SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss. 240.14a-11(c) or ss. 240.14a-12
LASER MORTGAGE MANAGEMENT, INC.
_____________________________________________________________________________
(Name of Registrant as Specified in Its Charter)
_____________________________________________________________________________
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which
transaction applies:___________________________________________
(2) Aggregate number of securities to which
transaction applies:___________________________________________
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was
determined):___________________________________________________
(4) Proposed maximum aggregate value of transaction:_______________
(5) Total fee paid:________________________________________________
[ ] Fee previously paid with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:______________________________________
(2) Form, Schedule or Registration Statement No.:________________
(3) Filing Party:________________________________________________
(4) Date Filed:__________________________________________________
<PAGE>
LASER MORTGAGE MANAGEMENT, INC.
-----------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 12, 1998
-----------------
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of LASER
Mortgage Management, Inc. (the "Company") will be held at The Madison Hotel, One
Convent Road, Morristown, New Jersey 07960, on May 12, 1998 at 2:30 p.m. for the
following purposes:
1. To elect one Class I Director to serve for a three-year term and
until such director's successor is duly elected and qualified;
2. To ratify the selection of Deloitte & Touche LLP as independent
auditors of the Company for the fiscal year ending December 31,
1998; and
3. To transact such other business as may properly come before the
meeting, or any adjournment thereof.
Stockholders of record at the close of business on March 27, 1998, shall be
entitled to notice of, and to vote at, the meeting.
By order of the Board of Directors,
Robert J. Gartner
Secretary
Dated: Short Hills, New Jersey
April 16, 1998
IMPORTANT: PLEASE FILL IN, DATE, SIGN AND MAIL PROMPTLY THE ENCLOSED PROXY
CARD IN THE POSTAGE-PAID ENVELOPE PROVIDED TO ASSURE THAT YOUR SHARES ARE
REPRESENTED AT THE MEETING.
<PAGE>
LASER MORTGAGE MANAGEMENT, INC.
51 JOHN F. KENNEDY PARKWAY
SHORT HILLS, NEW JERSEY 07078
---------------
PROXY STATEMENT
---------------
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 12, 1998
---------------
The accompanying proxy is solicited by the Board of Directors of LASER
Mortgage Management, Inc., a Maryland corporation (the "Company"), for use at
the Annual Meeting of Stockholders to be held on May 12, 1998, at 2:30 p.m., at
The Madison Hotel, One Convent Road, Morristown, New Jersey 07960, or any
adjournment thereof, at which stockholders of record at the close of business on
March 27, 1998, shall be entitled to vote. The Annual Meeting is being held for
the purposes set forth in the accompanying Notice of Annual Meeting to
Stockholders. The cost of solicitation of proxies will be borne by the Company.
The Company may use the services of its directors, officers, employees and
others to solicit proxies, personally or by telephone; arrangements also may be
made with brokerage houses and other custodians, nominees, fiduciaries and
stockholders of record to forward solicitation material to the beneficial owners
of stock held of record by such persons. The Company may reimburse such
solicitors for reasonable out-of-pocket expenses incurred by them in soliciting,
but no compensation will be paid for their services. Any proxy granted as a
result of this solicitation may be revoked at any time before its exercise.
The Annual Report to Stockholders for the fiscal year ended December 31,
1997 accompanies this Proxy Statement. The date of this Proxy Statement is the
approximate date on which this Proxy Statement and form of proxy were first sent
or given to stockholders. The Company will furnish without charge (other than a
reasonable charge for any exhibit requested) to any stockholder of the Company
who so requests in writing, a copy of the Company's Annual Report on Form 10-K,
including the financial statements and the schedules thereto, for the year ended
December 31, 1997 as filed with the Securities and Exchange Commission. Any such
request should be directed to LASER Mortgage Management, Inc., 51 John F.
Kennedy Parkway, Short Hills, New Jersey 07078, Attention: Secretary.
If the accompanying proxy card is properly signed and returned to the
Company and not revoked, it will be voted in accordance with the instructions
contained therein. Unless contrary instructions are given, the persons
designated as proxy holders in the proxy card will vote FOR the election of the
nominee proposed by the Board of Directors, FOR ratification of the appointment
of Deloitte & Touche LLP as the Company's independent accountants for the fiscal
year ending December 31, 1998 and as recommended by the Board of Directors with
regard to all other matters or, if no such recommendation is given, in their own
discretion. Each stockholder may revoke a previously granted proxy at any time
before it is exercised by filing with the Secretary of the Company a revoking
instrument or a duly executed proxy bearing a later date. The powers of the
proxy holders will be suspended if the person executing the proxy attends the
Annual Meeting in person and so requests. Attendance at the Annual Meeting will
not, in itself, constitute revocation of a previously granted proxy.
Pursuant to the By-laws, the Board of Directors has fixed the time and date
for the determination of stockholders entitled to vote at the meeting,
notwithstanding any transfer of any stock on the books of the Company
thereafter. The presence at the Annual Meeting, in person or by proxy, of the
holders of a majority of the shares of common stock outstanding on March 27,
1998 will constitute a quorum. Abstentions and broker non-votes are counted for
purposes of determining the presence or absence of a quorum. If a quorum is
present, (i) a plurality of the votes cast at the Meeting is required for
election as a director, and (ii) the affirmative vote of the majority of the
shares present, in person or by proxy, at the Annual Meeting and entitled to
vote is required for all other matters. On March 27, 1998, the Company had
outstanding and entitled to vote with respect to all matters to be acted upon at
the meeting 20,044,999 shares of common stock. Each holder of common stock is
entitled to one vote for each share of stock held by such holder. Abstentions
are counted in the calculation of the votes cast with respect to any of the
matters submitted to a vote of stockholders, whereas broker non-votes are not
counted for purposes of determining whether a proposal has been approved. If the
proxy is signed and returned without specifying choices, the shares will be
voted in favor of the election of the nominee proposed by the Board of Directors
and in favor of the appointment of Deloitte & Touche LLP as the Company's
independent accountants for the fiscal year ended December 31, 1998.
It is expected that the following business will be considered at the
meeting and action taken thereon:
ITEM 1: ELECTION OF DIRECTORS
The Company's Articles of Incorporation and Bylaws provide for a classified
Board of Directors comprised of Classes I, II and III. The Class I Director is
scheduled to be elected at the Annual Meeting to serve for a three-year term and
until such director's successor is duly elected and qualified. The Company's
Bylaws further provide that, except in the case of a vacancy, a majority of the
members of the Board of Directors will be at all times directors (the
"Independent Directors") that are not affiliated, directly, or indirectly, with
Laser Advisers Inc., a Delaware corporation and registered investment adviser
(the "Manager"). The Manager is responsible for the day-to-day operations of the
Company, subject to the supervision of the Board of Directors of the Company.
Martin Bernstein has decided not to stand for re-election as the Class I
Director. The nominee for Class I Director is set forth below.
Unless authorization is withheld, the persons named as proxies will vote
FOR the nominee for director listed below unless otherwise specified by the
stockholder. If the nominee is unable or declines to serve as a director at the
time of the Annual Meeting, the proxies will be voted for any nominee who shall
be designated by the present Board of Directors to fill the vacancy. If
additional persons are nominated for election as director, the proxy holders
intend to vote all proxies received by them for the nominee listed below and
against any other nominees. As of the date of this Proxy Statement, the Board of
Directors is not aware that the nominee is unable or will decline to serve as
director. The nominee listed below already is serving as director of the
Company.
The election to the Board of Directors of the nominee identified in this
Proxy Statement will require a plurality of the votes cast, in person or by
proxy, at the Annual Meeting.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE FOR
THE NOMINEE IDENTIFIED BELOW.
NOMINEE FOR ELECTION
NAME AGE POSITION WITH COMPANY DIRECTOR SINCE
Stuart H. Coleman 43 Director N/A
Certain biographical information regarding the nominee is set forth below
along with biographical information for each continuing director.
CLASS I NOMINEE
STUART H. COLEMAN, age 43, has been a partner in the law firm of Stroock &
Stroock & Lavan LLP in New York, New York for more than five years. Such firm
and Mr. Coleman have performed legal services for the Company. The aggregate
amount of fees paid by the Company to Stroock & Stroock & Lavan LLP was less
than 5% of the law firm's gross revenues for the last fiscal year.
CLASS II DIRECTORS--TERMS EXPIRING AFTER 1999
FREDERICK N. KHEDOURI, age 47, is a Senior Managing Director of Bear,
Stearns & Co. Inc. and head of the firm's Financial Institutions Group, which
provides investment banking services to the banking, thrift, insurance,
investment management and specialty finance industries. Before joining Bear,
Stearns & Co. Inc. at the end of 1986, Mr. Khedouri was Associate Director of
the White House Office of Management and Budget from 1981 to 1985 and Deputy
Chief of Staff for Vice President George Bush in 1985 and 1986. After joining
Bear, Stearns & Co. Inc., he was appointed by President Ronald Reagan to the
Board of Directors of the Securities Investor Protection Corporation in 1987.
Bear, Stearns & Co. Inc. served as a managing underwriter of the Company's
initial public offering of common stock.
DAVID A. TEPPER, age 40, is the chief principal and founder of Appaloosa
Management L.P., an investment adviser which specializes in investments in
high-yield securities and bank loans. Before forming Appaloosa Management L.P.
in 1993, Mr. Tepper was head trader in the High-Yield Department of Goldman,
Sachs & Co. Mr. Tepper was a director of the Stone Street Funds, a private
investment fund, from 1987 to 1992, and managed the high-yield portion of those
funds during that period. Mr. Tepper is a Director and a minority stockholder of
the Manager.
CLASS III DIRECTORS--TERMS EXPIRING AFTER 2000
WILLIAM MARSHALL, PH.D., age 51, has been the Chief Operating Officer of
NISA Investment Advisors since 1994. From 1991 to 1994 Mr. Marshall was the
Senior Vice President of National Investment Services of America, Inc., a
registered investment adviser.
MICHAEL L. SMIRLOCK, PH.D., age 41, has been the Chief Executive Officer,
President and a Director of each of the Company and the Manager since inception.
Mr. Smirlock is the principal stockholder of the Manager. For the Manager, Mr.
Smirlock currently directs the investment of over $700 million in capital
invested primarily in mortgage-backed securities for institutions and other
sophisticated investors. Prior to forming the Manager, Mr. Smirlock was a
principal of Appaloosa Management L.P., where he managed investment vehicles and
accounts investing primarily in mortgage-backed securities since 1994. From 1990
until he resigned in 1993, Mr. Smirlock was Domestic Fixed Income Chief
Investment Officer for Goldman Sachs Asset Management ("GSAM"), a division of
Goldman, Sachs & Co., and a partner of Goldman, Sachs & Co. From 1988 to 1990,
Mr. Smirlock served as the head of the Asset Acquisition Group at Franklin
Savings Association. Mr. Smirlock was an Associate Professor of Finance at the
Wharton School of Business of the University of Pennsylvania from 1982 to 1990.
INFORMATION REGARDING THE BOARD OF DIRECTORS
The Board of Directors has three standing committees: the Executive
Committee, the Compensation Committee and the Audit Committee. Messrs. Smirlock
and Tepper serve on the Executive Committee which is authorized to exercise the
powers of the Board of Directors between meetings. However, the Executive
Committee may not (i) amend the Charter or the Bylaws of the Company, (ii) adopt
an agreement of merger or consolidation, (iii) recommend to the stockholders the
sale, lease, or exchange of all or substantially all of the Company's property
and assets, (iv) recommend to the stockholders a dissolution of the Company or
revoke a dissolution, (v) elect a director, (vi) make a distribution or
authorize the issuance of stock or (vii) agree to an amendment, modification,
renewal or termination of the Management Agreement. Messrs. Khedouri and
Marshall are, and Mr. Coleman upon his election will be, Independent Directors.
Messrs. Khedouri and Marshall serve on the Compensation Committee. The
Compensation Committee is responsible for recommending to the Board of Directors
the Company's executive compensation policies for the Chief Executive Officer
and other senior officers and for administering the Company's Stock Incentive
Plan. Mr. Khedouri serves, and Mr. Marshall will serve, on the Audit Committee.
The Audit Committee is responsible for recommending independent auditors,
reviewing the audit plan, the adequacy of internal controls, the audit report
and the management letter, and performing such other duties as the Board of
Directors may from time to time prescribe.
During the year ended 1997, there was one meeting of the Board of
Directors, no meetings of the Audit Committee, no meetings of the Compensation
Committee and no meetings of the Executive Committee.
The Company is not aware of any family relationship between any director,
executive officer or person nominated to become a Director or executive officer.
COMPENSATION OF DIRECTORS
The Company pays each non-employee director compensation of $10,000 per
annum and a fee of $500 for each meeting of the Board of Directors that he
attends. However, the directors may be granted awards from time to time pursuant
to the Company's 1997 Stock Incentive Plan. The Company reimburses each director
for ordinary and necessary expenses related to such director's attendance at
Board of Directors and committee meetings. On November 26, 1997, Messrs.
Bernstein, Khedouri and Marshall each were granted an option to purchase 10,000
shares of common stock, and Mr. Tepper was granted an option to purchase 20,000
shares of common stock, pursuant to the 1997 Stock Incentive Plan. The exercise
price under each such option is $15.00 per share, and each option has a duration
of ten years and becomes exercisable at the rate of 25% on and after each
January 2nd of 1998, 1999, 2000 and 2001.
MANAGEMENT OF THE COMPANY
The executive officers of the Company and their positions are as follows:
NAME Age Position with the Company
Michael L. Smirlock, Ph.D..... 41 Chairman of the Board,
President, Chief Executive
Officer and Director
Thomas G. Jonovich............ 33 Chief Financial Officer
and Treasurer
Peter T. Zimmermann........... 31 Vice President and Chief
Operating Officer
Robert J. Gartner............. 35 Vice President and
Secretary
Thomas H. Luehs............... 36 Controller
Jonathan Green................ 34 General Counsel
The executive officers serve at the discretion of the Company's Board of
Directors. Biographical information regarding the executive officers is set
forth below, except for information concerning Mr. Smirlock which is provided
above.
THOMAS G. JONOVICH has been the Chief Financial Officer and Treasurer of
the Company since its inception. He is also the Chief Financial Officer of the
Manager. From April 1997 until he joined the Company, Mr. Jonovich was employed
by Appaloosa Management L.P., where he was chief accountant for funds investing
in mortgage-backed securities. From May 1996 until April 1997, Mr. Jonovich was
a Fund Accounting Manager with Individual Investor Group, Inc., a private
investment adviser. He was a Senior Accountant at Steinhardt Management Company
Inc., an investment advisory firm, from September 1993 to April 1996, and was
employed as a certified public accountant at Gershon, Pierce and Company, a
public accounting firm, from November 1991 to September 1993.
PETER T. ZIMMERMANN has been a Vice President and Chief Operating Officer
of the Company since its inception. Mr. Zimmermann is also a Vice President and
a Director of the Manager. From October 1994 until he joined the Manager, Mr.
Zimmermann was employed by Appaloosa Management L.P., where he assisted Mr.
Smirlock in the management of investments, primarily in mortgage-backed
securities. Before joining Appaloosa Management L.P., Mr. Zimmermann was a Vice
President and Mortgage Portfolio Manager for GSAM, where he was employed since
1990. While at GSAM, he specialized in adjustable rate mortgages and was
responsible for the management of over $6 billion in fixed-income mortgage
assets. Mr. Zimmermann was an associate at Franklin Savings Association prior to
joining Goldman Sachs Asset Management.
ROBERT J. GARTNER has been a Vice President and Secretary of the Company
since its inception. Mr. Gartner is also a Vice President and Secretary of the
Manager. From January 1997 until he joined the Manager, Mr. Gartner was employed
by Appaloosa Management L.P., where he assisted Mr. Smirlock in the management
of investments, primarily in mortgage-backed securities. Before joining
Appaloosa, Mr. Gartner held various positions at Donaldson, Lufkin & Jenrette
Securities Corporation from 1987, including Vice President and trader in the
mortgage-backed securities department.
THOMAS H. LUEHS has been the Controller of the Company since April 1998.
From November 1993 until he joined the Company in November 1997, Mr. Luehs was
employed by Lexington Management Corporation, a registered investment adviser,
where he was Assistant Treasurer for fourteen of the funds managed by Lexington
Management Corporation. From 1986 until he joined Lexington Management
Corporation, Mr. Luehs held various positions and was ultimately a Supervisor in
investment accounting with Alliance Capital Management L.P., a registered
investment adviser.
JONATHAN GREEN has been the General Counsel to the Company since April
1998. He is also the General Counsel to the Manager. From April 1996 until he
joined the Manager, Mr. Green was the General Counsel to Appaloosa Management
L.P. Previously, Mr. Green had worked as an associate at the law firm Coudert
Brothers from September 1990.
CEASE-AND-DESIST ORDER AGAINST CHIEF EXECUTIVE OFFICER
Except as described below, there have been no material administrative,
civil or criminal actions against the Company or its executive officers during
the preceding five years. On November 29, 1993, Mr. Smirlock consented to the
entry of a cease-and-desist order (the "Order") issued pursuant to Sections
203(f), 203(k) and 206(2) (the anti-fraud provisions) of the Investment Advisers
Act of 1940, as amended (the "Advisers Act") against him by the Securities and
Exchange Commission (the "Commission") in connection with certain securities
transactions executed between December 1992 and February 1993 while Mr. Smirlock
was Chief Investment Officer for GSAM. The Commission found that Mr. Smirlock
caused and aided and abetted violations of the Advisers Act by (i) causing to be
executed a series of purchase transactions in mortgage-backed securities for
which he failed to prepare promptly order tickets allocating the securities to
specific client accounts and (ii) causing to be executed two mortgage-backed
securities transactions between client accounts without obtaining independent
evaluations of the prices at which he instructed the transactions to be executed
in order to ensure that the best price and execution were obtained for the
clients. The Commission found that Mr. Smirlock caused and aided and abetted
violations of these recordkeeping provisions by failing to write tickets
allocating trades on the days the trades were executed. The Commission (i)
ordered Mr. Smirlock to cease and desist from committing or causing any
violation of the provisions of the Advisers Act set forth in the Order, (ii)
suspended him from association with any broker, dealer, investment adviser,
investment company or municipal securities dealer for a three-month period and
(iii) required him to pay a penalty of $50,000. Contemporaneously with the entry
of the Order, Mr. Smirlock submitted an Offer of Settlement to the Commission,
which the Commission accepted, in which he consented to the Commission's entry
of the Order, without admitting or denying the findings set forth therein. GSAM
had become aware of serious violations of its internal compliance policies and
reported these violations to the Commission. In March 1993, following its report
to the Commission, GSAM suspended Mr. Smirlock's trading activities. Mr.
Smirlock resigned from GSAM and Goldman, Sachs & Co. effective November 30,
1993. No limitations are imposed on Mr. Smirlock's activities in his roles at
the Manager and the Company in light of this proceeding and the Order.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information known to the Company
with respect to beneficial ownership of the Company's common stock as of March
31, 1998, by (i) each director and nominee for director, (ii) any person known
to the Company to be the beneficial owner of five percent or more of the common
stock and (iii) all directors and executive officers as a group. Unless
otherwise indicated in the footnotes to the table, the beneficial owners named
have, to the knowledge of the Company, sole voting and investment power with
respect to the shares beneficially owned, subject to community property laws
where applicable.
SHARES
BENEFICIALLY OWNED
NAME AND ADDRESS OF BENEFICIAL NUMBER
OWNER(1) OF SHARES PERCENT
Michael L. Smirlock, Ph.D (2)................... 213,000 1.1%
Thomas G. Jonovich (3).......................... 8,000 *
Peter T. Zimmermann (4)......................... 56,250 *
Robert J. Gartner (5)........................... 29,250 *
Martin Bernstein (6)(7)......................... 47,100 *
Frederick N. Khedouri (7)....................... 32,500 *
William Marshall, Ph.D. (7)..................... 12,500 *
David A. Tepper (8)(9).......................... 836,835 4.2%
Franklin Mutual Advisers Inc. (10).............. 3,333,333 16.7%
President and Fellows of Harvard College (11)... 1,780,000 8.9%
Legg Mason, Inc. (12)........................... 1,528,700 7.6%
Perry Corp. (13)................................ 1,160,000 5.8%
All directors and executive 1,220,835 6.1%
officers as a group (8 persons)..................
- ----------------
* Less than one percent
(1) Unless otherwise indicated, the address of each beneficial owner is c/o
LASER Mortgage Management, Inc., 51 John F. Kennedy Parkway, Short Hills,
New Jersey 07078. Mr. Bernstein's address is 85 Shrewsbury Drive,
Livingston, New Jersey 07039. Mr. Khedouri's address is c/o Bear, Stearns &
Co. Inc., 245 Park Avenue, New York, New York 10167. Mr. Marshall's address
is c/o NISA Investment Advisors, L.L.C., 150 N. Meramec, Suite 640, St.
Louis, Missouri 63105. Mr. Tepper's address is c/o Appaloosa Management
L.P., 26 Main Street, Chatham, New Jersey 07928. The address of Franklin
Mutual Advisers Inc. is 51 John F. Kennedy Parkway, Short Hills, New Jersey
07078. The address of President and Fellows of Harvard College is c/o
Harvard Management Company Inc., 600 Atlantic Avenue, Boston, Massachusetts
02210. The address of Legg Mason, Inc. is 100 Light Street, Baltimore,
Maryland 21202. The address of Perry Corp. is 599 Lexington Avenue, New
York, New York 10022.
(2) Includes 20,000 shares of deferred common stock which have vested and
120,000 options which are exercisable.
(3) Includes 7,000 options which are exercisable.
(4) Includes 3,750 shares of deferred common stock which have vested and 27,500
options which are exercisable.
(5) Includes 1,250 shares of deferred common stock which have vested and 18,000
options which are exercisable.
(6) Includes 14,600 shares of common stock as to which Mr. Bernstein exercises
voting control as trustee for the Tepper Family Irrevocable Trust, as to
which Mr. Bernstein disclaims beneficial ownership.
(7) Includes 2,500 options which are exercisable.
(8) Includes 714,235 shares of common stock beneficially held by private
investment funds over which Mr. Tepper exercises dispositive control and
14,600 shares of common stock held by the Tepper Family Irrevocable Trust
for the benefit of Mr. Tepper's minor children, as to which Mr. Tepper
disclaims beneficial ownership.
(9) Includes 5,000 options which are exercisable.
(10) Based on Schedule 13(G) filed on December 10, 1997. Includes all of the
shares of common stock owned beneficially by a series of mutual funds
advised by Franklin Mutual Advisers Inc.
(11) Based on Schedule 13(G) filed on February 13, 1998.
(12) Based on Schedule 13(G) filed on February 12, 1998. Includes all of the
shares of common stock owned beneficially by a series of mutual funds
advised by Legg Mason, Inc.
(13) Based on Schedule 13(G) filed on February 18, 1998.
EXECUTIVE COMPENSATION
The Company has not paid, and does not intend to pay, any annual
compensation to the Company's executive officers for their services as executive
officers. Therefore, no summary compensation table has been presented. The
Company has not entered into any employment agreements with its employees. The
executive officers may be granted awards from time to time pursuant to the
Company's 1997 Stock Incentive Plan.
GRANTS OF AWARDS
DEFERRED STOCK AWARDS IN 1997
The following table shows the grant date value of deferred stock awards
granted to the named executive officers in 1997:
Deferred Stock
Name Award(s) ($)(1)
- ---- -----------------
Michael L. Smirlock...................... $4,800,000
Thomas G. Jonovich....................... 0
Peter T. Zimmermann...................... $900,000
Robert J. Gartner........................ $300,000
- ---------------
(1) The deferral period under these awards expires, and the stock is issued,
at the rate of 6.25% per quarter commencing on January 2, 1998. The
number of shares of deferred stock held and the value of those shares
as of December 31, 1997, are as follows: Mr. Smirlock held 320,000
shares of deferred stock valued at $4,640,000; Mr. Zimmermann held
60,000 shares of deferred stock valued at $870,000; and Mr. Gartner
held 20,000 shares of deferred stock valued at $290,000. No dividends
or dividend equivalents are paid on deferred stock until the deferral
period expires.
STOCK OPTION/SAR GRANTS IN 1997
The following table provides details regarding stock options granted to the
named executive officers in 1997. In addition, the table provides the
hypothetical gains or "option spreads" that would result for the respective
options based on assumed rates of annual compounded stock price appreciation of
5% and 10% from the date the options were granted through their expiration
dates. No stock appreciation rights were granted in 1997.
<TABLE>
<CAPTION>
Individual Grants
NUMBER OF PERCENT OF POTENTIAL REALIZABLE VALUE
SECURITIES TOTAL OPTION/SARS AT ASSUMED ANNUAL RATE
UNDERLYING GRANTED TO OF STOCK APPRECIATION FOR
OPTIONS/SARS EMPLOYEES IN EXERCISE OPTION TERM
NAME GRANTED(#) FISCAL YEAR PRICE($/SH) EXPIRATION DATE 5%($) 10%($)
<S> <C> <C> <C> <C> <C> <C>
Michael L. Smirlock...... 480,000 65.93% $15.00 11/25/2007 4,142,400 10,862,400
Thomas G. Jonovich....... 28,000 3.85% $15.00 11/25/2007 241,640 633,640
Peter T. Zimmermann...... 110,000 15.11% $15.00 11/25/2007 949,300 2,489,300
Robert J. Gartner........ 72,000 9.89% $15.00 11/25/2007 621,360 1,629,360
</TABLE>
AGGREGATED OPTION/SAR EXERCISES IN 1997 AND DECEMBER 31, 1997
OPTION/SAR VALUES
The table below sets forth information regarding the total number of stock
options held by the executive officers of the Company as of December 31, 1997,
the aggregate number of unexercised options and stock appreciation rights that
were exercisable and unexercisable at December 31, 1997 and the values of
"in-the-money" stock options and stock appreciation rights on December 31, 1997
which represent the positive difference between the market price of the
Company's common stock and the exercise price of such options and stock
appreciation rights. No stock appreciation rights were held in 1997 and there
were no stock option exercises by the named executive officers during 1997.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF THE UNEXERCISED
UNDERLYING UNEXERCISED IN-THE- MONEY OPTIONS/SARS
OPTIONS/SARS AT 12/31/97 12/31/97($)(1)
NUMBER OF SHARES
ACQUIRED ON VALUE
NAME EXERCISE (#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
<S> <C> <C> <C> <C> <C> <C>
Michael L. Smirlock.... 0 0 0 480,000 0 0
Thomas G. Jonovich..... 0 0 0 28,000 0 0
Peter T. Zimmermann.... 0 0 0 110,000 0 0
Robert J. Gartner...... 0 0 0 72,000 0 0
- ---------------
(1) At December 31, 1997, none of the stock options granted by the Company
were "in-the-money."
</TABLE>
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange Act")
requires the Company's executive officers and directors, and persons who own
more than 10% of the Company's common stock to file reports of ownership and
changes in ownership with the Securities and Exchange Commission and the New
York Stock Exchange. Officers, Directors and greater than ten-percent
stockholders are required by Securities and Exchange Commission regulations to
furnish the Company with copies of all such reports they file.
Based solely on a review of the copies of such reports furnished to the
Company, or written representations that no Form 5 was required, the Company
believes that all Section 16(a) filing requirements applicable to its officers,
Directors and greater than ten-percent beneficial owners were complied with
through December 31, 1997.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No interlocking relationship exists between members of the Company's Board
of Directors or the Compensation Committee or officers responsible for
compensation decisions and the board of directors or compensation committee of
any other company, nor has such interlocking relationship existed in the past.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company is subject to various conflicts of interest involving the
Manager. The executive officers of the Company are officers and employees and
directors of the Manager. A majority of the Company's directors have no business
affiliations with the Manager, but were initially selected by the Manager.
Michael L. Smirlock, the Chief Executive Officer, President and a Director of
the Company, is the majority stockholder and a Director of the Manager. David A.
Tepper, a Director of the Company, is the minority stockholder and a Director of
the Manager. Peter T. Zimmermann, the Chief Operating Officer and Vice President
of the Company, is a Director of the Manager.
The Company pays the Manager an annual base management fee, payable
monthly, as set forth below:
ANNUAL BASE MANAGEMENT FEE AS A
AVERAGE STOCKHOLDERS' EQUITY PERCENTAGE OF AVERAGE STOCKHOLDERS' EQUITY
$0 to $500 million................. 1.0%
$500 million to $1 billion......... $5 million plus 0.8% of amounts in excess
of $500 million
$1 billion or more................. $9 million plus 0.6% of amounts in excess
of $1 billion
The term "Average Stockholders' Equity" for any period means stockholders'
equity, calculated in accordance with generally accepted accounting principles,
excluding any mark-to-market adjustments of the investment portfolio. For the
year ended December 31, 1997, the Company paid the Manager $232,858 in base
management fees in accordance with the terms of the Management Agreement.
The Manager also is entitled to receive a quarterly incentive fee in an
amount equal to 20% of the Net Income of the Company for the preceding fiscal
quarter, in excess of the amount that would produce an annualized Return on
Average Stockholders' Equity for such fiscal quarter equal to the Ten-Year U.S.
Treasury Rate plus 1%. The term "Return on Average Stockholders' Equity" is
calculated for any quarter by dividing the Company's Net Income for the quarter
by its Average Stockholders' Equity for the quarter. For such calculations, the
"Net Income" of the Company means the taxable income of the Company within the
meaning of the Code, less capital gains and capital appreciation included in
taxable income, but before the Manager's incentive fees and before deductions of
dividends paid. The incentive fee payments to the Manager are computed before
any income distributions are made to stockholders. As used in calculating the
Manager's fee, the term "Ten-Year U.S. Treasury Rate" means the arithmetic
average of the weekly 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, published by any Federal Reserve
Bank or agency or department of the federal government selected by the Company.
For the year ended December 31, 1997, the Company paid the Manager $94,992 in
incentive fees in accordance with the terms of the Management Agreement.
The Company's principal executive offices are located in Short Hills, New
Jersey and are provided by the Manager in accordance with the terms of the
Management Agreement.
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, except
that, during the term of the Management Agreement, the Manager may not manage
another publicly-traded mortgage REIT or any additional private investment fund
that invests primarily in mortgage assets and follow investment strategies and
policies similar to those employed by the Company, without the prior approval of
the Independent Directors. The Manager and its officers and employees advise and
manage private investment funds (the "Affiliated Funds"), which invest in
mortgage-backed securities and have invested in the Company's securities. The
ability of the Manager and its officers and employees to engage in other
business activities could reduce the time and effort the Manager spends on
managing the Company's investment portfolio. The Manager and its officers and
employees also may receive fees in connection with any investment by the
Affiliated Funds in the Company. In addition, the incentive fee payable to the
Manager by the Affiliated Funds or other clients may be higher than the fee paid
by the Company, creating additional potential conflicts of interest.
Many investments appropriate for the Company also will be appropriate for
accounts of other clients the Manager advises, including the Affiliated Funds.
The Manager will act in a manner which it considers fair and equitable in
allocating investment opportunities among the Company and the other accounts it
manages, including the Affiliated Funds. Situations may arise in which the
investment activities of the Manager or the other accounts may disadvantage the
Company, such as the inability of the market to fully absorb orders for the
purchase or sale of particular securities placed by the Manager for the Company
and its other accounts at prices and in quantities which would be obtained if
the orders were being placed only for the Company. The Manager may aggregate
orders of the Company with orders for its other accounts. Such aggregation of
orders may not always be to the benefit of the Company with regard to the price
or quantity executed.
The Manager, however, will not permit the Affiliated Funds or its other
clients to sell securities or other assets to, or purchase securities or other
assets from, the Company nor will any such Affiliates be permitted to enter into
derivative transactions with the Company. The Manager will not reallocate assets
among the Company and the Affiliated Funds.
The incentive fee payable to the Manager is based upon the net income
received by the Company. This may create an incentive for the Manager to
recommend investments with greater income potential, which generally are riskier
or more speculative than would be the case if such fees did not include a
"performance" component. Such incentives may result in increased risk to the
value of the Company's investment portfolio.
The Company has agreed that if it terminates the Management Agreement
without cause or the Board of Directors fails to approve a continuation of the
Management Agreement, or the Company engages another person to manage a portion
of its assets or to manage assets internally with personnel other than those
previously employed by the Manager, the Manager will be entitled to receive a
"Non-Competition Payment" in an amount equal to the fair market value of the
Management Agreement (without giving effect to any termination and assuming it
is renewed in accordance with its terms), to be determined in accordance with
the provisions of the Management Agreement.
The Manager, its affiliates and the funds managed by Appaloosa Management
L.P. purchased an aggregate of 1,014,000 shares of common stock of the Company
in a private placement. The sale of the shares purchased in the private
placement are subject to a resale registration statement which has been declared
effective. The Manager, its affiliates and funds managed by Appaloosa
Management, L.P. may dispose of their shares any time after the lock-up period
described in the resale registration statement and otherwise in compliance with
all applicable restrictions. The Manager and its directors, officers and
employees will receive stock options pursuant to the Company's Stock Incentive
Plan.
The market in which the Company purchases mortgage assets is characterized
by the rapid evolution of products and services, and thus, there may in the
future be relationships among the Company, the Manager, and affiliates of the
Manager in addition to those described herein.
An Affiliated Fund entered into a total rate of return swap with a
broker-dealer which provides that the Affiliated Fund will bear the economic
benefit and risk of directly holding the 666,666 shares of the Company's common
stock purchased by such broker-dealer in a private placement.
Frederick N. Khedouri, a Senior Managing Director of Bear, Stearns & Co.
Inc., is a Director of the Company and has purchased 10,000 shares of common
stock at the initial public offering price in a private placement and an
additional 20,000 shares in the public market. Bear, Stearns & Co. Inc. provides
financial advisory services to the Company and its Affiliates.
Stuart H. Coleman, a partner in the law firm of Stroock & Stroock & Lavan
LLP, is a nominee to be a Director of the Company. Such firm and Mr. Coleman
perform legal services for the Company.
<PAGE>
PERFORMANCE GRAPH
The following graph presents a comparison of cumulative total returns
for the Company's common stock through March 12, 1998 with the S&P 500 index and
the Bloomberg L.P. BBREIT Mortgage Index ("MREIT"), a capitalization-weighted
index of infinite life mortgage REITs having a market capitalization of $15
million or greater.
[Performance Chart]
<TABLE>
<CAPTION>
DATE MREIT S&P500 LMM
<S> <C> <C> <C>
11/26/97 15,000.00 15,000.00 15,000.00
11/28/97 15,004.38 15,059.66 14,750.00
12/05/97 15,055.86 15,512.37 14,875.00
12/12/97 13,817.10 15,039.23 14,000.00
12/19/97 13,423.50 14,937.11 14,500.00
12/26/97 13,143.00 14,775.45 14,625.00
01/02/98 13,453.50 15,390.99 14,625.00
01/09/98 13,159.50 14,649.30 14,437.50
01/16/98 13,525.80 15,185.12 14,812.50
01/23/98 13,506.75 15,124.55 14,750.00
01/30/98 13,725.15 15,487.70 15,125.00
02/06/98 13,642.95 16,003.98 16,137.52
02/13/98 13,275.00 16,131.38 16,767.89
02/20/98 13,263.00 16,360.08 16,704.85
02/27/98 13,312.50 16,604.70 16,452.71
03/06/98 13,468.50 16,713.30 16,389.67
03/12/98 14,077.80 16,956.15 16,767.89
</TABLE>
<PAGE>
ITEM 2: RATIFICATION OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors of the Company has selected the accounting firm of
Deloitte & Touche LLP as independent auditors of the Company for the year ending
December 31, 1998. Deloitte & Touche LLP has served as the Company's independent
auditors since the Company's inception. A representative of Deloitte & Touche
LLP is expected to be present at the meeting with the opportunity to make a
statement if such representative so desires and to respond to appropriate
questions.
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE FOR APPROVAL OF THE
APPOINTMENT OF DELOITTE & TOUCHE LLP AS THE COMPANY'S AUDITORS.
ITEM 3: OTHER MATTERS
At the date of this Proxy Statement, the only business which the Board of
Directors intends to present or knows that others will present at the meeting is
that hereinabove set forth. If any other matter or matters are properly brought
before the meeting, or any adjournment thereof, it is the intention of the
persons named in the accompanying form of proxy to vote the proxy on such
matters in accordance with their judgment.
STOCKHOLDER PROPOSALS: 1999 ANNUAL MEETING
Proposals of stockholders intended to be presented at the Company's 1999
Annual Meeting of Stockholders must be received by the Company on or prior to
December 28, 1998, to be eligible for inclusion in the Company's Proxy Statement
and form of proxy to be used in connection with the 1999 Annual Meeting.
By order of the Board of Directors,
Robert J. Gartner
Secretary
Short Hills, New Jersey
April 16, 1998
