-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, StYJGuAbBuOeOFf0yOR8lSaYwzgpo7VkAPX6EFsw6rPiUHF9qGkMyYhpEWpsfsdw 8kDegkhAn04ishoiu/tL3A== 0000899681-99-000175.txt : 19990429 0000899681-99-000175.hdr.sgml : 19990429 ACCESSION NUMBER: 0000899681-99-000175 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990428 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LASER MORTGAGE MANAGEMENT INC CENTRAL INDEX KEY: 0001046099 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 223535916 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: SEC FILE NUMBER: 001-13563 FILM NUMBER: 99603315 BUSINESS ADDRESS: STREET 1: 51 JOHN F KENNEDY PKWY CITY: SHORT HILLS STATE: NJ ZIP: 07078 BUSINESS PHONE: 9739128770 10-K/A 1 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. 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 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. 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 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
LASER MORTGAGE MANAGEMENT, INC. BALANCE SHEET AT DECEMBER 31, 1998 DECEMBER 31, 1997 - ---------------------------------------------------------------------------------------------------------------------------------- ASSETS 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.
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: 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.
LASER Mortgage Management, Inc.
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 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) ------------- ------------ ------------ ------------ -------- ------------
LASER Mortgage Management, Inc.
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 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.
LASER MORTGAGE MANAGEMENT, INC.
STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 1998 1997 - -------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: 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
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:
DECEMBER 31, 1998 Agency Non-Agency Fixed/ Fixed/ Floating Floating Rate Non- Rate Mortgage Mortgage Mortgage Mortgage Securities Subordinates Subordinates Securities Total 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 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 ============== ============= ============== ============ ============ ============ ==============
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:
FOR THE THREE MONTHS ENDED March 31, June 30, September 30, December 31, 1998 1998 1998 1998 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
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:
Weighted Average Weighted Range of Remaining Average Exercise Options Contractual Exercise Prices Outstanding Life (Yrs.) Price December 31, 1998 $ 15.00 220,000 8.9 $ 15.00 ======== ======== ===== ========== December 31, 1997 $ 15.00 778,000 10 $ 15.00 ======= ======== ===== ==========
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. 12. SUMMARIZED QUARTERLY RESULTS (UNAUDITED) The following is a presentation of the quarterly results of operations.
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: 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 ========== ========== ========== ========== ==========
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. ***** 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 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. EX-10.6 2 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 EX-27 3
5 Year Dec-31-1998 Jan-01-1998 Dec-31-1998 30,393 817,689 17,571 0 0 874,070 0 0 874,070 746,514 0 0 0 282,942 (155,385) 874,070 0 134,343 0 0 8,384 0 154,757 (80,272) 0 (80,272) 0 0 0 (80,272) (4.16) (4.16)
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