FORM 10-K/A

10-K/A 1 laser-10ka_042701.htm FORM 10-K/A

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10- K/A

[X]

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2000

[ ]

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

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
(State or other jurisdiction of
incorporation or organization)

22-3535916
(I.R.S. Employer
Identification No.)

(Address of principal executive offices) (Zip Code)
c\o Mariner Mortgage Management, L.L.C.
65 East 55th Street, New York, New York 10022

Registrant's telephone number, including area code: (212) 758-2024

Securities registered pursuant to Section 12(b) of the Act:

Title of each class:

Name of each exchange
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 April 2, 2001, the aggregate market value of the voting stock held by non-affiliates of the Registrant was approximately $55,033,000, based upon the closing sale price of the Common Stock on the New York Stock Exchange on that date. At April 2, 2001, the Registrant had outstanding 14,038,983 shares of Common Stock.

GENERAL

LASER Mortgage Management, Inc. ("LASER" or the "Company") hereby amends its Annual Report on Form 10-K for the fiscal year ended December 31, 2000, (1) by amending its response for Item 1, "Business—Recent Developments" and "Business—Management Agreement with Mariner Mortgage Management, L.L.C." to give effect to the announcement on April 25, 2001 that the Board of Directors unanimously approved the liquidation and dissolution of the Company and (2) by deleting its responses for Items 10, 11, 12 and 13 contained in its Annual Report on Form 10-K filed April 2, 2001 and replacing such Items as set forth in this amendment.

PART I

Item 1. Business.

Reference is made to the Glossary commencing on page 40 of the Form 10-K as originally filed for definitions of terms used in the following description of the Company's business.

General

LASER Mortgage Management, Inc. (the "Company"), a Maryland corporation, is a specialty finance company, organized in September 1997, that invests primarily in mortgage-backed securities and mortgage loans. The mortgage-backed securities include mortgage pass-through certificates, collateralized mortgage obligations, other securities representing interests in, or obligations backed by, pools of mortgage loans and mortgage derivative securities (collectively, the "Mortgage Securities"). The mortgage loans are secured by first or second liens on single-family residential, multi-family residential, commercial or other real property (the "Mortgage Loans" and, together with the Mortgage Securities, the "Mortgage Assets"). See "—Description of Assets." Mariner Mortgage Management, L.L.C. ("Mariner"), an affiliate of Mariner Investment Group, Inc., manages the Company's day-to-day operations.

The Company has elected to be taxed and intends to continue to qualify as a real estate investment trust (a "REIT") under the Internal Revenue Code of 1986, as amended (the "Code"), commencing with its short taxable year ended December 31, 1997, and such election has not been revoked. The Company has qualified as a REIT for the taxable years since its inception, and generally will not be subject to federal income tax provided that it distributes its income to its stockholders and maintains its qualification as a REIT. See "—Federal Income Tax Considerations."

As of December 31, 2000, based upon "available for sale" fair value accounting treatment, the Company's net asset value per outstanding share was $4.52 per share.

Recent Developments

On March 7, 2001, the Company announced that its Board of Directors had authorized management and legal counsel to prepare a plan of liquidation. If the Board of Directors approves the plan of liquidation, the Company expects that these materials will be submitted to shareholders for approval at the annual meeting scheduled to be held during the second or third quarter of 2001. Concurrent with the preparation of the plan of liquidation, the Board has authorized the Company's management to engage a financial advisor to consider a sale or merger of the Company as an alternative to liquidation. As presently envisioned, the plan of liquidation would provide for an initial distribution, after obtaining shareholder approval, of approximately $3.00 per share, with additional distributions of the Company's remaining assets expected to occur during the following three years. A final decision, however, has not been made and the amounts and timing of the actual distributions may be changed before the Board approves the plan of liquidation.

On April 25, 2001, the Company announced that its Board of Directors unanimously approved the liquidation and dissolution of the Company. The Company expects that a plan of liquidation and dissolution will be submitted to shareholders for approval at the annual meeting scheduled to be held during the next three months. As presently envisioned, the plan of liquidation and dissolution would provide for an initial cash distribution, after obtaining approval of the Delaware Court of Chancery, of approximately $3.00 per share, with additional cash distributions resulting from the disposition of the Company's remaining assets expected to occur within the following three years, after providing for expenses.

Mariner will continue to serve as the Company's manager pursuant to the existing management agreement. The term of the management agreement ends on November 1, 2001, however, the Company has the right to terminate the management agreement with 30 days' notice and Mariner has the right to terminate the management agreement with 90 days' notice without cause or penalty. The Board of Directors' adoption of the resolutions approving the liquidation and dissolution of the Company triggered the payment of a fee based on the Company's stock price to Mariner under the management agreement, which the Company expects to be approximately $1.2 million. Mariner will continue to receive its base fee under the management agreement of $50,000 a month until the management agreement ends or is terminated.

In 2001, in contemplation of either a liquidation or sale of the Company, Mariner has been reducing the portfolio of Mortgage Securities and the leverage financing used to maintain the portfolio.

Investment Strategy

The Company was organized to create and manage an investment portfolio, principally of Mortgage Assets, that, in combination with financing and hedging activities, would generate income for distribution to its stockholders while preserving the Company's capital base.

The Company maintained a portfolio at its peak of approximately $3.8 billion of Mortgage Assets in June 1998. From June 1998 through March 2000, the Company delevered its portfolio by selling certain securities and repaying borrowings in an attempt to reduce the portfolio's susceptibility to basis and interest rate risk and to create additional liquidity. In November 1999, the Company announced that its Board of Directors authorized management to conduct a competitive sale of its less liquid portfolio assets as part of its ongoing program to reduce the volatility of the Company's assets. As of December 31, 2000, the remaining carrying value of these assets amounted to $1.8 million. During the six months ended December 31, 2000, the Company, in an effort to increase its return on stockholders' equity without exposing itself to substantial credit and interest rate risk, increased its portfolio of Agency Certificates and Mortgage Derivatives to $306.5 million at December 31, 2000 from $73.4 million at December 31, 1999. As a result, the financing used to maintain this portfolio was increased to $230.4 million at December 31, 2000 from $41.0 million at December 31, 1999.

The Company is authorized to acquire the following types of investments:

• fixed and adjustable rate mortgage pass-through certificates ("Pass-Through Certificates"), which are securities collateralized by pools of Mortgage Loans issued and sold to investors by private, non-governmental issuers ("Privately-Issued Certificates") or by various U.S. government agencies or instrumentalities, such as the Federal Home Loan Mortgage Corporation ("FHLMC"), the Federal National Mortgage Association ("FNMA") and the Government National Mortgage Association ("GNMA") (collectively, "Agency Certificates");

• collateralized mortgage obligations ("CMOs"), including regular interests in real estate mortgage investment conduits ("REMICs"), which are fixed and adjustable rate debt obligations collateralized by Mortgage Loans or Pass-Through Certificates;

• Mortgage Loans;

• mortgage derivative securities ("Mortgage Derivatives"), including interest-only securities ("IOs") which receive only certain interest payments from a pool of Mortgage Securities or Mortgage Loans;

• subordinate interests ("Subordinate Interests"), which are classes of Mortgage Securities junior to other classes of Mortgage Securities in the right to receive payments from the underlying Mortgage Loans; and

• other fixed-income securities in an amount not to exceed 5% of total assets.

• Consistent with the Company's policy of maintaining its status as a REIT for federal income tax purposes, substantially all of the Company's assets consist of assets of the type described in Section 856(c)(5)(b) of the Code ("Qualified Real Estate Assets"). See "—Description of Assets" and "Management's Discussion and Analysis of Financial Condition and Results of Operations—Financial Condition—Investments."

• The Company is required to invest at least 70% of its total assets (the "70% Asset Group") in:

• securities which are rated within one of the two highest ratings categories by one of the nationally recognized rating agencies but not guaranteed by the U.S. government or an agency or instrumentality thereof, such as FHLMC and FNMA Certificates,

• securities which are unrated but are guaranteed by the U.S. government or an agency or instrumentality thereof, or

• Mortgage Loans to borrowers who would otherwise meet FHLMC, FNMA or GNMA guidelines, except with respect to the size of the loans.

At December 31, 2000, 97% of the Company's total assets were in the 70% Asset Group.

The remainder of the Company's assets, not to exceed 30% of its total assets (the "30% Asset Group"), may consist of Mortgage Loans (other than those included in the 70% Asset Group), retained Subordinate Interests and fixed-income securities (other than those included in the 70% Asset Group) that are primarily Qualified Real Estate Assets but also include non-investment grade high yield corporate debt. To attempt to minimize the potentially higher level of credit and liquidity risk of these securities, the Company has attempted to limit its investments in, and diversify its portfolio of, securities in the 30% Asset Group. At December 31, 2000, 3% of the Company's total assets were in the 30% Asset Group.

References to ratings of Mortgage Assets apply only at the time a transaction is entered into by the Company. Any subsequent change in a rating assigned to a Mortgage Asset or change in the percentage of Company assets invested in certain Mortgage Assets or other instruments resulting from market fluctuations or other changes in the Company's total assets will not require the Company to dispose of an investment. If different rating agencies assign different ratings to the same Mortgage Assets, the Company will determine which rating it believes most accurately reflects the Mortgage Asset's quality and risk at that time taking into account numerous factors, including the price of the security, available public information regarding the issuer and liquidity concerns. A rating is not a recommendation to buy, sell or hold a security, inasmuch as such rating does not comment as to the market price of the security or the suitability of the security for a particular investor. There is no assurance that a rating will continue for any given period of time or that a rating will not be lowered or withdrawn entirely by a rating agency if, in its judgment, circumstances so warrant.

As a requirement for maintaining REIT status, the Company intends to distribute to stockholders aggregate distributions equaling at least 95% (90% after 2000) of its Taxable Income. See "—Federal Income Tax Considerations." As described above, the Company anticipates making additional distributions of capital to stockholders from time to time, including in connection with a plan of liquidation if adopted by the Company's Board of Directors and stockholders. See "—Recent Developments." Subject to the limitations of applicable state securities and corporation laws, the Company may distribute capital by making purchases of its own capital stock or making distributions in excess of earnings.

Operating Policies and Strategies

The Company adopted compliance guidelines, including restrictions on acquiring, holding and selling assets, to ensure that the Company continues to qualify as a REIT. Before acquiring any asset, the Company determines whether such asset would constitute a Qualified Real Estate Asset. Substantially all of the assets that the Company intends to acquire are expected to be Qualified Real Estate Assets. The Company regularly monitors purchases of Mortgage Assets and the income generated from such assets, including income from its hedging activities, in an effort to ensure that at all times the Company maintains its qualification as a REIT and its exemption under the Investment Company Act of 1940, as amended. Mariner, in conjunction with a nationally recognized independent public accounting firm, has developed internal accounting and testing procedures for the Company and monitors and conducts quarterly compliance reviews to determine compliance with the REIT Provisions of the Code.

Capital and Leverage Policies

The Company's operations were leveraged approximately 5.2 to 1 at December 31, 2000. At December 31, 2000, the Company's equity-to-assets ratio was approximately 19%, and ranged from a high of 62% to a low of 18% during 2000. Initially, the Company financed its acquisition of Mortgage Assets through proceeds of its initial public offering in December 1997 and several concurrent private placements, and subsequently financed any acquisitions primarily by borrowing against or "leveraging" its existing portfolio and using the proceeds to acquire additional Mortgage Assets. The Company's target for its equity-to-assets ratio depends on market conditions and other relevant factors.

The equity-to-assets ratio is total stockholders' equity as a percentage of total assets. The Company's total stockholders' equity, for purposes of this calculation, equals the Company's stockholders' equity determined in accordance with GAAP. For purposes of calculating the equity-to-assets ratio, the Company's total assets include the value of the Company's investment portfolio on a marked-to-market-basis. For purchased Mortgage Assets, the Company obtains market quotes for its Mortgage Assets from independent broker-dealers that make markets in securities similar to those in the Company's portfolio. The Board of Directors has discretion to deviate from or change the Company's indebtedness policy at any time. However, the Company endeavors to maintain an adequate capital base to protect against interest rate environments in which the Company's financing and hedging costs might exceed interest income from its Mortgage Assets. These conditions could occur, for example, when, due to interest rate fluctuations, interest income on the Company's Mortgage Assets (which occur during periods, such as the first three quarters of 1998, of rapidly rising interest rates or during periods when the Mortgage Loans in the portfolio are prepaying rapidly) lags behind interest rate increases in the Company's variable rate borrowings.

Short-Term Borrowing

Mortgage Assets, are financed primarily at short-term borrowing rates through repurchase agreements. Repurchase agreements are sales of pledged securities to a lender at discounted prices in return for an agreement by the lender to resell the same or substantially similar securities to the borrower on some future date at an agreed price.

Repurchase agreements are structured as sale and repurchase obligations that allow a borrower to pledge purchased Mortgage Assets as collateral securing short-term loans to finance the purchase of such Mortgage Assets. Typically, the lender in a repurchase arrangement makes a loan in an amount equal to a percentage of the market value of the pledged collateral. At maturity, the borrower is required to repay the loan and the pledged collateral is released. Pledged Mortgage Assets continue to pay principal and interest to the borrower.

Repurchase agreements are expected to continue to be the principal means of leveraging the Company's Mortgage Assets. The Company enters into repurchase agreements with financially sound institutions, including broker-dealers, commercial banks and other lenders.

Repurchase agreements also require the Company to deposit additional collateral (a "margin call") or reduce its borrowings thereunder, if the market value of the pledged collateral declines. This may require the Company to sell Mortgage Assets to provide such additional collateral or to reduce the amount borrowed. If these sales were made at prices lower than the carrying value of the Mortgage Assets, the Company would experience losses. For example, during the third quarter of 1998, the Company was subject to numerous margin calls and was forced to sell Mortgage Assets to reduce the amount borrowed, which resulted in losses to the Company. See "— Management's Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations—Year Ended December 31, 1999 Compared to Year Ended December 31, 1998—Net Loss Summary—Losses from Investment Activities."

The Company has met every margin call to date initiated by its lenders. As of December 31, 2000, the Company's cash and cash equivalents balance was $3.5 million and the Company believes that it has sufficient assets to meet potential margin calls.

Interest Rate Risk Management Strategy and Hedging Activities

The Company follows an interest rate risk management strategy designed to protect against the adverse effects of major interest rate changes. The Company may enter into hedging transactions which include interest rate swaps, interest rate collars, caps, floors and options. These instruments are used to hedge as much of the interest rate risk of the Company as Mariner determines is in the best interest of the stockholders, given the cost of such hedges and the need to maintain the Company's status as a REIT.

Hedging instruments often are not traded on regulated exchanges, guaranteed by an exchange or its clearing house, or regulated by any U.S. or foreign governmental authorities. Consequently, there are no requirements with respect to recordkeeping, financial responsibility or segregation of customer funds and positions. The business failure of a counterparty with which the Company has entered into a hedging transaction will most likely result in a default. The default of a counterparty with which the Company has entered into a hedging transaction may result in the loss of unrealized profits and force the Company to cover its resale commitments, if any, at the then current market price. Although generally the Company seeks to reserve for itself the right to terminate its hedging positions, it may not always be possible to dispose of or close out a hedging position without the consent of the counterparty, and the Company may not be able to enter into an offsetting contract in order to cover its risk. There can be no assurance that a liquid secondary market will exist for hedging instruments purchased or sold, and the Company may be required to maintain a position until exercise or expiration, which could result in losses.

Hedging activity involves transaction costs, and such costs can increase significantly as the period covered by such activity increases. Therefore, the Company may be prevented from effectively hedging all of its interest rate risk. Certain losses incurred in connection with hedging activities may be capital losses that would not be deductible to offset ordinary REIT income. In such a situation, the Company would have incurred an economic loss of capital that would not be deductible to offset the ordinary income from which dividends must be paid.

In particular, when the Company earns income under such instruments, it will seek advice from Stroock & Stroock & Lavan LLP, its Special Tax Counsel, as to whether such income constitutes qualifying income for purposes of the 95% Gross Income Test and as to the proper characterization of such arrangements for purposes of the REIT Asset Tests. The "95% Gross Income Test" means the requirement for each taxable year that at least 95% of the Company's gross income for each taxable year must be derived from certain specified real estate sources including interest income and gain from the disposition of Qualified Real Estate Assets or "qualified temporary investment income" (i.e., income derived from "new capital" within one year of the receipt of such capital), dividends, interest and gains from the sale of stock or other securities (including certain interest rate swap or cap agreements, options, forward rate agreements and similar financial instruments entered into to reduce the interest rate risk with respect to debt incurred to acquire Qualified Real Estate Assets) not held for sale in the ordinary course of business. See "—Federal Income Tax Considerations—Requirements for Qualification—Gross Income Tests." This determination may result in the Company electing to bear a level of interest rate risk that could otherwise be hedged when Mariner believes, based on all relevant facts, that bearing such risk is advisable to maintain the Company's status as a REIT.

Prior Losses on Hedging Strategies

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 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 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 Certificates in response to continued margin calls and the need for liquidity. The overall October 1998 loss on the liquidation of Agency 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 previously 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.

The Company did not enter into any interest rate swaps during the years ended December 31, 1999 and 2000, after having used them extensively in 1997 and 1998.

In May 2000, the Company purchased a cap with a notional amount of $100 million for a premium of $3.0 million to reduce the risk of rising interest rates on the cost of the short-term repurchase agreements used to finance its investments. The cap agreement has a term of three years and provides for monthly payments of interest to the Company to the extent that the one-month London Interbank Offered Rate ("LIBOR") exceeds 6.54% as applied to the notional amount. At December 31, 2000, the cap had an estimated fair value of $0.4 million and the Company recorded an unrealized loss of $(2.6) million in the statement of operations. As a result of the subsequent reduction in interest rates, the Company closed out the cap in January 2001 for $0.3 million and recognized an additional loss of $(0.1) million in the statement of operations.

Description of Assets

The Company is permitted to acquire the following types of investments subject to the operating restrictions described in "—Operating Policies and Strategies."

Pass-through Certificates

The Company's investments in Mortgage Securities are concentrated in Pass-Through Certificates. The Pass-Through Certificates the Company acquires consist primarily of fixed and adjustable rate Agency Certificates and Privately-Issued Certificates and represent interests in Mortgage Loans primarily secured by liens on single-family residential, multi-family residential and commercial real properties, but also may be secured by liens on other types of real property. As of December 31, 2000, 86% of the Company's portfolio consisted of Pass-Through Certificates.

FHLMC Certificates. FHLMC is a privately-owned, government-sponsored enterprise created pursuant to an act of Congress. FHLMC purchases conventional conforming Mortgage Loans or participation interests therein and resells the loans and participations so purchased in the form of guaranteed, mortgage-backed securities. FHLMC guarantees to each holder of FHLMC Certificates the timely payment of interest at the applicable pass-through rate and ultimate collection of the holder's pro rata share of the unpaid principal balance of the related Mortgage Loans, but does not guarantee the timely payment of scheduled principal of the underlying Mortgage Loans. The obligations of FHLMC under its guarantees are solely those of FHLMC and are not backed by the full faith and credit of the U.S. government. If FHLMC were unable to satisfy such obligations, distributions to holders of FHLMC Certificates would consist solely of payments and other recoveries on the underlying Mortgage Loans and, accordingly, monthly distributions to holders of FHLMC Certificates would be affected by delinquent payments and defaults on such Mortgage Loans.

FHLMC Certificates may be backed by pools of Mortgage Loans secured by single-family or multi-family residential properties. Such underlying Mortgage Loans may have original terms to maturity of up to 40 years. FHLMC Certificates may pay interest at a fixed or adjustable rate. The interest rate paid on FHLMC adjustable rate mortgage ("ARM") certificates adjusts periodically within 60 days prior to the month in which the interest rates on the underlying Mortgage Loans adjust. The interest rates paid on FHLMC ARM Certificates issued under FHLMC's standard ARM programs adjust in relation to the Treasury Index. Other specified indices used in FHLMC ARM programs include the 11th District Cost of Funds Index published by the Federal Home Loan Bank of San Francisco (the "11th District Index") and LIBOR. Interest rates paid on fully-indexed FHLMC ARM Certificates equal the applicable index rate plus a specified number of basis points ranging typically from 125 to 250 basis points.

FNMA Certificates. FNMA is a privately-owned, federally chartered corporation that provides funds to the mortgage market primarily by purchasing Mortgage Loans (with respect to residential properties) from local lenders, thereby replenishing their funds for additional lending. FNMA guarantees to each registered holder of a FNMA Certificate that it will distribute amounts representing scheduled principal and interest at the rate provided by the FNMA Certificate on the Mortgage Loans in the pool underlying the FNMA Certificate whether or not received, and the full principal amount of any such Mortgage Loan foreclosed or otherwise finally liquidated, whether or not the principal amount is actually received. The obligations of FNMA under its guarantees are solely those of FNMA and are not backed by the full faith and credit of the U.S. government. If FNMA were unable to satisfy such obligations, distributions to holders of FNMA Certificates would consist solely of payments and other recoveries on the underlying Mortgage Loans and, accordingly, monthly distributions to holders of FNMA Certificates would be affected by delinquent payments and defaults on such Mortgage Loans.

FNMA Certificates may be backed by pools of Mortgage Loans secured by single-family or multi-family residential properties. The original terms to maturities of the Mortgage Loans generally do not exceed 40 years. FNMA Certificates may pay interest at a fixed rate or adjustable rate. Each series of FNMA ARM Certificates bears an initial interest rate and margin tied to an index based on all loans in the related pool, less a fixed percentage representing servicing compensation and FNMA's guarantee fee. The specified index used in each such series has included the Treasury Index, the 11th District Index and LIBOR. Interest rates paid on fully-indexed FNMA ARM Certificates equal the applicable index rate plus a specified number of basis points ranging typically from 125 to 250 basis points.

GNMA Certificates. GNMA is a wholly-owned corporate instrumentality of the United States within the Department of Housing and Urban Development ("HUD"). GNMA guarantees the timely payment of the principal of and interest on certificates which represent an interest in a pool of mortgages insured by the United States Federal Housing Authority (the "FHA") and other loans eligible for inclusion in mortgage pools underlying GNMA certificates. GNMA certificates are general obligations of the U.S. government.

GNMA certificates may pay a fixed or adjustable coupon rate. At present, most GNMA certificates issued under GNMA's standard ARM program adjust annually in relation to the Treasury Index. Interest rates paid on GNMA ARM Certificates typically equal the index rate plus 150 basis points. Adjustments in the interest rate are generally limited to an annual increase or decrease of 100 basis points and to a lifetime cap of 500 basis points over the initial coupon rate.

Privately-Issued Certificates. Privately-Issued Certificates are structured similarly to Agency Certificates and are issued by originators of, and investors in, Mortgage Loans, including savings and loan associations, savings banks, commercial banks, mortgage banks, investment banks and special purpose subsidiaries of such institutions. Privately-Issued Certificates are usually backed by a pool of fixed or adjustable rate Mortgage Loans and are generally structured with one or more types of credit enhancement, including mortgage pool insurance or subordination. However, Privately-Issued Certificates are typically not guaranteed by an entity having the credit status of FHLMC, FNMA or GNMA.

Subordinate Interests

The Company is permitted to acquire Subordinate Interests in pools of Mortgage Loans securitized by others. The credit quality of Mortgage Loans and Mortgage Securities collateralized by underlying Mortgage Loans depends on a number of factors, including their loan-to-value ratio, their terms and the geographic diversification of the properties securing the Mortgage Loans and, in the case of multi-family and commercial properties, the creditworthiness of tenants. As of December 31, 2000, 2% of the Company's portfolio consisted of Subordinate Interests.

In a securitization, payments of principal of and interest on the underlying Mortgage Loans may be allocated among several classes of Mortgage Securities issued in the securitization in many ways, and the credit quality of a particular class of Mortgage Securities depends primarily on its payment priority. In a typical securitization, the Subordinate Interests absorb losses from defaults or foreclosures on the Mortgage Loan collateral before such losses are allocated to more senior classes, providing credit protection to more senior classes. As a result, Subordinate Interests carry significant credit risks. Subordinate Interests in a typical securitization are subject to a substantially greater risk of non-payment than more senior classes. Accordingly, Subordinate Interests are assigned lower credit ratings, or no rating at all. Neither the Subordinate Interests nor the underlying mortgages are guaranteed by agencies, or instrumentalities of the U.S. government.

As a result of the typical "senior-subordinated" securitization structure, Subordinate Interests are extremely sensitive to losses on the underlying Mortgage Loans. For example, if the Company owns a $10 million Subordinate Interest in an issuance of Mortgage Securities consisting of $100 million of Mortgage Loan collateral, a 7% loss on the underlying Mortgage Loans will result in a 70% loss on the Subordinate Interest. Accordingly, the holder of the Subordinate Interest is particularly interested in minimizing the loss frequency (the percentage of the Mortgage Loan balance that defaults over the life of the Mortgage Loan collateral) and the loss severity (the amount of loss on a defaulted Mortgage Loan, i.e., the principal amount of the Mortgage Loan unrecovered after applying any recovery to the expenses of foreclosure and accrued interest) on the underlying Mortgage Loans. The loss frequency on a pool of Mortgage Loans will depend upon a number of factors, most of which will be beyond the control of the Company or the applicable Master Servicer.

Many of the Subordinate Interests acquired by the Company will not have been registered under the Securities Act, but instead, will have initially been sold in private placements. Such unregistered Subordinate Interests will be subject to certain restrictions on resale and, accordingly, will have more limited marketability and illiquidity than registered Securities. Although there are some exceptions, most issuers of multi-class Mortgage Securities elect to be treated, for federal income tax purposes, as REMICs. Although the Company sought to purchase Subordinate Interests at a price designed to return the Company's investment and generate a profit thereon, there can be no assurance that such goal will be met or that the Company's investment in a Subordinate Interest will be returned in full or at all.

Mortgage Derivatives

The Company is permitted to invest in Mortgage Derivatives, including IOs, Inverse IOs, Sub IOs and floating rate derivatives. Mortgage Derivatives provide for the holder to receive interest only, principal only, or interest and principal in amounts that are disproportionate to those payable on the underlying Mortgage Loans. Payments on Mortgage Derivatives are highly sensitive to the rate of prepayments on the underlying Mortgage Loans. If the actual prepayment rate on such Mortgage Loans is more rapid than anticipated, the rates of return on Mortgage Derivatives representing the right to receive interest only or a disproportionately large amount of interest, i.e., IOs, would be likely to decline. Conversely, the rates of return on Mortgage Derivatives representing the right to receive principal only or a disproportionate amount of principal, i.e., POs, would be likely to increase in the event of rapid prepayments. As of December 31, 2000, 10% of the Company's portfolio consisted of Mortgage Derivatives, all of which were IOs.

Some IOs in which the Company is permitted to invest, such as Inverse IOs, bear interest at a floating rate that varies inversely with (and often at a multiple of) changes in a specific index. The yield to maturity of an Inverse IO is extremely sensitive to changes in the related index. The Company also is permitted to invest in inverse floating rate Mortgage Derivatives which are similar in structure and risk to Inverse IOs, except inverse floating rate Mortgage Derivatives are generally issued with a greater stated principal amount than Inverse IOs.

Other IOs in which the Company is permitted to invest, such as Sub IOs, have the characteristics of a Subordinate Interest. A Sub IO is not entitled to any payments of principal; moreover, interest on a Sub IO often is withheld in a reserve fund or spread account to fund required payments of principal and interest to more senior tranches of Mortgage Securities. Once the balance in the spread account reaches a certain level, excess funds are paid to the holders of the Sub IO. These Sub IOs provide credit support to the senior classes and thus bear substantial credit risks. In addition, because a Sub IO receives only interest payments, its yield is extremely sensitive to the rate of prepayments (including prepayments as a result of defaults) on the underlying Mortgage Loans.

IOs can be an effective hedging device because they generally increase in value as fixed rate Mortgage Securities decrease in value. The Company also is permitted to invest in other types of derivatives currently available in the market and other Mortgage Derivatives that may be developed in the future.

CMOS

The Company is permitted to invest in CMOs, including adjustable rate and fixed rate CMOs issued by private issuers or FHLMC, FNMA or GNMA. CMOs are a series of bonds or certificates ordinarily issued in multiple classes, each of which consists of several classes with different maturities and often complex priorities of payment, secured by a single pool of Mortgage Loans, Pass-Through Certificates, other CMOs or other Mortgage Assets. Principal prepayments on collateral underlying a CMO may cause it to be retired substantially earlier than the stated maturities or final distribution dates. Interest is paid or accrues on all interest bearing classes of a CMO on a monthly, quarterly or semi-annual basis. The principal and interest on underlying Mortgage Loans may be allocated among the several classes of a series of a CMO in many ways, including pursuant to complex internally leveraged formulas that make the CMO class especially sensitive to interest rate or prepayment risk. As of December 31, 2000, the Company did not own any CMOs. The Company does not intend to purchase CMOs.

CMOs may be subject to certain rights of issuers thereof to redeem such CMOs prior to their stated maturity dates, which may have the effect of diminishing the Company's anticipated return on its investment. Privately-issued single-family, multi-family and commercial CMOs are supported by private credit enhancements similar to those used for Privately-Issued Certificates and are often issued as senior-subordinated Mortgage Securities.

Mortgage Loans

The Company is permitted to invest in fixed and adjustable-rate Mortgage Loans secured by first or second liens on single-family (one-to-four unit) residential, multi-family residential, commercial or other real property as part of its investment strategy. As of December 31, 2000, 1% of the Company's portfolio consisted of Mortgage Loans.

The Company may acquire Mortgage Loans directly from Mortgage Sellers which include originators, and entities holding Mortgage Loans originated by others throughout the United States, such as savings and loan associations, banks, mortgage bankers, home builders, insurance companies and other mortgage lenders. The Board of Directors of the Company has not established any limits upon the geographic concentration of Mortgage Loans to be acquired by the Company or the credit quality of the Mortgage Sellers.

Other Fixed-Income Assets

The Company is permitted to invest in fixed-income securities that are not Mortgage Assets, including securities issued by corporations or issued or guaranteed by the U.S. government or its agencies or instrumentalities, loan participations, non-investment grade high yield corporate debt and collateralized bond obligations, denominated in U.S. dollars and foreign currencies. In connection with the Company's investment in such securities, particularly collateralized loan obligations and collateralized bond obligations, the Company is permitted to pay fees to unrelated third-party managers. A portion of these assets will be securities which are included in the 30% Asset Group. The Company will invest no more than 5% of its assets in such fixed-income securities. As of December 31, 2000, 1% of the Company's portfolio consisted of other fixed-income assets.

The Company also is permitted to invest in non-investment grade high yield corporate debt rated below investment grade, commonly known as junk bonds. Junk bonds are generally unsecured, may be subordinated to other obligations of the issuer and generally have greater credit and liquidity risk than is typically associated with investment grade corporate obligations.

The Company also is permitted to acquire interests in non-real estate loans. Such loan interests may be purchased either directly (by way of assignment from the selling institution) or indirectly (by way of the purchase of a participation interest from the selling institution). The purchaser of an assignment of an interest in a loan typically succeeds to all rights and obligations of the assigning selling institution and becomes a lender under the loan agreement. Participations typically result in a contractual relationship only with the selling institution, not with the borrower.

In addition, the Company is permitted to invest in asset-backed securities which have structural characteristics similar to Mortgage Securities but relate to assets other than Mortgage Assets, including credit card, automobile and other receivables. Asset-backed securities may be rated or unrated and, if rated, may be above or below investment grade. They may bear coupons at a fixed or floating interest rate and also may be subject to prepayment risk.

Management Agreement with Mariner Mortgage Management, L.L.C.

Effective November 1, 1999, Mariner agreed to serve for one year as the external manager of the Company and be responsible for day-to-day management of the Company's investments and operations. William J. Michaelcheck, the Chairman of Mariner, was appointed President and Chief Executive Officer of the Company. Upon completion of the transition to Mariner, the Company terminated its consulting arrangement with BlackRock Financial Management, Inc. ("BlackRock") and Robert J. Gartner, who was Vice President of the Company and responsible for day-to-day investment decisions for the Company, resigned.

Under the current management agreement, which was entered into on November 1, 2000, Mariner is entitled to receive a (1) base management fee of $50,000 per month payable in cash and (2) an annual incentive fee payable in cash. The incentive fee will equal the number of shares outstanding on November 1, 2001, multiplied by:

• 10% of the difference between the 15-day average closing market price (plus any distributions per share other than Common Stock) of the Company's Common Stock preceding November 1, 2001 (or such earlier date, as set forth in the agreement) and $3.317 per share (which approximates the average closing price of the Company's Common Stock for the fifteen days ended October 31, 2000) up to the equivalent of $3.50 per share;

• 15% of the difference over $3.50 per share up to $4.00 per share; and

• 20% of the difference over $4.00 per share.

The current management agreement terminates on November 1, 2001, but is terminable by the Company without cause or penalty on 30 days' notice and by Mariner on 90 days' notice. In addition, under the terms of the current management agreement, Mariner is no longer entitled to receive a minimum fee if the Company adopts a plan of liquidation.

Pursuant to the terms of the Mariner management agreement in effect during the year ended December 31, 2000, the Company incurred base fees of $294,193 and no incentive fee. The Board of Directors' adoption on April 25, 2001 of the resolutions approving the liquidation and dissolution of the Company triggered the payment of a fee based on the Company's stock price to Mariner under the management agreement, which the Company expects to be approximately $1.2 million.

Events Leading to Termination of Management Agreement with LASER Advisers Inc. and Adoption of Portfolio Management Strategy

In late June 1998, the Company's Board of Directors was advised by LASER Advisers Inc. (the "Former Manager") of certain pricing and other irregularities in connection with Shetland Fund Ltd., one of the private investment funds (the "Affiliated Funds") advised and managed by the Former Manager which invested in Mortgage Securities. The reported irregularities included the failure to obtain dealer quotes for securities, the failure to obtain more than a single quote in certain instances, mispricing bids, misplaced records, missing records and improperly identified securities in the portfolio. In July 1998, the Company's Board of Directors was informed by the Former Manager that the irregularities detected in the Affiliated Fund did not affect the portfolio of securities held by the Company and that certain procedural deficiencies existed at the Former Manager which allowed for the irregularities. On July 29, 1998, the Former Manager announced certain administrative changes, including the resignation of Michael L. Smirlock as Chief Executive Officer of the Former Manager and the removal of Mr. Smirlock from trading and day-to-day participation in the Former Manager's activities. Mr. Smirlock continued as Chairman of the Board and a majority stockholder of the Former Manager.

On July 30, 1998, the Company's Board of Directors terminated the employment of Michael L. Smirlock as Chief Executive Officer and President of the Company and removed Mr. Smirlock as Chairman of the Board of the Company. Mr. Smirlock remained a director of the Company through September 1999, although the Board of Directors requested his resignation. The day-to-day portfolio management decisions for the Former Manager on behalf of the Company from July 30, 1998 through March 2, 1999 were made jointly by Peter T. Zimmermann (until his earlier resignation described below) and Robert J. Gartner, then officers of the Former Manager. On July 30, 1998, the Company also accepted the resignation of two of its directors, David A. Tepper and William Marshall, effective that day. Both Mr. Tepper and Mr. Marshall advised the Company that they had resigned due to other commitments. Mr. Tepper remained a director and minority stockholder of the Former Manager. The Board elected Jonathan Ilany as a member of the Company's Board of Directors.

On October 2, 1998, the Company's Board of Directors authorized its financial advisor, Lehman Brothers Inc. ("Lehman Brothers"), promptly to solicit offers to acquire the Company or all, or substantially all, of its assets. Lehman Brothers, after soliciting offers to acquire the Company, did not receive any firm bids. Lehman Brothers no longer is actively soliciting bids on behalf of the Company, although it will receive for evaluation bids from interested persons. Also on October 2, 1998, the Company's Board of Directors engaged BlackRock as its consultant to review the Company's portfolio and to make recommendations designed to reduce the portfolio's susceptibility to basis and interest rate risk and to create additional liquidity. BlackRock recommended to the Company that the Former Manager delever the Company's portfolio by selling certain Mortgage Assets.

On December 15, 1998, the Company was informed by the Former Manager of its resignation as investment adviser to four of the Affiliated Funds, Steed Finance LDC, Quarter Horse Finance Ltd., Shetland Fund Ltd. and Trakehner Fund L.P., and that it would continue to manage investments for Mustang Investment Limited Partnership. All references to the Affiliated Funds herein relate to Mustang Investment Limited Partnership and the other four Affiliated Funds previously managed by the Former Manager.

On March 2, 1999, the Company announced that the Company and the Former Manager terminated the agreement under which the Former Manager served as the external manager of the Company, and that the Company had become advised internally by Mr. Gartner, Vice President of 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 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 the transfer of the advisory function to the Company. Mr. Smirlock subsequently resigned as Director of the Company in September 1999.

For the year ended December 31, 1999, consulting fees paid to BlackRock were $1.1 million and management fees paid to the Former Manager were $0.5 million.

Federal Income Tax Considerations

General

Since its inception, the Company has elected to be taxed as a REIT under the REIT Provisions of the Code for federal income tax purposes, and such election has not been revoked. The Company currently expects that it will continue to operate in a manner that permits the Company to maintain its qualification as a REIT. This treatment will permit the Company to deduct dividend distributions to its stockholders for federal income tax purposes, thus effectively eliminating the "double taxation" that generally results when a corporation earns income and distributes that income to its stockholders in the form of dividends.

There can be no assurance, however, that the Company will qualify as a REIT in any particular taxable year, given the highly complex nature of the rules governing REITs, the ongoing importance of factual determinations and the possibility of future changes in the circumstances of the Company. If the Company were not to qualify as a REIT in any particular year, it would be subject to federal income tax as a regular, domestic corporation, and its stockholders would be subject to tax in the same manner as stockholders of such corporation. In this event, the Company could be subject to potentially substantial income tax liability in respect of each taxable year that it fails to qualify as a REIT, and the amount of earnings and cash available for distribution to its stockholders could be significantly reduced or eliminated. In addition in any year, the Company may be subject to a 4% federal excise tax to the extent the Company does not distribute 85% of its REIT ordinary income for such year and 95% of its REIT capital gain net income for such year.

Requirements for Qualification

The following is a brief summary of certain technical requirements that the Company must meet on an ongoing basis in order to qualify, and remain qualified, as a REIT under the Code:

Stock Ownership Tests

The capital stock of the Company must be transferable stock held by at least 100 persons during at least 335 days of a taxable year of 12 months (or during a proportionate part of a taxable year of less than 12 months), and no more than 50% of the value of such capital stock may be owned, directly or indirectly, by five or fewer individuals (as defined in the Code to include certain entities) at any time during the last half of the taxable year. If the Company did not know, or have reason to know, that its capital stock was owned directly or indirectly by five or fewer individuals, it will be treated as having more than five owners as long as it complied with Treasury regulations that provide rules on ascertaining actual ownership. Tax-exempt entities, other than private foundations, certain unemployment compensation trusts and certain charitable trusts generally are not treated as individuals for these purposes. In addition, the Charter provides restrictions regarding the transfer of the Company's shares to assist in meeting the stock ownership requirements.

Asset Tests

The Company must generally meet the following asset tests (the "REIT Asset Tests") at the close of each quarter of each taxable year:

(a) at least 75% of the value of the Company's total assets must consist of Interests in Real Property (as defined below), regular or residual interests in a REMIC (except that, if less than 95% of the assets of a REMIC consists of real estate assets (determined as if the Company held such assets), the Company will be treated as holding directly its proportionate share of the assets of such REMIC), shares of other REITs, government securities and temporary investments in stock or debt instruments during the one year period following the Company's receipt of certain new capital, cash, and cash items (the "75% Asset Test"). For purposes of the 75% Asset Test, the term "Interest in Real Property" includes an interest in Mortgage Loans (to the extent the principal balance of a mortgage does not exceed the fair market value of the associated real property); and

(b) the securities held by the Company but not taken into account for purposes of the 75% Asset Test must not exceed (1) 5% of the value of the Company's total assets in the case of securities of any one issuer, or (2) 10% of the vote or value of the securities of any one issuer.

The Company expects that any Subordinate Interests, IOs, Inverse IOs, and temporary investments that it acquires generally will be treated as qualifying assets for purposes of the 75% Asset Test, except to the extent that less than 95% of the assets of a REMIC in which the Company owns an interest consists of real estate assets and the Company's proportionate share of those assets includes assets that are nonqualifying assets for purposes of the 75% Asset Test. In addition, the Company does not expect that the value of any security of any one entity would exceed 5% of the Company's total assets, and the Company does not expect to own more than 10% of any one issuer's securities. The Company also may purchase regular interests in a Financial Asset Securitization Investment Trust (a "FASIT") which will be treated as qualifying assets for purposes of the 75% Asset Test, except to the extent that less than 95% of the assets of a FASIT consists of real estate assets, in which case the Company's proportionate share of the FASIT's nonqualifying assets will be treated as nonqualifying assets for purposes of the 75% Asset Test.

The Company will attempt to monitor the status of the assets that it acquires to assure compliance with the REIT Asset Tests.

If the Company should fail to satisfy the REIT Asset Tests at the end of a calendar quarter, such a failure would not cause it to lose its REIT status if (1) it satisfied the REIT Asset Tests at the close of the preceding calendar quarter and (2) the discrepancy between the value of the Company's assets and the REIT Asset Test requirements arose from changes in the market values of its assets and was not wholly or partly caused by the acquisition of one or more nonqualifying assets. If the condition described in clause (2) of the preceding sentence was not satisfied, the Company still could avoid disqualification by eliminating any discrepancy within 30 days after the close of the calendar quarter in which it arose.

Gross Income Tests

The Company must generally meet the following gross income tests (the "REIT Gross Income Tests") for each taxable year:

(a) at least 75% of the Company's gross income must be derived from certain specified real estate sources including interest income on Mortgage Loans and gain from the disposition of Qualified Real Estate Assets or "qualified temporary investment income," (i.e., income derived from "new capital" within one year of the receipt of such capital) (the "75% Gross Income Test"); and

(b) at least 95% of the Company's gross income must consist of income which qualifies for the 75% Gross Income Test, as well as other interest and gains from the sale of stock or other securities (including certain interest rate swap or cap agreements, options, futures contracts, forward rate agreements, and similar financial instruments entered into to reduce the interest rate risk with respect to debt incurred to acquire Qualified Real Estate Assets) not held for sale in the ordinary course of business (the "95% Gross Income Test").

For purposes of determining whether the Company complies with the 75% and 95% Gross Income Tests, gross income does not include gross income from "prohibited transactions." A "prohibited transaction" is one involving a sale of dealer property, other than foreclosure property. Net income from "prohibited transactions" is subject to a 100% tax. If the Company sells Mortgage Securities that it creates through Mortgage Loan securitizations, the Company may recognize income that, if sufficient to cause the Company to be treated as a dealer in Mortgage Securities for federal income tax purposes, could constitute "prohibited transaction" income. See "—Taxation of the Company."

Interest on obligations secured by mortgages on real property or on Interests in Real Property is qualifying income for purposes of the 75% Gross Income Test. Any amount includible in gross income with respect to a regular or residual interest in a REMIC or a regular interest in a FASIT generally is treated as interest on an obligation secured by a mortgage on real property. If, however, less than 95% of the assets of a REMIC or a FASIT consists of real estate assets (determined as if the Company held such assets), the Company will be treated as receiving directly its proportionate share of the income of the REMIC or the FASIT. In addition, if the Company receives interest income with respect to a mortgage loan that is secured by both real property and other property and the highest principal amount of the loan outstanding during a taxable year exceeds the fair market value of the real property on the date the Company purchased the mortgage loan, the interest income will be apportioned between the real property and the other property, which apportionment may cause the Company to recognize income that is not qualifying income for purposes of the 75% Gross Income Test.

Most of the income that the Company recognizes with respect to its investments in Mortgage Loans will be qualifying income for purposes of both the 75% and 95% Gross Income Tests. This generally will include interest, original issue discount, and market discount income that the Company derives from its investments in Subordinate Interests, IOs and Inverse IOs.

The Company may originate or acquire Mortgage Loans and securitize such loans through the issuance of non-REMIC CMOs. As a result of any such transactions, the Company will retain an equity ownership interest in the Mortgage Loans that has economic characteristics similar to those of a Subordinate Interest. In addition, the Company may resecuritize Mortgage Securities (or REMIC or non-REMIC CMOs) through the issuance of non-REMIC CMOs, retaining an equity interest in the Mortgage Securities used as collateral in the resecuritization transaction. Such transactions will not cause the Company to fail to satisfy the Gross Income Tests. Further, the Company intends to structure any such securitizations in a manner which does not result in treatment of the REIT or issuing entity as a "taxable mortgage pool."

The Company may receive income that is nonqualifying income for either the 75% Gross Income Test or both the 75% and 95% Gross Income Tests. For example, (1) the loan amount of a Mortgage Loan may exceed the value of the real property securing the loan, which will result in a portion of the income from the loan being classified as qualifying income for purposes of the 95% Gross Income Test, but not for purposes of the 75% Gross Income Test, (2) the Company may hold an interest in a REMIC or in a FASIT less than 95% of the assets of which consists of real estate assets (determined as if the Company held such assets), in which case the Company's proportionate share of the income of the REMIC or FASIT may include income that is not qualifying income for purposes of the 75% or 95% Gross Income Tests and (3) the Company may recognize foreign currency gain from non-dollar denominated loans which will not be qualifying income for purposes of the 75% and 95% Gross Income Tests.

The Company has in the past entered into, and it is possible that from time to time the Company will continue to enter into, hedging transactions with respect to one or more of its assets or liabilities. Any such hedging transactions could take a variety of forms, including interest rate swap contracts, interest rate cap or floor contracts, forward contracts, and options. To the extent that the Company enters into a contract to hedge indebtedness incurred to acquire or carry real estate assets, any periodic income or gain from the disposition of such contract should be qualifying income for purposes of the 95% Gross Income Test, but not the 75% Gross Income Test. To the extent that the Company hedges its capital assets, it is not clear how the income from those transactions will be treated for purposes of the Gross Income Tests.

Distribution Requirement

To avoid subjecting its income to tax at regular corporate rates (without a deduction for dividends paid), the Company generally must distribute to its stockholders an amount equal to at least 95% (90% after 2000) of the Company's REIT taxable income (before deductions of dividends paid), excluding net capital gain and certain non-cash income including original issue discount and cancellation of indebtedness income.

The Company intends to make distributions to its stockholders to comply with the Distribution Requirement. However, differences in timing between the recognition of taxable income and the actual receipt of cash could require the Company to borrow funds or sell assets on a short-term basis to satisfy the Distribution Requirement. The requirement to distribute a substantial portion of the Company's net taxable income could cause the Company to (1) sell assets in adverse market conditions, (2) distribute amounts that represent a return of capital, or (3) distribute amounts that would otherwise be spent on future investments or repayment of debt.

Distributions by the Company will be treated as ordinary dividend income to the extent of the Company's current or accumulated earnings and profits (but not less than its distribution requirement under Section 4981 of the Code, as described below). The dividends are not eligible for any corporate dividends received deduction. To the extent a distribution exceeds the amount treated as a dividend, such distribution will be treated as a return of capital to the extent of the shareholder's basis, and then as gain from the sale or exchange of such shareholder's stock.

Taxation of the Company

In any year in which the Company qualifies as a REIT, the Company generally will not be subject to federal income tax on the portion of its REIT taxable income or capital gain which is distributed to its stockholders. The Company will, however, be subject to federal income tax at normal corporate income tax rates upon any undistributed taxable income or capital gain. Stockholders will be entitled to a credit against their federal income tax for their allocable share of tax paid by the Company on undistributed long-term capital gains so designated in a notice by the Company (which are treated as having been distributed to and subject to tax in the hands of the stockholders).

Revenue Procedure 99-17 provided 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 (the "IRS"). The Company elected mark-to-market treatment as a securities trader, and accordingly, will recognize gains and losses prior to the actual disposition of its securities. Moreover, some if not all of these constructive gains and losses, as well as some if not all gains or losses from actual dispositions of securities, for both 1998 and beyond, will be treated as ordinary in nature, and not capital, as they would be in the absence of this election. 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.

Notwithstanding its qualification as a REIT, the Company also may be subject to tax in certain other circumstances. If the Company fails to satisfy either the 75% or the 95% Gross Income Test, but nonetheless maintains its qualification as a REIT because certain other requirements are met, it generally will be subject to a 100% tax on the greater of the amount by which the Company fails either the 75% or the 95% Gross Income Test. The Company also will be subject to a tax of 100% on net income derived from a "prohibited transaction," and if the Company has (i) net income from the sale or other disposition of "foreclosure property" which is held primarily for sale to customers in the ordinary course of business or (ii) other non-qualifying income from foreclosure property, it will be subject to Federal income tax on such income at the highest corporate income tax rate. In addition, pursuant to Section 4981 of the Code, if the Company in any calendar year (current or prior) fails to distribute at least the sum of (i) 85% of its REIT ordinary income for such year and (ii) 95% of its REIT capital gain net income for such year, the Company would, in the current year, be subject to a 4% Federal excise tax on the excess of the sum of such required distribution for the current year and any undistributed amount of ordinary and capital gain net income from the preceding taxable years over the sum of the amounts actually distributed during the current taxable year and the income of the Company subject to tax in the current year. The Company also may be subject to the corporate alternative minimum tax, as well as other taxes in certain situations not presently contemplated.

Further, if the Company were to sell to customers Mortgage Assets or hedging instruments on a regular basis, there is a substantial risk that such assets would be deemed "dealer property" and that all of the profits from such sales would be subject to tax at the rate of 100% as income from prohibited transactions.

If the Company fails to qualify as a REIT in any taxable year and certain relief provisions of the Code do not apply, the Company would be subject to Federal income tax (including any applicable alternative minimum tax) on its taxable income at the regular corporate income tax rates and may be subject to a 4% federal excise tax.

Information Reporting Requirements and Backup Withholding

The Company reports to its U.S. stockholders and to the IRS the amount of distributions paid during each calendar year, and the amount of tax withheld, if any. Under the backup withholding rules, a stockholder may be subject to backup withholding at the rate of 31% with respect to distributions paid unless such holder (i) is a corporation or comes within certain other exempt categories and, when required, demonstrates this fact, or (ii) provides a taxpayer identification number, certifies as to no loss of exemption from backup withholding, and otherwise complies with the applicable requirements of the backup withholding rules. A stockholder who does not provide the Company with his correct taxpayer identification number also may be subject to penalties imposed by the IRS. Any amount paid as backup withholding will be creditable against the stockholder's income tax liability. The Treasury Department has issued regulations regarding the backup withholding rules as applied to non-U.S. stockholders that unify and tighten current certification procedures and forms and clarify reliance standards. These regulations are generally effective with respect to distributions made after December 31, 2000.

State and Local Taxes

The Company and its stockholders may be subject to state and local tax in various states and localities, including those states and localities in which it or they transact business, own property, or reside. The state and local tax treatment of the Company and its stockholders in such jurisdictions may differ from the federal income tax treatment described above. Consequently, stockholders should consult their own tax advisors regarding the effect of state and local tax laws on ownership of the Common Stock.

Repurchase of Shares and Restrictions on Transfer

Two of the requirements of qualification for the tax benefits afforded by the REIT Provisions of the Code are that (i) during the last half of each taxable year not more than 50% in value of the outstanding shares may be owned directly or indirectly by five or fewer individuals (the "5/50 Rule") and (ii) there must be at least 100 stockholders during 335 days of each taxable year of 12 months.

So that the Company may meet these requirements at all times, the Charter prohibits any person from acquiring or holding, directly or indirectly, shares of Common Stock in excess of 9.8% (in value or in number of shares, whichever is more restrictive) of the aggregate of the outstanding shares of Common Stock of the Company. For this purpose, the term "ownership" is defined in accordance with the REIT Provisions of the Code and the constructive ownership provisions of Section 544 of the Code, as modified by Section 856(h)(1)(B) of the Code.

For purposes of the 5/50 Rule, the constructive ownership provisions applicable under Section 544 of the Code attribute ownership of securities owned by a corporation, partnership, estate or trust proportionately to its stockholders, partners or beneficiaries, attribute ownership of securities owned by family members and partners to other members of the same family, treat securities with respect to which a person has an option to purchase as actually owned by that person, and set forth rules as to when securities constructively owned by a person are considered to be actually owned for the application of such attribution provisions (i.e., "reattribution"). Thus, a person will be treated as owning not only shares of Common Stock actually or beneficially owned, but also any shares of Common Stock attributed to such person under the attribution rules described above. Accordingly, under certain circumstances, shares of Common Stock owned by a person who individually owns less than 9.8% of the shares outstanding nevertheless may be in violation of the ownership limitations set forth in the Charter. Ownership of shares of the Company's Common Stock through such attribution is generally referred to as constructive ownership. The 100 stockholder test is determined by actual, and not constructive, ownership.

The Charter further provides that any transfer of shares of Common Stock that would result in disqualification of the Company as a REIT or that would (a) create a direct or constructive ownership of shares of stock in excess of the Ownership Limit, or (b) from and after December 2, 1997 (the "One Hundred Stockholder Date"), result in the shares of stock being beneficially owned (within the meaning Section 856(a) of the Code) by fewer than 100 persons (determined without reference to any rules of attribution), or (c) result in the Company being "closely held" within the meaning of Section 856(h) of the Code, will be null and void, and the intended transferee (the "purported transferee") will acquire no rights to such shares. Any purported transfer of shares that would result in a person owning (directly or constructively) shares in excess of the Ownership Limit (except as otherwise waived by the Board of Directors) due to the unenforceability of the transfer restrictions set forth above will constitute "Excess Securities." Excess Securities will automatically be deemed to have been transferred by operation of law to a trust to be established by the Company for the exclusive benefit of a charitable organization, until such time as the trustee of the trust, which shall be a banking institution designated as trustee by the Company, which is unaffiliated with either the Company or the purported transferee, retransfers the Excess Securities. Subject to the Ownership Limit, Excess Securities may be transferred by the trust to any person (if such transfer would not result in Excess Securities) at a price not to exceed the price paid by the purported transferee, the fair market value of the Excess Securities on the date of the purported transfer, at which point the Excess Securities will automatically cease to be Excess Securities. See "—Requirements for Qualification."

Subject to certain limitations, the Board of Directors may increase or decrease the Ownership Limit. In addition, to the extent consistent with the REIT Provisions of the Code, the Board of Directors has the right, in its sole discretion, pursuant to the Company's Charter to waive the Ownership Limit for, and at the request of, a purchaser of the Common Stock. In connection with any such waiver, the Company may require that the stockholder requesting such a waiver enter into an agreement with the Company providing for the repurchase by the Company of shares from the stockholder under certain circumstances to ensure compliance with the REIT Provisions of the Code. Such repurchase would be at fair market value as set forth in the agreement between the Company and such stockholder. The consideration received by the stockholder in such repurchase might be characterized as the receipt by the stockholder of a dividend from the Company, and any stockholder entering into such an agreement with the Company should consult its tax advisor in connection with its entering into such an agreement.

The Board of Directors waived the Ownership Limit for: (1) Highfields Capital Ltd., which, at February 16, 1999, reported its ownership of 3,275,900 shares of Common Stock, (2) Ellington Management Group, L.L.C., which, at November 5, 1999, reported its ownership of 1,475,000 shares of Common Stock, and (3) Kingdon Capital Management L.L.C., which, at January 11, 2000, reported its ownership of 1,617,600 shares of Common Stock. Any subsequent transfer of the shares held by Highfields Capital, Ellington Management and Kingdon Capital will be subject to the Ownership Limit, unless specifically exempted by the Company's Board of Directors.

Every owner of more than five percent (or such lower percentage as required by the Code or the regulations promulgated thereunder) of all classes or series of the Company's stock, within 30 days after the end of each taxable year, is required by the Company's Charter to give written notice to the Company stating the name and address of such owner, the number of shares of each class and series of stock of the Company beneficially owned and a description of the manner in which such shares are held. Each such owner shall provide to the Company such additional information as the Company may request in order to determine the effect, if any, of such beneficial ownership on the Company's status as a REIT and to ensure compliance with the ownership limitations.

The provisions described above may inhibit market activity and the resulting opportunity for the holders of the Company's Common Stock to receive a premium for their shares or warrants that might otherwise exist in the absence of such provisions. Such provisions also may make the Company an unsuitable investment vehicle for any person seeking to obtain ownership of more than 9.8% of the outstanding shares of Common Stock.

Employees

The Company has no employees. Mariner employs the executive officers of the Company, serves as the Company's investment manager and provides various administrative services to the Company as agreed upon.

PART III

Item 10. Directors of the Registrant.

Directors

The Company's Charter and bylaws provide that the Board of Directors will consist of five directors, divide the Board of Directors into three classes, Class I, II and III, with the classes serving staggered three-year terms, and provide that the number of directors may be changed by a majority vote of the entire Board of Directors. The Company's bylaws provide that, except in the case of a vacancy, a majority of the members of the Board of Directors will at all times be independent directors that are not affiliated directly or indirectly with Mariner Mortgage Management, L.L.C., the Company's investment manager ("Mariner"), and that any vacancies may be filled by a majority vote of the remaining directors.

Our directors are as follows:


NAME                                     AGE     POSITION                             DIRECTOR SINCE

Ronald J. Artinian..................     54      Director - Class II                  2000
Mark W. Hobbs.......................     45      Director - Class I                   2000
Arthur House........................     58      Director - Class II                  2000
Jonathan Ilany......................     47      Director - Class III                 1998
William J. Michaelcheck.............     54      Chief Executive Officer,
                                                 Chairman and Director - Class III    1999

The Company is not aware of any family relationship between any director or executive officer.

Ronald J. Artinian is a private investor in First Real Estate Investment Trust of New Jersey and, since 1992, has been a member of its Board of Trustees and a member of its Executive and Audit Committees. Before his involvement with First Real Estate Investment Trust of New Jersey, Mr. Artinian held various positions at Smith Barney Inc. from 1989 to 1998, including Senior Managing Director - National Manager of Taxable Fixed Income, and was the Executive Vice President - National Manager of Taxable Fixed Income for Lehman Brothers Inc. from 1976 to 1989.

Mark W. Hobbs has been a director of LASER since October 2000, and is currently President and Chief Operating Officer of J Net Enterprises, Inc., a NYSE-listed company. From 1995 until his appointment to J Net Enterprises in June 2000, Mr. Hobbs was a partner in Mariner Investment Group, Inc., an affiliate of Mariner. Prior to Mariner Investment Group, Inc., Mr. Hobbs was involved in private investing and financial consulting from 1991 to 1995. From 1982 to 1991, Mr. Hobbs was President of Rosewood Financial, Inc., a private investment management company.

Arthur House has been a director of LASER since October 2000, and is currently President and Chief Executive Officer of Meridian Worldwide LLC, an international public affairs firm. Mr. House was formerly Senior Vice President, Corporate Affairs at Tenneco Inc., from June 1992 to September 1997.

Jonathan Ilany has been a director of the Company since 1998 and an employee of Mariner Investment Group, Inc. since September 2000. Prior to joining Mariner Investment Group, Inc., Mr. Ilany was the Chief Executive Officer and a director of Angiosonics, Inc., a private medical device company with operations in the United States and Israel. Before joining Angiosonics, Inc. in 1996, Mr. Ilany had been, since 1987, a Senior Managing Director of Bear, Stearns & Co. Inc. ("Bear Stearns") and served on the Board of Directors of The Bear Stearns Companies Inc. until 1995.

William J. Michaelcheck has been the President and Chief Executive Officer of the Company since November 1999 and the Chairman and sole member of Mariner since its inception in October 1999. Mr. Michaelcheck has been the Chairman and sole stockholder of Mariner Investment Group, Inc. since 1992. Formerly, he was Executive Vice President of The Bear Stearns Companies and a Senior Managing Director of Bear Stearns, where he was co-head of the Fixed-Income Department and also responsible for a large segment of the firm's trading activities and risk management. Mr. Michaelcheck joined Bear Stearns in 1979 as co-creator of the Government Bond Department, becoming a General Partner in 1981 and a Senior Managing Director when Bear Stearns became a publicly-held corporation. He was named Executive Vice President in 1987, and served on the firm's Executive Committee and Management and Compensation Committee until leaving Bear Stearns in October 1992.

Executive Officers

See the information appearing under the caption "Executive Officers" of the Registrant in Part I of the Form 10-K.

Information Regarding the Board of Directors

The Board of Directors has two standing committees: the Audit Committee and the Compensation Committee. Messrs. Artinian, Hobbs and House currently are independent directors and serve on the Audit Committee and the Compensation Committee. The Audit Committee is responsible for assisting the Board of Directors in fulfilling its oversight responsibilities by recommending independent auditors and reviewing the Company's financial reports and other financial information, the audit plan, the Company's systems of internal controls regarding accounting, finance, legal compliance and ethics, the audit report, the management letter and the Company's auditing, accounting and financial reporting process generally. The Compensation Committee is responsible for recommending to the Board of Directors the Company's executive compensation policies for the Company's executive officers and for administering the Company's Stock Incentive Plan.

During 2000, there were six meetings of the Board of Directors and three meetings of the Audit Committee. Because the Company has no employees and our executive officers are employed by Mariner, the Compensation Committee did not need to hold any meetings in 2000.

Compliance with Section 16(a) of the Securities Exchange Act of 1934

Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange Act") requires the Company's executive officers and directors, and persons who own more than 10% of the Company's common stock to file reports of ownership and changes in ownership with the SEC and the New York Stock Exchange. Officers, directors and greater than ten-percent stockholders are required by SEC regulations to furnish the Company with copies of all such reports they file.

Based solely on a review of the copies of such reports furnished to the Company, or written representations that no Form 5 was required, the Company believes that all Section 16(a) filing requirements applicable to its officers, directors and greater than ten-percent beneficial owners were complied with through December 31, 2000, except that Mr. Artinian failed to file timely a Form 3 for June 2000 and a Form 4 for July 2000 and Messrs. Hobbs and House failed to file timely a Form 3 for October 2000.

Item 11. Executive Compensation.

Executive Compensation

The Company's executive officers are employed by Mariner and, accordingly, LASER did not pay any annual compensation to them for their services as executive officers in 2000. LASER did not enter into any employment agreements with its executive officers in 2000.

Grants of Awards

During 2000, no deferred stock awards were granted. No stock options or stock appreciation rights were outstanding as of December 31, 2000 and none were owned by any of the Company's executive officers during 2000.

Compensation of Directors

The Company pays each independent director compensation of $10,000 per annum and a fee of $500 for each meeting of the Board of Directors that he attends. The directors may be granted awards from time to time pursuant to the Company's 1997 Stock Incentive Plan. The Company reimburses each director for ordinary and necessary expenses related to such director's attendance at Board of Directors and committee meetings. During 2000, no options were granted to any directors under the 1997 Stock Incentive Plan.

Compensation Committee Interlocks and Insider Participation

No interlocking relationship exists between members of the Company's Board of Directors or the Compensation Committee or officers responsible for compensation decisions and the Board of Directors or compensation committee of any other company, nor has such interlocking relationship existed in the past.

Performance Graph

The following graph presents a comparison of cumulative total returns for the Company's common stock since the commencement of trading of the Company's common stock on November 27, 1997 through March 31, 2001 with the S&P 500 index and the Bloomberg L.P. BBREIT Mortgage Index ("MREIT"), a capitalization-weighted index of infinite life mortgage REITs having a market capitalization of $15 million or greater. The total return reflects stock price changes and the value of dividends and distributions for the Company's common stock and for each of the comparative indices. The graph assumes that the value of an investment in the Company's common stock and each index was $100 on November 26, 1997, and that all dividends were reinvested. The stock price performance on the graph is not necessarily indicative of future price performance.


------------------ ---------------- ---------------- --------------- ---------------- ---------------- ---------------
                     11/26/1997       12/31/1997       12/31/1998      12/31/1999       12/31/2000       3/31/2001
------------------ ---------------- ---------------- --------------- ---------------- ---------------- ---------------
LASER                  $100.00          $100.00          $49.97          $58.67           $49.65           $56.61
------------------ ---------------- ---------------- --------------- ---------------- ---------------- ---------------
Bloomberg              $100.00          $89.46           $73.06          $76.72           $85.71          $108.25
Mortgage REIT
Index
------------------ ---------------- ---------------- --------------- ---------------- ---------------- ---------------
S&P 500                $100.00          $102.12         $131.30          $158.92          $144.46         $127.34
------------------ ---------------- ---------------- --------------- ---------------- ---------------- ---------------

Item 12. Security Ownership of Certain Beneficial Owners and Management.

Security Ownership of Certain Beneficial Owners and Management

The following table sets forth certain information known to the Company with respect to beneficial ownership of its common stock as of April 13, 2001, by (i) each executive officer, director and nominee for director, (ii) any person known to the Company to be the beneficial owner of five percent or more of the common stock and (iii) all directors and executive officers as a group. Unless otherwise indicated in the footnotes to the table, the beneficial owners named have, to the knowledge of the Company, sole voting and investment power with respect to the shares beneficially owned, subject to community property laws where applicable.


                                                                             SHARES
                                                                             ------
                                                                       BENEFICIALLY OWNED
                                                                       ------------------
 NAME AND ADDRESS OF BENEFICIAL OWNER (1)                           NUMBER
                                                                   OF SHARES         PERCENT

 William J. Michaelcheck (2) ...............................         836,900           5.96%
 Charles R. Howe II (2).....................................         836,900           5.96%
 Jonathan Ilany (2).........................................         836,900           5.96%
 Ronald J. Artinian*........................................           6,000           0.04%
 Mark W. Hobbs..............................................               0               *
 Arthur House...............................................               0               *
 Highfields Capital Management L.P. (3).....................       3,275,900          23.33%
 Legg Mason, Inc. (4).......................................       1,938,330          13.81%
 New Ellington Partners LP (5)..............................       1,475,000          10.51%
 Kingdon Capital Management LLC (6).........................       1,117,600           7.96%
 SLS Management (7).........................................       1,097,838           7.81%
 Warren E. Buffett (8)......................................         979,900           6.98%
 K Capital Partners LLC (9).................................         924,500           6.59%
 Jay Buck (10)..............................................         899,500           6.41%
 Mariner Investment Group, Inc. (2).........................         836,900           5.96%
 All directors and executive officers as a group (6 persons)         836,900           6.00%
_______________
*  Less than one percent

(1)

The address of each of the executive officers, directors and nominees for director of LASER is c/o LASER Mortgage Management, Inc., 65 East 55th Street, New York, New York 10022. The address of Highfields Capital Management L.P. is 200 Clarendon Street, 51st Floor, Boston, Massachusetts 02117. The address of Legg Mason, Inc. is 100 Light Street, Baltimore, Maryland 21202. The address of New Ellington Partners LP is 53 Forest Avenue, Old Greenwich, Connecticut 06870. The address of Kingdon Capital Management LLC is 152 West 57th Street, New York, New York 10019. The address of SLS Management, LLC is 140 West 57th Street, New York, New York 10019. The address of Warren E. Buffett is 1440 Kiewit Plaza, Omaha, Nebraska 68131. The address of K Capital Partners LLC is 441 Stuart Street, Boston, Massachusetts 02116. The address of Jay Buck is 104 Field Point Road, Greenwich, Connecticut 06830. The address of Mariner Investment Group, Inc. is 65 East 55th Street, New York, New York 10022.

(2)	Based on Schedule 13D filed on November 12, 1999. Includes all of the shares of common stock owned beneficially by clients advised by Mariner Investment Group, Inc., of which Mr. Michaelcheck is the sole stockholder, Mr. Howe is the Chief Financial Officer and Mr. Ilany is an employee.

(3)	Based on Schedule 13G filed on February 16, 1999.

(4)	Based on Schedule 13G filed on February 12, 1999. Includes all of the shares of common stock owned beneficially by certain mutual funds advised by Legg Mason, Inc.

(5)	Based on Schedule 13D filed on November 5, 1999.

(6)	Based on Schedule 13G/A filed on February 13, 2001

(7)	Based on Schedule 13G/A filed on February 14, 2001.

(8)	Based on Schedule 13G filed on April 13, 2001.

(9)	Based on Schedule 13G filed on September 17, 1999.

(10)	Based on Schedule 13G filed on July 24, 2000.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

Since November 1, 1999, Mariner has served as the external manager of LASER and is responsible for day-to-day management of its investments and operations. William J. Michaelcheck, the Chairman of Mariner, was appointed LASER's President and Chief Executive Officer. Upon completion of the transition to Mariner, the Company terminated its consulting arrangement with BlackRock Financial Management and Robert J. Gartner, who was its Vice President and responsible for its day-to-day investment decisions, resigned.

• 10% of the difference between the 15-day average closing market price (plus any distributions per share other than Common Stock) of LASER's common stock preceding November 1, 2001 (or such earlier date, as set forth in the agreement) and $3.317 per share (which approximates the average closing price of LASER's common stock for the fifteen days ended October 31, 2000) up to the equivalent of $3.50 per share;

• 15% of the difference over $3.50 per share up to $4.00 per share; and

• 20% of the difference over $4.00 per share.

In January 2000, Charles R. Howe II, the Chief Financial Officer of the Manager, was appointed LASER's Vice President, Treasurer and Secretary. In September 2000, Jonathan Ilany became an employee of Mariner Investment Group, Inc. and ceased to be an independent director.

Stuart H. Coleman, a partner in the law firm of Stroock & Stroock & Lavan LLP, was a director of LASER until he resigned in October 2000. That firm and Mr. Coleman perform legal services for the Company.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Amendment to the Annual Report on Form 10-K/A to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of New York, State of New York.

LASER MORTGAGE MANAGEMENT, INC.

By: /s/ CHARLES R. HOWE II
      Charles R. Howe II
      Chief Financial Officer and Treasurer

Dated: April 30, 2001

Pursuant to the requirements of the Securities Exchange Act of 1934, this Amendment to the Annual Report on Form 10-K/A has been signed below by the following persons in the capacities and on the date indicated.


SIGNATURE                          TITLE                                                 DATE
---------                          -----                                                 ----


/S/ WILLIAM J. MICHAELCHECK        Chief Executive Officer, Chairman and Director        April 30, 2001
---------------------------
William J. Michaelcheck            (Principal Executive Officer)

/S/ CHARLES R. HOWE II             Chief Financial Officer                               April 30, 2001
----------------------
Charles R. Howe II                 (Principal Financial and Accounting Officer)

/S/ RONALD J. ARTINIAN             Director                                              April 30, 2001
----------------------
Ronald J. Artinian

/S/ MARK W. HOBBS                  Director                                              April 30, 2001
-----------------
Mark Hobbs

/S/ ARTHUR HOUSE                   Director                                              April 30, 2001
----------------
Arthur House

/S/ JONATHAN  ILANY                Director                                              April 30, 2001
-------------------
Jonathan Ilany