estate and financial
markets in East Asia and Southeast Asia will generate investment
opportunities comparable to, and potentially much larger in size than, the
investment opportunities generated by the crisis experienced by the U.S. real
estate markets and banking sector in the late 1980s and early 1990s. There is
currently a severe liquidity crisis in much of Asia, with little funding
available within these regions for the acquisition, maintenance or
development of real estate assets. Many publicly traded companies with
significant real estate investments are trading at deep discounts to net
asset value, and many companies are caught in liquidity crises which may
force them to liquidate assets in order to continue their operations. In
<PAGE>
addition, many of the banks and other lenders in these regions are burdened
with high levels of nonperforming assets. The Company believes that few of
these institutions possess the capability, experience or skills necessary to
manage or resolve such assets. Moreover, given the speed and severity with
which these crises occurred and the uncertain outlook for economic and
financial stability, the Company believes that there is currently relatively
little interest or ability on the part of many traditional real estate
lenders and investors outside these regions in acquiring these nonperforming
or distressed assets. The Company believes that to date, investors interested
in acquiring financially weakened companies and businesses within these
regions have typically shown a preference for avoiding exposure to troubled
real estate assets.
For these reasons, the Company believes that opportunities exist to
realize attractive returns by investing in nonperforming, subperforming and
distressed real estate and real estate related assets and in real estate
services and operating companies in East Asia and Southeast Asia. The Company
believes that the extensive experience obtained by JER in resolving real
estate and other assets for government agencies and private investors,
lenders and developers in the United States, Canada and France will provide
it with a competitive advantage in identifying, acquiring and successfully
enhancing the value of such assets.
Investment Strategy
General. The Company intends to pursue a strategy which focuses on
acquiring, restructuring, managing and, where deemed appropriate, selling or
securitizing undervalued real estate and real estate related assets in East
Asia, Southeast Asia and elsewhere. The Company believes that the financial
and economic crises affecting most of the countries in East Asia and
Southeast Asia, together with the related lack of liquidity being experienced
by local investors and what the Company perceives as limited distressed real
estate asset management experience on the part of banks and other lending
institutions in these markets, has created significant investment
opportunities to generate attractive returns. To capitalize on these
opportunities, the Company intends to utilize JER's 17 years of experience in
real estate investment, asset management and securitization in the United
States, Canada and France, and its specialized expertise in real estate loan
workouts for governmental agencies and private lenders and investors. The
Company also believes it will be able to benefit from the comprehensive
investment evaluation, due diligence analysis, pricing, asset management and
risk management processes developed by JER. In addition, the Company believes
that JER's experience in France, where, in 1995, in response to a deepening
real estate recession in France, JER entered into a joint venture with a
French investment management firm to pursue real estate investment
opportunities in France, illustrates that JER's investment and asset
management systems and technology can be modified and adapted to facilitate
opportunistic investment in real estate assets in countries other than the
United States.
The Company is in the process of developing country specific operating
and investment strategies which are being designed to take into account the
different economic, cultural, political and legal environments of the
<PAGE>
countries in which it will be investing. The Company may execute these
strategies either on its own or in joint ventures with local partners and/or
with international financial institutions. In many cases the Company will
seek to develop investment mechanisms (as JER has done in the United States)
that align the goals of the local partner with that of the Company and
thereby incentivize them to maximize the value of the asset. This may take
the form, for example, of a joint venture with a local developer whose
compensation is tied to the future performance of the asset rather than being
paid currently or a capital infusion to the owner of an existing portfolio of
assets who desires to maintain an ownership position and participate in the
potential future appreciation of the assets together with the Company. It is
the Company's policy to acquire assets which it believes will represent the
highest risk adjusted total return, including capital gains and current
income.
The Company intends to invest principally in the following types of real
estate and real estate related assets:
Nonperforming and Subperforming Mortgage Loans. The Company may acquire
nonperforming and subperforming mortgage loans secured by real property
located in East Asia and Southeast Asia and other areas which the Company may
identify in the future. The mortgage loans may be purchased from a variety of
financial institutions, including banks, credit cooperatives, insurance
companies, government agencies or other mortgage lenders. Such sellers are
expected to be entities located in the country of investment or in the region
and may also be multinational or international institutions. The Company
intends to rely upon JER's experience in the United States, Canada and France
to assist it in identifying the most advantageous asset management strategies
for such mortgage loans. These strategies may include taking aggressive
action to secure cash flows, negotiating discounted payoffs, foreclosing upon
or restructuring such loans, and securitizing such loans to achieve optimum
results for the stockholders (see "Operating Policies--Securitization"
below).
The Company believes that many Asian financial institutions, in a manner
reminiscent of the crises faced by many U.S. financial institutions in the
early 1990s, are facing insolvency, and regulatory agencies are increasing
pressure on such institutions to sell subperforming and nonperforming assets.
Many of these assets may be attractive investment opportunities for the
Company.
Targeted Real Estate Assets. The Company believes that the financial
crises in Asia should lead to opportunities for the Company to purchase real
estate assets from entities suffering from financial or management crises.
These existing owners may be caught in a liquidity crisis and, as a result,
may be forced to liquidate assets in order to continue operations. In
addition, many corporations are expected to liquidate non-core businesses and
assets such as real estate. With respect to asset liquidations and
divestitures, the Company intends to focus on, when possible, high quality
commercial real estate, including office buildings, major shopping malls,
multifamily and condominium residential projects and other commercial
properties which the Company believes to be attractive investments. The
Company also intends to target the acquisition of real estate from Asian
<PAGE>
financial institutions and governmental agencies which may acquire the
underlying properties as a result of a default by the borrower on such
property. Many of these divested properties may be vacant, partially leased
or partially constructed. The actual allocation and location of assets will
be determined at the discretion of the Manager and reviewed by the Board of
Directors.
Public and Private Company Acquisitions. The Company believes it can
identify and make strategic investments in publicly and privately held
operating companies with significant real estate holdings or which are
involved in the business of real estate ownership or real estate services.
These investments may consist of common stock, rights or warrants to purchase
common stock, convertible debt securities and preferred stock. The Company
intends to seek investments in operating companies through which it may
control owned portfolios of real estate, make additional real estate
acquisitions, rehabilitate real estate assets or perform other functions as
the real estate markets in Asia begin to recover. The Company expects to
target investments in companies that it believes will benefit from the
Manager's ability to improve operations and improve the market valuations of
these entities and their assets. The Company intends to focus on Asian
companies whose stocks trade at a substantial discount to net asset value. In
addition, the Company will target entities (both public and private) which
require additional capital for growth and that have an operating history of
delivering strong returns on investment but are presently over leveraged or
poorly capitalized. In some instances, the Company may take a "toehold"
position in an operating company in anticipation of making a more substantial
investment in the company, or obtaining the right to participate in the
management of such company, in the future. However, in such event, there can
be no assurance that the Company will later be able to make a more
substantial investment in the company or obtain the right to participate in
the management of such company.
Construction, Mezzanine and Bridge Financing. The Company may invest in
or provide construction loans. The Company may make a construction loan if
the construction loan is secured by a first lien mortgage, deed of trust or
deed to secure debt, as collateral security for the borrower's obligations
with respect to the construction loan. In addition, the Company may invest in
or provide mezzanine loans (including mezzanine construction loans) to owners
of real properties that are encumbered by first lien mortgages, deeds of
trust or deeds to secure debt, in which case the Company's mezzanine loans
generally will be secured by junior liens on the subject properties. A
mezzanine loan is a loan that is subordinate to a lien on the related real
property. With respect to both construction loans and mezzanine loans, the
Company may receive not only a stated fixed or variable interest rate on the
loan, but also a percentage of gross revenues and/or a percentage of the
increase in the fair market value of the property securing repayment of that
construction loan or mezzanine loan, payable upon maturity or refinancing of
the applicable construction loan or mezzanine loan or upon the sale of the
property. The Company may also provide bridge financing, generally in the
form of secured loans, for the acquisition of mortgage loan portfolios, real
properties or other real estate related assets. Bridge loans are short-term
loans (generally 2-4 years) secured by liens on real property or by a pledge
of partnership interests in a portfolio of properties. Bridge loans are not
<PAGE>
intended to be permanent debt capital but rather, interim financing prior to
the sale of the property or its refinancing with bank debt or mortgage loans.
The loans generally pay a floating rate of interest based on LIBOR (as
defined in the Glossary) or a similar floating rate index. Bridge loans carry
a high sensitivity to default or extension of principal repayment terms due
to the need for refinancing and minimal principal amortization. As they are
associated with transfers of equity ownership, property repositioning and
tenant lease-up, bridge loans bear the risk that operating strategies may not
be successful, economic conditions may deteriorate and competitors may
undertake competing strategies. With respect to these financing activities,
the Company does not expect to act as an underwriter of securities.
Securitization. The Company intends to acquire and accumulate mortgage
loans, pool such loans in a special purpose entity, and issue collateralized
mortgage obligations secured by such mortgage loans. The Company generally
would retain the equity ownership interest in the mortgage loans, subject to
the collateralized mortgage obligation debt, thereby creating the economic
equivalent of a subordinated CMBS.
Commercial Mortgage Backed Securities. The Company believes that a CMBS
market similar to that of the CMBS market in the United States may develop in
East Asia and Southeast Asia and plans to participate in the creation and
development of such a market. To the extent that such a market develops, the
Company intends to acquire, from various sources, primarily non-investment
grade classes of CMBS, including, when and if available, unrated "first loss"
classes of subordinated CMBS. Typically, the party acquiring the unrated
tranches has the right to appoint the Special Servicer. When and if a CMBS
market develops in Asia, the Company believes that it will have an advantage
in acquiring noninvestment grade classes of CMBS because sellers of CMBS may
be attracted to the extensive experience of JER in the U.S. as the Special
Servicer or asset manager for 23 securitized pools of performing and
nonperforming commercial loans with a par value totaling $8.9 billion. JER
has in-depth knowledge of CMBS structures, pooling and servicing agreements,
workout skills unique to CMBS and experience in interacting with trustees and
master servicers. The first loss nature of the unrated tranches also
increases the sensitivity of pricing the related real estate assets and the
Company should benefit from JER's due diligence and modeling expertise with
respect to CMBS.
"Bad Bank" Acquisition. In response to increasing pressure from
regulatory authorities to remove troubled assets from their balance sheets,
it is possible that some Asian financial institutions may transfer some or
all of their nonperforming, subperforming and distressed mortgage loans and
real estate to an affiliated entity or subsidiary (i.e., a "bad bank").
Several U.S. financial institutions took a similar approach in dealing with
their nonperforming loans and distressed real estate during the U.S. banking
crisis of the late 1980s and early 1990s. Depending upon governmental
restrictions, the Company may seek to purchase such assets directly from the
"bad bank" or acquire an ownership position in the "bad bank." If the "bad
bank" has existing asset management and servicing capabilities, the Company
may also deem it to be an attractive investment opportunity or "platform" to
invest additional capital into the entity in order to acquire additional real
estate and mortgage assets through such entity.
<PAGE>
"White Knight" Transactions. In certain instances, a borrower may
negotiate a settlement with its lender to repurchase or repay the mortgage
loan on a financially troubled underlying property at a discount, subject to
obtaining the requisite financing from a third party. The borrower may then
attempt to identify a third-party financing source to consummate the
transaction with the lender. Subject to completing its due diligence on the
borrower and the underlying real property, the Company may be willing to
provide such financing to the borrower in exchange for an ownership interest
in the underlying property or the right to acquire the mortgage loan and
restructure it into a performing loan. The Company may also assist the
borrower in its negotiations with the lender.
Operating Policies
Capital and Leverage Policies. The Company's operations are expected to
be highly leveraged. Initially, the Company intends to finance its
acquisition of real estate and real estate related assets through the
proceeds of the Offering and, thereafter, primarily by borrowing against or
"leveraging" its existing portfolio and using the proceeds to acquire
additional assets. See "Risk Factors--Leverage Increases Exposure to Loss."
The Company expects to incur debt such that, once fully invested, it will
maintain a debt-to-equity ratio of between 1:1 to 9:1, although the actual
ratio may be higher or lower from time to time depending on market conditions
and other factors deemed relevant by the Manager. The actual debt-to-equity
ratio will depend on the Manager's assessment of acceptable risk in light of
the nature of the assets then held by the Company. The Company's Certificate
of Incorporation and Bylaws do not limit the amount of indebtedness the
Company can incur; instead, the Board of Directors will establish an
indebtedness policy that gives the Manager substantial flexibility. Moreover,
the Board of Directors has discretion to deviate from or change the Company's
indebtedness policy at any time. However, the Company intends to maintain an
adequate capital base to protect against various business conditions in which
the Company's financing and hedging costs might exceed the income and gains
(net of losses) from its assets. These conditions could occur, for example,
due to depreciation in the value of the Company's investments, credit losses
or when, due to interest rate fluctuations, interest income on the Company's
assets lags behind interest rate increases in the Company's borrowings, which
are expected to be predominantly variable rate. In effecting its investment
strategy, the Company may, in lieu of cash consideration, issue shares of its
Common Stock or preferred stock in exchange for assets or property. In
addition, if the Board of Directors determines it is in the best interests of
the Company, the Company may repurchase shares of its Common Stock or
preferred stock; however, the Company has no current intention to do so.
Liabilities. The Company's assets, other than securitized mortgage
loans, will be financed primarily at short-term borrowing rates through loan
agreements, lines of credit, commercial paper borrowings and other credit
facilities with institutional lenders. The Company may also borrow through
the issuance of long term debt securities and may issue preferred stock. The
Company may also utilize warehouse lines of credit or issue secured or
unsecured notes of any maturity if it appears advantageous to do so. The
Company expects to issue shares of preferred stock, including in connection
<PAGE>
with the acquisition of assets. Since the Company is newly formed and has not
commenced operations, it has not yet established any lines of credit. The
Company has conducted preliminary negotiations with potential lenders and
believes, on the basis of such negotiations, that it will be able to obtain
financing in amounts and at interest rates consistent with the Company's
financing objectives (see "Management of Operations--Negotiations with
Nomura").
Credit and Interest Rate Risk Management. With respect to its assets,
the Company will be exposed to various levels of credit and special hazard
risk, depending on the nature of the underlying assets and the nature and
level of credit enhancements supporting such assets. The Company will
originate or purchase mortgage loans which meet minimum debt service coverage
standards established by the Company. The Manager will review and monitor
credit risk and other risks of loss associated with each investment. In
addition, the Manager will seek to diversify the Company's portfolio of
assets to avoid undue geographic, issuer, industry and certain other types of
concentrations. The Board of Directors will monitor the overall portfolio
risk and review levels of provision for loss.
The Company will follow an interest rate risk management policy intended
to mitigate the negative effects of major interest rate changes. The Company
may seek to reduce its interest rate risk from borrowings both through
hedging activities and by attempting to structure the key terms of its
borrowings to generally correspond (in the aggregate for the entire
portfolio, and not on an asset-by-asset basis) to the interest rate and
maturity parameters of its assets.
The Company may enter into hedging transactions to protect its
investment portfolio from interest rate fluctuations and other changes in
market conditions. These transactions may include interest rate swaps, the
purchase or sale of interest rate collars, caps or floors, options, mortgage
derivatives and other hedging instruments. These instruments may be used to
hedge as much of the interest rate risk as the Manager determines is in the
best interest of the Company's stockholders, given the cost of such hedges.
The Manager may elect to have the Company bear a level of interest rate risk
that could otherwise be hedged when the Manager believes, based on all
relevant facts, that bearing such risk is advisable. The Company may also
hedge its foreign currency exposure (such as by entering into forwards,
futures or options contracts to purchase or sell foreign currencies) to the
extent feasible and cost effective.
Future Revisions in Policies and Strategies. The Board of Directors
(including the Unaffiliated Directors) will approve the investment policies,
the operating policies and the strategies set forth in this Prospectus. The
Board of Directors has the power to modify or waive such policies and
strategies without the consent of the stockholders to the extent that the
Board of Directors determines that such modification or waiver is in the best
interest of the Company or its stockholders. Among other factors,
developments in the market that affect the policies and strategies mentioned
herein or which change the Company's assessment of the market may cause the
Board of Directors to revise its policies and strategies. However, if such
modification or waiver relates to the relationship of, or any transaction
<PAGE>
between, the Company and the Manager or any affiliate of the Manager, the
approval of a majority of the Unaffiliated Directors is also required.
Investment Review and Asset Management Process
Investment Review
General. In overseeing the Company's investment activities, the Manager
intends to utilize substantially the same investment process currently
employed by JER. This investment process includes the sourcing of investment
opportunities, loan and real estate due diligence, legal due diligence,
transaction structuring, tax analysis, the arranging of financing,
environmental/structural due diligence and transaction closings. The following
is a description of the Company's investment process. For a discussion of the
apportionment of the expenses incurred by the Company in connection with its
investment process see "Management of Operations--Management Compensation"
and "Management of Operations--Company Expenses."
Investment Analysis and Due Diligence. Upon the initial identification
of an investment opportunity by the Manager, the investment opportunity is
subjected to preliminary due diligence to determine if the investment
opportunity meets the acquisition criteria of the Company.
Once a determination has been made that an opportunity is suitable for
the Company, the Manager will assemble a comprehensive acquisition team
staffed with outside professionals and employees of affiliates of the Manager
and the Company (the "Acquisition Team"), which typically will include the
following components: (i) real estate professionals to underwrite the real
estate, which process includes, among other things, performing a detailed
leasing and market analysis; (ii) if there is a credit component to the
transaction (e.g. the purchase of a nonperforming or performing pool of
commercial loans), loan asset managers to review loan documents, bankruptcy
and litigation procedures and borrower and legal correspondence; (iii)
environmental/structural professionals to assess and review the environmental
and structural reports pertaining to the assets; and (iv) legal professionals
to coordinate the legal process and due diligence, which process includes,
among other things, retaining local counsel where applicable and researching
foreclosure, bankruptcy and receiver laws in jurisdictions in which the
assets are located. This due diligence process allows the Acquisition Team to
generate a range of purchase prices for an investment which include cash flow
assumptions based on the information gathered during due diligence and
enables the Acquisition Team to identify possible financing structures.
Investment Review in Connection with Particular Assets.
Performing and Nonperforming Mortgage Loans. In considering whether to
acquire an individual mortgage loan or a pool of mortgage loans (which may
include, or primarily be, distressed mortgage loans), the Company's policy is
to request that the Acquisition Team perform certain due diligence tasks on
behalf of the Company that reasonably may be expected to provide relevant and
material information as to the value of the mortgage loans and whether the
Company should acquire the mortgage loans. In determining the price of any
<PAGE>
particular mortgage loan, the Company may request that the Acquisition Team
review and analyze some or all of a number of factors, depending upon their
expected materiality to the transaction. These factors may include market
conditions (market interest rates, the availability of mortgage credit and
economic, demographic, geographic, tax, legal and other factors). They also
may include a yield to maturity of the mortgage loan, the liquidity of the
mortgage loan, the limitations on the obligations of the seller with respect
to the mortgage loan, the rate and timing of payments to be made with respect
to the mortgage loan, the mortgaged property underlying the mortgage loan,
the risk of adverse fluctuations in the market values of that mortgaged
property as a result of economic or political events or governmental
regulations, the historical performance and other attributes of the property
manager responsible for managing the mortgaged property, relevant laws
limiting actions that may be taken with respect to loans secured by real
property and limitations on recourse against the obligors following
realization on the collateral through various means, risks of timing with
respect to mortgage loan prepayments, risks associated with geographic
concentration of underlying assets constituting the mortgaged property for
the relevant mortgage loan, environmental risks, pending and threatened
litigation, junior liens and other issues relating to title, a prior history
of defaults by affiliated parties on similar and dissimilar obligations, and
other factors.
In addition, the Company typically will hire a local law firm to advise
the Company concerning the applicable laws, including real property laws, of
the local jurisdiction and to provide legal advice about the Company's rights
with respect to the mortgage loans or real properties. If the country in
which the relevant real property is located is subject to political
instability, the Company may investigate the availability of, cost of, and
benefits that reasonably can be expected to be provided to the Company by,
obtaining insurance against such political risks. The Company's policy is to
purchase such insurance only if the Acquisition Team advises the Company that
based on an analysis of the relevant factors, the Acquisition Team has
determined that the Company should purchase such insurance.
Real Properties. With respect to real properties, the Company's policy
will be to conduct an investigation and evaluation of the real property
before acquiring such a real property. The Acquisition Team generally will
identify and contact real estate brokers and appraisers in the relevant
market area of the real property to obtain information regarding rental rates
and sales prices of comparable real property. This information will be used
to supplement due diligence that will be performed by the Acquisition Team.
The Company's policy generally is to determine, in consultation with the
Acquisition Team, whether to obtain an environmental assessment (or, if
available to the Company, to request that the Acquisition Team review a
previously obtained environmental assessment) for each real property prior to
its acquisition by the Company. The policy of the Company generally is to use
the information obtained from real estate brokers and appraisers and
contained in such environmental assessments to supplement the due diligence
that is to be performed by the Acquisition Team with respect to that real
property.
<PAGE>
The Company anticipates requesting that the Acquisition Team include
within its due diligence review and analysis of those real properties
contemplated to be acquired by the Company a review of market studies for
each geographic market designated by the Company in which the real properties
are concentrated. The Company may request that such studies include area
economic data, employment trends, absorption rates and market rental rates.
The Company's policy is that such due diligence analyses generally also
include (i) site inspections of the most significant real properties (and, if
the Company determines that such a review will be cost effective, a random
sampling of the less significant properties), and (ii) a review of all
property files and documentation that are made available. The Company
generally will require that such reviews include, to the extent practicable,
examinations of available legal documents, litigation files, correspondence,
title reports, operating statements, appraisals and engineering and
environmental reports.
The Company's process for determining the fair market value of a real
property utilizes those procedures that the Company and the Acquisition Team
deem relevant for the specific real property being evaluated, which
procedures need not be the same for each real property being evaluated.
Sources of information that may be examined in determining the fair market
value of a real property may include one or more of the following: (a)
current and historical operating statements; (b) existing or new appraisals;
(c) market rates for comparable sales; (d) industry statistics and reports
regarding operating expenses; (e) existing leases and market rates for
comparable leases; (f) deferred maintenance observed during site inspections
or described in structural and engineering reports; and (g) correspondence
and other documents and memoranda found in the files of the seller of that
real property or other relevant parties.
The Acquisition Team is expected to develop projections of net operating
income and cash flows taking into account lease rollovers, tenant improvement
costs and leasing commissions. The Acquisition Team will compare its
estimates of revenue and expenses to historical operating statements and
estimates provided in appraisals and general industry and regional
statistics. Market capitalization rates and discount rates are then applied
to the cash flow projections to estimate values. These values are then
compared to available appraisals and market sale comparables to determine
recommended offer prices for each asset. The amount offered by the Company
generally will take into account projected holding periods, capital costs and
projected profit expectations, and will be the price that the Acquisition
Team estimates is sufficient to generate an acceptable risk-adjusted return
on the Company's investment.
After the Company acquires distressed real property, the Company's goal
will be to improve management of that real property so as to increase its
cash flow. If cash flows can be increased and the net operating income
stabilized, the Company may seek an opportunity to sell the real property.
The length of time the Company will hold distressed real properties may vary
considerably from asset to asset, and will be based on the Manager's analysis
and conclusions as to the best time to sell some or all of them.
<PAGE>
The Company generally does not intend to acquire real properties with
known material environmental problems and mortgage loans secured by such real
properties. The Company may acquire environmental risk hazard insurance from
time to time when commercially available.
Commercial Mortgage Backed Securities. In considering whether to acquire
CMBS, the Company's policy is to determine, in consultation with the
Acquisition Team, the scope of review to be performed before the Company
acquires that CMBS, which will be designed to provide to the Company such
information regarding that CMBS as the Company and Acquisition Team determine
to be relevant and material to the Company's decision regarding the
acquisition of that CMBS. The Company's policy generally is to request that
the Acquisition Team perform due diligence substantially similar to that
described above in connection with the acquisition of mortgage loans and real
property. The due diligence may include an analysis of (i) the underlying
collateral pool, (ii) the prepayment and default history of the originator's
prior loans, (iii) cash flow analyses under various prepayment and interest
rate scenarios (including sensitivity analyses) and (iv) an analysis of
various default scenarios. With respect to CMBS, the Company may also use
sampling and other appropriate analytical techniques to determine on a
loan-by-loan basis which loans will undergo a full-scope review and which
loans will undergo a more streamlined review process. Although the choice is
a subjective one, considerations that influence the choice for scope of
review often include loan size, debt service coverage ratio, loan-to-value
ratio, loan maturity, lease rollover, property type and geographic location.
Asset Management Process
General. If the seller accepts the Company's offer to purchase, the
Acquisition Team will commence the transition of the investments to the asset
management and loan servicing teams which will also be comprised of outside
professionals and employees of affiliates of the Manager and the Company (the
"Asset Management Team"). Since members of the Asset Management Team are
generally involved in the process of analyzing a potential investment
opportunity as described above, they typically are able to develop an
operating strategy for the assets prior to the closing of the transaction.
Through this procedure, the Asset Management Team attempts to limit the
extent to which time and cash collections are lost due to asset managers not
being actively involved in investments prior to the first day of ownership.
When deemed appropriate, the Asset Management Team will also take aggressive
legal action, such as appointing a receiver or commencing a foreclosure,
within days of a closing in order to hasten cash collections for an asset.
For a discussion of the apportionment of the expenses incurred by the Company
in connection with its asset management process see "Management of Operations--
Management Compensation" and "Management of Operations--Company Expenses."
Loan Asset Management. In connection with loan acquisitions, the Asset
Management Team will seek to address the following issues:
Cash Collections. The Asset Management Team will seek to identify the
sources and amounts of cash flow being generated by the underlying property
and determine the lender's right to such cash flow afforded by the loan
documents and applicable law.
<PAGE>
Collateral Valuation. The Asset Management Team will be responsible for
determining the value of the collateral property, including an analysis of
the condition of the property, existing tenant base, current operating
information and comparable market rents, occupancy and sales. When
appropriate, the Asset Management Team will also do a thorough investigation
of the borrower to identify other potential sources of recovery, including
other non-real estate collateral and guarantees. In addition, the Asset
Management Team will review the seller representations and warranties and the
potential for recovery resulting from breaches of those representations and
warranties. The Asset Management Team is then responsible for reviewing the
collateral operating statements on an ongoing basis and within the market in
order to accurately track asset value.
Recovery Strategies. Based on the analysis of all pertinent factors, the
Asset Management Team is responsible for recommending and implementing the
appropriate recovery strategy in order to produce the highest present value
recovery. This may include demand for payment, forbearance, modification,
compromise, deed-in-lieu of foreclosure, foreclosure and litigation.
Typically, a number of alternatives will be developed and the revenues and
costs associated with each alternative are quantified and budgeted. The
alternatives can then be compared on a net present value basis and
consideration is given to the risks related to executing each alternative.
Real Estate Management. In connection with real estate management, the
Asset Management Team will be responsible for maximizing the recovery for
real estate assets via four distinct disciplines:
Property Management. The Asset Management Team will oversee property
management issues, including the hiring and supervising of property managers,
the review and approval of operating budgets, tenant lease proposals and
capital improvement expenditures. The Asset Management Team will review,
generally on a monthly basis, the property operating results and cash flow
compared to the budget. The Manager will also seek to ensure that all risk
management and property tax issues are addressed in a timely fashion.
Property Valuation. The Asset Management Team also will perform a
valuation of the property. In this analysis, the Asset Management Team will
review historic operations, evaluate the existing tenant base, determine
current market rental rates and occupancy levels, review the condition of the
property and evaluate the competitive position of the asset in the submarket.
When appropriate, local brokers and appraisers may be called upon to assist
in this analysis. Opportunities for value enhancement may also be identified
at this time, including lease-up programs, lease extensions or physical
property improvements.
Value Enhancement. The Asset Management Team also will be responsible
for determining if a property should be repositioned in the market before
executing the appropriate exit strategy for the asset. This repositioning may
be accomplished through selective physical property improvements such as
renovation of common areas, improvements to project exteriors and landscaping
and upgrades to tenant amenity packages. The Asset Management Team may then
implement marketing and leasing programs to capitalize on any property
improvements.
<PAGE>
Property Disposition. The Asset Management Team will also direct the
marketing and disposition campaign for the property including analyzing
market sale comparables, identifying the most appropriate disposition
strategy (conventional brokerage, direct marketing, sealed bid, or auction),
hiring and supervising of real estate brokers or auction companies,
negotiating the sale terms, contract and closing of the transaction.
<PAGE>
MANAGEMENT OF OPERATIONS
The Manager and JER
The business and investment affairs of the Company will be managed by
the Manager, an affiliate of JER. JER was founded in 1981 by Joseph E.
Robert, Jr. in response to the need of public and private financial
institutions for expertise in resolving real estate loan workouts.
Originally, the firm was primarily engaged in the management, liquidation and
capital recovery of distressed commercial real estate mortgages on behalf of
financial institutions and government agencies. During the 1980s and early
1990s, JER was awarded asset management contracts by the Federal Savings and
Loan Insurance Corporation, the Resolution Trust Corporation ("RTC") and the
Federal Deposit Insurance Corporation. These contracts built the foundation
for JER's principal investment and asset management businesses. Since 1991,
JER has managed on behalf of, or purchased with, various major financial
institutions and government agencies, such as Goldman Sachs, Credit Suisse
First Boston, Lehman Brothers, GE Capital, Cargill Financial Services, The
Blackstone Group and the Federal Deposit Insurance Corporation, over 15,000
assets totaling approximately $22 billion in sellers' book value. These
assets include performing, subperforming and nonperforming mortgage loans,
commercial mortgage backed securities, stabilized and subperforming real
property and real estate operating companies. As a principal investor, JER
sources investment opportunities, oversees the due diligence, valuation and
acquisition processes, implements asset management and value enhancement
strategies and coordinates the disposition of the assets. Over the past seven
years, JER has participated as an issuer, purchaser or due diligence
contractor of securitizations of commercial mortgage loans encompassing over
1,000 assets totaling approximately $3.2 billion in sellers' book value.
Since 1991, JER has also served as the Special Servicer (as defined in the
Glossary) or asset manager for 23 securitized pools of nonperforming and
performing commercial loans with a par value at issuance of $8.9 billion and
has received Special Servicer ratings of "Superior" and "Above Average" from
Fitch Investors Service, Inc. and Standard & Poor's Corporation,
respectively.
JER also manages two domestic private investment funds, JER Real Estate
Partners, L.P. and JER Real Estate Qualified Partners, L.P. (collectively,
"JER's Private Funds"), which were organized in 1997 to invest
opportunistically in parallel in real estate and real estate related assets,
including operating companies, in the United States, Canada, Mexico and
Western Europe. JER's Private Funds had their final closing in December 1997
with a total commitment of $435 million, from approximately 20 institutional
and individual investors. JER's Private Funds, in conjunction with financial
partners, have made real estate and real estate related investments of
approximately $660 million in total gross asset value, representing 19
separate transactions and 397 assets. The investments by JER's Private Funds
to date have been diversified in terms of geography and product type; the 19
closed transactions include 12 single real estate asset transactions, three
CMBS transactions, two portfolio acquisitions, one investment in a real
<PAGE>
estate operating company and one mezzanine loan. To date, none of JER's
Private Funds' investments has been disposed of.
In addition, JER believes it has taken significant steps to expand its
investment and asset management business to Europe. In 1995, in response to a
deepening real estate recession in France, JER entered into a joint venture
with a French investment management firm to pursue real estate investment
opportunities in France. As part of this joint venture arrangement, JER
modified and adapted its investment and asset management systems, investor
reporting and asset performance tracking technology to facilitate investment
in French real estate assets. Since 1996, the JER French Joint Venture has
managed and purchased with financial partners one real estate portfolio
comprising 110 assets totalling FF 170 million, and two single asset
transactions totaling 20,000 square meters of office space representing a
book value of FF 70 million. The JER French Joint Venture has also been the
asset manager for a nonperforming loan portfolio consisting of 170 assets
representing FF 900 million.
JER currently conducts its operations primarily from its Washington,
D.C. area headquarters located at 1650 Tysons Boulevard, Suite 1600, McLean,
Virginia 22102. Its telephone number is (703) 714-8000. JER also has offices
in Stamford and Milford, Connecticut; Dallas, Texas; Los Angeles, California;
New York, New York; and Paris, France. The Manager anticipates that it may
open one or more additional offices, on either a temporary or permanent
basis, in Hong Kong and other Asian cities to the extent appropriate in
connection with the expansion of the Company's business. The Company and its
subsidiary or affiliated companies may also in the future hire their own
personnel to perform certain functions otherwise provided by the Manager, its
affiliates and other third parties, and may open and maintain offices in
Asian cities as deemed necessary. While taking this action would not reduce
the base management fee which the Manager is entitled to receive, such a
decision may reduce the amounts paid to the Manager, its affiliates or other
third parties for the provision of Other Services (see "Management of
Operations--Management Compensation").
The Manager is a newly formed Delaware limited liability company which
was formed for the purpose of acting as the Manager. Its sole member is
currently Joseph E. Robert Jr., although it is anticipated that additional non-
managing members will be admitted to the Manager at a later date. All or some
of these new members may be officers, directors or employees of JER. Mr.
Robert is currently vested with the management, control and operations of the
Manager to the extent not delegated to the Manager's officers or others. The
following tables set forth certain information about the executive officers
of the Manager. No executive officer is related by blood, marriage or
adoption to any other executive officer of the Manager or any executive
officer or director of the Company or any of their respective affiliates.
<PAGE>
<TABLE>
Executive Officers of the Manager
Name Age Position(s) Held
- ---- --- ----------------
<S> <C> <C>
Joseph E. Robert, Jr. 46 Chief Executive Officer and President
Susan B. Levine 42 Managing Director
Connie Simmons Parker 47 Senior Vice President
Richard A. Harkins 44 Vice President and General Counsel
Bruce T. Cunningham 43 Vice President and Treasurer
</TABLE>
The principal occupation for the last five years of each executive
officer of the Manager, as well as some other information, is set forth
below.
Joseph E. Robert, Jr. Mr. Robert has been founder, Chairman and Chief
Executive Officer of JER since 1981. JER is one of the leading independent
private commercial real estate mortgage investment, management and advisory
firms in the United States. From 1988 to 1993, Mr. Robert served as Chief
Executive Officer of Heartland Federal Savings and Loan Association, a $1
billion mutual thrift in Oklahoma restructured under the Federal Home Loan
Bank's "Oklahoma Plan." Mr. Robert is also a member of the Board of Directors
and the Executive Committee and serves as Vice Chairman and Treasurer of the
National Realty Committee. He is also a member of the Urban Land Institute.
Mr. Robert attended Mount St. Mary's College and American University. He is a
member of the Council on Foreign Relations and the Board of Trustees of the
National Symphony Orchestra. Mr. Robert serves on the Board of Visitors of
the University of Maryland in addition to its College of Business and
Management's Board of Advisors and is a member of the Advisory Board of the
George Washington University Hospital Cancer Center.
Susan B. Levine. Ms. Levine served as Director of Emerging Markets
Partnership ("EMP") from 1996 to 1998. EMP is the principal investment
advisor to three private equity infrastructure funds which are sponsored by
American International Group. Two of those funds seek to make infrastructure
investments in Asia. At EMP, Ms. Levine worked on sourcing, analyzing and
recommending private equity investments in infrastructure projects in Asia.
From 1995 to 1996, Ms. Levine was Senior Vice President for Policy and
Investment Development at the Overseas Private Investment Corporation where
she was responsible for business development and policy issues. From 1993 to
1995, Ms. Levine was the Deputy Assistant Secretary for International
Development, Debt and Environmental Policy at the U.S. Treasury Department.
In that capacity, Ms. Levine was primarily responsible for U.S. participation
in the multilateral development banks, including the Inter-American
Development Bank, the Asian Development Bank, the European Bank for
Reconstruction and Development, the African Development Bank, the World Bank
and the International Finance Corporation. Prior to joining the Treasury
Department in 1993, Ms. Levine was with Lehman Brothers from 1984 to 1993,
where as a Senior Vice President, she ran the Private Equity Placement Group
from 1991 to 1993.
<PAGE>
Connie Simmons Parker. Ms. Parker is a Senior Vice President of JER with
responsibilities for Human Resources which include organizational
development, labor relations, succession planning, training and development,
recruiting, performance evaluation, compensation and benefits strategy and
payroll. She currently supervises a professional staff of human resource
managers located in JER's geographic regions. Prior to joining JER, Ms.
Parker was Human Resource Director for Feld Entertainment Co., an
international family entertainment company that owns and operates Ringling
Bros. & Barnum and Bailey Circus, Walt Disney's World on Ice and other
entertainment entities. She also spent nine years with Barnett Bank serving
as Vice President and Regional Human Resource Manager and has also served as
Vice President and Corporate Marketing Director for Broward and Dade Counties
in the State of Florida. Ms. Parker is currently pursuing a Ph.D. in
Sociology. She is a graduate of the University of Florida School of Banking
and Trinity College, where she received honors on her thesis work. She holds
a Masters Degree in Organizational Development and an advanced certificate
from American University in International Human Resources. She is a member of
the Society for Human Resource Management.
Bruce T. Cunningham. Mr. Cunningham is Vice President, Treasurer and
Corporate Controller of JER. Mr. Cunningham joined JER in 1992 to direct
JER's financial reporting and controls as JER began to experience significant
growth. He is responsible for financial reporting for both JER's domestic and
international business activities, accounting policies, treasury management,
including corporate credit facilities, the coordination of tax planning and
compliance and financial planning and forecasting. From 1982 to 1992, prior
to joining JER, Mr. Cunningham held a variety of positions with GRC
International Inc., a NYSE publicly traded technology company. Some of his
positions included Corporate Controller (1989--1992) where his
responsibilities included both internal financial reporting and external
reporting to the SEC, and Director of Finance and Administration (1986--1988)
for International Operations of a bio-technology division within the company.
Prior to joining GRC International Inc., Mr. Cunningham worked for four years
at a public accounting firm. Mr. Cunningham is a graduate of the University
of Maryland where he obtained a B.S. degree in Accounting. He is a Certified
Public Accountant and is a member of the American Institute of Certified
Public Accountants and the Maryland Association of Certified Public
Accountants.
Richard A. Harkins. Mr. Harkins is Vice President and Counsel of JER.
Since joining JER in 1992, he has served as counsel to all of JER's business
lines with emphasis on acquisition and management of distressed real estate
properties and nonperforming loans. While at JER, he has negotiated single
asset and portfolio sales contracts, joint venture agreements, loan
agreements and secured financing facilities. In addition, he is responsible
for overseeing and coordinating legal counsel engaged by JER. Prior to
joining JER, he was general counsel for a Washington, D.C. area commercial
and residential real estate builder, and prior to that was associated with
the Washington, D.C. law firm of David, Hagner, Kuney & Davison. Mr. Harkins
graduated with high honors and high distinction from the University of
Michigan where he obtained a B.A. degree in History. He also obtained a J.D.
degree from the University of Virginia School of Law. He is a member of the
Virginia State Bar and the District of Columbia Bar (inactive status).
<PAGE>
The Management Agreement
The Company will enter into the Management Agreement with the Manager
for an initial term expiring on the second anniversary of the Closing Date.
After the initial two-year period of the Management Agreement, the Management
Agreement may be renewed for additional periods, each not to exceed two
years, at the discretion of the Manager and the Company. After the initial two-
year term, the Company may terminate, or decline to renew the term of, the
Management Agreement without cause at any time upon 60 days written notice by
a majority vote of the Unaffiliated Directors. Although no termination fee is
payable in connection with a termination or nonrenewal for cause, in
connection with a termination or nonrenewal without cause, the Company must
pay the Manager a termination fee in cash, which could be substantial and
which may adversely affect the Company's ability to terminate or decline to
renew the Manager without cause. The amount of the termination fee will be
determined by independent appraisal of the value of the Management Agreement
for the four years succeeding the date of termination or nonrenewal. Such
appraisal is to be at the Company's expense and conducted by a nationally
recognized appraisal firm mutually agreed upon by the Company and the
Manager. If the Company and the Manager are unable to agree upon an appraisal
firm, then each of the Company and the Manager is to choose an independent
appraisal firm to conduct an appraisal. In such event, (i) if the appraisals
prepared by the two appraisers so selected are the same or differ by an
amount that does not exceed 20% of the higher of the two appraisals, the
termination fee is to be deemed to be the average of the appraisals as
prepared by each party's chosen appraiser, and (ii) if the two appraisals
differ by more than 20% of such higher amount, the two appraisers together
are to select a third appraisal firm to conduct an appraisal. If the two
appraisers are unable to agree as to the identity of such third appraiser,
either the Manager or the Company may request that the American Arbitration
Association ("AAA") select the third appraiser. The termination fee then is
to be an amount determined by such third appraiser, but in no event less than
the lower of the two initial appraisals or more than the higher of such two
initial appraisals.
In addition, the Company has the right at any time during the term of
the Management Agreement to terminate the Management Agreement without the
payment of any termination fee upon, among other things, a material breach by
the Manager of any provision contained in the Management Agreement that
remains uncured at the end of the applicable cure period (including the
failure of the Manager to use reasonable efforts to comply with the Company's
investment policy and guidelines). If the Management Agreement is terminated
for any reason, the JER Investors will have certain registration rights with
respect to its Common Stock.
The Management Agreement may not be assigned (within the meaning of the
Investment Advisers Act of 1940, as amended, and the rules and regulations
thereunder) by either party without the written consent of the other party.
The Manager at all times will be subject to the supervision of the
Company's Board of Directors and will have only such functions and authority
as the Company may delegate to it. The Manager will be responsible for
<PAGE>
providing the following investment advisory services relating to the assets
and operations of the Company as may be appropriate:
(i) serving as the Company's consultant with respect to
formulation of investment criteria and preparation of policy guidelines
by the Board of Directors;
(ii) investigating, sourcing and selecting potential
investment opportunities for the Company;
(iii) making all decisions concerning the commitment to,
purchase, negotiation, structuring, monitoring, and disposition of
investments by the Company;
(iv) evaluating, recommending and approving all decisions
regarding any financings, securitizations, hedging activities or
borrowings undertaken by the Company or its subsidiaries;
(v) making available to the Company its knowledge and
experience with respect to real estate, real estate related assets and
real estate operating companies;
(vi) counseling the Company in connection with policy
decisions to be made by the Board of Directors;
(vii) upon request by and in accordance with the directions of
the Board of Directors, investing or reinvesting any money of the
Company pending identification of appropriate assets consistent with the
Company's investment policies in which to invest or other uses;
(viii) supervision of other service providers to the Company;
and
(ix) providing certain general management services to the
Company relating to the day-to-day operations and administration of the
Company in the United States (including, e.g., communicating with the
holders of the equity and debt securities of the Company as required to
satisfy the reporting and other requirements of any governing bodies or
agencies and to maintain effective relations with such holders, causing
the Company to qualify to do business in all applicable jurisdictions,
complying with all regulatory requirements applicable to the Company in
respect of its business activities, including preparing all financial
statements required under applicable regulations and contractual
undertakings and all reports and documents, if any, required under the
Securities Exchange Act of 1934, as amended, and causing the Company to
comply with all applicable laws).
Management Compensation
The following table presents all compensation, fees and other benefits
(including reimbursement of expenses) that the Manager or its affiliates may
earn or receive from the Company under the terms of the Management Agreement
or otherwise.
<PAGE>
<TABLE>
Recipient Payor Amount
- --------- ----- ------
<S> <C> <C>
Manager Company Base management fee equal
to a percentage of the
Average Invested Assets of
the Company<F1>
Manager Company Incentive compensation
based on the amount, if
any, by which the Company's
Pre-Tax/Pre-Depreciation
and Amortization Net Income
exceeds a hurdle rate<F2>
Manager Company Certain expenses of the
Company paid to the Manager
or its Affiliates<F3>
<FN>
<F1> The base management fee, calculated and paid quarterly, is
equal to 0.125% per quarter (0.5% per annum) of the Average Invested
Assets (as defined herein) of the Company for such quarter; provided
that, for the first four fiscal quarters of the Company's operations
following the closing of the Offering, the base management fee shall be
not less than the greater of (x) $1,250,000 per quarter ($5,000,000 per
annum) or (y) the Manager's actual costs of providing its services to
the Company under the Management Agreement for such period). In addition
to the base management fee described in the preceding sentence, the
Company will reimburse the Manager and its affiliates for (i) all costs
incurred by the Manager or its affiliates (including, without
limitation, travel, salaries, bonuses, benefits and related overhead and
out-of-pocket expenses) in researching, investigating, negotiating,
structuring and developing investment opportunities in Asia on behalf of
the Company prior to the sale of the Common Stock offered hereby and
(ii) any additional start-up costs and expenses the Manager or its
affiliates may incur on behalf of the Company subsequent to the closing
of the Offering with respect to additional staffing, the establishment
of new offices in Asia and the purchase of new technology and equipment.
<F2> A detailed explanation of the calculation of the incentive compensation
is provided below.
<F3> The Company may engage the Manager or its affiliates to provide (i)
services outside of the United States related to the day-to-day
operations and administration of the Company and to the performance and
supervision of such other administrative functions necessary in the
<PAGE>
management of the Company as may be agreed upon by the Manager and Board
of Directors, (ii) due diligence and acquisition related services on
assets purchased or considered for purchase by the Company and (iii)
asset management services, loan servicing, master or special servicing,
legal or accounting services, leasing services or property management
services with respect to assets acquired by the Company (collectively,
"Other Services"). The Manager or its affiliates will be paid or
reimbursed for the costs of providing the Other Services separate and
apart from the base management fee, provided that such costs and
reimbursements are at costs no greater than would be paid to outside
professionals, consultants or other third parties on an arm's length
basis. Such arrangements may also be made using an income sharing
arrangement such as a joint venture. Expense reimbursement are expected
generally to be made on a monthly basis.
</TABLE>
The term "Average Invested Assets" for any period means the average of
the aggregate book value of the assets of the Company, including the assets
of all of its direct and indirect subsidiaries, before reserves for
depreciation or bad debts or other similar noncash reserves, computed by
taking the daily average of such values during such period.
The Manager will not receive any management fee for the period prior to
the sale of the shares of Common Stock offered hereby, although the Company
will reimburse the Manager and its affiliates for all costs incurred by the
Manager or its affiliates (including, without limitation, travel, salaries,
bonuses, benefits and related overhead and out-of-pocket expenses) in
researching, investigating, negotiating, structuring and developing
investment opportunities in Asia on behalf of the Company prior to the sale
of the Common Stock offered hereby. The base management fee is intended to
compensate the Manager for the costs and expenses of its executive officers
and employees and any related overhead incurred in providing to the Company
the investment advisory services and certain general management services
itemized above under "--The Management Agreement." The Board of Directors may
adjust the base management fee in the future if necessary to align the fee
more closely with the actual costs of such services.
The Manager shall be entitled to receive an incentive management fee for
each fiscal quarter in an amount equal to the product of:
(A) 25% of the dollar amount by which (1) Pre-Tax/Pre-Depreciation
and Amortization Net Income of the Company for such quarter per share of
Common Stock (based on the weighted average number of shares outstanding
for such quarter) exceed (2) an amount equal to (a) the weighted average
of the price per share of Common Stock in the initial public offering
and the prices per share of Common Stock in any secondary offerings by
the Company multiplied by (b) the Ten-Year U.S. Treasury Rate plus five
percent per annum (expressed as a quarterly percentage) for such
quarter, multiplied by
(B) the weighted average number of shares of Common Stock outstand-
ing during such quarter.
<PAGE>
"Pre-Tax/Pre-Depreciation and Amortization Net Income" means net income
(before the incentive fee, but including gains from sales and restructurings
of the Company's assets, and calculated in accordance with U.S. generally
accepted accounting principles) including gains (or losses) from
restructurings and sales of property, excluding provision for income taxes
and depreciation and amortization on real estate assets, and after
adjustments for unconsolidated partnerships and joint ventures. Pre-Tax/Pre-
Depreciation and Amortization Net Income does not represent cash generated
from operating activities in accordance with GAAP and should not be
considered as an alternative to cash flow as a measure of liquidity or
ability to make distributions. As used in calculating the Manager's compensa-
tion, the term "Ten Year U.S. Treasury Rate" means the arithmetic average of
the weekly average yield to maturity for actively traded current coupon U.S.
Treasury fixed interest rate securities (adjusted to constant maturities of
ten years) published by the Federal Reserve Board during a quarter, or, if
such rate is not published by the Federal Reserve Board, any Federal Reserve
Bank or agency or department of the federal government selected by the
Company. If the Company determines in good faith that the Ten Year U.S.
Treasury Rate cannot be calculated as provided above, then the rate shall be
the arithmetic average of the per annum average yields to maturities, based
upon closing asked prices on each business day during a quarter, for each
actively traded marketable U.S. Treasury fixed interest rate security with a
final maturity date not less than eight nor more than twelve years from the
date of the closing asked prices as chosen and quoted for each business day
in each such quarter in New York City by at least three recognized dealers in
U.S. government securities selected by the Company.
The ability of the Company to generate Pre-Tax/Pre-Depreciation and
Amortization Net Income in excess of the Ten Year U.S. Treasury Rate, and of
the Manager to earn the incentive fees described in the preceding paragraph,
is dependent upon the level and volatility of interest rates, the Company's
ability to utilize successfully the operating strategies described herein,
and other factors, many of which are not within the Company's control.
The base management fee will be payable quarterly in advance in an
amount equal to 75% of such fee as estimated by the Manager; provided that
within 60 days after the end of the applicable quarter, the Manager will
provide to the Company a reconciliation of the difference between the actual
base management fee for such quarter and estimated payments already made for
such quarter in accordance with the first clause of this sentence. Any excess
amount or shortfall will be promptly paid by the appropriate party. The
incentive fee is payable in arrears. The Manager's incentive fee will be
calculated by the Manager within 45 days after the end of each quarter, and
such calculation will be promptly delivered to the Company. The Company is
obligated to pay such incentive fee within 15 days after receipt of such
calculation of the incentive fee. Reimbursable costs and expenses of the
Manager and its affiliates are expected to generally be payable monthly by
the Company within 10 days after receipt of the appropriate expense
documentation.
The Company expects to rely primarily on the facilities, personnel and
resources of the Manager and its affiliates to conduct its operations,
although the Company and its affiliated and subsidiary companies may also
<PAGE>
hire employees to perform all or part of the services that would otherwise be
provided by the Manager its affiliates and other third parties and may also
maintain its own facilities and equipment. While taking this action would not
reduce the base management fee which the Manager is entitled to receive, such
a decision may reduce the amounts paid to the Manager, its affiliates or
other third parties for the provision of Other Services. See "Management of
Operations--Management Compensation."
The Company has adopted the 1998 Stock Option Plan. The Manager and the
directors, officers and any employees of the Company and the Manager may be
granted options under the Company's 1998 Stock Option Plan. See "Management
of Operations--Stock Options" below.
Company Expenses
The Company will be required to pay (i) all Offering expenses (including
accounting, legal, printing, travel, clerical, personnel, filing and other
expenses) incurred by the Company, the Manager or its affiliates on behalf of
the Company in connection with this Offering, estimated at $ and (ii)
(A) all costs incurred by the Manager or its affiliates (including, without
limitation, travel, salaries, bonuses, benefits and related overhead and
out-of-pocket expenses) in researching, investigating, negotiating,
structuring and developing investment opportunities in Asia on behalf of the
Company prior to the sale of the Common Stock offered hereby and (B) any
additional start-up costs and expenses the Manager or its affiliates may incur
on behalf of the Company subsequent to the closing of the Offering with
respect to additional staffing, the establishment of new offices in Asia and
the purchase of new technology and equipment. There will be no limitation on
these payments. The Company will also pay all operating expenses except those
costs and expenses incurred by the Manager in providing the investment
advisory services and certain general management services (see "--The
Management Agreement" and "--Management Compensation").
The expenses that will be paid by the Company will include (but not
necessarily be limited to) issuance and transaction costs incident to the
acquisition, disposition and financing of investments, legal, accounting and
auditing fees and expenses, office space and equipment used exclusively by
the Company, the compensation and expenses of the Company's Unaffiliated
Directors, the costs and expenses of Company employees (if any) (other than
costs and expenses of its executive officers who are also executive officers
of JER), the costs of printing and mailing proxies and reports to
stockholders, costs incurred by employees of the Manager for travel on behalf
of the Company, costs associated with any computer software or hardware that
is used solely for the Company, costs to obtain liability insurance to
indemnify the Company's directors and officers, the Manager and its employees
and directors and the Underwriters, and the compensation and expenses of the
Company's custodian and transfer agent, if any. The Company will also be
required to pay (i) all costs relating to the day-to-day operations and
administration of the Company (other than those incurred within the United
States and described above under "--The Management Agreement"), (ii) all
expenses incurred in connection with due diligence, asset management, loan
servicing, the master and special servicing of mortgage loans, leasing,
property management, the raising of capital, incurrence of debt, the
<PAGE>
acquisition of assets, interest expenses, taxes and license fees, non-cash
costs, litigation, the base and incentive management fees and extraordinary
or nonrecurring expenses and (iii) the Company's pro rata share of the office
space, equipment, salaries, bonus, health insurance, retirement benefits and
similar employment costs incurred by the Manager or its affiliates in
providing the Other Services. Such services may be provided to the Company by
affiliates of the Manager if the Manager believes such affiliates' services
are of comparable or superior quality to those provided by third parties and
can be provided at comparable cost. The Board of Directors will periodically
review the Company's expense levels, the division of expenses between the
Company and the Manager and reimbursements of expenses advanced by the
Manager.
Stock Options
The Company intends to adopt the 1998 Stock Option Plan, under which the
compensation committee (the "Compensation Committee") or, if none, the Board
of Directors, will be authorized to grant options to purchase shares of
Common Stock. The maximum aggregate number of shares of Common Stock that may
be issued pursuant to options granted under the 1998 Stock Option Plan will
be 1,500,000. Out of such authorized options, the Company will grant to the
Manager, as of the date of initial public offering, options to purchase an
aggregate number of shares of Common Stock (which the Manager may allocate to
its, and its affiliates', directors, officers and employees) equal to 10% of
the shares of Common Stock outstanding after the Offering and the Concurrent
Offerings. The exercise price of such options will be equal to the initial
public offering price. The purpose of the 1998 Stock Option Plan is to
provide a means of performance based compensation in order to provide
incentive for the Manager to enhance the value of the Common Stock. Such
options will expire on the tenth anniversary of the Closing Date, and 25% of
these options will become exercisable on each of the four anniversaries of
the consummation of this Offering. In addition, any options granted to the
Manager will result in a charge against the Company's for financial reporting
purposes under GAAP.
All employees (including officers), directors and others providing
services to the Company, as well as the Manager and employees (including
officers) and directors of the Manager and its affiliates (collectively, the
"Eligible Recipients"), will be eligible to receive options at the discretion
of the Compensation Committee. In addition, 80% of the options remaining in
the 1998 Stock Option Plan following the initial grant of options to the
Manager will be set aside for future option grants to the Manager. Such
reserve does not guarantee that the Manager will be granted such options. The
Compensation Committee will be authorized to determine which Eligible
Recipients shall receive options, and the terms and conditions on which
options shall be granted. The Compensation Committee may grant options to
employees of the Manager, subject to certain limits described in the 1998
Stock Option Plan. Options granted pursuant to the 1998 Stock Option Plan
will be nonqualified stock options. Options granted to individuals pursuant
to the 1998 Stock Option Plan generally are not transferable except by will
or by the applicable laws of descent and distribution. The Manager may
transfer its options to any other Eligible Recipient. Grants of options under
<PAGE>
the 1998 Stock Option Plan to persons or entities other than employees,
officers and directors of the Company will result in a charge against the
Company's earnings for financial reporting purposes under GAAP. Any such
charge to earnings will be recognized in the period during which such options
are granted.
The exercise price of all options will be not less than 100% of the fair
market value of the Common Stock subject to the options on the date of grant.
All options will become exercisable as determined by the Compensation
Committee at the time of the award. The exercise price of an option may be
paid by any one or more of the following: (i) cash or certified check, (ii)
shares of Common Stock held more than six months, (iii) cancellation of any
indebtedness owed by the Company, (iv) a full recourse promissory note, if
approved by the Compensation Committee or (v) a "cashless" exercise pursuant
to a sale through a broker of all or a portion of the shares covered by the
option.
If an Eligible Recipient's affiliation with the Company is terminated
for cause or if such Eligible Recipient terminates his affiliation
voluntarily, all of such Eligible Recipient's unexercised options will
terminate immediately upon such termination. Except as otherwise determined
by the Compensation Committee, if an Eligible Recipient has a termination of
affiliation because of death or total and permanent disability or for any
other reason (other than a voluntary termination or a termination for cause),
all of such Eligible Recipient's unexercised options may be exercised by the
Eligible Recipient or his beneficiary or legal representative to the extent
such options are or become exercisable in accordance with their terms during
the shorter of (i) the one-year period following the Eligible Recipient's
death or total and permanent disability or, if longer, a period to be
determined by the Board of Directors acting in its absolute discretion or
(ii) the period of the remaining life of the option. If an Eligible Recipient
has a termination of affiliation for any reason other than death, total and
permanent disability, a voluntary termination or a termination for cause, all
of such Eligible Recipient's unexercised options may be exercised by the
Eligible Recipient on the date of such termination or during the 90 day
period immediately following such termination or, if less, during the
remaining life of the option. Upon termination of the Manager, all options
granted to the Manager or employees of the Manager will become immediately
exercisable for a period of 90 days from such termination.
The Board of Directors generally may amend the 1998 Stock Option Plan at
any time, except that approval by the Company's stockholders will be required
for any amendment that (i) increases the aggregate number of shares of Common
Stock that may be issued pursuant to the 1998 Stock Option Plan, (ii)
materially changes the class of persons eligible to receive such options,
(iii) extends the maximum option term or (iv) decreases the exercise price of
any option to less than the fair market value of the Common Stock on the date
of grant. Shares of Common Stock subject to options that expire, are
terminated or otherwise are surrendered to the Company will be available for
issuance in connection with future awards under the 1998 Stock Option Plan.
No option term may exceed ten years from the date of grant, and no option
grant may be made under the 1998 Stock Option Plan after the tenth
<PAGE>
anniversary of the date the 1998 Stock Option Plan was adopted by the Board
of Directors.
Limits of Responsibility
Pursuant to the Management Agreement, the Manager will not assume any
responsibility other than to render the services called for thereunder and
will not be responsible for any action of the Board of Directors in following
or declining to follow its advice or recommendations. The Manager and its
affiliates, and the directors and officers of the Manager and its affiliates
will not be liable to the Company, any subsidiary of the Company, the
Unaffiliated Directors, the Company's stockholders or any subsidiary's
stockholders for acts performed in accordance with and pursuant to the
Management Agreement, except by reason of acts constituting bad faith,
willful misconduct, gross negligence or reckless disregard of their duties
under the Management Agreement. The Company has agreed to indemnify the
Manager and its affiliates, and the directors and officers of the Manager and
its affiliates with respect to all expenses, losses, damages, liabilities,
demands, charges and claims arising from acts of such parties not
constituting bad faith, willful misconduct, gross negligence or reckless
disregard of duties, performed in good faith in accordance with and pursuant
to the Management Agreement.
Negotiations with Nomura
The Manager, on behalf of the Company, is currently in preliminary
negotiations with Nomura to obtain a credit facility in the amount of
approximately $500 million which would be secured by the assets of the
Company. In addition, Nomura has indicated that it intends to pursue other
relationships with the Company, including the provision of services relating
to, among other things, identification of suitable investments for the
Company in Asia, certain co-investment rights with respect to assets so
identified, aiding the Company in securing permanent financing for the
Company's real estate assets and contributing nonperforming real estate
assets owned by affiliates of Nomura to the Company.
There can be no assurance, however, that negotiations with Nomura will
result in a definitive agreement being entered into or consummated or as to
the terms hereof.
Thai Property Fund
Currently, the laws of Thailand significantly restrict the ability of
foreign capital to invest in and control real estate in Thailand. However,
foreign entities are permitted to apply to the Thailand Securities and
Exchange Commission for registration as a property fund with certain
investment parameters and favorable tax treatments. On April 30, 1998, JER,
on behalf of the Company, filed an application with the Thailand Securities
and Exchange Commission for registration of such an entity under the name of
"JER Thailand Property Fund." It is expected that the Thailand Securities and
Exchange Commission will require several months to process the application,
and the Company expects ultimately to obtain such registration although no
<PAGE>
assurance can be given in this regard. If the JER Thailand Property Fund is
successfully registered, it is expected that it will be permitted to invest
in real estate, long-term real estate leases, short-term debt instruments,
and, possibly, loans and securities that are collateralized by real estate
assets. The ability to invest in loans and securities will depend on whether
anticipated regulatory amendments are actually adopted by the relevant Thai
authorities.
The JER Thailand Property Fund is expected to offer the Company certain
advantages over non-Thai competitors that do not have registered property
funds. First, the JER Thailand Property Fund is expected to be permitted to
own controlling interests in Thai real estate. Second, it is expected that
all income and capital gains earned by the JER Thailand Property Fund can be
repatriated tax-free. Without registration as a property fund, all income
earned from property investments in Thailand by non-Thai investors would be
taxed at the 30% corporate rate and dividends would be subject to a 10%
withholding tax. Finally, transfer taxes are reduced from 2% to .01% for
purchases by a registered property fund.
Certain Relationships; Conflicts of Interest
The Company, on the one hand, and the Manager and its affiliates, on the
other, will enter into a number of relationships other than those governed by
the Management Agreement, some of which may give rise to conflicts of
interest. With a view toward protecting the interests of the Company's
stockholders, the Certificate of Incorporation of the Company provides that,
beginning no more than 90 days after this Offering, a majority of the Board
of Directors must be Unaffiliated Directors.
The incentive fee provided for by the Management Agreement, which is
based on the Company's income, may create an incentive for the Manager to
make investments on behalf of the Company with greater income or gain
potential, but which are also riskier or more speculative than investments
the Manager might otherwise recommend if its fee did not include a
"performance" component. The structure of the base management fee, which is
based upon the Average Invested Assets of the Company rather than the net
assets of the Company, will provide an incentive to the Manager to effect
borrowings by the Company and thereby increase the amount of total assets
which are subject to the base management fee.
Other than as described in this paragraph, the Management Agreement does
not limit or restrict the right of the Manager or any of its officers,
directors, employees or affiliates from engaging in any business or rendering
services of any kind to any other person, including the purchase of or
rendering advice to others purchasing real estate assets that meet the
Company's policies and criteria. During the term of the Management Agreement,
the Company will have an exclusive right to any investment opportunity
identified by the Manager, its officers, directors, employees and affiliates
with respect to performing, nonperforming, subperforming, distressed and
other real estate and real estate related assets, including mortgage loans,
mortgage backed securities, real estate properties, companies with
significant real estate assets and companies involved in the business of real
estate ownership, real estate services or other real estate related operating
<PAGE>
businesses which are located in the Asia Pacific Region (as defined below),
unless, (i) the Company does not have the financial capacity (as determined
in good faith by the Manager) to make such investment or (ii) a majority of
the Unaffiliated Directors have determined that such investment or the
general category of investments to which such investment relates is not
appropriate for the Company in light of the Company's investment strategies
and policies at the time such investment is identified. The term "Asia
Pacific Region" means Hong Kong, Indonesia, Malaysia, the Philippines,
Singapore, Taiwan, Thailand, China, India, Australia, Bangladesh, Cambodia,
Japan, South Korea, Laos, Mongolia, Myanmar, New Zealand, Pakistan, Sri Lanka
and Vietnam.
The Manager and its affiliates expect to continue to purchase real
estate and real estate related assets in the future for their own account and
for the accounts of other clients, and, other than as described above, have
no obligation to make investment opportunities available to the Company. As a
consequence, the opportunity for the Company to invest in real estate and
real estate related assets will be limited if such investment opportunities
would be attractive to JER or its clients. Furthermore, pursuant to the
organizational documents of JER's Private Funds, JER is currently required,
under most circumstances, to present investment opportunities in the United
States, Canada, Mexico and Western Europe to JER's Private Funds. As a
consequence, although the Company intends to focus its investment activities
primarily in East Asia and Southeast Asia, if the Company were to pursue
investment opportunities in the United States, Canada, Mexico or Western
Europe, the Company's opportunity to make such investments would be limited.
The obligation of JER to present investment opportunities in the United
States, Canada, Mexico and Western Europe to JER's Private Funds will expire
upon the earlier to occur of January 2001 or the full investment of such
investment vehicles. In addition, investment vehicles organized, sponsored or
advised by JER after the date hereof may also contain restrictions and
limitations on the ability of JER to offer investment opportunities to the
Company, provided that no such restriction or limitation shall adversely
restrict the ability of the Company to pursue investment opportunities in
East Asia and Southeast Asia or conflict with the Company's exclusivity
rights set forth in the next preceding paragraph above.
The Company also is subject to conflicts of interest with the Manager
because the Company may purchase assets for investment from JER. Any such
assets purchased may not have a readily determinable fair market value and
independent valuations may not be sought. The Company intends to adopt
operating policies to minimize the effect of such conflicts. The Unaffiliated
Directors will review any such transactions prior to completion to ensure
that they are on fair and reasonable arms-length terms. However, the
Unaffiliated Directors are expected to rely primarily on the advice of and
information provided by the Manager in deciding whether to approve such
transactions, and there can be no assurance that the price and other terms of
such transactions will be fair to the Company.
The directors and officers of the Company and the Manager have other
calls on their time. Except as set forth above, the Management Agreement with
the Manager does not limit the Manager's right (or its affiliates' rights) to
engage in other business activities or to provide services to others,
<PAGE>
including other real estate investment vehicles. JER advises other entities
that invest in the types of assets in which the Company will invest and,
except as set forth above, the Management Agreement does not limit or
restrict the right of JER or any of its officers, directors, employees or
affiliates from engaging in any business or rendering services of any kind to
any other person, including the purchase of or rendering advice to others
purchasing real estate assets that meet the Company's policies and criteria.
Furthermore, real estate investments of the type that the Company expects to
make will require a substantial commitment of management time and resources.
As a result, conflicts may arise in the allocation of management resources.
In addition, pursuant to the organizational documents of JER's Private Funds,
until the earlier to occur of January 2001 or the full investment of JER's
Private Funds, Joseph E. Robert, Jr. is obligated to devote approximately 80%
of his business time and attention to the business of JER's Private Funds.
MANAGEMENT OF THE COMPANY
The Company was incorporated in the State of Delaware on May 15, 1998.
The principal executive offices of the Company are located at 1650 Tysons
Boulevard, Suite 1600, McLean, Virginia 22102. The Company's telephone number
is 703-714-8000.
Directors and Executive Officers
The following tables set forth certain information about the directors
and executive officers of the Company.
<TABLE>
<CAPTION>
Directors
Name Age
- ---- ---
<S> <C>
Joseph E. Robert, Jr. 46
<CAPTION>
Executive Officers
Name Age Positions(s) Held
- ---- --- -----------------
<S> <C> <C>
Joseph E. Robert, Jr. 46 Chief Executive Officer
Bruce T. Cunningham 43 Chief Financial Officer, Chief
Accounting Officer and Treasurer
</TABLE>
All directors will be elected at each annual meeting of the Company's
stockholders for a term of one year, and hold office until their successors
are elected and qualified. All officers serve at the discretion of the Board
of Directors. Although the Company may have salaried employees, it currently
does not have employees. The Company and its subsidiary or affiliated
companies may also in the future hire their own personnel to perform certain
functions otherwise provided by the Manager, its affiliates and other third
parties, and may open and maintain offices in Asian cities as deemed
necessary. While taking this action would not reduce the base management fee
<PAGE>
which the Manager is entitled to receive, such a decision may reduce the
amounts paid to the Manager, its affiliates or other third parties for the
provision of Other Services (see "Management of Operations--Management
Compensation"). The Company will pay an annual director's fee to each
Unaffiliated Director equal to $20,000 and a fee of $1,000 for each meeting
of the Board of Directors attended in person by such Unaffiliated Director.
All directors will be reimbursed for their costs and expenses in attending
all meetings of the Board of Directors. Affiliated directors will not be
separately compensated by the Company.
Directors and executive officers of the Company will be required to
devote only so much of their time to the Company's affairs as is necessary or
required for the effective conduct and operation of the Company's business.
Because the Management Agreement provides that the Manager will assume
principal responsibility for managing the affairs of the Company, the
officers of the Company, in their capacities as such, are not expected to
devote substantial portions of their time to the affairs of the Company.
However, in their capacities as officers or employees of the Manager, or its
affiliates, they will devote such portion of their time to the affairs of the
Manager as is required for the performance of the duties of the Manager under
the Management Agreement or for the performance of Other Services for which
the Manager or one of its affiliates is engaged to provide.
The Certificate of Incorporation of the Company will provide that,
except in the case of a vacancy, the majority of the members of the Board of
Directors will, beginning 90 days after this Offering, be Unaffiliated
Directors. Vacancies occurring on the Board of Directors among the
Unaffiliated Directors will be filled by the vote of a majority of the
directors, including a majority of the Unaffiliated Directors.
The Certificate of Incorporation of the Company provides for the
indemnification of the directors and officers of the Company to the fullest
extent permitted by Delaware law. Delaware law permits a company's
certificate of incorporation to eliminate or limit the personal liability of
a director to the corporation or its stockholders for monetary damages for
breach of fiduciary duty as a director, provided that such provision does not
eliminate or limit the liability of a director: (i) for any breach of the
director's duty of loyalty to the corporation or its stockholders; (ii) for
acts or omissions not in good faith or which involve intentional misconduct
or a knowing violation of law; (iii) unlawful payments of dividends as
unlawful stock purchases or redemptions; or (iv) for any transaction from
which the director derived an improper personal benefit. The Company has
included provisions in its Certificate of Incorporation that eliminate the
liabilities of directors and officers in certain actions brought by or on
behalf of stockholders. Insofar as indemnification for liabilities arising
under the Securities Act of 1933 may be permitted to directors, officers or
persons controlling the Company pursuant to the foregoing provisions, the
Company has been informed that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act
of 1933 and is therefore unenforceable.
<PAGE>
DESCRIPTION OF CAPITAL STOCK
General
The Certificate of Incorporation provides that the Company may issue up
to 500 million shares of capital stock, consisting of 400 million shares of
Common Stock, $0.01 par value per share, and 100 million shares of preferred
stock, $0.01 par value per share ("Preferred Stock"). Upon completion of this
Offering and the Concurrent Offerings, 6,377,551 shares of Common Stock will
be issued and outstanding, (assuming the Underwriters' overallotment option
is not exercised) 1,500,000 shares of Common Stock will be reserved for
issuance upon exercise of options, and no Preferred Stock will be issued and
outstanding.
Common Stock
All outstanding shares of Common Stock will be duly authorized, fully
paid and nonassessable upon the closing of the Offering. Subject to the
preferential rights of any other shares or series of shares of capital stock,
holders of Common Stock are entitled to receive dividends when, as and if
declared by the Board of Directors of the Company out of assets legally
available therefor and to share ratably in the assets of the Company legally
available for distribution to its stockholders in the event of its
liquidation, dissolution or winding-up after payment of, or adequate
provision for, all debts and liabilities of the Company.
Each outstanding share of Common Stock entitles the holder to one vote
on all matters submitted to a vote of stockholders, including the election of
directors, and, except as otherwise required by law or except as provided
with respect to any other class or series of shares of capital stock, the
holders of Common Stock will possess the exclusive voting power. There is no
cumulative voting in the election of directors, which means in all elections
of directors, each holder of Common Stock has the right to cast one vote for
each share of stock for each seat to be filled.
Preferred Stock
Preferred Stock may be issued from time to time, in one or more series,
as authorized by the Board of Directors. Because the Board of Directors has
the power to establish the preferences and rights of each class or series of
Preferred Stock, the Board of Directors may afford the holders of any series
or class of Preferred Stock preferences, powers and rights, voting or
otherwise, senior to the rights of the holders of Common Stock. The Board
could authorize the issuance of Preferred Stock with terms and conditions
which could have the effect of discouraging a takeover or other transaction
which holders of some, or a majority, of the shares of Common Stock might
believe to be in their best interests or in which holders of some, or a
majority, of the shares of Common Stock might receive a premium for their
shares of Common Stock over the then market price of such shares of Common
Stock. As of the date hereof, no shares of Preferred Stock are outstanding.
<PAGE>
Registration Rights
In connection with the sale of shares of Common Stock to the JER
Investors and FBR Asset, the Company has agreed to enter into a registration
rights agreement (the "JER/FBR Registration Rights Agreement") granting the
JER Investors and FBR Asset certain registration rights with respect to the
shares of Common Stock issued in the Concurrent Offerings. The JER/FBR
Registration Rights Agreement provides that from and after the one-year
anniversary of the closing of the Offering, the JER Investors and FBR Asset
will have unlimited piggyback registration rights, subject to certain
conditions, and a one-time demand right, subject to certain conditions, to
require the Company to file a registration statement relating to the Common
Stock. The Company may prohibit offers and sales of securities pursuant to
the shelf registration statement under certain circumstances. The Company has
also agreed to pay the costs and expenses of each such registration effected
under the JER/FBR Registration Rights Agreement, other than underwriting
discounts and commissions.
Reports to Stockholders
The Company will furnish its stockholders with annual reports containing
audited financial statements certified by independent public accountants and
distribute quarterly reports containing unaudited financial information for
each of the first three quarters of the year.
Transfer Agent and Registrar
The Company intends to appoint a transfer agent and registrar for the
Common Stock.
CERTAIN PROVISIONS OF DELAWARE LAW AND
OF THE COMPANY'S CERTIFICATE OF INCORPORATION AND BYLAWS
The following summary of certain provisions of Delaware law and of the
Certificate of Incorporation and Bylaws of the Company does not purport to be
complete and is subject to and qualified in its entirety by reference to
Delaware law and the Certificate of Incorporation and Bylaws of the Company,
copies of which have been filed as exhibits to the registration statement of
which this Prospectus is a part.
Board of Directors
The Bylaws provide that the number of directors of the Company may be
established by the Board of Directors but may not be fewer than one nor more
than nine. Any vacancy in the Board of Directors that occurs between annual
meetings of stockholders will be filled, at any regular meeting of the Board
of Directors or at any special meeting of the Board of Directors called for
that purpose, by a majority of the remaining directors, except that a vacancy
resulting from an increase in the number of directors must be filled by a
majority of the entire Board of Directors.
<PAGE>
The Company's Bylaws also provide that a director may be removed with or
without cause with the affirmative vote of at least two-thirds of the votes
entitled to be cast in the election of directors. This provision, when
coupled with the provisions of the Bylaws authorizing the Board of Directors
to fill vacant directorships, as a practical matter precludes the Company's
stockholders from removing incumbent directors and filling the vacancies
created by such removal with their own nominees.
Stockholder Action by Written Consent
The Company's Certificate of Incorporation and Bylaws provide that
stockholder action may be taken only at an annual or special meeting of
stockholders and prohibit stockholder action by written consent. As a result,
notice to and voting by all the stockholders will be required prior to
stockholder action on any matter.
Calling of Meetings of Stockholders
The Company's Bylaws provide that special meetings of stockholders may
be called only by the Board of Directors.
Amendment of the Bylaws
The Company's Certificate of Incorporation provides that the Board
of Directors shall have power to adopt, amend and repeal the Bylaws at any
regular or special meeting of the Board of Directors. In addition, the
Company's stockholders may adopt, amend and repeal the Bylaws at any regular
or special meeting of the stockholders by an affirmative vote of 66 2/3% of
the shares outstanding and entitled to vote thereon.
Advance Notice of Director Nominations and New Business
The Bylaws of the Company provide (a) with respect to an annual meeting
of stockholders, nominations of persons for election to the Board of
Directors and the proposal of business to be considered by such stockholders
may be made only (i) pursuant to the Company's notice of the meeting, (ii) by
the Board of Directors or (iii) by a stockholder who is entitled to vote at
the meeting and has complied with the advance notice procedures set forth in
the Bylaws and (b) with respect to special meetings of stockholders,
nominations of persons for election to the Board of Directors may be made
only (i) pursuant to the Company's notice of meeting, (ii) by the Board of
Directors or (iii) provided that the Board of Directors has determined that
directors shall be elected at such meeting, by a stockholder who is entitled
to vote at the meeting and has complied with the advance notice provisions
set forth in the Bylaws.
COMMON STOCK AVAILABLE FOR FUTURE SALE
Upon the closing of the Offering and the Concurrent Offerings, the
Company will have outstanding (or reserved for issuance upon exercise of
options) 7,877,551 shares of Common Stock, assuming the Underwriters'
<PAGE>
overallotment option is not exercised. The Common Stock issued in the
Offering will be freely tradeable by persons other than "affiliates" of the
Company without restriction under the Securities Act of 1933, as amended (the
"Securities Act").
The Common Stock issued in the Concurrent Offerings will be "restricted"
securities under the meaning of Rule 144 promulgated under the Securities Act
("Rule 144") and may not be sold in the absence of registration within the
Securities Act unless an exemption from registration is available, including
exemptions contained in Rule 144. The Company has granted the JER Investors
and FBR Asset certain registration rights with respect to the Common Stock
issued in the Concurrent Offerings (see "Description of Capital Stock--
Registration Rights").
In general, under Rule 144 as currently in effect, if one year has
elapsed since the later of the date of acquisition of restricted shares from
the Company or any "affiliate" of the Company, as that term is defined under
the Securities Act, the acquiror or subsequent holder thereof is entitled to
sell within any three-month period a number of shares that does not exceed
the greater of 1% of the then outstanding Common Stock or the average weekly
trading volume of the Common Stock during the four calendar weeks preceding
the date on which notice of the sale is filed with the Commission. Sales
under Rule 144 also are subject to certain manner of sale provisions, notice
requirements and the availability of current public information about the
Company. If two years have elapsed since the date of acquisition of
restricted shares from the Company or from any affiliate of the Company, and
the acquiror or subsequent holder thereof is deemed not to have been an
affiliate of the Company at any time during the three months preceding a
sale, such person would be entitled to sell such shares in the public market
under Rule 144(k) without regard to the volume limitations, manner of sale
provisions, public information requirements or notice requirements.
No prediction can be made as to the effect, if any, that future sales of
shares, or the availability of shares for future sale, will have on the
market price prevailing from time to time. Sales of substantial amounts of
Common Stock, or the perception that such sales could occur, may affect
adversely prevailing market prices of the Common Stock.
FEDERAL INCOME TAX CONSIDERATIONS
The Company does not intend to elect to be taxed as a real estate
investment trust, or "REIT," under the Internal Revenue Code of 1986, as
amended (the "Code"). Instead, the Company expects to be taxed as a
corporation under the Code.
The Company may be required to pay taxes in foreign jurisdictions and,
in certain circumstances, may not be able to credit these foreign taxes
against United States taxes. As such, although the Company will take tax
considerations into account when making investment decisions, the Company may
be subject to tax at effective rates higher than the maximum United States
federal income tax rate in certain circumstances.
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting
Agreement, the Company has agreed to sell to each of the underwriters named
below (the "Underwriters") and each of the Underwriters, for whom Friedman,
Billings, Ramsey & Co., Inc. and Schroder & Co. Inc. are acting as the
Representatives, has severally agreed to purchase, the number of shares of
Common Stock offered hereby set forth below opposite its name.
<TABLE>
<CAPTION>
Underwriter Number of Shares
- ----------- -----------------------
<S> <C>
Friedman, Billings, Ramsey & Co., Inc. . . . . . . .
Schroder & Co. Inc.. . . . . . . . . . . . . . . . .
----------
Total . . . . . . . . . . . . . . . . . . . . . 5,000,000
==========
</TABLE>
Under the terms and conditions of the Underwriting Agreement, the
several Underwriters are committed to purchase all the shares of Common Stock
offered hereby if any are purchased.
The Underwriters propose initially to offer the shares of Common Stock
directly to the public at the public offering price set forth on the cover
page of this Prospectus and to certain dealers at such offering price less a
concession not to exceed $ per share of Common Stock. The Underwriters may
allow and such dealers may reallow a concession not to exceed $ per share
of Common Stock to certain other dealers. After the shares of Common Stock
are released for sale to the public, the offering price and other selling
terms may be changed by the Underwriters.
The Company has granted to the Underwriters an option exercisable during
a 30-day period after the date hereof to purchase, at the initial offering
price less underwriting discounts and commissions, up to an additional
750,000 shares of Common Stock for the sole purpose of covering
over-allotments, if any. To the extent that the Underwriters exercise such
option, each Underwriter will be committed, subject to certain conditions, to
purchase such number of the additional shares of Common Stock proportionate
to such Underwriter's initial commitment.
The Company has agreed to indemnify the several Underwriters against
certain civil liabilities under the Securities Act, or to contribute to
payments the Underwriters may be required to make in respect thereof.
Prior to this Offering, there has been no public market for the shares
of Common Stock. The initial public offering price has been determined by
negotiation between the Company and the Representatives. Among the factors
considered in making such determination were the history of, and the
<PAGE>
prospects for, the industry in which the Company will compete, an assessment
of the skills of the Manager and the Company's prospects for future earnings,
the general conditions of the economy and the securities market and the
prices of offerings by similar issuers. There can, however, be no assurance
that the price at which the shares of Common Stock will sell in the public
market after this Offering will not be lower than the price at which they are
sold by the Underwriters.
The Representatives have informed the Company that the Underwriters do
not intend to confirm sales of the shares offered hereby to any accounts over
which they exercise discretionary authority.
Until the distribution of the Common Stock is completed, rules of the
Commission may limit the ability of the Underwriters and certain selling
group members to bid for or purchase the Common Stock. As an exception to
these rules, the Representatives are permitted to engage in certain
transactions that stabilize the price of the Common Stock. Such transactions
consist of bids or purchases for the purpose of pegging, fixing or
maintaining the price of the Common Stock.
If the Underwriters create a short position in the Common Stock in
connection with the Offering, i.e., if they sell more shares of Common Stock
than are set forth on the cover page of this Prospectus, the Representatives
may reduce that short position by purchasing Common Stock in the open market.
The Representatives may also elect to reduce any short position by exercising
all or part of the over-allotment option described above.
The Representatives may also impose a penalty bid on certain selling
group members. This means that if the Representatives purchase Common Stock
in the open market to reduce the Underwriters' short position or to stabilize
the price of the Common Stock, they may reclaim the amount of the selling
concession from the selling group members who sold those Common Stock as part
of the Offering.
In general, purchases of securities for the purpose of stabilization or
to reduce a short position could cause the price of the security to be higher
than it might be in the absence of such purchases. The imposition of a
penalty bid might also have an effect on the price of a security to the
extent that it were to discourage resales of the security.
Neither the Company nor any of the Underwriters make any representation
or prediction as to the direction or magnitude of any effect that the
transactions described above may have on the price of the Common Stock. In
addition, neither the Company nor any of the Underwriters make any
representation that the Representatives will engage in such transactions or
that such transactions, once commenced, will not be discontinued without
notice.
The Company has agreed not to offer, sell or contract to sell or
otherwise dispose of any Common Stock without the prior consent of
Friedman, Billings, Ramsey & Co., Inc. for a period of 120 days from the date
of this Prospectus.
<PAGE>
The Company has also agreed to sell, and FBR Asset has agreed to
purchase, a minimum of $25 million of Common Stock in the Concurrent
Offerings. In addition, the Company has agreed to sell, and the JER Investors
have agreed to purchase in the Concurrent Offerings, a number of shares of
Common Stock such that the JER Investors' aggregate investment constitutes
the lesser of (i) 2% of the total number of shares outstanding immediately
following consummation of the Offering and the Concurrent Offerings (assuming
that the Underwriters' option to purchase up to an additional 750,000 shares
to cover overallotments is not exercised) and (ii) $20 million in total
value. The price of shares of Common Stock to be placed in the Concurrent
Offerings will be equal to the initial public offering price net of
underwriting discounts and commissions. The Company has granted certain
"demand" and "piggyback" registration rights to the JER Investors and FBR
Asset with respect to the Common Stock acquired by them (see "Description of
Capital Stock--Registration Rights"). The JER Investors and FBR Asset have
agreed not to offer, sell or contract to sell or otherwise dispose of the
Common Stock acquired by them pursuant to the Concurrent Offerings without
the prior consent of Friedman, Billings, Ramsey & Co., Inc., for a period of
one year from the Closing Date, provided that if the Manager at any time
during such period no longer serves as the manager of the Company, such
restriction shall apply only for a period of 120 days from the date of this
Prospectus.
LEGAL MATTERS
Certain legal matters will be passed upon for the Company by Simpson
Thacher & Bartlett, New York, New York and for the Underwriters by Hogan &
Hartson L.L.P., Washington, D.C.
EXPERTS
The balance sheet of the Company as of May 15, 1998 included in this
Prospectus has been audited by Arthur Andersen LLP, independent certified
public accountants, as stated in their report appearing herein, given on the
authority of said firm as experts in auditing and accounting.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement (of which this Prospectus forms a
part) under the Securities Act of 1933, as amended, with respect to the
Common Stock offered pursuant to the Prospectus. This Prospectus contains
summaries of the material terms of the documents referred to herein and
therein, but does not contain all of the information set forth in the
Registration Statement pursuant to the rules and regulations of the
Commission. For further information, reference is made to such Registration
Statement and the exhibits thereto. Such Registration Statement and exhibits
as well as reports and other information filed by the Company can be
inspected without charge and copied at prescribed rates at the public
reference facilities maintained by the Commission at the Public Reference
Section of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549,
and at its Regional Offices located as follows: Chicago Regional Office,
<PAGE>
Citicorp Center, Suite 1400, 500 West Madison Street, Chicago, Illinois
60661-2511; and New York Regional Office, Seven World Trade Center, Suite
1300, New York, New York 10048. The Commission maintains a Web site that
contains reports, proxy, and information statements and other information
regarding registrants that file electronically with the Commission. The Web
site is located at http://www.sec.gov.
Statements contained in this Prospectus as to the contents of any
contract or other document that is filed as an exhibit to the Registration
Statement are not necessarily complete, and each such statement is qualified
in its entirety by reference to the full text of such contract or document.
The Company will be required to file reports and other information with
the Commission pursuant to the Securities Exchange Act of 1934. In addition
to applicable legal requirements, if any, holders of Common Stock will
receive annual reports containing audited financial statements with a report
thereon by the Company's independent certified public accountants, and
quarterly reports containing unaudited financial information for each of the
first three quarters of each fiscal year.
<PAGE>
GLOSSARY OF TERMS
Except as otherwise specified or as the context may otherwise require,
the following terms used herein shall have the meanings assigned to them
below. All terms in the singular shall have the same meanings when used in
the plural and vice versa.
"1998 Stock Option Plan" shall mean the Company's 1998 stock option plan
pursuant to which the Company shall authorize the issuance of options to
purchase Common Stock.
"affiliate" shall mean (i) any person directly or indirectly owning,
controlling, or holding, with power to vote ten percent or more of the
outstanding voting securities of such other person, (ii) any person ten
percent or more of whose outstanding voting securities are directly or
indirectly owned, controlled, or held, with power to vote, by such other
person, (iii) any person directly or indirectly controlling, controlled by,
or under common control with such other person, (iv) any executive officer,
director, trustee or general partner of such other person, and (v) any legal
entity for which such person acts as an executive officer, director, trustee
or general partner. The term "person" means and includes any natural person,
corporation, partnership, association, limited liability company or any other
legal entity. An indirect relationship shall include circumstances in which a
person's spouse, children, parents, siblings or mothers-, fathers-, sisters-
or brothers-in-law is or has been associated with a person.
"Average Invested Assets" shall mean the average of the aggregate book
value of the assets of the Company before reserves for depreciation or bad
debts or other similar noncash reserves, computed by taking the daily average
of such values during such period.
"Board of Directors" shall mean the Board of Directors of the Company.
"Bylaws" shall mean the Bylaws of the Company.
"Certificate of Incorporation" shall mean the Certificate of
Incorporation of the Company.
"Closing Date" shall mean on or about , 1998.
"CMBS" shall mean commercial or multifamily mortgage backed securities
or collateralized mortgage obligations including, IOs (a class of CMBS that
is entitled to no (or only nominal) distributions of principal), Inverse IOs
(a class of CMBS that is entitled to no (or only nominal) distributions of
principal, but is entitled to interest at a floating rate that varies
inversely with a specified index), Sub IOs (IOs with characteristics of a
subordinated class of CMBS) and POs (a class of CMBS that is entitled to no
(or only nominal) distributions of interest).
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Commission" shall mean the Securities and Exchange Commission
<PAGE>
"Common Stock" shall mean the Common Stock, par value $.01 per share, of
the Company.
"Company" shall mean JER Asia Corp., a Delaware corporation.
"distressed mortgage loans" shall mean subperforming mortgage loans and
nonperforming mortgage loans.
"distressed real properties" shall mean distressed real estate.
"GAAP" shall mean generally accepted accounting principles applied on a
consistent basis.
"LIBOR" shall mean the London Interbank Offering Rate for one-month U.S.
Dollar deposits.
"Management Agreement" shall mean an agreement or agreements between the
Company and the Manager pursuant to which the Manager performs various
services for the Company.
"Manager" shall mean JER Asia Advisors, LLC.
"market price" shall mean the average of the closing price (the average
of the high bid and low asked prices in the over-the-counter market, as
reported by the Nasdaq National Market) for the five consecutive trading days
(any day other than a Saturday, a Sunday or a day on which banking
institutions in the State of New York are authorized or obligated by law or
executive order to close) ending on such date.
"mortgage collateral" shall mean mortgage pass-through securities or
pools of whole loans securing or backing a series of CMBS.
"mortgage loan" shall mean a mortgage loan underlying a series of CMBS
or a mortgage loan held by the Company, as the context indicates.
"mortgaged property" shall mean the real property, securing a mortgage
loan.
"Net Income" shall mean the income of the Company as reported for
federal income tax purposes before the Manager's incentive compensation, net
operating loss deductions arising from losses in prior periods and the
deduction for dividends paid, plus the effects of adjustments, if any,
necessary to record hedging and interest transactions in accordance with
generally accepted accounting principles.
"nonperforming mortgage loans" shall mean commercial and residential
mortgage loans for which the payment of principal and interest is more than
90 days delinquent.
"Offering" shall mean the offering of Common Stock hereby.
"Offering Price" shall mean the offering price of $ per share of
Common Stock offered hereby.
"Preferred Stock" shall mean the preferred stock of the Company, par
value $.01 per share.
<PAGE>
"real property" shall mean real property owned by the Company.
"Representatives" shall mean Friedman, Billings, Ramsey & Co., Inc. and
Schroder & Co. Inc..
"Rule 144" shall mean the rule promulgated under the Securities Act that
permits holders of restricted securities as well as affiliates of an issuer
of the securities, pursuant to certain conditions and subject to certain
restrictions, to sell their securities publicly without registration under
the Securities Act.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Special Servicer" shall mean the entity that services defaulted
mortgage loans and distressed real estate in connection with an offering of
CMBS.
"Special Servicing" shall mean servicing of defaulted mortgage loans,
including oversight and management of the resolution of such mortgage loans
by modification, foreclosure, deed in lieu of foreclosure or otherwise.
"subperforming mortgage loans" shall mean loans for which default is
likely or imminent.
"Ten-Year U.S. Treasury Rate" shall mean the arithmetic average of the
weekly average yield to maturity for actively traded current coupon U.S.
Treasury fixed interest rate securities (adjusted to constant maturities of
ten years) published by the Federal Reserve Board during a quarter, or, if
such rate is not published by the Federal Reserve Board, any Federal Reserve
Bank or agency or department of the federal government selected by the
Company.
"Unaffiliated Director" shall mean a member of the Board of Directors
who is not an affiliate of the Manager or a Representative.
"Underwriters" shall mean Friedman, Billings, Ramsey & Co. Inc.,
Schroder & Co. Inc. and each of the underwriters for whom Friedman, Billings,
Ramsey & Co., Inc. and Schroder & Co. Inc. are acting as Representatives.
"Underwriting Agreement" shall mean the agreement pursuant to which the
Underwriters will underwrite the Common Stock.
<PAGE>
Report of Independent Public Accountants
To the Board of Directors
JER Asia Corp.:
We have audited the accompanying balance sheet of JER Asia Corp. (a Delaware
Corporation, the "Company") as of May 15, 1998. This financial statement is
the responsibility of the Company's management. Our responsibility is to
express an opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the balance sheet is free of
material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the balance sheet. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable
basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of JER Asia Corp. as of May 15,
1998, in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Washington, D.C.
May 20, 1998
<PAGE>
JER Asia Corp.
Balance Sheet
As of May 15, 1998
<TABLE>
<CAPTION>
Assets
<S> <C>
Cash $2,000
======
Liabilities and Stockholder's Equity
Stockholder's equity:
Preferred stock, par value $0.01 per share; 100,000,000 shares
authorized, no shares issued $ -
Common stock, par value $0.01 per share; 400,000,000 shares
authorized, 100 shares issued and outstanding 1
Additional paid-in capital 1,999
------
Total stockholder's equity $2,000
======
</TABLE>
The accompanying notes are an integral part of this balance sheet.
<PAGE>
JER Asia Corp.
Notes to Financial Statements
1. The Company:
JER Asia Corp. (the "Company") was incorporated in Delaware on May 15, 1998
and was initially capitalized through the sale of 100 shares of common stock
to its initial stockholder for $2,000. The Company's purpose is to invest in
nonperforming, subperforming, distressed and other real estate and real
estate related assets. The Company intends to focus its investment
activities primarily in East Asia and Southeast Asia (principally Japan,
Korea, Singapore, Hong Kong and Thailand) to take advantage of the
opportunities for real estate investment that the Company believes have been
created by the economic and financial crises that are currently affecting
these regions as well as other markets on an opportunities basis.
The Company's sole activity through May 15, 1998, consisted of the
organization and start-up of the Company. Accordingly, no statement of
operations is presented.
The Company is in the process of filing a Registration Statement to raise
capital through the sale of common stock (the "IPO"). Contingent upon the
consummation of the IPO, the Company will be liable for organization and
offering expenses in connection with the sale of the shares of the common
stock offered.
2. Summary of Significant Accounting Policies:
Income Taxes
The Company has elected to be taxed as a Corporation under the Internal
Revenue Code of 1986, as amended.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Concentration of Risk
The Company is in the development stage, and therefore is subject to several
risk factors, including the following:
- -- The Company has no prior operating history, and none of the Company's
investments have been identified.
<PAGE>
- -- A substantial portion of the Company's assets are expected to be located
in Asian countries which are currently experiencing significant and
protracted financial and economic difficulties.
- -- The Company intends to invest in distressed real estate, mortgage loans,
real estate operating companies and other investments that will require
significant management resources, will be illiquid, may not be income
producing on a current basis and may decrease in value because of
changes in economic conditions and other factors.
- -- Investments in Asia and other foreign countries may expose the Company
to currency exchange risks, adverse changes in foreign tax laws, foreign
law enforceability risks and other uncertainties of foreign laws and
legal systems.
- -- The Company is dependent on key officers and JER Asia Advisors, LLC (the
"Manager").
- -- The general risks relating to commercial real estate ownership and
investment.
3. Transaction with Affiliates:
In conjunction with the initial public offering, the Company intends to enter
into an agreement (the "Management Agreement") with the Manager pursuant to
which the Manager, subject to the supervision of the Company's Board of
Directors, will (i) serve as the Company's consultant with respect to
formulation of investment criteria and preparation of policy guidelines by
the Board of Directors; (ii) investigate, source and select potential
investment opportunities for the Company; (iii) make all decisions concerning
the commitment to, purchase, negotiation, structuring, monitoring, and
disposition of investments by the Company; (iv) evaluate, recommend and
approve all decisions regarding any financings, securitizations, hedging
activities or borrowings undertaken by the Company or its subsidiaries; (v)
make available to the Company its knowledge and experience with respect to
real estate, real estate related assets and real estate operating companies;
(vi) counsel the Company in connection with policy decisions to be made by
the Board of Directors; (vii) upon request by and in accordance with the
directions of the Board of Directors, invest or reinvest any money of the
Company pending identification of appropriate assets consistent with the
Company's investment policies in which to invest or other uses; (viii)
supervision of other service providers to the Company; and (ix) provide
certain general management services to the Company relating to the day-to-day
operations and administration of the Company in the United States.
For performing these services, the Manager will receive:
(i) a base management fee, which is intended to cover the
Manager's costs of providing its services under the Management
Agreement, calculated and paid quarterly, in an amount equal
to 0.125% per quarter (0.5% per annum) of the Average Invested Assets
(as defined in the Management Agreement) of the Company for such
<PAGE>
quarter; provided that, for the first four fiscal quarters of the
Company's operations following the closing of the Offering, the base
management fee shall be not less than the greater of (x) $1,250,000 per
quarter ($5,000,000 per annum) or (y) the Manager's actual costs of
providing its services to the Company under the Management Agreement for
such period), and
(ii) a quarterly incentive fee in an amount equal to the product
of (A) 25% of the dollar amount by which (1) the Pre-Tax/Pre-
Depreciation and Amortization Net Income (as defined in the Management
Agreement) (before the incentive fee, but including gains from sales and
restructurings of the Company's assets) of the Company for such quarter
per share of Common Stock (based on the weighted average number of
shares outstanding for such quarter) exceeds (2) an amount equal to (a)
the weighted average of the price per share of Common Stock in the
initial public offering and the prices per share of Common Stock in any
secondary offerings by the Company multiplied by (b) the Ten-Year U.S.
Treasury Rate plus five percent per annum (expressed as a quarterly
percentage) for such quarter, multiplied by (B) the weighted average
number of shares of Common Stock outstanding for such quarter. The Board
of Directors of the Company may adjust the base management fee in the
future if necessary to align the fee more closely with the actual costs
of the Manager's services.
In addition to the base management fee described in the preceding paragraph,
the Company will reimburse the Manager and its affiliates for (i) all costs
incurred by the Manager or its affiliates (including, without limitation,
travel, salaries, bonuses, benefits and related overhead and out-of-pocket
expenses) in researching, investigating, negotiating, structuring and
developing investment opportunities in Asia on behalf of the Company prior to
the sale of the Common Stock offered in the IPO and (ii) any additional start-
up costs and expenses the Manager or its affiliates may incur on behalf of
the Company subsequent to the closing of the Offering with respect to
additional staffing, the establishment of new offices in Asia and the
purchase of new technology and equipment.
In addition, the Company may engage the Manager or its affiliates to provide
(i) services outside of the United States related to the day-to-day
operations and administration of the Company and to the performance and
supervision of such other administrative functions necessary in the
management of the Company as may be agreed upon by the Manager and Board of
Directors, (ii) due diligence and acquisition related services on assets
purchased or considered for purchase by the Company and (iii) asset
management services, loan servicing, master or special servicing, legal or
accounting services, leasing services or property management services with
respect to assets acquired by the Company (collectively, "Other Services"),
for which Other Services the Manager and its affiliates will be entitled to
be compensated at reasonable arms-length rates. Finally, the Manager and its
affiliates also will be reimbursed for out-of-pocket expenses incurred on
behalf of the Company. In addition, because the Manager's employees or
affiliates may perform certain services that professionals, outside
consultants or other third parties otherwise would perform, the Manager or
<PAGE>
such affiliates will be paid or reimbursed for the costs of providing such
services on an arms-length basis. Additionally, the Manager may be
reimbursed for out of pocket expenses incurred on behalf of the Company.
The Company may terminate, or decline to renew the term of, the Management
Agreement without cause at any time after the second anniversary of the
Closing Date upon 60 days written notice by a majority vote of the
Unaffiliated Directors. Although no termination fee is payable in connection
with a termination for cause, in connection with a termination other than for
cause, the Company must pay the Manager a termination fee, which could be
substantial. The amount of the termination fee will be determined by
independent appraisal of the value of the Management Agreement for the four
years succeeding the date of termination. The Manager may decline to renew
the Management Agreement after its initial two-year term or after any
subsequent two-year renewal term thereof.
4. Stock Option Plan:
The Company intends to adopt the 1998 Stock Option Plan, as defined in the
registration statement, under which the compensation committee (the
"Compensation Committee") or, if none, the Board of Directors, will be
authorized to grant options to purchase shares of Common Stock. The maximum
aggregate number of shares of Common Stock that may be issued pursuant to
options granted under the 1998 Stock Option Plan has not yet been determined.
Out of such authorized options, the Company will grant to the Manager, as of
the date of initial public offering, options to purchase an aggregate number
of shares of Common Stock outstanding after the Offering and the Concurrent
Offerings. The exercise price of such options will be equal to the initial
public offering price. The purpose of the 1998 Stock Option Plan is to
provide a means of performance based compensation in order to provide
incentive for the Manager to enhance the value of the Common Stock. Such
options will expire on the tenth anniversary of the Closing Date, and 25% of
these options will become exercisable on each of the four anniversaries of
the consummation of this Offering.
5. Agreements:
The Manager, on behalf of the Company, is currently in preliminary
negotiations with Nomura Securities International, Inc. ("Nomura") to obtain
a credit facility in the amount of approximately $500 million which would be
secured by the assets of the Company. In addition, Nomura has indicated that
it intends to pursue other relationships with the Company, including the
provision of services relating to, among other things, identification of
suitable investments for the Company in Asia, certain co-investment rights
with respect to assets so identified, aiding the Company in securing
permanent financing for the Company's real estate assets and contributing
nonperforming real estate assets owned by affiliates of Nomura to the
Company.
There can be no assurance, however, that negotiations with Nomura will result
in a definitive agreement being entered into or consummated or as to the
terms thereof.
<PAGE>
No dealer, salesman or any other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus in connection with the offer made by this Prospectus and, if given
or made, such information or representations must not be relied upon as having
been authorized by the Company or the Underwriter. This Prospectus does not
constitute an offer to sell or the solicitation of any offer to buy any
security other than the shares of Common Stock offered by this Prospectus, nor
does it constitute an offer to sell or a solicitation of any offer to buy the
shares of Common Stock by anyone in any jurisdiction in which such offer or
solicitation is not authorized, or in which the person making such offer or
solicitation is not qualified to do so, or to any person to whom it is unlawful
to make such offer or solicitation. Neither the delivery of this Prospectus nor
any sale made here-under shall, under any circumstances, create any implication
that information contained herein is correct as of any time subsequent to the
date hereof.
SUMMARY TABLE OF CONTENTS
Prospectus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Prospectus Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Dividend Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
The Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Management of Operations . . . . . . . . . . . . . . . . . . . . . . . . 52
Management of the Company . . . . . . . . . . . . . . . . . . . . . . . . 67
Description of Capital Stock . . . . . . . . . . . . . . . . . . . . . . 69
Certain Provisions of Delaware Law and of the Company's Certificate of
Incorporation and Bylaws . . . . . . . . . . . . . . . . . . . . . 70
Common Stock Available for Future Sale . . . . . . . . . . . . . . . . . 71
Federal Income Tax Considerations . . . . . . . . . . . . . . . . . . . . 72
Underwriting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
Legal Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
Experts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
Additional Information . . . . . . . . . . . . . . . . . . . . . . . . . 75
Glossary of Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . F-1
_________________________
Until , 1998, all dealers effecting transactions in the Common Stock,
whether or not participating in this distribution, may be required to deliver
a Prospectus. This is in addition to the obligation of dealers to deliver a
Prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
<PAGE>
5,000,000 Shares
JER Asia Corp.
Common Stock
_________________________
PROSPECTUS
_________________________
Friedman, Billings, Ramsey
& Co., Inc.
Schroder & Co. Inc.
May , 1998
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 31. Other Expenses of Issuance and Distribution
Set forth below is an estimate of the approximate amount of the fees and
expenses (other than sales commissions) payable by the Registrant in
connection with the issuance and distribution of the Common Shares.
SEC Registration Fee . . . . . . . . . . . . . . . . . . . . $ 33,925
Blue Sky Fees and Expenses . . . . . . . . . . . . . . . . . 5,000
NASD Filing Fee . . . . . . . . . . . . . . . . . . . . . . . 12,000
Federal Taxes . . . . . . . . . . . . . . . . . . . . . . . . *
State Taxes and Fees . . . . . . . . . . . . . . . . . . . . *
Printing and Mailing Fees . . . . . . . . . . . . . . . . . . *
Counsel Fees and Expenses . . . . . . . . . . . . . . . . . . *
Accountant's Fees and Expenses . . . . . . . . . . . . . . . *
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . *
------
Total . . . . . . . . . . . . . . . . . . . . . . . . . $ *
======
_______________
* To be filed by Amendment
Item 32. Sales to Special Parties
The Company has agreed to sell, and FBR Asset Investment Corporation
("FBR Asset"), an affiliate of Friedman, Billings, Ramsey & Co., Inc., one of
the representatives of the several underwriters, has agreed to purchase, a
minimum of $25 million of Common Stock in a private placement which will
close concurrently with the Offering. In addition, the Company has agreed to
sell, and JER and certain directors and executive officers of JER (the "JER
Investors") have agreed to purchase, in a second private placement to close
concurrently with the Offering, a number of shares of Common Stock (assuming
that the Underwriters' option to purchase up to an additional 750,000 shares
to cover overallotments is not exercised) equal to 2% of the shares of the
Company's Common Stock then outstanding, up to a maximum of $20 million (the
private placements to the JER Investors and FBR Asset are referred to herein
as the "Concurrent Offerings"). The price of the shares of Common Stock to be
placed in the Concurrent Offerings will be equal to the initial public
offering price net of underwriting discounts and commissions.
Item 33. Recent Sales of Unregistered Securities
In connection with the organization of the Company, on May 15, 1998 J.E.
Robert Company, Inc. purchased 100 shares of Common Stock of the Company for
$2,000. The sale of such shares is exempt from the registration requirements
of the Securities Act of 1933 under Section 4(2) of the Securities Act of
1933.
<PAGE>
Item 34. Indemnification of Directors and Officers
The Bylaws of the Company provide that the Company shall indemnify to
the fullest extent permitted by law any person who is made or is threatened
to be made a party or is involved in any action, suit or proceeding whether
civil, criminal, administrative or investigative by reason of the fact that
he is or was a director, officer, employee or agent of the Company or is or
was serving at the request of the Company as an officer, director, employee
or agent of another corporation, partnership, joint venture, enterprise or
nonprofit entity.
The Company is empowered by Section 145 of the Delaware General
Corporation Law, subject to the procedures and limitations stated therein, to
indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other than an
action by or in the right of the Company) by reason of the fact that the
person is or was a director, officer, employee, or agent of the Company, or
is or was serving at the request of the Company as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust
or other enterprise against expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred by the
person in connection with such action, suit or proceeding if the person acted
in good faith and in a manner the person reasonably believed to be in or not
opposed to the best interests of the Company, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe the
person's conduct was unlawful. The termination of any action, suit or
proceeding by judgment, order, settlement, conviction, or upon a plea of nolo
contendere or its equivalent, shall not, of itself, create a presumption that
the person did not act in good faith and in a manner the person reasonably
believed to be in or not opposed to the best interests of the Company, and,
with respect to any criminal action or proceeding, had reasonable cause to
believe that the person's conduct was unlawful. The Company may indemnify any
such person in an action by or in the right of the Company under the same
conditions, except that no indemnification is permitted of amounts paid in
settlement and no indemnification is permitted of expenses without judicial
approval if such person is adjudged to be liable to the Company. To the
extent such person is successful on the merits or otherwise in the defense of
any action referred to above, the Company must indemnify him against the
expenses which he actually and reasonably incurred in connection therewith.
Policies of insurance are maintained by the Company under which
directors and officers of the Company are insured, within the limits and
subject to the limitations of the policies, against certain expenses in
connection with the defense of actions, suits or proceedings, and certain
liabilities which might be imposed as a result of such actions, suits or
proceedings, and certain liabilities which might be imposed as a result of
such actions, suits or proceedings, to which they are parties by reason of
being or having been such directors or officers.
<PAGE>
Item 35. Treatment of Proceeds from Shares Being Registered
Not Applicable.
Item 36. Financial Statements and Exhibits
(a) Index to Financial Statements.
Report of Independent Certified Public Accountants . . . . . . F-1
Consolidated Balance Sheet as of May 15, 1998 . . . . . . . . F-2
Notes to Balance Sheet . . . . . . . . . . . . . . . . . . . . F-3
(b) Exhibits.
1.1* Form of Underwriting Agreement.
3.1* Amended and Restated Certificate of Incorporation of the
Registrant.
3.2* Bylaws of the Registrant.
4.1* Form of Common Stock Certificate.
5.1* Form of Opinion of Simpson Thacher & Bartlett.
10.1* Form of Management Agreement.
10.2* Form of Registration Rights Agreement between the Company and
the persons named therein.
10.4* Form of 1998 Stock Option Plan.
23.1 Consent of Independent Public Accountants.
23.2* Consent of Simpson Thacher & Bartlett.
23.3* Consent of Hogan & Hartson L.L.P.
24.1 Powers of Attorney (included on Signature Page).
_______________
* To be filed by Amendment
Item 37. Undertakings
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended (the "Securities Act of 1933") may be permitted to
directors, officers and controlling persons of the Registrant pursuant to the
foregoing provisions or otherwise, the Registrant has been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act of 1933 and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of
expenses incurred or paid by a director, officer or controlling person of the
Registrant in the successful defense of any action, suit or proceeding) is
asserted against the Registrant by such director, officer or controlling
person in connection with the securities being registered, the Registrant
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act of 1933 and will be governed by the final
adjudication of such issues.
<PAGE>
The undersigned Registrant hereby undertakes to provide to the
Underwriters at the closing specified in the Underwriting Agreement
certificates in such denominations and registered in such names as required
by the Underwriters to permit prompt delivery to each purchaser.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed as
part of this registration statement in reliance upon Rule 430A and contained
in a form of prospectus field by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act of 1933 shall be deemed to be part of
this registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-11 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized in the City of McLean, State of Virginia, on the
21st day of May, 1998.
JER Asia Corp.
(Registrant)
By /s/ Joseph E. Robert, Jr.
Name: Joseph E. Robert, Jr.
Title: Chairman of the Board of
Directors and Chief
Executive Officer
Each person whose signature appears below hereby constitutes and
appoints Daniel T. Ward his true and lawful attorney-in-fact and agent, with
full powers of substitution, for him and in his name, place and stead, in any
and all capacities, to sign and to file any and all amendments, including
post-effective amendments and any registration statements filed pursuant to
Rule 462(b), to this Registration Statement with the Securities and Exchange
Commission, granting to said attorney-in-fact power and authority to perform
any other act on behalf of the undersigned required to be done in connection
therewith.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons on the 21st
day of May, 1998, in the capacities indicated.
Signature Title
/s/ Joseph E. Robert, Jr. Chairman of the Board of Directors,
------------------------------ Chief Executive Officer and sole Director
Name: Joseph E. Robert, Jr. (principal executive officer)
/s/ Bruce T. Cunningham Chief Financial Officer, Chief Accounting
------------------------------ Officer and Treasurer
Name: Bruce T. Cunningham (principal financial and accounting
officer)
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports (and to all references to our Firm) included in or made a part of
this Registration Statement.
/s/ Arthur Andersen LLP
Washington, D.C.
May 27, 1998
