DEM INC
DEF 14A, 1998-07-28
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<PAGE>


                                  SCHEDULE 14A

                    Proxy Statement Pursuant to Section 14(a)
                     of the Securities Exchange Act of 1934

Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only
    (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss. 240.14a-11(c) or ss. 240.14a-12

                                    DEM, Inc.
                ------------------------------------------------
                (Name of Registrant as Specified in its Charter)

                ------------------------------------------------
    (Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
    (1)   Title of each class of securities to which transaction applies:

          -------------------------------------------------------------------
    (2)   Aggregate number of securities to which transaction applies:

          -------------------------------------------------------------------
    (3)   Per unit price or other underlying value of transaction computed
          pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
          filing fee is calculated and state how it was determined):

          -------------------------------------------------------------------
     (4)  Proposed maximum aggregate value of transaction:

          -------------------------------------------------------------------
     (5)  Total fee paid:

          -------------------------------------------------------------------
[ ]   Fee paid previously with preliminary materials:

      -----------------------------------------------------------------------
[ ]   Check box if any part of the fee is offset as provided by Exchange Act 
      Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
      paid previously. Identify the previous filing by registration statement
      number, or the Form or Schedule and the date of its filing.
      (1)  Amount Previously Paid:

      ------------------------------------------------------------------------
      (2)  Form, Schedule or Registration Statement No.:

      ------------------------------------------------------------------------
      (3)  Filing Party:

      ------------------------------------------------------------------------
      (4)  Date Filed:

      ------------------------------------------------------------------------

<PAGE>


                                    DEM, INC.
                         World Trade Center - Baltimore
                                   28th Floor
                              401 East Pratt Street
                            Baltimore, Maryland 21202

                                    NOTICE OF
                         SPECIAL MEETING OF STOCKHOLDERS

         A special meeting of the stockholders of DEM, Inc. (the "Company") 
will be held at the offices of The Chapman Co., World Trade Center-Baltimore, 
28th Floor, 401 East Pratt Street, Baltimore, Maryland, on September 1, 1998, 
at 11:00 a.m. local time to act on the following matters:

         (1)  To approve the liquidation and dissolution of the Company 
pursuant to the provisions of the Plan of Dissolution, Liquidation and 
Termination of the Company (the "Plan"), which Plan was approved at a meeting 
of the Board of Directors of the Company (the "Board") held on June 30, 1998; 
and

         (2)  To transact such other business as may properly come before the 
meeting.

         The Board recommends that the stockholders approve the Plan at this 
time. Subject to receipt of the requisite stockholder approval, stockholders 
holding shares in the Company will receive a liquidation distribution, in 
cash, on or about October 31, 1998.

         You are entitled to notice of and to vote at the meeting and any 
adjournments thereof if you owned shares of the Company at the close of 
business on July 28, 1998.

July 28, 1998                       By Order of the Board of Directors,


                                    /s/ Earl U. Bravo, Sr.
                                    ----------------------
                                    Earl U. Bravo, Sr.
                                    Secretary

         Please mark, sign and date the enclosed proxy and return it promptly 
in the enclosed envelope. If you attend the meeting and wish to vote in 
person, you may revoke your proxy.

<PAGE>

                                    DEM, INC.
                         World Trade Center - Baltimore
                                   28th Floor
                              401 East Pratt Street
                            Baltimore, Maryland 21202

                                 PROXY STATEMENT

                  Special Meeting of Stockholders to be Held on
                                September 1, 1998

         This document is a proxy statement for DEM, Inc. (the "Company"), a 
closed-end management investment company, (the "Proxy Statement"). This proxy 
statement is furnished in connection with the solicitation of proxies by the 
Board of Directors of the Company (the "Board") to be used at the Company's 
Special Meeting of Stockholders and at any adjournments thereof (the 
"Meeting"). The Meeting will be held at the offices of The Chapman Co., World 
Trade Center -Baltimore, 28th Floor, 401 East Pratt Street, Baltimore, 
Maryland 21202 on September 1, 1998, at 11:00 a.m. local time, for the 
purposes set forth in the Company's Notice of Special Meeting of 
Stockholders. This Proxy Statement and form of Proxy were first mailed to the 
Company's stockholders on or about July 28, 1998.

         The Company will bear the cost of printing and mailing this notice 
and Proxy Statement and proxy card and of soliciting proxies (estimated at 
$2,500). The principal solicitation of proxies will be by the mailing of this 
Proxy Statement, but proxies may also be solicited by telephone and/or in 
person by directors, officers and employees of the Company. Such 
representatives and employees will not receive additional compensation for 
solicitation activities.

         The affirmative vote of stockholders holding a majority of the 
shares entitled to be cast outstanding at the close of business on July 28, 
1998 (the "Record Date"), in person or by proxy, is required for approval of 
the liquidation of the assets and dissolution of the Company pursuant to the 
provisions of the Plan of Dissolution, Liquidation and Termination of the 
Company (the "Plan") as set forth in Annex A hereto.

         At the Meeting, the presence in person or by proxy of stockholders 
of the Company entitled to cast at least a majority of the votes entitled to 
be cast at the Meeting shall constitute a quorum for the transaction of 
business. In the event a quorum is not present, or in the event that a quorum 
is present at the Meeting but sufficient votes to approve the proposal are 
not received, the persons named as proxies by the Company may propose one or 
more adjournments of the Meeting to permit further solicitation of proxies. 
Any such adjournments will require the affirmative vote of a majority of the 
Company's shares represented at 

<PAGE>

the Meeting in person or by proxy. The persons named as proxies by the 
Company will vote in favor of such adjournment those proxies which they are 
entitled to vote in favor of the proposal and will vote against any such 
adjournment those proxies required to be voted against the proposal.

         Each full share outstanding is entitled to one vote and each 
fractional share outstanding is entitled to a proportionate fractional share 
of one vote. As of the Record Date, the Company had outstanding 1,148,776 
shares. The persons who owned more than 5% of any class of the Company's 
outstanding shares as of July 24, 1998, the latest practicable date, are 
set forth in Annex B hereto.

         The proxies named on the proxy card of the Company will vote in 
accordance with the directions indicated thereon if the proxy card is 
properly executed. If you properly execute your proxy card and give no voting 
instruction, your shares will be voted FOR the proposal set forth herein. 
Abstentions will be counted as present at the Meeting for purposes of 
determining the existence of a quorum for the transaction of business. 
Abstentions will not constitute a vote "for" or "against" the proposal. For 
this reason, abstentions will have the effect of a "no" vote for the purpose 
of obtaining the requisite approval for the proposal. Broker non-votes (i.e., 
proxies received from brokers or nominees indicating that such persons have 
not received instructions from the beneficial owner or other persons entitled 
to vote the shares on a particular matter with respect to which the broker or 
nominees do not have discretionary power) will be treated the same as 
abstentions.

         A stockholder may revoke his proxy by notifying the Company in 
writing prior to the Meeting, by subsequently executing another proxy or by 
attending the Meeting and giving oral notice of revocation to the Chairman of 
the Meeting.

         The Company will furnish, without charge, a copy of the Annual 
Report to Stockholders dated December 31, 1997 or the Semi-Annual Report to 
Stockholders dated June 30, 1998 to any stockholder upon request. Any such 
request should be directed to Lisa Fullagar, DEM, Inc., World Trade Center 
- -Baltimore, 28th Floor, 401 East Pratt Street, Baltimore, Maryland 21202, 
telephone (800) 752-1013.


                                       2

<PAGE>

                        PROPOSAL TO LIQUIDATE THE ASSETS
                        AND DISSOLVE THE COMPANY PURSUANT
                        TO THE PROVISIONS OF THE PLAN OF
                    DISSOLUTION, LIQUIDATION AND TERMINATION


The Liquidation in General

         The Company proposes to liquidate the assets and dissolve the 
Company pursuant to the provisions of the Plan as approved by the Board on 
June 30, 1998. The Board has determined that an orderly liquidation of the 
Company's assets is advisable and has directed that the matter be submitted 
for consideration of the stockholders of the Company. The Plan provides for 
the complete liquidation of all of the assets of the Company. If the Plan is 
approved by the requisite stockholder vote, Chapman Capital Management, Inc., 
the Company's investment adviser ("Chapman Capital Management"), will 
undertake to liquidate the Company's assets at market prices and on such 
terms and conditions as Chapman Capital Management shall determine to be 
reasonable and in the best interests of the Company and its stockholders.

         In the event the Plan is not approved by the requisite stockholder 
vote, the Board will consider what other action should be taken. 

Reasons for the Liquidation

         The Company is a closed-end management investment company organized 
as a Maryland corporation on October 20, 1995. Since January 16, 1998, the 
Company's shares have continuously traded at a discount from their net asset 
value per share, ranging from 2.86% on May 29, 1998, to 21.05% on May 8, 
1998. The average weekly discount during the period March 1, 1998 to May 31, 
1998 was 12.96%. This discount is volatile and fluctuates with the net asset 
value per share and the market price of the Company's shares.

         At a meeting of the Board held on June 30, 1998, the Board 
determined that the continued operation of the Company was not in the best 
interests of the Company's stockholders considering all relevant factors, 
including, without limitation, that since inception the Company's expense 
ratio has continuously been above the average expense ratio of small 
capitalization growth funds as reported by Morningstar. The Board concluded 
that the discount on the Company's shares can be attributed primarily to the 
small size of the Company and its relatively high expense ratio and that the 
expense ratio is above average because the limited assets of the Company 
prevent it from achieving economies of scale that would permit a reduction in 
the Company's expense ratio.


                                       3

<PAGE>

         At the June 30, 1998 Board meeting, the Board considered various 
alternatives for the Company, including, (i) increasing the size of the 
Company through a secondary offering of Common Stock; (ii) merging the 
Company with an investment company with a similar investment focus; (iii) 
converting the Company to an open-end investment company; and (iv) 
liquidating the Company.

         Because the Company's shares currently trade at a discount from 
their net asset value, in order for the Company to successfully increase its 
assets through a secondary offering of Common Stock, the Company would be 
required to offer the Company's shares at a price that is less than the net 
asset value per share of the Company's outstanding shares. Section 23(b) of 
the Investment Company Act of 1940, as amended, (the "1940 Act") prohibits 
any registered closed-end company from selling its shares at a price below 
the current net asset value of such shares. The 1940 Act provides several 
exemptions to such prohibition including for any offering in connection with 
an offering to the existing holders of such company's shares or if the 
consent of a majority of such company's common stockholders is obtained. The 
Board of Directors has determined that an offering of the Company's shares at 
less than net asset value is not in the best interests of the Company's 
stockholders because it would result in the dilution of the Company's 
stockholders in favor of new investors. Similarly, the Board believes that a 
rights offering is not in the best interest of the Company's stockholders 
because such an action would require the Company's stockholders to either 
participate in the rights offering or have their interests in the Company 
diluted. Further, after consultation with Chapman Capital Management, the 
Board determined that the Company's existing stockholders would be unlikely 
to invest sufficient additional funds so that the Company will have the level 
of assets necessary to effectively lower its expense ratio.

         The Board determined that the merger of the Company with a similar 
investment company was not a realistic option because the Company's unique 
investment objective would make it difficult to locate a suitable investment 
company for such a transaction. In addition, the Board considered the 
relatively small amount of assets in the Company, the expense involved in a 
merger and the fact that many of the Company's stockholders could be 
reasonably expected to redeem any interest in the merged entity. The Board 
also concluded that converting the Company into an open-end investment 
company is not a practicable solution due to similar considerations.

         Based upon the foregoing considerations and other relevant factors, 
the Board concluded that a liquidation and the subsequent dissolution of the 
Company were advisable and in the best interests of the Company's 
stockholders.


                                       4

<PAGE>

         The Board, including all of the Directors who are not "interested 
persons" of the Company (as that term is defined in the 1940 Act), then 
adopted resolutions approving the Plan, declaring the proposed liquidation 
and dissolution pursuant to the provisions of the Plan advisable and 
directing that it be submitted to the stockholders of the Company for 
consideration. In connection with the proposal, the Company will bear the 
costs associated with the liquidation of the Company, which are expected to 
total approximately $25,000.

         As of July 24, 1998, the net asset value per share of the Company's 
shares was $17.05, whereas the price of the last reported trade of the 
Company's shares on the same date was $16.06. Because the market price of the 
Company's shares is subject to fluctuation, the market price of the Company's 
shares may increase or decrease prior to the distribution of the assets to 
the Company's stockholders. Stockholders are urged to obtain current market 
quotations for the Company's shares.

         The liquidation of the assets and dissolution of the Company will 
have the effect of permitting the Company's stockholders to invest the 
distributions to be received by them upon the Company's liquidation in 
investment vehicles of their own choice. Investors who desire the continued 
use of a managed investment such as a mutual fund may obtain prospectuses for 
other investment companies managed by Chapman Capital Management by calling, 
toll free, (800) 752-1013.

         In the event that the stockholders do not approve the Plan, the 
Board will continue to search for other alternatives for the Company.

Plan of Dissolution, Liquidation and Termination of the Company

         The Plan provides for the complete liquidation of all of the assets 
of the Company. If the Plan is approved, Chapman Capital Management will 
undertake to liquidate the Company's assets at market prices and on such 
terms and conditions as Chapman Capital Management, under the supervision of 
the Board, shall determine to be reasonable and in the best interests of the 
Company and its stockholders. The Plan authorizes the Board to abandon the 
Plan without stockholder approval at any time prior to the filing of Articles 
of Dissolution with the State Department of Assessments and Taxation of 
Maryland if the Board determines that such abandonment would be advisable and 
in the best interests of the Company's stockholders.

Liquidation Value

         If the Plan is adopted by the Company's stockholders at the Meeting, 
as soon as practicable after the consummation of the sale of all of the


                                       5

<PAGE>

Company's portfolio securities and the payment of all of the Company's known 
expenses, charges, liabilities and other obligations, including those 
expenses incurred in connection with the liquidation, each Company 
stockholder will receive a distribution in an amount equal to the net asset 
value per share, as determined in accordance with the Company's current 
registration statement, together with accrued and unpaid dividends and 
distributions with respect to each of the stockholder's shares of the Company 
(the "Liquidation Distribution").

Federal Income Tax Consequences

         The following summary provides general information with regard to 
the federal income tax consequences to stockholders on receipt of the 
Liquidation Distribution from the Company pursuant to the provisions of the 
Plan. This summary also discusses the effect of federal income tax provisions 
on the Company resulting from its liquidation and dissolution; however, the 
Company has not sought a ruling from the Internal Revenue Service (the 
"Service") with respect to the liquidation and dissolution of the Company. 
The statements below are, therefore, not binding upon the Service, and there 
can be no assurance that the Service will concur with this summary or that 
the tax consequences to any stockholder upon receipt of a Liquidation 
Distribution will be as set forth below.

         This summary is based on the tax laws and regulations in effect on 
the date of this Proxy Statement, all of which are subject to change by 
legislative or administrative action, possibly with retroactive effect.

         The information below is only a summary of some of the federal tax 
consequences generally affecting the Company and its individual U.S. 
stockholders resulting from the liquidation of the Company. This summary does 
not address the particular federal income tax consequences applicable to 
stockholders other than U.S. individuals nor does it address state or local 
tax consequences. The tax consequences discussed herein may affect 
stockholders differently depending on their particular tax situations 
unrelated to the Liquidation Distribution, and accordingly, this summary is 
not a substitute for careful tax planning on an individual basis. 
Stockholders are encouraged to consult their personal tax advisers concerning 
their particular tax situations and the impact thereon on receiving the 
Liquidation Distribution as discussed herein. The receipt of the Liquidation 
Distribution may result in tax consequences that are unanticipated by 
stockholders.

         As discussed above, pursuant to the Plan, the Company will sell its 
assets, pay or make provisions for the payment of all liabilities, distribute 
the remaining proceeds to its stockholders and dissolve. The Company 
anticipates that the Company will retain its qualification as a regulated 
investment company under the Internal Revenue Code of 1986, as amended (the 
"Code"), during the 


                                       6

<PAGE>

liquidation period and, therefore, will not be taxed on any of its net income 
realized from the sale of its assets.

         For federal income tax purposes, a stockholder's receipt of the 
Liquidation Distribution will be a taxable event and will be treated as a 
sale of the stockholder's shares of the Company in exchange for the 
Liquidation Distribution. Each stockholder will recognize a gain or loss in 
an amount equal to the difference between the adjusted tax basis in his or 
her shares and the Liquidation Distribution he or she receives from the 
Company. If the shares are held as a capital asset, the gain or loss will 
generally be characterized as a capital gain or loss. If the shares have been 
held for more than 18 months, any gain will constitute a long-term capital 
gain taxable to individual stockholders at an amount no greater than 20%, and 
any loss will constitute a long-term capital loss. If the shares have been 
held for more than one year but not more than 18 months, any gain will 
constitute a long-term capital gain taxable to individual stockholders at an 
amount no greater than 28%, and any loss will constitute a long-term capital 
loss. Otherwise, the gain or loss will constitute a short-term capital gain 
or loss.

         If a stockholder has failed to furnish a correct taxpayer 
identification number or has failed to clarify that he or she has provided a 
correct taxpayer identification number and that he or she is not subject to 
"backup withholding," the stockholder may be subject to a 31% backup 
withholding tax with respect to any ordinary or capital gains dividends as 
well as the Liquidation Distribution. An individual's taxpayer identification 
number is his or her social security number. Certain stockholders specified 
in the Code may be exempt from backup withholding. The backup withholding tax 
is not an additional tax and may be credited against a taxpayer's federal 
income tax liability.

         Stockholders will be notified of their respective shares of ordinary 
and capital gains dividends for the Company's final fiscal year in normal 
tax-reporting fashion; amounts included in income as dividends may increase 
the stockholders' adjusted bases in their shares for purposes of computing 
their gain or loss on the receipt of the Liquidation Distribution.

Liquidation Distribution

         At present, the date on which the Company will be liquidated and on 
which the Company will pay Liquidation Distributions to its stockholders is 
uncertain, but it is anticipated that if the Plan is adopted by the 
stockholders such liquidation would occur on or about October 31, 1998 (the 
"Liquidation Date"). Stockholders holding Company shares as of the close of 
business on the date immediately preceding the Liquidation Date will receive 
their Liquidation Distribution on the Liquidation Date without any further 
action on their part.


                                       7

<PAGE>

         The Board recommends that the stockholders vote FOR the proposed 
liquidation of assets and dissolution of the Company pursuant to the 
provisions of the Plan of Dissolution, Liquidation and Termination.

                                  OTHER MATTERS

         The Board does not know of any matters to be presented at the 
Meeting other than those set forth in this Proxy Statement. If any other 
business should come before the Meeting, the persons named as proxies in the 
accompanying proxy will vote thereon in accordance with their best judgment.

                             STOCKHOLDERS PROPOSALS

         Consistent with the laws of the State of Maryland, the Bylaws of the 
Company provide that the Company must hold annual stockholder meetings. In 
the event that the Company is not liquidated and dissolved, all stockholder 
proposals intended to be presented at the 1999 Annual Meeting of Stockholders 
must be received by the Company at the address set forth on the first page of 
this Proxy Statement not later than November 25, 1998 for inclusion in the 
Company's proxy statement and proxy relating to that meeting. It is suggested 
that proposals be forwarded by certified mail, return receipt requested. The 
persons named as proxies in the 1999 Annual Meeting of Stockholders proxy 
will vote on all stockholder proposals received by the Company after February 
9, 1999 in accordance with their best judgment. It is important that proxies 
be returned promptly. If you do not expect to attend the Meeting, please sign 
your proxy card promptly and return it in the enclosed envelope to avoid 
unnecessary expense and delay.

                                             By Order of the Board of Directors,


                                             /s/ Earl U. Bravo, Sr.
                                             ----------------------
                                             Earl U. Bravo, Sr.
                                             Secretary

July 28, 1998


                                       8
<PAGE>



                                                                         Annex A

                PLAN OF DISSOLUTION, LIQUIDATION AND TERMINATION
                                       OF
                                    DEM, INC.

                  DEM, Inc., a Maryland corporation (the "Company"), shall
proceed to a complete liquidation of the Company according to the procedures set
forth in this Plan of Dissolution, Liquidation and Termination (the "Plan"). The
Plan has been approved by the Board of Directors of the Company (the "Board") as
being advisable and in the best interests of the Company's stockholders. The
Board has directed that this Plan be submitted to the holders of the outstanding
voting shares of the Company (each a "Stockholder" and, collectively, the
"Stockholders"), voting in the aggregate without regard to class, for their
adoption or rejection at a special meeting of Stockholders and has authorized
the distribution of a Proxy Statement (the "Proxy Statement") in connection with
the solicitation of proxies for such meeting. Upon Stockholder approval of the
Plan, the Company shall voluntarily dissolve and completely liquidate in
accordance with the requirements of the Investment Company Act of 1940, as
amended (the "1940 Act"), the Maryland General Corporation Law (the "MGCL") and
the Internal Revenue Code of 1986, as amended (the "Code"), as follows:

                           1.       Adoption of Plan.  The effective date of the
Plan (the "Effective Date") shall be the date on which the Plan is adopted by
the Stockholders.

                           2.       Liquidation and Distribution of Assets.  As 
soon as practicable after the Effective Date and by December 31, 1998 (the
"Liquidation Period"), or as soon thereafter as practicable depending on market
conditions and consistent with the terms of this Plan, the Company and the
Company's investment adviser, Chapman Capital Management, Inc. ("Chapman Capital
Management"), under the supervision of the Board, shall have the authority to
engage in such transactions as may be appropriate for the Company's liquidation
and dissolution, including, without limitation, the consummation of the
transactions described in the Proxy Statement.

                           3.       Provisions for Liabilities.  The Company 
shall pay or discharge or set aside a reserve fund for, or otherwise provide for
the payment or discharge of, any liabilities and obligations, including, without
limitation, contingent liabilities.

                           4.       Distribution to Stockholders.  As soon as 
practicable after the Effective Date, the Company shall liquidate and distribute
pro rata on the date of liquidation (the "Liquidation Date") to its stockholders
of record as of the close of business on the date immediately preceding the


<PAGE>

Liquidation Date all of the remaining assets of the Company in complete
cancellation and redemption of all the outstanding shares of the Company, except
for cash, bank deposits or cash equivalents in an estimated amount necessary to
(i) discharge any unpaid liabilities and obligations of the Company on the
Company's books on the Liquidation Date, including, but not limited to, income
dividends and capital gains distributions, if any, payable through the
Liquidation Date, and (ii) pay or provide for the payment of such contingent
liabilities as the Board shall reasonably deem to exist against the assets of
the Company on the Company's books.

                           5.       Notice of Liquidation.  As soon as 
practicable after the Effective Date, the Company shall mail notice to the
appropriate parties that this Plan has been approved by the Board and the
Stockholders and that the Company will be liquidating its assets, to the extent
such notice is required under the MGCL.

                           6.       Filings.  As soon as practicable after the 
Liquidation Date, within the Liquidation Period, the Company shall prepare and
file Articles of Dissolution, Form N-8F under the 1940 Act and any other
documents as are necessary to effect the dissolution and/or de-registration of
the Company in accordance with the requirements of the Charter of the Company,
the MGCL, the Code, the 1940 Act and any other applicable securities laws, and
any rules and regulations of the Securities and Exchange Commission or any state
securities commission, including, without limitation, withdrawing any
qualification to conduct business in any state in which the Company is so
qualified, as well as the preparation and filing of any tax returns.

                           7.       Amendment or Abandonment of Plan.  The Board
may modify or amend this Plan at any time without stockholder approval if it
determines that such action would be advisable and in the best interests of the
Company and its Stockholders. If any amendment or modification appears necessary
and in the judgment of the Board will materially and adversely affect the
interests of the Stockholders, such an amendment or modification will be
submitted to the Stockholders for approval. In addition, the Board may abandon
this Plan without stockholder approval at any time prior to the filing of the
Articles of Dissolution if it determines that abandonment would be advisable and
in the best interests of the Stockholders.

                           8.       Powers of Board and Officers.  The Board and
the officers of the Company are authorized to approve such changes to the terms
of any of the transactions referred to herein, to interpret any of the
provisions of this Plan, and to make, execute and deliver such other agreements,
conveyances, assignments, transfers, certificates and other documents and take
such other action as the Board and the officers of the Company deem necessary or
desirable in order to carry out the provisions of this Plan and effect the
complete 



<PAGE>

liquidation and dissolution of the Company in accordance with the Code
and the MGCL, including, without limitation, filing of a Form N-8F with the
Securities and Exchange Commission, withdrawing any state registrations of the
Company and/or its shares, withdrawing any qualification to conduct business in
any state in which the Company is so qualified and the preparation and filing of
any tax returns.

                           9.       Termination of Business Operations.  As soon
as practicable upon adoption of this Plan, the Company shall cease to conduct
business except as shall be necessary in connection with the effectuation of its
liquidation and dissolution.

                           10.      Expenses.  The expenses of carrying out the 
terms of this Plan shall be borne by the Company, whether or not the liquidation
contemplated by this Plan is effected.

                  IN WITNESS WHEREOF, the Board of Directors of the Company has
caused this Plan to be executed by the Company as of this 30th day of June,
1998.

                                              DEM, INC.



                                          By:   /s/ Nathan A. Chapman, Jr.
                                               ---------------------------
                                               Nathan A. Chapman, Jr.
                                               President


<PAGE>


                                                                       Exhibit B

                             PRINCIPAL STOCKHOLDERS

                  The following table sets forth, to the Company's knowledge,
the name, the number of shares and the percentage of the outstanding shares of
the Company owned beneficially by each person who owned beneficially 5% or more
of the outstanding shares on July 24, 1998, the latest practicable date. No
shares of the Company are beneficially owned by any director or executive
officer of the Company.

<TABLE>
<CAPTION>

                                                     TOTAL
NAME AND ADDRESS OF BENEFICIAL OWNER                 SHARES              %
- ------------------------------------------------ ----------------- -------------

<S>                                              <C>               <C>
Memphis Retirement System                            252,536          21.98%
125 North Main Street, Room 368
Memphis, TN 38103-2017

Policemen & Firemen Retirement                        250,000          21.76%
System of the City of Detroit
908 City-County Building
Detroit, MI 48226

Shelby County Retirement System                       202,451          17.62%
160 North Mid-Atlantic Mall, Suite 950
Memphis, TN 38103

Potomac Electric Power Company                        134,967          11.75%
1900 Pennsylvania Avenue, N.W.
Washington, DC 20068-0001

Texaco - Harrison Capital, Inc.                       101,225           8.81%
2000 Westchester Avenue
White Plains, NY 10650

Philadelphia Gas Works                                 60,000           5.22%
Retirement Reserve Company
1310 Municipal Services Building
1401 JFK Boulevard
Philadelphia, PA 19102
</TABLE>


<PAGE>


                                    DEM, INC.
           THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS

The undersigned hereby appoints Nathan A. Chapman, Jr. and Earl U. Bravo, Sr.,
or either of them, the proxy or proxies of the undersigned with full powers of
substitution, to vote all shares of Common Stock of DEM, Inc. held of record by
the undersigned at the close of business on July 28, 1998, at the Special
Meeting of Stockholders of the Company to be held on Tuesday, September 1,
1998 at 11:00 a.m., local time and at any adjournment or adjournments thereof,
upon the matters set forth herein.

    PLEASE MARK YOUR CHOICE IN BLUE OR BLACK INK, PLEASE SIGN, DATE AND RETURN 
       THIS PROXY PROMPTLY USING THE ACCOMPANYING ENVELOPE

/X/  Please mark    If properly executed, the shares represented by this proxy
     votes as in    will be voted in the manner directed herein by the
     this example   undersigned stockholder, or to the extent directions are not
                    given, such shares will be voted FOR each proposal.

The Board of Directors recommends a vote "FOR" Proposals 1 and 2.

<TABLE>
<CAPTION>
                                                                  For           Against         Abstain

<S>    <C>                                                        <C>             <C>             <C>
1.     Plan of Dissolution, Liquidation and Termination of        / /             / /             / /
       DEM, Inc.

2.     IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO         / /             / /             / /
       VOTE UPON SUCH OTHER BUSINESS AS MAY PROPERLY COME
       BEFORE THE MEETING OR ANY ADJOURNMENT THEREOF.
</TABLE>


                                           MARK HERE FOR ADDRESS
- -------------------------------         CHANGE AND NOTE SUCH CHANGE        / /
                                                  AT LEFT

- -------------------------------
Please sign. Persons acting in a fiduciary capacity should so indicate. PLEASE
NOTE any change of address and supply any missing Zip Code number.

Signature:----------------------------         Date: -------------------------

Signature:----------------------------         Date: -------------------------




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