SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------
FORM 10-K/A (Amendment No. 1)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM __________ TO ___________
COMMISSION FILE NUMBER: 1-13563
-----------------
LASER MORTGAGE MANAGEMENT, INC.
(EXACT NAME OF THE REGISTRANT AS SPECIFIED IN ITS CHARTER)
MARYLAND 22-3535916
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
151 WEST PASSAIC STREET, ROCHELLE PARK, NEW JERSEY 07662
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (201) 909-3722
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
Name of each exchange
Title of Each Class: on which Registered:
Common Stock, $.001 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ___
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
At March 29, 1999, the aggregate market value of the voting stock held
by non-affiliates of the Registrant was approximately $94,735,896, based upon
the closing sale price of the Common Stock on the New York Stock Exchange on
that date. At March 29, 1999, the Registrant had outstanding 17,818,283 shares
of Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive Proxy Statement issued in connection
with the 1999 Annual Meeting of Stockholders are incorporated by reference into
Part III hereof.
<PAGE>
LASER MORTGAGE MANAGEMENT, INC.
EXPLANATORY NOTE:
This amendment to the Registrant's Annual Report on Form 10-K is being
filed to include corrected audited financial statements to correct errors which
occurred during the EDGAR filing process.
TABLE OF CONTENTS
PART IV
Item 14 Exhibits, Financial Statement Schedules and Reports
on Form 8-K.............................................2
Financial Statements............................................F-1
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) The following documents are filed as a part of this report on Form 10-K/A:
1. Financial Statements
2. Schedules to Financial Statements: All financial statement
schedules have been omitted because they are either
inapplicable or the information required is provided in the
Company's Financial Statements and Notes thereto, included in
Part II, Item 8 of this Annual Report on Form 10-K/A.
3. Exhibits: See "Exhibit Index."
(b) A Current Report on Form 8-K was filed by the Registrant
on December 16, 1998 reporting the declaration of a
year-end special distribution. A Current Report on Form 8-K was
filed by the Registrant on November 9, 1998 reporting the
engagement of Lehman Brothers Inc. as financial advisor,
the second quarter results of operations, the declaration
of a quarterly $0.38 per share distribution and the implementation of
strategic alternatives.
<PAGE>
LASER MORTGAGE MANAGEMENT, INC.
INDEX TO FINANCIAL STATEMENTS PAGE
INDEPENDENT AUDITORS' REPORT F-2
FINANCIAL STATEMENTS:
Balance Sheet - December 31, 1998 and 1997 F-3
Statement of Operations for the year ended December 31, 1998
and period November 26, 1997 (Commencement of Operations)
through December 31, 1997 F-4
Statement of Stockholders' Equity for the year ended December 31,
1998 and period November 26, 1997 (Commencement of Operations)
through December 31, 1997 F-5
Statement of Cash Flows for the year ended December 31, 1998
and period November 26, 1997 (Commencement of Operations) through
December 31, 1997 F-7
Notes to Financial Statements F-8
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders of
LASER Mortgage Management, Inc.
We have audited the accompanying balance sheet of LASER Mortgage Management,
Inc. (the "Company") as of December 31, 1998 and 1997, and the related
statements of operations, stockholders' equity and cash flows for the year ended
December 31, 1998 and the period November 26, 1997 (commencement of operations)
through December 31, 1997. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. 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 audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company at December 31, 1998 and 1997
and the results of its operations and its cash flows for the year ended December
31, 1998 and the period November 26, 1997 (commencement of operations) through
December 31, 1997 in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
March 29, 1999
<PAGE>
<TABLE>
<CAPTION>
LASER MORTGAGE MANAGEMENT, INC.
BALANCE SHEET AT DECEMBER 31, 1998 DECEMBER 31, 1997
- ----------------------------------------------------------------------------------------------------------------------------------
ASSETS
<S> <C> <C>
Cash and cash equivalents $ 30,392,828 $ 82,626,526
Receivable for securities sold -- 67,208,943
Investment in securities at fair value 817,689,386 3,616,733,170
Investment in mortgage loans at amortized cost 8,417,484 --
Accrued interest receivable 10,453,676 21,170,369
Variation margin deposits on swaps -- 5,500,000
Margin deposits on repurchase agreements 7,117,098 --
--------------- --------------
Total assets $ 874,070,472 $ 3,793,239,008
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Repurchase agreements $742,384,912 $ 2,747,060,588
Payable for securities purchased -- 747,594,232
Accrued interest payable 2,446,237 8,348,831
Interest rate swaps at fair value -- 3,114,900
Dividends payable -- 2,602,600
Accounts payable 557,547 1,756,187
Payable to Manager 1,125,000 327,850
----------------- ----------------
Total liabilities 746,513,696 3,510,805,188
----------------- ----------------
STOCKHOLDERS' EQUITY:
Common stock: par value $.001 per share;
100,000,000 shares authorized, 20,099,999 and
20,019,999 shares issued, respectively 20,100 20,020
Additional paid-in capital 282,921,970 281,840,175
Accumulated other comprehensive (loss) income (14,745,929) 603,821
Accumulated distributions and losses (121,290,971) (30,196)
Treasury stock at cost (1,615,800 shares) (19,348,394) --
----------------- ----------------
Total stockholders' equity 127,556,776 282,433,820
----------------- ---------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ $874,070,472 3,793,239,008
============== ===============
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LASER MORTGAGE MANAGEMENT, INC.
PERIOD
NOVEMBER 26, 1997
(COMMENCEMENT
YEAR ENDED OF OPERATIONS) THOROUGH
STATEMENT OF OPERATIONS FOR THE DECEMBER 31, 1998 DECEMBER 31, 1997
- ---------------------------------------------------------------------------------------------------------------------------
INTEREST INCOME:
<S> <C> <C>
Mortgage loans and securities $ 182,733,402 $ 10,078,047
Cash and cash equivalents 4,052,559 810,880
-------------- -------------
Total interest income 186,785,961 10,888,927
--------------- -------------
INTEREST EXPENSE:
Repurchase agreements 154,756,928 8,489,381
--------------- -------------
NET INTEREST INCOME 32,029,033 2,399,546
(LOSS) GAIN ON SALE OF SECURITIES AND SWAPS (52,442,984) 588,289
IMPAIRMENT LOSS ON INTEREST-ONLY
SECURITIES (51,473,981) --
GENERAL AND ADMINISTRATIVE EXPENSES 8,383,812 415,431
--------------- ------------
NET (LOSS) INCOME $(80,271,744) $ 2,572,404
================ =============
Unrealized (loss) gain on securities:
Unrealized holding (loss) gain arising during period (67,792,734) 1,192,110
Add: reclassification adjustment for loss (gain) included in
net (loss) income 52,442,984 (588,289)
----------------- ------------
Other comprehensive (loss) income (15,349,750) 603,821
------------------ ------------
Comprehensive (loss) income ($ 95,621,494) $ 3,176,225
================== ============
NET (LOSS) INCOME PER SHARE:
Basic $ ( 4.16) $ 0.13
================== ============
Diluted $ (4.16) $ 0.13
================== ============
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING:
Basic 19,313,865 20,019,999
================== ==========
Diluted 19,313,865 20,019,999
================== ==========
See notes to financial statements.
</TABLE>
<PAGE>
LASER Mortgage Management, Inc.
<TABLE>
<CAPTION>
STATEMENT OF STOCKHOLDERS' EQUITY FOR THE YEAR ENDED
DECEMBER 31, 1998 AND THE PERIOD NOVEMBER 26, 1997 (COMMENCEMENT OF OPERATIONS)
THROUGH DECEMBER 31, 1997 (CONTINUED)
- -----------------------------------------------------------------------------------------------------------------------------------
Accumulated
Common Additional Comprehensive Other Accumulated Treasury
Stock Paid-in Income Comprehensive Distributions Stock
Par Capital (Loss) Income and at Cost
Value (Loss) Losses Total
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, NOVEMBER 26, 1997 $ 6 $ 14,999 $ -- $ -- $ -- $ -- $ 15,005
Issuance of Common Stock 20,014 281,825,176 -- -- -- -- 281,845,190
Stock Available for sale
securities - fair value
adjustment
Comprehensive Income
Net income -- -- 2,572,404 -- $2,572,404 -- 2,572,404
Other comprehensive income
Unrealized gain on securities,
net of reclassification
adjustment -- -- $603,821 603,821 -- -- 603,821
Comprehensive income -- -- $3,176,225 -- -- -- --
==========
Dividends declared -
$0.13 per share -- -- -- (2,602,600) -- (2,602,600)
----------- ------------ -------- ----------- --------- -----------
BALANCE, DECEMBER 31, 1997 $ 20,020 $ 281,840,175 $ 603,821 $ (30,196) -- $282,433,820
Comprehensive income (loss)
Net loss -- -- (80,271,744) -- (80,271,744) -- (80,271,744)
Other comprehensive loss
Unrealized loss
on securities,
net of reclassification
adjustment -- -- (15,349,750) (15,349,750) -- (15,349,750)
Comprehensive loss -- -- $ (95,621,494) -- -- --
================
Common stock issued 80 1,081,795 -- 1,081,875
Repurchase of Common Stock -- -- -- -- -- $(19,348,39)(19,348,394)
Dividends/Distributions declared -
$2.19 per share-- -- -- -- -- (40,989,031) -- (40,989,031)
------------- ------------ ------------ ------------ -------- ------------
</TABLE>
<PAGE>
LASER Mortgage Management, Inc.
<TABLE>
<CAPTION>
STATEMENT OF STOCKHOLDERS' EQUITY FOR THE YEAR ENDED
DECEMBER 31, 1998 AND THE PERIOD NOVEMBER 26, 1997 (COMMENCEMENT OF OPERATIONS)
THROUGH DECEMBER 31, 1997 (CONTINUED)
- -----------------------------------------------------------------------------------------------------------------------------------
Accumulated
Common Additional Comprehensive Other Accumulated Treasury
Stock Paid-in Income Comprehensive Distributions Stock
Par Capital (Loss) Income and at Cost Total
Value (Loss) Losses
BALANCE
<S> <C> <C> <C> <C> <C> <C>
DECEMBER 31, 1998 $20,100 $282,921,970 $14,745,929 $(121,290,971) $(19,348,394) $127,556,776
======= ============ =========== ============== ============= ============
Unrealized holding losses arising during
period $ (67,792,734)
Add: reclassification adjustment for losses
included in net loss 52,442,984
--------------
Net unrealized losses on securities $ (15,349,750)
===============
See notes to financial statements.
</TABLE>
<PAGE>
LASER MORTGAGE MANAGEMENT, INC.
<TABLE>
<CAPTION>
STATEMENT OF CASH FLOWS FOR THE YEAR
ENDED DECEMBER 31,
1998 1997
- --------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net (loss) income $ (80,271,744) 2,572,404
Adjustments to reconcile net (loss) income to
net cash used in operating activities:
Amortization of mortgage premiums 16,530,954 899,182
and discounts, net
Impairment loss on interest-only securities 51,473,981 --
Loss (Gain) on sale of securities 52,442,984 (588,289)
(Decrease) Increase in accrued interest receivable 10,716,694 (21,170,369)
(Decrease) Increase in variation margin on swaps 5,500,000 (5,500,000)
Increase in margin deposits on repurchase agreements (7,117,098) --
(Decrease) Increase in accrued interest payable (5,902,594) 8,348,831
(Decrease) Increase in accounts paybale (1,198,640) 1,756,187
Increase in payable to Manager 797,150 327,850
------------- ----------
Net cash provided by (used in) operating activities 42,971,687 (13,354,204)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of securities (3,048,607,756) (4,098,377,223)
Payable for securities purchased -- 747,594,232
Purchase of mortgage loans (11,912,075) --
Proceeds from sale of securities 4,741,909,447 483,980,452
Receivable for securities sold -- (67,208,943)
Principal payments on securities 289,938,826 1,071,429
------------- ----------------
Net cash provided by (used in) investing activities 1,971,328,442 (2,932,940,053)
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from repurchase agreements 37,254,535,571 2,854,535,588
Principal payments on repurchase agreements (39,259,211,247) (107,475,000)
Net payments from issuance (repurchase) of common stock (18,266,519) 281,860,195
Distributions paid to stockholders (43,591,632) --
----------------- ---------------
Net cash (used in) provided by financing activities (2,066,533,827) 3,028,920,783
----------------- ---------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (52,233,698) 82,626,526
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 82,626,526 --
---------------- ---------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 30,392,828 $ 82,626,526
================ ===============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Interest paid $ 160,659,522 $ 140,550
=============== ==============
Noncash financing activities:
Net change in unrealized (loss)
gain on available-for-sale securities $ (15,349,750) $ 603,821
================ ===============
Dividends declared, not yet paid $ -- $ 2,602,600
================== ===============
--
See notes to financial statements
</TABLE>
<PAGE>
LASER MORTGAGE MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
LASER Mortgage Management, Inc. (the "Company") was incorporated in
Maryland on September 3, 1997. The Company commenced its operations on November
26, 1997 (see Note 5).
A summary of the Company's significant accounting policies follows:
CASH AND CASH EQUIVALENTS - Cash and cash equivalents includes cash on
hand and overnight repurchase agreements. The carrying amounts of cash
equivalents approximates their value.
INVESTMENTS - The Company invests primarily in mortgage-backed
securities and mortgage loans. The mortgage-backed securities include mortgage
pass-through certificates, collateralized mortgage obligations and other
securities representing interests in, or obligations backed by, pools of
mortgage loans (collectively, "Mortgage Securities"). The Company also invests
in other debt and equity securities ("Other Securities" and, together with
Mortgage Securities, "Securities"). The mortgage loans are secured by first or
second liens on single-family residential, multi-family residential, commercial
or other real property ("Mortgage Loans" and, together with Securities,
"Investments").
Statement of Financial Accounting Standards No. 115, Accounting for
Certain Investments in Debt and Equity Securities (SFAS 115), requires the
Company to classify its securities as either trading investments,
available-for-sale investments or held-to-maturity investments. Although the
Company generally intends to hold most of its Securities until maturity, it may,
from time to time, sell any of its Securities as part of its overall management
of its balance sheet. Accordingly, this flexibility requires the Company to
classify all of its Securities as available-for-sale. All Securities classified
as available-for- sale are reported at fair value, with unrealized gains and
losses reported as a separate component of stockholders' equity within
accumulated other comprehensive income (loss).
Unrealized losses on Securities that are considered
other-than-temporary, as measured by the amount of decline in fair value
attributable to factors other than temporary factors, are recognized in income
and the cost basis of the Securities is adjusted. Other-than-temporary
unrealized losses are based on management's assessment of various factors
affecting the expected cash flow from the Securities, including the level of
interest rates, an other-than-temporary deterioration of the credit quality of
the underlying mortgages and/or the credit protection available to the related
mortgage pool and a significant change in the prepayment characteristics of the
underlying collateral.
The Company's Mortgage Loans are held as long-term investments and are
carried at their unpaid principal balance, net of unamortized discount or
premium.
Interest income is accrued based on the outstanding principal or
notional amount of the Investments and their contractual terms. Premiums and
discounts associated with the purchase of the Investments are amortized into
interest income over the lives of the Investments using the effective yield
method.
Investment transactions are recorded on the date the Investments are
purchased or sold. Purchases of newly-issued securities are recorded when all
significant uncertainties regarding the characteristics of the securities are
removed, generally shortly before settlement date. Realized gains and losses on
Investment transactions are determined on the specific identification basis.
INTEREST RATE SWAPS - The Company enters into interest rate swap
agreements ("swaps") to reduce the mismatch in the maturity and repricing
characteristics of its fixed-rate agency pass-through securities and its
short-term repurchase obligations used for funding. The objective is to change
the interest rate characteristics of the securities from fixed to floating rate.
Swaps were designated as hedges of certain of its fixed rate agency pass-through
securities. The Company monitors the correlation and effectiveness for swap
transactions by ensuring that the notional amount of the swap is less than the
principal amount of the assets being hedged, the maturity of the swaps do not
exceed the maturity of the assets being hedged and the interest rate index on
the asset being hedged correlates with the interest rate index for the paying
leg of the swap.
The Company carries the swaps that meet the above criteria and the
hedged securities at their fair value and reported unrealized gains and losses
in other comprehensive income. Net payments or receipts on swaps that qualify
for hedge accounting are recognized as adjustments to interest income as they
accrue. Swaps that do not meet these criteria are carried at fair value with
changes reflected in income currently.
The gain or loss on the terminated swaps are deferred and amortized as
a yield adjustment over the shorter of the remaining original term of the swap
or the remaining holding period of the investment securities. Gains and losses
on swaps associated with sold securities are recognized as part of the gain or
loss on sale.
INCOME TAXES - The Company has elected to be taxed as a Real Estate
Investment Trust ("REIT") and intends to comply with the provisions of the
Internal Revenue Code of 1986, as amended (the "Code") with respect thereto.
Accordingly, the Company should not be subjected to Federal income tax to the
extent of its distributions to stockholders and as long as certain asset, income
and stock ownership tests are met.
USE OF ESTIMATES - The preparation of financial statements in
conformity with generally accepted accounting principles requires the Company 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.
COMPREHENSIVE INCOME - The Company has adopted SFAS No. 130, Reporting
Comprehensive Income. This statement requires the reporting of comprehensive
income in addition to net income from operations. Comprehensive income is a more
inclusive financial reporting methodology that includes disclosure of certain
financial information (such as unrealized gains or losses on securities) that
historically has not been recognized in the calculation of net income.
2. AVAILABLE-FOR-SALE INVESTMENTS
The following table sets forth the fair value of the Company's
Securities, excluding interest-only securities ("IOs"), as of December 31, 1998
and December 31, 1997:
<TABLE>
<CAPTION>
DECEMBER 31, 1998
Agency Non-Agency
Fixed/ Fixed/
Floating Floating
Rate Non- Rate
Mortgage Mortgage Mortgage Mortgage
Securities Subordinates Subordinates Securities Total
<S> <C> <C> <C> <C> <C>
Securities, $667,919,453 $118,998,059 $ 15,106,000 $ 31,275,000 $ 833,298,512
principal amount
Unamortized discount (1,294,653) (29,974,938) (1,343,889) (67,115) (32,680,595)
Unamortized premium 4,918,479 -- -- 117,991 5,036,470
--------------- ------------- --------------- ----------- -------------
Amortized cost 671,543,279 89,023,121 13,762,111 31,325,876 805,654,387
Gross unrealized gains 9,186,945 -- -- -- 9,186,945
Gross unrealized losses -- (16,396,200) (1,284,223) (5,939,633) (23,620,056)
---------------- -------------- --------------- ------------- --------------
Estimated fair value $680,730,224 $72,626,921 $12,477,888 $25,386,243 $791,221,276
================ =============== =============== ============== ===============
DECEMBER 31, 1997
Non-Agency
Fixed/
Agency Floating
Fixed Emerging Non- Principal Rate
Rate Market Mortgage Mortgage Only Mortgage
Pass-Throughs Bonds Subordinates Subordinates Securities Securities Total
<S> <C> <C> <C> <C> <C> <C> <C>
Securities,
principal amount $ 3,286,896,621 $ 52,221,550 $ 58,399,966 $ 10,000,000 $ 57,788,134 $ 9,754,000 $ 3,475,060,271
Unamortized discount (14,104,395) (3,915,578) (10,416,934) (44,194) (23,718,298) (6,150) (52,205,549)
Unamortized premium 28,075,718 415,210 297,872 - - - 28,788,800
---------------- ------------- ------------- ------------- ------------- ----------- --------------
Amortized cost 3,300,867,944 48,721,182 48,280,904 9,955,806 34,069,836 9,747,850 3,451,643,522
Gross unrealized gains 12,208,264 54,033 240,088 3,569 2,217,185 56 14,723,195
Gross unrealized losses (182,202) (274,504) (532,520) - (115,961) - (1,105,187)
------------- ------------- ------------- ------------ ------------ ------------ --------------
Estimated fair value $3,312,894,006 48,500,711 $47,988,472 $9,959,375 $ 36,171,060 $ 9,747,906 $3,465,261,530
============== ============= ============== ============ ============ ============ ==============
</TABLE>
<PAGE>
The fair value of the Company's IOs as of December 31, 1998 and
December 31, 1997 are summarized as follows:
DECEMBER 31, 1998
Fixed
Rate Floating Total
Commercial Rate
Securities, notional amount $276,985,725 $177,704,524 $454,690,249
Amortized cost, after 19,447,590 7,333,338 26,780,928
provision for impairment
Gross unrealized gains -- 2,995,078 2,995,078
Gross unrealized losses (3,307,896) - (3,307,896)
--------------- ------------- -----------
Estimated fair value $16,139,694 $10,328,416 $26,468,110
=============== ============= ===========
DECEMBER 31, 1997
Fixed Fixed
Rate Rate Floating
Residential Commercial Rate Total
Securities, notional $201,685,139 $373,650,000 $399,260,556 $974,595,695
amount
Amortized cost 57,545,769 22,965,348 80,859,810 161,370,927
Gross unrealized gains -- 32,494 5,093 37,587
Gross unrealized (3,153,808) (51,639) (6,731,427) (9,936,874)
losses ----------- ------------ ------------ -----------
Estimated fair value $54,391,961 $22,946,203 $74,133,476 $151,471,640
=========== ============ ============ ============
The following table sets forth a historical reconciliation of the Company's
activities with respect to IOs:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
March 31, June 30, September 30, December 31,
1998 1998 1998 1998
<S> <C> <C> <C> <C>
Securities, beginning notional amount $ 974,595,695 $ 943,163,085 $1,185,413,736 $ 1,040,105,190
Acquisitions, notional amount 126,210,955 334,600,020 -- --
Disposals, notional amount (129,442,016) (62,336,949) (111,874,185) (556,180,027)
Paydowns, notional amount (28,201,549) (30,012,420) (33,434,361) (29,234,914)
---------------- ---------------- --------------- -----------------
Securities, ending notional amount $ 943,163,085 $1,185,413,736 $1,040,105,190 $ 454,690,249
================ ================ ================ ================
Amortized cost, beginning $ 161,370,927 $ 128,526,212 $ 90,853,884 $ 50,039,314
Acquisitions, at cost 9,311,100 15,048,458 -- --
Dispositions, at cost (37,282,413) (18,142,073) (16,181,945) (21,530,093)
Amortization of premium (4,873,402) (5,960,967) (2,219,952) (1,284,731)
Permanent impairment -- (28,617,746) (22,412,673) (443,562)
---------------- ----------------- ---------------- -----------------
Amortized cost, ending $ 128,526,212 $ 90,853,884 $ 50,039,314 $ 26,780,928
</TABLE>
FASB Statement No. 107, Disclosures About Fair Value of Financial
Instruments, defines the fair value of a financial instrument as the amount at
which the instrument could be exchanged in a current transaction between willing
parties, other than in a forced or liquidation sale.
The fair values of the Company's Investments are based on prices
provided by dealers who make markets in these financial instruments. The fair
values reported reflect estimates and may not necessarily be indicative of the
amounts the Company could realize in a current market exchange. Cash and cash
equivalents, interest receivable, repurchase agreements and other liabilities
are reflected in the financial statements at their fair value because of the
short-term nature of these instruments.
During the year ended December 31, 1998, the Company wrote down (took
a permanent impairment charge of $51,473,981) its floating-rate and residential
IOs which had an amortized cost greater than their market value. All of the
Company's floating-rate and residential IOs were written down to their estimated
fair market value, and such writedown is reflected in the Company's statement of
operations.
Most of the IOs were LIBOR floating rate IOs and were purchased in the
fourth quarter of 1997. They were acquired to balance duration in the Company's
portfolio. This investment was made based on the Company's evaluation of the
then-current prepayments and shape of the yield curve, and the relative values
of similar investments.
In evaluating the impairment charge on the IOs, the Company employs
current estimates of future prepayments that are obtained from independent
sources. For IOs collateralized by fixed-rate pass-through mortgage securities
issued by FNMA, GNMA and FHLMC (collectively, "Agency Fixed Rate
Pass-Throughs"), the Company utilized the median lifetime projection prepayment
speeds compiled and reported by Bloomberg L.P. from a survey of leading dealers
in the mortgage market. For "private label" IOs (collateralized by
non-government agency mortgage securities), the Company employs prepayment
estimates from at least one independent dealer. The prepayment estimates
typically take into consideration the current level and shape of the yield
curve.
As a result of the substantial decline in interest rates since the
purchase of the IOs, current estimates of prepayment speeds significantly exceed
the original prepayment speed estimates.
At the end of the first quarter of 1998, the majority of the Company's
IOs were floating rate IOs. Floating rate IOs are unique securities in that the
interest payments on these securities increase as one- month LIBOR increases.
Due to this characteristic of option value, floating rate IOs trade at much
lower yields than fixed rate IOs. At the end of the second and third quarter of
1998, in light of the continued flat yield curve, low levels of LIBOR and faster
than expected prepayment rates actually occurring for an extended period of
time, the Company decided that the impairment in market value was other than
temporary.
3. MORTGAGE LOANS
The following table pertains to the Company's Mortgage Loans as of
December 31, 1998 which are carried at their amortized cost:
Total
Mortgage Loans, principal amount $ 8,150,593
Unamortized discount --
Unamortized premium $ 266,891
------------
Amortized cost $ 8,417,484
============
As of December 31, 1998, the amortized cost of the Mortgage Loans approximated
their fair value.
4. REPURCHASE AGREEMENTS
The Company has entered into repurchase agreements to finance most of
its Investments. The repurchase agreements are collateralized by the market
value of the Company's Investments and bear interest rates that generally move
in close relation to one-month LIBOR.
As of December 31, 1998, the Company had outstanding $742,384,912 of
repurchase agreements with a weighted average borrowing rate of 5.94% and a
weighted average remaining maturity of 2.77 years. At December 31, 1998,
Investments actually pledged had an estimated fair value of $854,791,117.
At December 31, 1998 and 1997, the repurchase agreements had the
following remaining maturities:
1998 1997
---- ----
Within 30 days $ 242,384,912 $ 2,742,501,588
30 to 90 days -- 4,559,000
Greater than 90 days 500,000,000 --
------------- ---------------
$ 742,384,912 $ 2,747,060,588
As of December 31, 1998, $500,000,000 of the Company's Securities were
subject to a repurchase agreement with a broker-dealer with a term of five years
ending March 10, 2003. The borrowing rate of this repurchase agreement is
three-month LIBOR plus 61.5 basis points and is capped at 6.365%.
As of December 31, 1997, the Company had outstanding $2,747,060,588 of
repurchase agreements with a weighted average borrowing rate of 5.95% and a
weighted average remaining maturity of 14 days. At December 31, 1997, Mortgage
Assets actually pledged had an estimated fair value of $2,839,467,729.
5. COMMON STOCK
SALES OF COMMON STOCK - The Company's common stock was sold through
several transactions as follows:
The Company was initially capitalized with the sale of 6,000 shares of
common stock on September 2, 1997, for a total of $15,005.
The Company received commitments on September 15, 1997 for the
purchase, in a private placement, of 1,014,000 shares of common stock, at $15.00
per share, for a total of $15,210,000 from certain officers, directors, proposed
directors, employees and affiliates of the Company and the Former Manager. The
sale of these shares was consummated at the time of the closing of the public
offering.
The Company received commitments on November 7, 1997 from several
mutual funds under common management (the "Funds") for the purchase, in a
private placement, of 3,333,333 shares of common stock, at $15.00 per share, for
a total of $49,999,995. The sale of these shares was consummated at the time of
the closing of the public offering.
The Company has been informed by the Manager that a fund affiliated
with the Manager entered into a total rate of return swap with a broker-dealer
which provides that the affiliated fund bear the economic benefit and risk of
directly holding 666,666 shares of the Company's common stock for a total of
$9,999,990. Such shares of common stock were sold by the Company to such
broker-dealer in a private placement without registration under Section 4(2) of
the Securities Act of 1933. As of December 16, 1998, the total rate of return
swap was closed and the Company repurchased the 666,666 shares at a price of
$5.31 per share.
15,000,000 shares of common stock were sold through a public offering
for $225,000,000. Syndication costs of $18,364,795 were deducted from the gross
proceeds of the offerings.
On each of January 2, 1998, April 1, 1998 and July 1, 1998, 25,000
shares (75,000 shares in the aggregate) of common stock were issued as deferred
stock awards to certain employees of the Company. On October 1, 1998, an
additional 5,000 shares were also issued as deferred stock awards to certain
employees of the Company.
DIVIDENDS/DISTRIBUTIONS - The Company declared and paid dividends and
distributions in cash of $2.19 per share during the year ended December 31,
1998.
STOCK REPURCHASES - In March 1998, the Board of Directors of the
Company approved the repurchase of up to $20 million of the Company's common
stock. In June 1998, the Board of Directors increased the amount of common stock
authorized to be repurchased to $30 million. Pursuant to the repurchase program,
as of December 31, 1998, the Company has used the proceeds of sales of, and
payments from, its portfolio securities to repurchase 2,300,466 shares of Common
Stock for $19,348,394 in open market transactions. Such purchases were made at a
weighted average price per share of $8.41 (excluding commission costs). The
repurchased shares have been returned to the Company's authorized but unissued
shares of common stock as treasury shares.
6. TRANSACTIONS WITH AFFILIATES
Pursuant to the terms of a Management Agreement (the "Management
Agreement") with the Company, LASER Advisers Inc. (the "Former Manager") was
responsible for the day-to-day operations of the Company and performed (or
caused to be performed) such services and activities relating to the assets and
operations of the Company as was appropriate, subject to the supervision of the
Company's Board of Directors. For performing these services, the Former Manager
received an annual base management fee of 1.0% of Average Stockholders' Equity.
The term "Average Stockholders' Equity" for any period meant stockholders'
equity, calculated in accordance with GAAP, excluding any mark-to-market
adjustments of the investment portfolio. The Company and the Former Manager have
agreed that the provision for impairment charge on the IOs in the Company's
portfolio is not a mark-to-market adjustment for purposes of these calculations.
The Former Manager also was 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 Former Manager's incentive fees and before
deduction of dividends paid. The incentive fee payments to the Former Manager
were computed before any income distributions were made to stockholders. As used
in calculating the Former 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, 1998, management fees amounted to $2.4
million and incentive fees were $2.1 million, of which $1.1 million was payable
to the Former Manager as of December 31, 1998.
The Company and the Former Manager terminated the Management Agreement
effective as of February 28, 1999. In connection therewith, the Company agreed
to pay to the Former Manager: (a) $416,505, which represented the base
management fee payable under the Management Agreement for the fourth quarter of
1998; (b) $708,495, which the Company and the Former Manager agreed to as the
quarterly incentive fee for the fourth quarter of 1998; and (c) $500,000 for
services performed under the Management Agreement for the period January 1, 1999
through February 28, 1999 and for certain transition services with respect to
internalizing the advisory function.
7. EARNINGS PER SHARE (EPS)
In February 1997, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting No. 128, Earnings Per Share (SFAS No.
128) which requires dual presentation of Basic EPS and Diluted EPS on the face
of the income statement for all entities with complex capital structures. SFAS
No. 128 also requires a reconciliation of the numerator and denominator of the
Basic EPS to the numerator and denominator of Basic EPS and Diluted EPS
computation. There are no differences between Basic EPS and Diluted EPS for
1998.
For the Year Ended
December 31, 1998
Loss Shares Per-Share
(Numerator) (Denominator) Amount
Basic EPS $ (80,271,744) 19,313,865 $ (4.16)
============== ========== =========
Diluted EPS $ (80,288,794) 19,313,865 $ (4.16)
============== ========== =========
For the year ended December 31, 1998, the Company has deferred common
stock totaling 65,000 shares reserved for issuance. The receipt of the stock is
contingent upon the holder's continued employment or service. The deferred
common stock has been awarded and does not have an exercise or strike price.
Such shares were not included in Diluted EPS as the Company has a loss from
operations and including such amounts would be anti-dilutive.
For the year ended December 31, 1998, options to purchase 298,000
shares were outstanding during the period and were anti-dilutive because the
strike price ($15.00) was greater than the average daily market price of the
Company's common stock for the period ($11.022). Therefore, these options were
excluded from Diluted EPS.
The reconciliation for 1997 is as follows:
For the Period Ended
December 31, 1997
Income Shares Per-Share
(Numerator) (Denominator) Amount
Basic EPS $ 2,572,404 20,019,999 $ 0.13
============ =========== =======
Effect of Dilutive Securities:
Deferred Common Stock $ - 400,000
----------------- -----------
Diluted EPS $ 2,572,404 20,419,999 $ 0.13
=========== ============ ========
For the period ended December 31, 1997, deferred common stock totaling
400,000 shares was included in Diluted EPS. The receipt of the stock is
contingent upon the holder's continued employment or service. The deferred
common stock has been awarded and does not have an exercise or strike price.
For the period ended December 31, 1997, options to purchase 778,000
shares were outstanding and were anti-dilutive because the strike price ($15.00)
was greater than the year-end stock price for the Company ($14.50). Therefore,
these options were excluded from Dilutive EPS.
8. LONG-TERM STOCK INCENTIVE PLAN
The Company has adopted a Long-Term Stock Incentive Plan for
directors, executive officers, and key employees (the "Incentive Plan"). The
Incentive Plan authorizes the Compensation Committee of the Board of Directors
to grant awards, including deferred stock, incentive stock options as defined
under Section 422 of the Code ("ISOs") and options not so qualified ("NQSOs").
The Incentive Plan authorizes the granting of options or other awards for an
aggregate of 2,066,666 shares of the Company's common stock.
The Company adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" for the options. Accordingly, no compensation cost for the
Incentive Plan has been determined based on the fair value at the grant date for
awards consistent with the provisions of SFAS No. 123. For the Company's pro
forma net earnings, the compensation cost will be amortized over the four-year
vesting period of the options. The Company's net loss per share would have been
increased to the pro forma amounts indicated below:
FOR THE YEAR ENDED DECEMBER 31, 1998
Net loss - as reported $(80,271,744)
Net loss - pro forma $(80,288,794)
Loss per share - as reported $(4.16)
Loss per share - pro forma $(4.16)
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option pricing model with the following weighted average
assumptions used for grants for the year ended December 31, 1998: dividend yield
of 11.47%; expected volatility of 18%; risk-free interest rate of 5.82%; and
expected lives of ten years.
The following table summarizes information about stock options
outstanding as of December 31, 1998 and 1997:
<TABLE>
<CAPTION>
Weighted
Average Weighted
Range of Remaining Average
Exercise Options Contractual Exercise
Prices Outstanding Life (Yrs.) Price
<S> <C> <C> <C> <C>
December 31, 1998 $ 15.00 220,000 8.9 $ 15.00
======== ======== ===== ==========
December 31, 1997 $ 15.00 778,000 10 $ 15.00
======= ======== ===== ==========
</TABLE>
The options become exercisable at the rate of 25% on each of January
2, 1998, January 2, 1999, January 2, 2000 and January 2, 2001, subject to the
holder's continued employment or service. During the year ended December 31,
1998, 558,000 stock options have terminated.
The compensation expense for the 140,000 and 400,000 shares of
deferred stock outstanding as of December 31, 1998 and 1997, respectively, will
be amortized over a four-year period.
9. INTEREST RATE SWAPS
In December 1997, the Company entered into interest rate swaps with an
aggregate notional amount of $1,035 million. The Company used these interest
rate swaps to hedge its available-for-sale portfolio of fixed-rate agency
pass-through certificates. The primary objective of this hedging strategy was to
change the interest rate characteristics of these securities from fixed to
variable rates, to better correspond to the maturity and repricing
characteristics of the short-term repurchase agreements used by the Company to
fund these investments. This primary objective was the basis for the Company's
hedge accounting treatment. The Company continually monitored the swaps to
ensure that they were effective at changing the interest rate characteristics of
the securities. A secondary objective was to offset fluctuations in the fair
value of the securities caused by fluctuations in market interest rates.
In September 1998, the Company experienced margin calls and believed
it prudent to increase its liquidity and, therefore, liquidated a large portion
of its agency pass-through certificates. In conjunction with the liquidation of
these securities positions, the Company also discontinued hedge accounting for
the related swaps with an aggregate notional amount of $485 million. The Company
recognized the unrealized loss on these swaps as an element of the overall loss
on the liquidation of the securities of $(26.0) million. In October 1998, the
Company liquidated agency pass-through certificates in response to continued
margin calls and the need for liquidity. The overall October 1998 loss on the
liquidation of agency pass-through certificates, including losses recognized
upon suspension of hedge accounting for the remaining swap with a notional
amount of $550 million, totaled $(35.0) million. On the day of each suspension
of hedge accounting, the affected swaps were closed out without additional gain
or loss.
The valuations and other information used by the Company to monitor
the effectiveness of its interest rate swap hedging strategy were obtained
through multiple independent dealer quotes. This same information was used to
record the investments and swaps in the Company's financial statements and to
determine the Company's net asset value. The Company has never purchased or
written options to enter into swaps.
10. TAXABLE INCOME
The recently issued Revenue Procedure 99-17 provides securities and
commodities traders with the ability to elect mark-to-market treatment for 1998
by including a statement with their timely filed 1998 tax return. The election
applies for all future years as well unless revoked with the consent of the
Internal Revenue Service. After consultation with legal counsel, the Company
intends to elect mark-to-market treatment as a securities trader for 1998, and
accordingly, will recognize gains and losses prior to the actual disposition of
its securities. Moreover, some if not all of those gains and losses, as well as
some if not all gains or losses from actual dispositions of securities, will be
treated as ordinary in nature, and not capital, as they would be in the absence
of this election. Accordingly, revised Form 1099s will be sent to the Company's
shareholders to reflect the changed characterization of the Company's
distributions. There is no assurance, however, that the Company's election will
not be challenged on the ground that it is not in fact a trader in securities,
or that it is only a trader with respect to some, but not all, of its
securities. As such, there is a risk that the Company will not be able to mark-
to-market its securities, or that it will be limited in its ability to recognize
certain losses.
For the year ended December 31, 1998, a net operating loss as
calculated for tax purposes ("NOL") is estimated at approximately $(51.3)
million, or $(2.65) per weighted average share. NOLs may be carried forward for
20 years. Taxable income was different from income (loss) as calculated
according to generally accepted accounting principles ("GAAP income (loss)") as
a result of, among other things, differing treatment of losses on securities
transactions and interest rate swaps, permanent impairment writedowns on IOs and
a differing treatment of premium and discount amortization.
11. RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133")
was issued and is effective for all fiscal quarters of fiscal years beginning
after June 15, 1999. SFAS No. 133 generally requires that entities recognize all
derivative financial instruments as assets or liabilities, measured at fair
value, and include in earnings the changes in the fair value of such assets and
liabilities. SFAS No. 133 also provides that changes in the fair value of assets
or liabilities being hedged with recognized derivative instruments be recognized
and included in earnings. The Company has not yet completed its evaluation of
SFAS No. 133, and therefore, at this time, cannot predict what, if any, effect
its adoption will have on the Company's financial condition or results of
operations.
<PAGE>
12. SUMMARIZED QUARTERLY RESULTS (UNAUDITED)
The following is a presentation of the quarterly results of
operations.
<TABLE>
<CAPTION>
Period Ended Quarter Ended Quarter Ended Quarter Ended Quarter Ended
DECEMBER 31, 1997 MARCH 31, 1998 JUNE 30, 1998 SEPTEMBER 30, 1998 DECEMBER 31, 1998
(in thousands, except share and per share data)
Statements of Operations Data:
Interest income:
<S> <C> <C> <C> <C> <C>
Mortgage loans and securities $ 10,078 $ 54,506 $ 58,515 $ 48,934 $ 20,778
Cash and cash equivalents 811 1,263 1,160 1,035 595
------ ------- -------- -------- --------
Total 10,889 55,769 59,675 49,969 21,373
------ ------- -------- -------- --------
Interest expense:
Repurchase agreements 8,489 45,144 51,136 43,412 15,065
------ ------- -------- -------- --------
Net interest income.............. 2,400 10,625 8,539 6,557 6,308
Gain (loss) on sale of securities 588 134 511 (21,991) (31,097)
Impairment loss on interest-only
securities - - (28,618) (22,413) (443)
General and administrative
expenses 416 2,229 2,102 1,662 2,390
------ ------- -------- -------- --------
Net income (loss) $ 2,572 $ 8,530 $ (21,670) $ (39,509) (27,623)
======= ======= ========== ========== =========
Unrealized gain (loss) on securities:
Unrealized holding gain (loss)
arising during period 1,192 (14,056) 2,474 (27,199) (43,068)
Add: reclassification
adjustment for losses
included in net income
(loss) (588) (134) (511) 21,991 30,963
------- ------- -------- -------- --------
Other comprehensive
income (loss) 604 (14,190) 1,963 (5,208) (12,105)
------- ------- -------- -------- --------
Comprehensive income
(loss) $ 3,176 $ (5,660) $ (19,707) $ (44,717) $ (31,198)
======= ======== ========== ========== ==========
Net income (loss) per share:
Basic $ 0.13 $ .43 $ (1.08) $ (2.10) $(1.50)
======= ====== ======== ======== =======
Diluted $ 0.13 $ .43 $ (1.08) $ (2.10) $(1.50)
======= ====== ======== ======== =======
Weighted average number of
shares outstanding:
Basic 20,019,999 20,044,721 20,050,473 18,788,275 18,395,887
========== ========== ========== ========== ==========
Diluted 20,019,999 20,044,721 20,050,473 18,788,275 18,395,887
========== ========== ========== ========== ==========
</TABLE>
13. SUBSEQUENT EVENTS
On March 29, 1999, the Company's Board of Directors declared a special
first quarter distribution in cash of $2.00 per share of common stock. The
special distribution is payable on April 30, 1999 to stockholders of record as
of April 1, 1999. Depending upon the Company's reported taxable income for 1999,
this distribution may in whole or in part be characterized as a return of
capital for tax purposes.
On that date, to improve its liquidity, the Company terminated a
repurchase agreement with a broker-dealer with respect to $500 million of the
Company's Agency Certificates and realized a loss of approximately $(8.5)
million in connection therewith. From January 1, 1999 through March 29, 1999,
the Company sold approximately $310 million of Mortgage Assets, including
approximately $275 million of Agency Certificates, at a loss of approximately
$(5.0) million.
On March 2, 1999, the Company announced that the Company and the
Former Manager terminated the Management Agreement under which the Former
Manager served as the external manager of the Company, and that the Company had
become internally advised with Robert J. Gartner, Vice President of the Company,
being responsible for day-to-day investment decisions for the Company. Mr.
Gartner had been actively engaged in the management of the Company's portfolio
by the Former Manager since the Company's inception and had resigned his post at
the Former Manager to become a full-time employee of the Company. The Company
also announced that BlackRock Financial Management, Inc. ("BlackRock") had
agreed to extend its consulting engagement with the Company, that Thomas
Jonovich, Chief Financial Officer and Treasurer of the Company, and Jonathan
Green, General Counsel of the Company, resigned effective March 2, 1999, that
Peter T. Zimmermann, Vice President and Chief Operating Officer of the Company,
resigned effective January 11, 1999 and that the Former Manager agreed to assist
the Company with respect to the transfer of the advisory function to the Company
and with the filing of this Annual Report on Form 10-K.
As of February 28, 1999, the Company's unaudited estimate of its net
asset value per share was between $6.75 and $7.00 per share.
*****
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
LASER MORTGAGE MANAGEMENT, INC.
By: /S/ FREDERICK N. KHEDOURI
----------------------------
Frederick N. Khedouri
President
Dated: April 26, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Annual Report on Form 10-K has been signed below by the following persons
in the capacities and on the date indicated.
SIGNATURE TITLE DATE
/S/ FREDERICK N. KHEDOURI President and Director April 26, 1999
- -------------------------
Frederick N. Khedouri
/S/ ROBERT J. GARTNER Vice President, Treasurer April 26, 1999
- ------------------------- and Secretary (principal
Robert J. Gartner financial and accounting
officer)
/S/ STUART H. COLEMAN Director April 26, 1999
--------------------
Stuart H. Coleman
Director April 26, 1999
- -----------------------
Jonathan Ilany
/S/ MICHAEL L. SMIRLOCK Director April 26, 1999
- -----------------------
Michael L. Smirlock
<PAGE>
EXHIBIT INDEX
EXHIBIT NUMBER EXHIBIT
3.1 Articles of Incorporation of the Registrant (Incorporated by
reference to Exhibit 3.1 to the Registration Statement on Form S-11
(File No. 333-35673))
3.2 Bylaws of the Registrant (Incorporated by reference to Exhibit 3.2
to the Registration Statement on Form S-11 (File No. 333-35673))
4.1 Specimen Common Stock Certificate (Incorporated by reference to
Exhibit 4.1 to the Registration Statement on Form S-11 (File No.
333-35673))
10.1 1997 Stock Incentive Plan (Incorporated by reference to Exhibit 10.1
to the Registration Statement on Form S-11 (File No. 333-35673))
10.2 Management Agreement between the Registrant and LASER Advisers, Inc.
(Incorporated by reference to Exhibit 10.2 to the Registrant's
Annual Report on Form 10-K for the year ending December 31, 1997)
10.3 Dividend Reinvestment and Direct Purchase Plan (Incorporated by
reference to Exhibit 10.3 to the Registration Statement on Form S-11
(File No. 333-35673))
10.4 Termination Agreement dated as of February 28, 1999 between LASER
Advisers Inc. and the Registrant (Incorporated by reference to
Exhibit 10.1 to the Registrant's Current Report on Form 8-K dated
February 28, 1999)
10.5 Consulting Agreement dated as of February 28, 1999 between BlackRock
Financial Management, Inc. and the Registrant (Incorporated by
reference to Exhibit 10.2 to the Registrant's Current Report on Form
8-K dated February 28, 1999)
10.6* Employment Agreement dated as of March 1, 1999 between the
Registrant and Robert J. Gartner
27.1* Summary Financial Data
- ----------
* Filed herewith.
Exhibit 10.6
LASER MORTGAGE MANAGEMENT, INC.
51 JOHN F. KENNEDY PARKWAY
SHORT HILLS, NEW JERSEY 07078
As of March 1, 1999
Mr. Robert J. Gartner
311 Anderson Street
Hackensack, New Jersey 07601
Dear Mr. Gartner:
We hereby extend an offer to you to join LASER Mortgage Management, Inc. (the
"Company") as a full-time employee under the following terms:
FUNCTION: Responsible for day-to-day investment management
decisions for the Company pursuant to the
practices and policies of the Company as set forth
from time to time by the Company's Board of
Directors.
TITLE: Vice President, Treasurer and Secretary.
TERM: The term shall commence on the date hereof and
shall terminate on June 30, 1999. Upon the
expiration of said period, this Agreement shall be
automatically renewed on a month to month basis
unless terminated by either the Company or you by
the giving of written notice of termination to the
other party hereto at least 15 days' prior to the
expiration of the initial term or any successive
term.
COMPENSATION: Your salary will be paid at the rate of $50,000
per month (less applicable deductions), payable in
accordance with the Company's normal payroll
practices. In the event this agreement is not
renewed by the Company or you shall be terminated
other than for cause, the Company shall pay to you
$90,000, payable at the conclusion of the
Company's next payroll period following such
nonrenewal or termination other than for cause.
VACATION: Four (4) weeks per annum (pro-rated for 1999).
BENEFITS: The Company will pay for or reimburse the cost of
coverage of a health insurance plan for you and
your family up to $2,000 per month.
RESIGNATION/TERMINATION In the event that you shall resign or your
FOR CAUSE: employment is terminated by the Company for cause
at any time, the Company's only obligation shall
be to pay to you the salary which has accrued as
of the date of such resignation or termination.
For purposes hereof, "cause" shall mean that (i)
you committed an act constituting a misdemeanor
involving moral turpitude or a felony under the
laws of the United States or any state or
political subdivision thereof; (ii) you committed
an act constituting a breach of fiduciary duty,
gross negligence or willful misconduct; (iii) you
engaged in conduct that violated the Company's
internal policies or procedures and which is
detrimental to the business, reputation, character
or standing of the Company or any of its
affiliates; (iv) you committed an act of fraud,
dishonesty or misrepresentation that is
detrimental to the business, reputation, character
or standing of the Company; (v) you engaged in a
conflict of interest or self-dealing; or (vi) you
materially breached your obligations as set forth
in this agreement or you failed to perform your
duties as an employee of the Company (including as
a result of your permanent disability whereby you
are unable to perform the essential functions of
your job for four (4) consecutive weeks).
CONFIDENTIAL You acknowledge that the information and
INFORMATION: knowledge obtained from the Company and not
generally available from other sources in the
course of your performance of the services
requested hereunder relating to the Company's
business (the "Confidential Information") are of a
confidential nature, that the Confidential
Information is a valuable and unique asset of the
Company, access to and knowledge of being
essential to the performance of your duties.
Except as required to perform the services
required as an officer of the Company, you shall
not, during your employment or any time
thereafter, disclose, in whole or in part, such
Confidential Information to any person, firm,
corporation, association, or other entity for any
reasons or purpose whatsoever, or make use of such
Confidential Information for your own purposes or
for the benefit of such person or other entity
under any circumstances. You shall, prior to or
upon leaving the Company, deliver to the Company
any and all records, items, media of any type
(including all partial or complete copies or
duplicates) containing or otherwise relating to
Confidential Information whether prepared or
acquired by you or provided to you by the Company.
You also acknowledge that all such records, items
and media are at all times and shall remain the
property of the Company.
You acknowledge that the improper use or
disclosure of any Confidential Information may
cause irreparable damage, and that the Company
shall have the right to seek injunctive relief to
prevent such unauthorized use or disclosure, and
to such damages as are occasioned by such
unauthorized use or disclosure.
GOVERNING LAW: This agreement will be governed by and construed
in accordance with the laws of the State of New
York.
MODIFICATION: This agreement contains the entire understanding
of the parties and may be modified only in a
document signed by the parties and referring
explicitly hereto.
If you accept this offer, please sign in the space provided below and return a
copy of this letter.
Very truly yours,
LASER MORTGAGE MANAGEMENT, INC.
By: /s/ Frederick N. Khedouri
-------------------------------
Frederick N. Khedouri
President
Agreed to and Accepted by:
/s/ Robert J. Gartner
- -------------------------
Robert J. Gartner
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