<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 19, 1999
REGISTRATION NO. 333-48419
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
--------------------------
POST-EFFECTIVE AMENDMENT NO. 2
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
CHAPMAN HOLDINGS, INC.
(Name of Small Business Issuer in its Charter)
<TABLE>
<S> <C> <C>
MARYLAND 6719 52-2069777
(State or Other Jurisdiction (Primary Standard Industrial (IRS Employer
of Classification Code Number) Identification
Incorporation or Organization) No.)
</TABLE>
--------------------------
401 EAST PRATT STREET
28(TH) FLOOR
BALTIMORE, MARYLAND 21202
(410) 625-9656
(Address and Telephone Number of Principal Executive Office)
--------------------------
NATHAN A. CHAPMAN, JR., CHAIRMAN
CHAPMAN HOLDINGS, INC.
401 EAST PRATT STREET
28TH FLOOR
BALTIMORE, MARYLAND 21202
(410) 625-9656
(Name, Address and Telephone Number of Agent for Service)
--------------------------
COPY TO:
ELIZABETH R. HUGHES, ESQ.
VENABLE, BAETJER AND HOWARD, LLP
1800 MERCANTILE BANK & TRUST BUILDING
TWO HOPKINS PLAZA
BALTIMORE, MARYLAND 21201-2978
(410) 244-7608
--------------------------
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement is effective.
If any of the securities being registered on this form is to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. /X/
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier registration statement for the same
offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
THIS REGISTRATION STATEMENT RELATES TO THE REGISTRATION OF AN INDEFINITE NUMBER
OF SHARES SOLELY FOR MARKET-MAKING TRANSACTIONS. PURSUANT TO RULE 429, THIS
REGISTRATION STATEMENT RELATES TO SHARES PREVIOUSLY REGISTERED ON FORM SB-2
(FILE NO. 333-43487).
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
THE INFORMATION IN THE PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT
SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL
THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN
ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
PRELIMINARY, SUBJECT TO COMPLETION
DATED: MARCH 19, 1999
PROSPECTUS
CHAPMAN HOLDINGS, INC.
[LOGO]
COMMON STOCK
----------------------
THE SECURITIES OFFERED HEREBY ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF
RISK. SEE "RISK FACTORS" ON PAGE 2
Chapman Holdings, Inc. common stock, par value $0.001 per share, (the
"Common Stock") is quoted on the Nasdaq SmallCap Market (the "SmallCapMarket")
under the symbol "CMAN."
------------------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THE PROSPECUTS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------------------
This Prospectus has been prepared for and is to be used by The Chapman Co.
in connection with offers and sales of the shares of Common Stock related to
market-making transactions, at prevailing prices, related prices or negotiated
prices. The Company will not receive any of the proceeds of such sales. The
Chapman Co. may act as a principal or agent in such transactions.
------------------------------------
THE CHAPMAN CO.
The date of this Prospectus is [ ], 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Risk Factors............................................................................................... 2
Management's Discussion and Analysis of Financial Condition and Results of Operations...................... 8
Business................................................................................................... 12
Management................................................................................................. 17
Principal Stockholders..................................................................................... 18
Certain Transactions....................................................................................... 22
Description of Capital Stock............................................................................... 21
Shares Eligible for Future Sale............................................................................ 20
Plan of Distribution....................................................................................... 23
Stockholder Information.................................................................................... 23
Transfer Agent and Registrar............................................................................... 24
Legal Matters.............................................................................................. 24
Experts.................................................................................................... 24
Additional Information..................................................................................... 24
Financial Statements....................................................................................... F-1
</TABLE>
Domestic Emerging Markets-Registered Trademark- and DEM-Registered Trademark-
are registered trademarks and DEM Profile-TM-, DEM Universe-TM-, DEM Company-TM-
and DEM Index-TM- are trademarks of Nathan A. Chapman, Jr.
<PAGE>
RISK FACTORS
The words "believes," "intends," "anticipates," and "expects," and similar
expressions are intended to identify forward-looking statements. These
forward-looking statements are based on our current expectations and are subject
to a number of risks and uncertainties. In light of these risks and
uncertainties, many of which are described in detail in the risk factors set
forth below, actual results could differ materially from the forward-looking
statements contained in this document.
NET LOSS; RISK OF INABILITY TO MANAGE GROWTH
We have experienced and expect to continue to experience significant growth
in our business activities and the number of our employees. This growth requires
increased investment in personnel, financial and management systems and controls
and facilities. Unless we achieve revenue growth in line with our growth in
expenses, we will continue to incurr losses. Furthermore, our inability to
manage such growth could have a material adverse effect on our continued
operations. During 1998, we had a net loss of $1,130,758.
In addition, as is common in the securities industry, we continue to be
highly dependent on the effective and reliable operation of its communications
and information systems. We believe that our future growth will require
implementation of new and enhanced communications and information systems and
training of its personnel to operate such systems. Any difficulty or significant
delay in the implementation or operation of existing or new systems or the
training of personnel could adversely affect the our ability to manage growth.
RISKY NATURE OF SECURITIES BUSINESS
Our business is concentrated in the securities industry which is subject to
numerous and substantial risks, particularly in volatile or illiquid markets and
in markets influenced by sustained periods of low or negative economic growth.
Such risks include the risk of losses resulting from:
- - underwriting or ownership of securities
- - trading and principal activities
- - counterparty failure to meet commitments
- - customer fraud
- - employee errors
- - misconduct and fraud (including unauthorized transactions by traders)
- - failures in connection with the processing of securities transactions
In addition, our revenue may decline in periods of reduced demand for public
offerings or reduced activity in the secondary markets and when there is reduced
spreads on the trading of securities.
RISKS OF MAKING A MARKET IN THINLY-TRADED ISSUES
A key element of our strategy is to make a market in selected securities of
small capitalization, emerging U.S. companies. We currently make a market in the
securities of 5 small capitalization companies and we are currently in the
process of obtaining approval to make a market in up to 100 small capitalization
securities. Market-making activities typically require us to maintain an
inventory of the securities in which we make a market. Our inventory is subject
to the same risks as those faced by investors in such securities and, since we
make a market in securities of small capitalization companies, our risk is
typically greater than that customarily associated with investments in
securities of larger, more established companies. Small emerging companies may
be subject to greater earnings fluctuation, lack of established
2
<PAGE>
markets for products or services, more limited financial resources and less
depth of experienced management. Securities of small emerging companies
generally have more limited marketability and may be subject to greater price
volatility than securities of larger companies. They may be dependent for
management on one or a few key persons, and can be more susceptible to losses
and risks of bankruptcy.
The companies in which we make a market are traded on the Nasdaq SmallCap
Market, and, in the future, may be on the OTC Bulletin Board or the Pink Sheets,
where the trading market is thinner and the spread between bid and offer prices
is often larger than on the major exchanges or Nasdaq National Market. The
nature of these trading markets subjects us to the risk that should the need
arise to liquidate our inventories in such securities, our activities could
adversely affect the market price of such securities, resulting in a requirement
that we sell our inventory below the price that we deem to be representative of
their value. As of December 31, 1998, our inventory of market-making securities
was $2,080,355. In 1998, we experienced a loss on trading of $637,957.
HIGHLY COMPETITIVE INDUSTRY
The investment banking and brokerage industry is extremely competitive. We
encounter intense competition in all aspects of the securities business and
compete directly with other securities firms, a significant number of which have
greater capital, experience and resources than us. Competition also exists for
experienced personnel including technical personnel and account executives. In
addition to competition from firms currently in the securities business,
recently there has been increasing competition from other sources, such as
commercial banks and insurance companies offering financial services. See
"Business--Competition" for more information about the nature and extent of the
competition we face.
UNPROVEN NATURE OF DOMESTIC EMERGING MARKET STRATEGY
Our business plan emphasizes the DEM strategy which targets U.S. companies
controlled by African-Americans, Asian-Americans, Hispanic-Americans and women
as candidates for investment banking services. See "Business--Strategy" for a
discussion of the DEM strategy. We will seek to expand our investment banking
business through the implementation of its DEM strategy, by:
- - earning fees from the distribution of DEM products such as investment
companies with DEM-driven portfolios
- - providing financial advisory and investment banking services to DEM companies
- - making markets in the securities of DEM companies
Although we have identified approximately 180 publicly-traded companies with
DEM characteristics, there can be no assurance that companies meeting the DEM
profile will select us for investment banking or other services.
We have had limited corporate finance experience in a management role.
Therefore our ability to provide DEM companies with investment banking services,
such as management of underwriting syndicates, will require adding personnel
with investment banking expertise and development of a track record in the
management of underwriting syndicates. There can be no assurance that we will be
able to attract, hire and retain such personnel.
Furthermore, because a substantial number of companies meeting the DEM
profile are expected to trade in the over-the-counter markets, the formation of
underwriting syndicates for and the distribution of securities of such companies
as well as making markets in the stocks of such companies may be more difficult
than for companies having larger capitalizations and greater market liquidity.
3
<PAGE>
ONGOING EXPANSION OF OPERATIONS
We have increased our net capital in order to participate in corporate and
government finance transactions. There can be no assurance that we will continue
to be invited to participate in such transactions or that the number of such
transactions in which we are invited to participate will grow.
In an effort to obtain new government finance business, we have opened
offices in those states with the most tax-exempt bond offerings. The addition of
personnel to staff such offices together with corporate finance staff added to
implement the DEM strategy has significantly increased our operating expenses.
There can be no assurance that we will be able to increase our revenue in an
amount sufficient to offset such increased expenses.
DEPENDENCE ON KEY PERSONNEL
For the foreseeable future, we will place substantial reliance upon the
personal efforts and abilities of Nathan A. Chapman, Jr., our President, who
will not devote his full time to our activities. The loss of the services of Mr.
Chapman may have a material adverse effect on our business, operations, revenue
and/or business prospects. We maintain key man life insurance on Mr. Chapman in
the amount of $11 million.
CERTAIN TRANSACTIONS; RELATIONSHIPS WITH OTHER CHAPMAN ENTITIES; CONFLICTS OF
INTEREST
Mr. Chapman, our majority stockholder, is also the majority stockholder of
the parent companies of Chapman Capital Management, Inc. ("CCM") and The Chapman
Insurance Agency, Inc. Several of our executive officers, including Mr. Chapman
are also executive officers of such companies and The Chapman Funds, Inc., a
CCM-sponsored and--managed registered investment company that includes multiple
investment portfolios including The Chapman US Treasury Money Fund, DEM Equity
Fund and DEM Index Fund. The common management and/or ownership among the
Company and these other companies may involve potential conflicts of interest
with respect to the terms of business transactions, the allocation of shared
expenses and the allocation of business opportunities between the Company and
such other companies. See "Certain Transactions."
Further, because our key executives are also senior executives of other
companies, our management will not be able to devote all of its time to our
business affairs. Although there is no written agreement, we expect that Mr.
Chapman will devote no less than 33% of his time to our operations and entities
that he serves at the our request. All business transactions and allocations of
overhead between us and such other companies is approved by at least a majority
of the independent, outside members of the Board of Directors. Furthermore, the
compensation of our President will be approved by the Compensation Committee of
the Board of Directors, a majority of the members of which are independent,
outside directors.
EFFECT ON MARKET PRICE OF SHARES ELIGIBLE FOR FUTURE SALE/CONTROL BY PRINCIPAL
STOCKHOLDER
Nathan A. Chapman, Jr. holds 61.9% of the shares of our outstanding Common
Stock. All of the shares held by Mr. Chapman are currently available for resale
in the public market under Rule 144, promulgated pursuant to the Securities Act.
As of February 28, 1998, an additional 118,047 shares, or approximately 4% of
the outstanding Common Stock, where held in inventory by our subsidiary, The
Chapman Co., in its capacity as market-maker for the Common Stock. All of the
shares held by The Chapman Co. are available for immediate resale pursuant to
this prospectus. Sales of a significant number of shares of Common Stock in the
public market could have a material adverse effect on the market price of the
Common Stock. Because Mr. Chapman controls a majority of the outstanding shares
of Common Stock, he controls the outcome of all matters submitted to the
stockholders for approval, including the election of all members of the Board of
Directors. See "Principal Stockholders" for a table showing the amount of shares
owned by Mr. Chapman and other stockholders.
4
<PAGE>
SIGNIFICANT FLUCTUATIONS IN QUARTERLY OPERATING RESULTS
Our revenue and operating results may fluctuate from quarter to quarter and
from year to year due to a combination of factors, including:
- - the number of underwriting transactions in which we participate
- - access to public markets for companies in which we have invested as a
principal
- - the valuations of our principal investments
- - the level of institutional and retail brokerage transactions,
- - variations in expenditures for personnel, litigation expenses and expenses of
establishing new business units
Our revenue from an underwriting transaction is recorded only when the
underwritten security commences trading. Therefore, the timing of our
recognition of revenue from a significant transaction can materially affect our
quarterly operating results. As a result, we could experience losses if demand
for these transactions declines more quickly than our ability to change our cost
structure.
REGULATORY RISKS
Our business, and the securities industry generally, are subject to
extensive regulation at both the federal and state levels. In addition,
self-regulatory organizations, such as the NASD, require strict compliance with
their rules and regulations. Among other things, these regulatory authorities
impose restrictions on sales methods, trading practices, use and safekeeping of
customer funds and securities, record keeping and the conduct of principals and
employees.
The purpose of the extensive regulation of broker-dealers is to protect
customers and the integrity of the securities markets. However, this regulation
imposes significant compliance requirements on us. Failure to comply with any of
the laws, rules or regulations of any independent, state or federal regulatory
authority could result in a fine, injunction, suspension or expulsion from the
industry, which could have a material adverse effect on our business. Although
we have implemented procedures designed to achieve compliance with such laws,
rules and regulations, there can be no assurance that such compliance procedures
will prevent violations. Furthermore, amendments to existing statutes and
regulations or the adoption of new statutes and regulations could require us to
alter our methods of operation at costs which could be substantial.
NET CAPITAL REQUIREMENTS
The Commission and the NASD have stringent provisions with respect to net
capital requirements of securities firms. A significant operating loss or any
charge against the net capital of our brokerage subsidiary, The Chapman Co.,
could adversely affect its ability to operate, expand or, depending upon the
magnitude of the loss or charge, maintain its present level of business. These
rules could also restrict our ability to withdraw capital from The Chapman Co.,
even in circumstances where The Chapman Co. has more than the minimum amount of
required capital, which could limit our ability to implement our strategies.
EFFECT ON COMMON STOCK TRADING OF LIMITATIONS ON MARKET-MAKING ACTIVITIES
Because our brokerage subsidiary, The Chapman Co., makes a market in the
Common Stock, we are subject to Commission and NASD regulations that require The
Chapman Co. to deliver a current market-making prospectus to purchasers when
engaging in market-making transactions in the Common Stock. A "market-making"
prospectus is a continuously updated prospectus that is part of an effective
registration statement filed with the Commission that must be delivered to
purchasers of securities from the issuer of
5
<PAGE>
such securities or a broker-dealer affiliate of such issuer in market-making
transactions. Therefore, in the absence of a current market-making prospectus,
The Chapman Co. will not be able to engage in market-making activities relating
to the Common Stock. The costs of maintaining a current prospectus and the
prospectus delivery requirements can increase the cost of making a market in
securities to both the issuer and the broker-dealer.
We believe that there will be sufficient market-makers for the Common Stock
to maintain its SmallCap Market quotation. However, no firms are under any
obligation to make a market in the Common Stock and any firm which commences
market-making activities may cease such activities at any time. Further, other
rules, including those relating to the use of "insider information," may prevent
our registered representatives from recommending the Common Stock to their
customers. To the extent that The Chapman Co. is unable to make a market in, or
make recommendations regarding, the Common Stock, your ability to sell the
Common Stock in the secondary market may be limited, our SmallCap Market
quotation may be threatened and the price of the Common Stock may be adversely
affected.
CREDIT RISKS
We clear all transactions for our brokerage customers on a fully disclosed
basis with its clearing agent, which carries and clears all customer securities
accounts. The clearing agent also lends funds to our brokerage customers through
the use of margin credit. These loans are made to customers on a secured basis,
with the clearing agent maintaining collateral in the form of salable
securities, cash or cash equivalents. Pursuant to the terms of our agreement
with the clearing agent, in the event our customers fail to pay for their
purchases, to supply the securities that they have sold, or to repay funds they
have borrowed, and the clearing agent satisfies any customer obligations, we
would be obligated to indemnify the clearing agent for any resulting losses.
YEAR 2000 SOFTWARE ISSUE
As the year 2000 approaches, an issue has emerged regarding how existing
application software programs and operating systems can accommodate information
that employs dates after December 31, 1999. We are working with our software
vendors to prepare our systems for the year 2000. Based on information currently
available, we do not anticipate that we will incur significant operating
expenses or be required to incur material costs to be year 2000 compliant. We
are, however, still analyzing and modifying our systems and requirements. In
addition, we have relationships with third parties that have computer systems
that may not be year 2000 compliant. To the extent that their systems are not
fully year 2000 compliant, we can not be sure that potential systems
interruptions or the cost necessary to update software would not have a material
adverse effect on our business, financial condition, results of operations, or
business prospects. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Year 2000 Software Issue."
LEGAL PROCEEDINGS AND ARBITRATION RISKS
Many aspects of our business involve substantial risks of liability and
regulatory enforcement by state and federal regulators. Additionally, in recent
years, there has been increased litigation involving participants in the
securities industry. Underwriters and agents are subject to substantial
potential liability for material misstatements and omissions in prospectuses and
other communications with respect to underwritten offerings of securities.
Claims by dissatisfied customers for fraud, unauthorized trading, churning,
mismanagement and breach of fiduciary duty are regularly made against
broker-dealers. Customer claims may be made in arbitration proceedings, which
claims could result in awards of compensatory and/or punitive damages against
us.
6
<PAGE>
CURRENT AND POTENTIAL REFORMS IN THE NASDAQ STOCK MARKET
The Nasdaq Stock Market has come under intense scrutiny in the media and
Congress during the past few years and has been the subject of Commission
investigations into its operations. Concerns have been raised with respect to
the size of the spreads between the price paid by investors purchasing Nasdaq-
quoted securities and the dealers who process the transactions. Concerns also
have been raised with respect to whether Nasdaq's listing requirements are
sufficiently stringent and whether the NASD, the trade organization controlling
the Nasdaq market, carefully polices Nasdaq-quoted companies. In response, the
NASD has begun to boost its internal compliance and monitoring programs,
including establishing a separate regulatory unit, National Association of
Securities Dealers Regulation, Inc. ("NASDR"). NASDR has taken numerous steps to
better monitor trading activities among dealers and to scrutinize companies'
compliance with applicable standards for quotation, and has heightened its
overall monitoring of small capitalization companies.
The effects of current and proposed Nasdaq reform on the operations of
brokerage firms, especially those specializing in the securities of small
capitalization companies, like us, cannot be fully anticipated. The cost of
compliance with any new rules, regulations and procedures instituted by the
NASDR could be significant. Additionally, the implementation of stricter
standards for initial and continued inclusion of companies on Nasdaq could
adversely affect the prospects of small capitalization companies, the stock
performance of such companies, and the liquidity of investors' investments in
such companies. Increased compliance costs or the inability to attain or
maintain the quotation of underwriting clients on the Nasdaq system could
adversely affect our financial performance.
NO DIVIDENDS
We have not paid any cash dividends on the Common Stock and we do not expect
to declare or pay any cash dividends in the foreseeable future. We intend to
retain any earnings for the foreseeable future for our continued growth.
Moreover, our ability to pay dividends in the future may be restricted by our
obligation to comply with the net capital rules applicable to broker-dealers.
See "Business--Net Capital Requirements" for a discussion of the net capital
rules.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH THE
CHAPMAN HOLDINGS, INC. CONSOLIDATED FINANCIAL STATEMENTS AND THE NOTES THERETO
INCLUDED ELSEWHERE IN THIS DOCUMENT. THE DISCUSSION OF RESULTS, CAUSES AND
TRENDS SHOULD NOT BE CONSTRUED TO IMPLY ANY CONCLUSION THAT SUCH RESULTS OR
TRENDS WILL NECESSARILY CONTINUE IN THE FUTURE. WHEN USED IN THIS DOCUMENT, THE
WORDS "BELIEVES," "INTENDS," "EXPECTS," "ANTICIPATES" AND SIMILAR EXPRESSIONS
ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. THESE FORWARD-LOOKING
STATEMENTS ARE LARGELY BASED ON THE CURRENT EXPECTATIONS OF MANAGEMENT AND ARE
SUBJECT TO A NUMBER OF RISKS AND UNCERTAINTIES. IN LIGHT OF THESE RISKS AND
UNCERTAINTIES, MANY OF WHICH ARE DESCRIBED IN THE "RISK FACTORS" SECTION OF THIS
DOCUMENT, ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THE FORWARD-LOOKING
STATEMENTS CONTAINED HEREIN.
OVERVIEW AND GENERAL INDUSTRY CONDITIONS
The primary sources of revenue of Chapman Holdings, Inc. (the "Company") are
commissions earned from brokerage services and management fees. The Company's
principal business activities are, by their nature, affected by many factors,
including general economic and financial conditions, movement of interest rates,
security valuations in the marketplace, competitive conditions, transaction
volume and market liquidity. Consequently, brokerage commission revenue and
investment banking fees can be volatile. While the Company seeks to maintain
cost controls, a significant portion of the Company's expenses are fixed and do
not vary with market activity. As a result, substantial fluctuations can occur
in the Company's revenue and net income from period to period. Unless otherwise
indicated, in this section, references to years are to fiscal years.
8
<PAGE>
RESULTS OF OPERATIONS
The following table reflects items in the Statements of Operations as dollar
amounts and as percentages of total revenue.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------------------------
<S> <C> <C> <C> <C>
1998 1997
------------------------------ -----------------------------
<CAPTION>
PERCENTAGE OF PERCENTAGE OF
AMOUNTS TOTAL REVENUE AMOUNTS TOTAL REVENUE
------------- --------------- ------------ ---------------
<S> <C> <C> <C> <C>
Revenue:
Commissions........................................... $ 2,538,436 86.5% $ 2,612,251 87.3%
Underwriting and management fees...................... 699,797 23.8 324,826 10.9
Interest and dividends................................ 334,793 11.4 54,724 1.8
Loss on Trading....................................... (637,957) (21.7) -- --
------------- ----- ------------ -----
Total revenue..................................... 2,935,069 100.0 2,991,801 100.0
------------- ----- ------------ -----
Expense:
Compensation and benefits............................. 2,185,396 74.5 1,120,753 37.4
Brokerage and clearing fees........................... 430,989 14.7 286,505 9.6
Communications........................................ 192,408 6.5 154,364 5.2
Occupancy and equipment............................... 460,079 15.7 355,542 11.9
Travel and business development....................... 255,017 8.7 210,881 7.0
Professional fees..................................... 416,267 14.2 103,431 3.5
Other operating expense............................... 610,671 20.8 269,797 9.0
------------- ----- ------------ -----
Total expense..................................... 4,550,827 155.1 2,501,273 83.6
------------- ----- ------------ -----
(Loss) income from continuing operations................ (1,615,758) (55.1) 490,528 16.4
Income tax (benefit) provision.......................... (485,000) (16.6) 205,000 6.9
------------- ----- ------------ -----
(Loss) income from continuing operations................ (1,130,758) (38.5) 285,528 9.5
Income from discontinued operations..................... -- -- 51,459 1.7
------------- ----- ------------ -----
Net (loss) income....................................... $ (1,130,758) (38.5%) $ 336,987 11.2%
------------- ----- ------------ -----
------------- ----- ------------ -----
</TABLE>
FISCAL YEAR ENDED DECEMBER 31, 1998 COMPARED TO FISCAL YEAR ENDED DECEMBER
31, 1997.
Total Revenue decreased by $56,732, or 1.9%, to $2,935,069 for 1998 from
$2,991,801 for 1997. Revenue increased by $581,225 or 19.4% in 1998 before the
loss related to the Company's inventory of trading stock of $637,957.
Commission revenue decreased $73,815, or 2.8% to $2,538,436 for 1998 from
$2,612,251 for 1997. This decrease was primarily due to an 88% decrease in
commissions for government securities primarily related to the volume of such
transactions. Increases in equities, institutional and fixed income commission
of 73.2%, 19.5% and 53%, respectively, partially offset this decrease.
Underwriting and management fees, increased by $374,971, or 115.4%, to
$699,797 for 1998 from $324,826 for 1997. The increase was primarily due to an
increase in management fees from municipal transactions and underwriting fees of
$334,005, or 120.1%, to $612,039 for 1998 from $278,034 for 1997.
Interest and dividend revenue increased by $280,069 to $334,793 for 1998
from $54,724 for 1997. This increase is due to higher cash balances associated
with the net proceeds from the Company's public offering of common stock.
The loss on trading accounts was $637,957 for 1998. The Company's loss on
trading accounts is attributable to an unrealized loss of value on its
market-making securities inventory of $404,509 and a realized loss of $74,325. A
realized loss of $159,123 was recognized on sales related to trading stock of
DEM, Inc.
9
<PAGE>
Total expense for 1998 increased by $2,049,554, or 81.9%, to $4,550,827 for
1998 from $2,501,273 for 1997. Total expense increased to 155.1% of total
revenue for 1998 as compared to 83.6% of total revenue for 1997. Expenses
increased in all areas due to increased staffing, the opening of new offices and
other expansions of operations.
Compensation and benefits increased by $1,064,643 or 95.0%, to $2,185,396
for 1998 from $1,120,753 for 1997. As a percentage of total revenue, these
expenses increased to 74.5% in 1998 from 37.4% in 1997. This increase is largely
due to the addition of 19 employees in connection with the Company's ongoing
business expansion efforts. Compensation expense includes sales commissions paid
to brokers and varies in relation to changes in commission revenue.
Notwithstanding that commission revenue decreased in 1998, commissions paid to
brokers increased primarily due to an increased municipal sales volume.
Floor brokerage and clearing fees increased by $144,484, or 50.4%, to
$430,989 for 1998 from $286,505 for 1997. This increase is attributable to an
increase in the number of transactions and a decrease in the average dollar
amount of such transactions.
Communication expense increased by $38,044, or 24.6%, to $192,408 for 1998
from $154,364 for 1997. This increase was primarily attributable to increased
usage associated with opening new offices and the Company's ongoing business
expansion efforts.
Occupancy and equipment expense increased by $104,537, or 29.4%, to $460,079
for 1998 from $355,542 for 1997 due to the opening of additional offices.
Travel and business development expense increased by $44,136, or 20.9%, to
$255,017 for 1998 from $210,881 for 1997 due to increased travel related to
business development activities.
Professional fees increased by $312,836, or 302.5%, to $416,267 for 1998
from $103,431 for 1997. The Company's increased use of legal services,
professional recruiters and marketing consultants related to the growth and
expansion of the Company.
Other operating expense increased by $340,874, or 126.3%, to $610,671 for
1998 from $269,797 for 1997. This increase was attributable to increased
advertising, supplies, postage and filing fees due to the growth and expansion
of the Company.
Income taxes from continuing operations decreased by $690,000 to a tax
benefit of $485,000 in 1998 from a tax provision of $205,000 for 1997. This
decrease was due to the loss from continuing operations.
The Company had no income from discontinued operations in 1998 verses
$51,459 for 1997.
The Company had a net loss of $1,130,758 for 1998 verses net income of
$336,987 for 1997. This change was a result of items discussed above.
LIQUIDITY AND CAPITAL RESOURCES
The Company's assets are reasonably liquid with a substantial majority
consisting of cash and cash equivalents, investment securities, and receivables
from other broker-dealers and the Company's clearing agent, all of which
fluctuate depending upon the levels of customer business and trading activity.
Receivables from broker-dealers and the Company's clearing agent turnover
rapidly. Both the Company's total assets as well as the individual components as
a percentage of total assets may vary significantly from period to period
because of changes relating to customer demand, economic and market conditions,
and proprietary trading strategies. The Company's total assets as of December
31, 1998 was $10,205,138.
As a broker-dealer, the Company is subject to the net capital rules of the
NASD. As such, the Company is subject to certain restrictions on the use of
capital and its related liquidity. The net capital position of The Chapman Co.
as of December 31, 1998 was $797,382, which was $697,382 in excess of its
minimum net capital requirement.
10
<PAGE>
The Company's cash and cash equivalents was $3,089,683 as of December 31,
1998.
Historically, the Company has financed its operations through the private
placement of equity securities and cash flow from operations. The Company has
not employed any significant leverage or debt. The Company intends to use debt
prudently in the future and may seek to arrange for lines of credit.
On February 26, 1998, the Company consummated an initial public offering,
the Offering, of its Common Stock pursuant to which the Company received net
proceeds of approximately $6,812,000.
The Company's overall capital and funding needs are continually reviewed to
ensure that its capital base can support the estimated needs of its business.
These reviews take into account business needs as well as the Company's
regulatory capital requirements. The Company believes that its capital structure
is adequate for current operations.
EFFECTS OF INFLATION
The Company's assets are to a large extent liquid in nature and,
accordingly, may be significantly affected by inflation. Market prices of
securities that the Company may hold in inventory are also influenced by changes
in inflation. Moreover, the rate of inflation affects the Company's expenses,
such as employee compensation, occupancy expenses and communications costs,
which may not be readily recoverable in the prices of services offered to the
Company's customers. To the extent inflation results in rising interest rates or
has adverse effects upon the securities markets, it may adversely affect the
Company's financial condition and results of operations.
YEAR 2000 SOFTWARE ISSUE
As the year 2000 approaches, existing software programs and operating
systems must be reviewed to determine if they can accommodate information that
employs dates after December 31, 1999. The Company expended $10,051 during
fiscal year 1998 and expects to expend $120,000 during fiscal year 1999 to cover
assessment of systems, internal testing, point-to-point testing, training,
Securities Industry Association industry testing and replacement and
modification of existing systems to ensure year 2000 compliance. Management has
prepared a written plan detailing the Company's software and operating systems'
compliance issues for the year 2000. The plan identifies critical and
non-critical operating systems of the Company and addresses external interfaces
with third-party computer systems. The Company is currently working with its
hardware and software vendors and other third parties to prepare for the year
2000. The Company anticipates that most of the necessary hardware and software
renovations needed to render the Company year 2000 compliant have been or will
be completed by the first quarter of 1999. Management plans to test its systems
during the second quarter of 1999 to determine the effect of its compliance
efforts. According to the Company's plan, the testing phase is scheduled to be
completed by approximately June 30, 1999. The Company has relationships with
third parties that may have computer systems that are not year 2000 compliant.
The Company has identified the third parties upon which it relies for
mission-critical systems and has contacted or is contacting such third parties
to confirm that their systems are in compliance with the year 2000 requirements.
While the Company believes that it is taking prudent and necessary action to
comply with year 2000 requirements, there can be no assurance that the year 2000
issue will not result in information or communications systems interruptions.
Any such interruptions could be expected to have a material adverse effect on
the Company's business, financial condition, results of operations and business
prospects and may subject the Company to liability to its clients. The Company
is currently building upon its existing contingency plan in the event that the
Company or third parties do not successfully complete their compliance efforts,
or if vendors or third parties controlling systems critical to the Company are
unable to confirm that their systems will be year 2000 compliant. These efforts
may result in additional costs in excess of current allocations and estimates.
11
<PAGE>
BUSINESS
GENERAL
Chapman Holdings, Inc. (the "Company") is an African American owned and
controlled holding company. The Company's full service securities brokerage and
investment banking subsidiary, The Chapman Co., is registered as a broker-dealer
with the Commission and in 34 states and the District of Columbia, and is a
member firm of the National Association of Securities Dealers, Inc. (the
"NASD"). (Unless the context otherwise indicates, the Company and The Chapman
Co. are hereinafter referred to collectively as the "Company".)
The Company is headquartered at the World Trade Center--Baltimore, 401 East
Pratt Street, 28(th) Floor, Baltimore, Maryland and its telephone number is
(410) 625-9656. The Company was incorporated in Maryland on December 12, 1997.
The Chapman Co. was incorporated in Maryland in 1986.
The Company is headquartered in Baltimore, Maryland with sales offices in
Alabama, California, Colorado, Illinois, Mississippi, Pennsylvania, Tennessee
and Texas.
The Company's primary sources of revenue are derived from brokerage
services, corporate finance, and government finance activities. These activities
are supported by the Company's research capabilities.
BROKERAGE SERVICES
The Company provides brokerage services to institutional and retail clients.
Commissions are charged to these clients for executing buy and sell orders for
securities on national and regional exchanges and in the over-the-counter
market. The Company's primary source of revenue for its brokerage business has
historically been commissions generated from institutional brokerage. The
Company's institutional clients include investment managers, corporate
retirement plans and municipal retirement plan sponsors. The Company maintains
floor broker relationships on the New York, American and Chicago Stock Exchanges
and executes buy and sell orders in the over-the-counter markets. Approximately
46% and 40% of the Company's revenue during 1998 and 1997, respectively, was
derived from its brokerage business.
The Company also participates in fixed income secondary market trading in
government securities primarily for fixed income investment managers, municipal
treasurers and other investment professionals. This business is done on a
competitive basis where the Company acts as a broker. Approximately 4% and 29%
of the Company's revenue during 1998 and 1997, respectively, was derived from
secondary market trading.
As of December 31, 1998, the Company employed 12 brokers.
The Company is a market-maker with respect to the securities of five
companies.
CORPORATE FINANCE
To date, the Company's corporate finance activities have been limited
primarily to participation in syndicates. The Company has been a member of over
200 underwriting syndicates for corporate issues, substantially all of which
were equity offerings. During 1998 and 1997, approximately 20% and 16%,
respectively, of the Company's revenue was derived from corporate finance
transactions. In 1998, over half of the Company's corporate finance revenue was
derived from the sale of the stock of Chapman Capital Management Holdings, Inc.,
an affiliate and former subsidiary of the Company for whom the Company acted as
sole underwriter. In 1997, over half of the Company's corporate finance revenue
was derived from the sale of the stock of DEM, Inc. for which the Company was
the sole underwriter. DEM, Inc. was a publicly-traded closed-end company managed
by Chapman Capital Management, Inc., a former subsidiary of the Company.
12
<PAGE>
GOVERNMENT FINANCE
The Company participates in the tax-exempt public finance market and has
managed, primarily as co-manager, over 250 transactions in 22 states and the
District of Columbia, including approximately 59 transactions in the past two
years. Over half of the total dollar amount of these transactions has been with
jurisdictions located in Alabama, California, Pennsylvania and Tennessee.
During 1998 and 1997, approximately 17% and 13%, respectively, of the
Company's revenue was derived from management fees, financial advisory fees and
selling concessions in public finance transactions. The Company currently
employs four investment bankers whose primary responsibility is the development
of the Company's public finance business.
STRATEGY
The Company intends to utilize its available resources to both exploit its
DEM strategic initiative and to expand its existing business activities.
DOMESTIC EMERGING MARKETS
The Company has implemented its Domestic Emerging Markets, or DEM, strategy
pursuant to which the Company markets financial services, primarily investment
banking services to domestic companies that are owned or controlled by
African-Americans, Asian-Americans, Hispanic Americans or women. As part of the
DEM strategy, the Company makes markets in the stocks of selected DEM companies.
The Company believes that the DEM market is underserved and its DEM strategy
will permit the Company to develop a market niche for its corporate finance
business.
The Company has identified approximately 180 DEM companies and seeks to
establish relationships with such companies that intend to raise additional
equity or debt financing. The Company's target clients are small capitalization
companies traded in the over-the-counter market and privately-held companies
undertaking an initial public offering. While the size of any particular
offering may vary, the Company anticipates that most such transactions would
range from $2 million to $15 million. The Company seeks to manage or co-manage a
substantial portion of these underwritings in which it participates.
The Company's ability to exploit its DEM strategy in the context of
corporate underwritings is dependent upon its ability to identify potential
clients fitting the DEM company profile and convincing such potential clients
that the Company is the right investment banking firm for their needs. The
Company has not conducted any independent research to test the marketability of
the DEM strategy, nor has the Company engaged in any significant marketing of
the strategy. Therefore, while the Company believes the concept to be viable,
the level of market acceptance is largely unknown. The Company intends to devote
a substantial amount of its resources to the execution of the DEM strategy.
EXPANSION OF EXISTING BUSINESS
The Company is expanding its existing business as follows:
The Company is expanding its research capabilities, focusing primarily on
DEM companies, hiring additional brokers and marketing specialized products to
retail and institutional clients.
In addition to the DEM corporate finance strategy discussed above, the
Company is aggressively seeking larger allocations in corporate underwriting
syndicates managed by other investment banking firms.
The Company is seeking larger positions in state and local public finance
transactions. As a result of its ability to undertake larger participations, the
Company believes it is better positioned to seek manager roles in these
transactions, entitling the Company to receive management fees in addition to
selling concessions. The Company intends to expand its participation in the
state and local public finance market
13
<PAGE>
by establishing a presence in states with major issuers of negotiated tax-exempt
bonds and by seeking more assignments as manager of such transactions. The
Company has identified California, New York, Texas, Illinois, Pennsylvania,
Michigan, Ohio and Florida as representing over 45% of the dollar amount of
aggregate tax-exempt bonds issued in the U.S. in 1997. The Company currently has
offices in Texas, Illinois and Pennsylvania and has recently opened an office in
California. The Company intends to use its increased capital to expand its
participation in federal agency debt transactions as a member of selling groups
in direct offerings and syndicates, as well as aggressively seeking management
roles in these offerings.
RESEARCH
The Company currently employs four research analysts and provides research
primarily on selected DEM companies. The Company intends to substantially
increase the number of DEM companies covered by its research.
The Company has created the DEM Index which tracks the results of certain of
those companies meeting the DEM profile. The Company believes that inclusion of
a DEM company in the DEM Index offers certain advantages such as facilitating
identification by fund managers and other institutions seeking to invest in
minority or women controlled businesses. The Company will seek to earn fees from
subscriptions to the DEM Index and the sale of limited information regarding the
companies included in the DEM Index.
CLEARING AGENT AND CUSTOMER CREDIT
The Company utilizes the services of RPR Clearing Services, Inc. as its
clearing agent on a fully disclosed basis (the "Clearing Agent"). The Clearing
Agent processes all securities transactions and maintains the accounts of
customers. Customer accounts are protected through the Securities Investor
Protection Corporation for up to $500,000, of which coverage for cash balances
is limited to $100,000. The Company has selected the Pershing Division of
Donaldson, Lufkin & Jenrette Securities Corporation to act as the Company's
clearing agent. The Company expects that Pershing will commence operations as
the Company's clearing agent in mid-Summer 1999.
The services of the Clearing Agent include billing, credit control, receipt
and custody and delivery of securities. The Clearing Agent provides the
operational support necessary to process, record and maintain securities
transactions for the Company's brokerage and distribution activities. The total
cost of the Clearing Agent's services to the Company is less than the cost the
Company would incur to provide these services itself.
The Clearing Agent lends funds to the Company's customers through the use of
margin credit. These loans are made to customers on a secured basis, with the
Clearing Agent maintaining collateral in the form of salable securities, cash or
cash equivalents. Under the terms of the Company's clearing agreement, the
Company indemnifies the Clearing Agent for any loss on these credit
arrangements. As of December 31, 1998, the Company had approximately $2,559,189
of margin credit outstanding to its customers through its Clearing Agent. There
have been no defaults on margin loans in the last two years. The net interest
income to the Company from margin activities for the years ending December 31,
1997 and 1998 was not material.
GOVERNMENT REGULATION
The securities business is subject to extensive and frequently changing
federal and state laws and substantial regulation under such laws by the
Commission and various state agencies and self-regulatory organizations, such as
the NASD. The Company is registered as a broker-dealer with the Commission and
is a member firm of the NASD. Much of the regulation of broker-dealers has been
delegated to self-regulatory organizations, principally the NASD, which has been
designated by the Commission as the Company's primary regulator. The NASD adopts
rules (which are subject to approval by the Commission)
14
<PAGE>
that govern its members and conducts periodic examinations of member firms'
operations. Securities firms are also subject to regulation by state securities
administrators in those states in which they conduct business. The Company is
registered as a broker-dealer in 34 states and the District of Columbia.
Broker-dealers are subject to regulations which cover all aspects of the
securities business, including sales methods and supervision, trading practices
among broker-dealers, use and safekeeping of customers' funds and securities,
capital structure of securities firms, record keeping and the conduct of
directors, officers and employees. Additional legislation, changes in rules
promulgated by the Commission and self-regulatory organizations, or changes in
the interpretation or enforcement of existing laws and rules, may directly
affect the mode of operation and profitability of broker-dealers.
The Commission, self-regulatory organizations and state securities
commissions may conduct administrative proceedings which can result in censure,
fine, the issuance of cease-and-desist orders or the suspension or expulsion of
a broker-dealer, its officers or employees. The principal purpose of regulation
and discipline of broker-dealers is the protection of customers and the
integrity of the securities markets.
The Company's mutual fund distribution business is subject to extensive
regulation as to its duties, affiliations, conduct and limitations on fees under
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), the
Investment Company Act of 1940, as amended (the "1940 Act"), and the regulations
of the NASD. As discussed above, the Company is an NASD member. The NASD has
prescribed rules (Rule 2830 of the NASD Conduct Rules) with respect to maximum
commissions, charges and fees related to investment in any open-end investment
company registered under the 1940 Act.
NET CAPITAL REQUIREMENTS
As a registered broker-dealer and a member firm of the NASD, the Company is
subject to the net capital rule of the Commission. The net capital rule, which
specifies minimum net capital requirements for registered brokers and dealers,
is designed to measure the general financial integrity and liquidity of a
broker-dealer and requires that at least a minimum part of its assets be kept in
relatively liquid form. Net capital is essentially defined as net worth (assets
minus liabilities), plus qualifying subordinated borrowings and less certain
mandatory deductions that result from excluding assets not readily convertible
into cash and from valuing certain other assets, such as a firm's positions in
securities, conservatively. Among these deductions are adjustments in the market
value of securities to reflect the possibility of a market decline prior to
disposition. The Company has elected to compute its net capital under the
standard aggregate indebtedness method permitted by the net capital rule, which
requires that the ratio of aggregate indebtedness to net capital, both as
defined, shall not exceed a 15-to-1 ratio. At December 31, 1998, the Company had
net capital and a net capital requirement of $797,382 and $100,000,
respectively. The Company's ratio of aggregate indebtedness to net capital was
.7 to 1.
Failure to maintain the required net capital may subject a firm to
suspension or expulsion by the NASD, the Commission and other regulatory bodies
and ultimately may require its liquidation. The Company entered into a consent
agreement with the NASD regarding alleged violations of the net capital rules in
late 1993 and early 1994. Pursuant to such agreement, the Company and Mr.
Chapman were jointly fined $30,000 and Mr. Chapman was suspended from
association with the Company for 10 days. The Company has exceeded all net
capital requirements since such alleged violations. The net capital rule also
prohibits payments of dividends, redemption of stock and the prepayment or
payment in respect of principal of subordinated indebtedness if net capital,
after giving effect to the payment, redemption or repayment, would be less than
a specified percentage (currently 120%) of the minimum net capital requirement.
Compliance with the net capital rule could limit those operations of the
Company's brokerage subsidiary that require the intensive use of capital, such
as underwriting and trading activities, and also could restrict the Company's
ability to withdraw capital from its operating subsidiary, which in turn, could
limit the Company's ability to pay dividends, repay debt and redeem or purchase
shares of its outstanding capital stock.
15
<PAGE>
COMPETITION
The Company encounters intense competition in all aspects of its securities
business and competes directly with other securities firms, a significant number
of which have greater capital and other resources. In addition to competition
from firms currently in the securities business, there has recently been
increasing competition from other sources, such as commercial banks and
insurance companies offering financial services, and from other investment
alternatives. The Company believes that the principal factors affecting
competition in the securities industry are the quality and abilities of
professional personnel, including their ability to effectuate a firm's
commitments, and the quality, range and relative prices of services and products
offered.
Although the Company may expand the financial services it can offer to its
customers, it does not now offer as broad a range of financial services as
national stock exchange member firms, commercial banks, insurance companies and
others.
PERSONNEL
At December 31, 1998, the Company had 35 full-time employees, including 25
registered representatives. None of the Company's personnel is covered by a
collective bargaining agreement. The Company considers its relationships with
its employees to be good.
LEGAL PROCEEDINGS
Many aspects of the Company's business involve substantial risks of
liability, including exposure under federal and state securities laws in
connection with the underwriting and distribution of securities. The Company
does not presently maintain an errors and omissions insurance policy insuring it
against these risks. In recent years, there has been an increasing incidence of
litigation involving the securities industry, including class actions which
generally seek rescission and substantial damages. Additionally, securities
brokerage firms become parties to arbitrations brought by dissatisfied customers
in the general course of business. The Company has been and is currently a party
to such proceedings, none of which has resulted or is expected to result in any
material liability.
PROPERTIES
The principal executive offices of the Company are located at The World
Trade Center--Baltimore, 401 East Pratt Street, 28th Floor, Baltimore, Maryland
21202 where the Company leases approximately 10,000 square feet of office space.
The lease for these premises expires in 2000. The Company leases furniture and
equipment from an affiliated entity. See "Certain Transactions."
16
<PAGE>
MANAGEMENT
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE PRINCIPAL POSITIONS
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Nathan A. Chapman, Jr. 41 President, Chairman of the Board and Director
Earl U. Bravo, Sr. Senior Vice President, Secretary, Assistant Treasurer
51 and Director
Lottie H. Shackelford 57 Director
Donald V. Watkins 49 Director
M. Lynn Ballard 56 Treasurer and Assistant Secretary
</TABLE>
The Board of Directors has designated an Audit Committee, currently
consisting of its two independent Directors. The Audit Committee reviews the
scope of accounting audits, reviews with the independent public accountants the
corporate accounting practices and policies and recommends to whom reports
should be submitted within the Company, reviews with the independent public
accountants their final report, reviews with the independent public accountants
overall accounting and financial controls, and is available to the independent
public accountants during the year for consultation purposes. The Board of
Directors has also designated a Compensation Committee of the Board of
Directors, currently consisting of the two independent Directors. The
Compensation Committee reviews the performance of senior management, approves
the compensation of the President, recommends appropriate compensation levels
for officers other than the President and approves the issuance of stock options
pursuant to the Company's stock option plan. All Directors and officers of the
Company serve until their successors are duly elected and qualify.
NATHAN A. CHAPMAN, JR. has been President and Director since 1986 of The
Chapman Co., President and Director since 1988 of Chapman Capital Management,
Inc., President and Director of Chapman Holdings, Inc. since 1997, President and
Director of Chapman Capital Management Holdings, Inc. since 1998 and President
and Director of The Chapman Funds, Inc. since 1988. Mr. Chapman is a Certified
Public Accountant, a General Securities Principal, Financial and Operations
Principal, Registered Options Principal, and Registered Municipal Principal.
EARL U. BRAVO, SR. has been Secretary and Assistant Treasurer since 1997 of
The Chapman Co., Senior Vice President, Secretary, Assistant Treasurer and
Director of Chapman Holdings, Inc. since 1997, Vice President, Secretary,
Assistant Treasurer and Director of Chapman Capital Management Holdings, Inc.
since 1998. Mr. Bravo is Secretary and Assistant Treasurer of The Chapman Funds,
Inc. Mr. Bravo has been employed in various senior executive positions with The
Chapman Co. and Chapman Capital Management, Inc. since 1990. Mr. Bravo is a
General Securities Principal, Financial and Operations Principal, and Registered
Representative.
LOTTIE H. SHACKELFORD has been Executive Vice President of Global USA since
1994. From 1978 to 1992, Ms. Shackelford was City Director of Little Rock,
Arkansas. In 1988 and 1989, Ms. Shackelford was Vice-Chair and Co-Chair,
respectively, of the Democratic National Committee. Ms. Shackelford is a
Director of The Chapman Funds, Inc and has been a Director of the Company since
1997.
DONALD V. WATKINS has been President of Donald V. Watkins, PC, a law firm
located in Birmingham, Alabama, since 1973. Mr. Watkins has been Director of
Chapman Holdings, Inc. since 1997.
M. LYNN BALLARD has been Treasurer and Assistant Secretary since 1997 of
The Chapman Co., Treasurer and Assistant Secretary of Chapman Holdings, Inc.
since 1997 and Chapman Capital Management Holdings, Inc. since 1998. Ms. Ballard
has been employed as a senior financial executive of The Chapman Co. and Chapman
Capital Management, Inc. since 1988. Ms. Ballard is Treasurer and Assistant
Secretary of The Chapman Funds, Inc.
17
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth information concerning compensation paid by
the Company during the last three fiscal years, for services rendered in all
capacities to the Company and its subsidiary, The Chapman Co., to the chief
executive officer and the other most highly paid executive officers of the
Company whose total annual salary and bonus exceeded $100,000 during the year
ended December 31, 1998. No other executive officer of the Company received
salary and bonus of $100,000 or more during such years.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
----------------------
<S> <C> <C> <C>
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS
- ---------------------------------------------------------------------------- --------- ---------- ----------
Nathan A. Chapman, Jr. ..................................................... 1998(1) $ 200,000 $ 100,000
President 1997(2) $ 159,500 $ 100,000
1996(2) $ 144,000 $ -0-
Earl U. Bravo, Sr. (1)...................................................... 1998(1) $ 105,000 $ 10,000
Senior Vice President, Secretary and Assistant Treasurer 1997(2) $ 100,000(3) $ 5,000(3)
1996(3)
</TABLE>
- ------------------------
(1) Includes approximately 50% allocated to CCM and The Chapman Insurance
Agency, Incorporated pursuant to certain expense sharing arrangements. See
"Certain Transactions."
(2) Includes amounts allocated to CCM and The Chapman Insurance Agency,
Incorporated, then subsidiaries of the Company, pursuant to certain informal
allocation arrangements.
(3) Annual salary and bonus received by Mr. Bravo in fiscal year ended December
31, 1996 was less than $100,000.
The Board of Directors of the Company has established the 1998 Chapman
Holdings, Inc. Omnibus Stock Plan (the "Plan") to enable the Company to grant
equity compensation to the Company's directors, officers, employees and
consultants. Pursuant to the Plan, 150,000 shares have been reserved for award
thereunder. The Plan is administered by the Compensation Committee of the Board
of Directors.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO EXERCISE OR
OPTIONS EMPLOYEES IN BASE PRICE
NAME GRANTED (#) FISCAL YEAR ($/SHARE) EXPIRATION DATE
- ------------------------------------------------------ ------------- ------------------- ------------- ---------------
<S> <C> <C> <C> <C>
Earl U. Bravo, Sr. Senior Vice President, Secretary
and Assistant Treasurer............................. 5,000 11% 9.50 9/28/2001
</TABLE>
COMPENSATION OF DIRECTORS
Directors of the Company receive no cash compensation for their service to
the Company as Directors; however, they are reimbursed for all out-of-pocket
expenses relating to attendance at meetings of the Board of Directors and any
committee thereof. Members of the Board of Directors are eligible to receive
stock options pursuant to the Plan. On September 28, 1998, Directors Watkins and
Shackelford were awarded 3-year stock options to purchase 10,000 shares and
1,000 shares, respectively, at $9.50 per share, the then current market price.
18
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of shares of the Company's Common Stock as of February 28, 1999 by (i)
each person known by the Company to own beneficially 5% or more of its
outstanding shares of Common Stock, (ii) each director, (iii) each executive
officer named in the executive compensation, and (iv) all directors and
executive officers of the Company as a group. Except as otherwise indicated, the
Company believes that the beneficial owners of the Common Stock listed below,
based on information furnished by such owners, have sole voting and investment
power with respect to such shares, subject to community property laws where
applicable.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF AMOUNT AND NATURE OF
BENEFICIAL OWNER BENEFICIAL OWNERSHIP PERCENT OF SHARES OUTSTANDING
- -------------------------------------------------------------- -------------------- -------------------------------
<S> <C> <C>
Nathan A. Chapman, Jr. ....................................... 2,170,429 shares(1) 73.5%
401 E. Pratt Street
Baltimore, MD 21202
The Chapman Co. .............................................. 118,047 shares(2) 4.0%
401 E. Pratt Street
Baltimore, MD 21202
Chapman Capital Management, Holdings, Inc. ................... 224,267 shares(3) 7.6%
401 E. Pratt Street
Baltimore, MD 21202
Lottie H. Shackelford......................................... 1,000 shares(4) *
401 E. Pratt Street
Baltimore, MD 21202
Donald V. Watkins............................................. 17,000 shares(5) *
401 E. Pratt Street
Baltimore, MD 21202
Earl U. Bravo, Sr. ........................................... 6,900 shares(6) *
401 E. Pratt Street
Baltimore, MD 21202
M. Lynn Ballard............................................... 5,000 shares(7) *
401 E. Pratt Street
Baltimore, MD 21202
All Directors and Executive Officers as a Group............... 2,200,329 shares 74.0%
</TABLE>
* Represents less than one percent of the outstanding shares of Common Stock.
(1) Includes shares held by The Chapman Co. and Chapman Capital Management
Holdings, Inc. Mr. Chapman is President and Director of each of The Chapman
Co. and Chapman Capital Management Holdings, Inc. and Chairman and majority
stockholder of Chapman Capital Management Holdings, Inc. Mr. Chapman
disclaims beneficial ownership of the shares held by The Chapman Co. and
Chapman Capital Management Holdings, Inc.
(2) Represents shares held in inventory, as market-maker, that have no voting
rights as long as they are held by a subsidiary of the Company.
(3) Represents shares held by Chapman Capital Management, Inc., its wholly-owned
subsidiary, in investment advisory accounts over which CCM exercises voting
and dispository discretion.
(4) Represents shares subject to stock options that are currently exercisable.
(5) Includes 10,000 shares subject to stock options that are currently
exercisable.
(6) Includes 5,000 shares subject to stock options that are currently
exercisable.
(7) Represents shares subject to stock options that are currently exercisable.
19
<PAGE>
CERTAIN TRANSACTIONS
On February 26, 1998, the Company and its subsidiary The Chapman Co.
effected tax-free spin-off transactions pursuant to which all of the outstanding
shares of stock of the former subsidiaries of The Chapman Co., Chapman Capital
Management Holdings, Inc., parent of Chapman Capital Management, Inc. ("CCM")
and Chapman Insurance Holdings, Inc. parent of The Chapman Insurance Agency,
Inc. were distributed to the Company's stockholders.
CCM is registered with the Commission as an investment adviser and manages
funds for institutional investors and individuals on a separate account basis,
for three registered open-end investment companies, DEM Equity Fund, DEM Index
Fund and The Chapman U.S. Treasury Money Fund, each a portfolio of The Chapman
Funds, Inc., and a private group trust for qualified employee benefit plans. The
Chapman Insurance Agency, Inc. is a variable annuity provider formed primarily
to serve retail clients and its operations have not been significant to date.
Nathan A. Chapman, Jr., the President, Chairman of the Board of Directors
and majority stockholder of the Company, is the President and Chairman of the
Board of Directors of each of Chapman Capital Management Holdings, Inc., CCM,
Chapman Insurance Holdings, Inc., The Chapman Insurance Agency, Inc. and The
Chapman Funds, Inc. and majority stockholder of Chapman Capital Management
Holdings, Inc. and Chapman Insurance Holdings, Inc. Earl U. Bravo, Sr., Senior
Vice President, Secretary, Assistant Treasurer and a Director of the Company and
M. Lynn Ballard, Treasurer, Assistant Secretary of the Company are each senior
executive officers of Chapman Capital Management Holdings, Inc., CCM, Chapman
Insurance Holdings, Inc., The Chapman Insurance Agency, Inc. and The Chapman
Funds, Inc. Mr. Bravo is a Director of Chapman Capital Management Holdings, Inc.
Lottie H. Shackelford, a Director of the Company, is a Director of The Chapman
Funds, Inc. Until its liquidation in 1998, Mr. Chapman, Mr. Bravo and Ms.
Ballard served as senior executive officers and Mr. Chapman and Ms. Shackelford
served as Directors of DEM, Inc., a closed-end registered investment company
managed and sponsored by CCM.
The Company acted as the underwriter, on a best efforts basis, for the sale
of DEM, Inc. common stock. The Company was paid $432,008 and $0 in management
fees and commissions in the years ended December 31, 1997 and December 31, 1998,
respectively.
The Company acted as the underwriter, on a best efforts basis, for the sale
of Chapman Capital Management Holdings, Inc. common stock. The Company was paid
$296,623 in underwriting fees and commissions in the year ended December 31,
1998.
The Company is the distributor for The Chapman U.S. Treasury Money Fund, DEM
Equity Fund and DEM Index Fund pursuant to distribution agreements between the
Company and The Chapman Funds, Inc. Such distribution agreements must be
extended annually for one-year periods by the board of directors of The Chapman
Funds, Inc. or they expire by their terms. Further, such agreements are
terminable on 60 days notice and terminate automatically upon assignment. The
Company receives no compensation for the distribution of shares of The Chapman
U.S. Treasury Money Fund. The DEM Index Fund had no operations in 1999. The
Company was paid $14,221 in management fees and commissions in the year ended
December 31, 1998 pursuant to its distribution agreement with The Chapman Funds,
Inc. pertaining to the DEM Equity Fund. The Company has entered into
distribution agreements with The Chapman Funds, Inc. with respect to three
additional funds; however, such funds have not yet commenced operations.
As of October 31, 1997, CCM executed a 10-year note to the Company in the
amount of $771,889 accruing interest at .6.68% per annum. CCM repaid this note
in full during 1998. The largest amounts owed to the Company by CCM, including
this loan and CCM's allocation of shared overhead, and other advances as set
forth below, were $958,302 and $800,672 during fiscal years ended December 31,
1998 and 1997, respectively.
20
<PAGE>
As of December 31, 1996, Mr. Chapman executed a promissory note to the
Company in the amount of $106,923. As of February 11, 1998, Mr. Chapman executed
a three-year note in the amount of $176,250 which accrues interest at 5.54% per
annum and no payments of principal or interest are required until maturity, to
replace the note executed December 31, 1996. On March 11, 1998, Mr. Chapman
executed a three-year promissory note in the amount of $285,587 which accrues
interest at 5.5% per annum. As of May 1, 1998, Mr. Chapman executed a demand
promissory note in the amount of $100,000 which accrues interest at 5.5% per
annum. As of December 31, 1998, Mr. Chapman executed a three-year promissory
note in the amount of $51,690 which accrues interest at 4.33% per annum. As of
December 31, 1997 and 1998, Mr. Chapman owed the Company $164,601 and $638,314,
respectively, in connection with these notes.
Mr. Chapman is President and Treasurer and Mr. Bravo is Secretary of Chapman
General Partner One, Inc., the general partner of Chapman Limited Partnership I
(the "Partnership"). The Company leases furniture and equipment from the
Partnership. The lease requires monthly payments of $9,846 and contains one year
renewable terms, at the option of the Company, through September 2000, at which
time the Company can purchase the furniture and equipment at fair value. Rent
expense under this lease agreement was $118,152 in each of 1998 and 1997 of
which $0 and $9,846 were payable to the Partnership as of December 31, 1998 and
1997, respectively. Management believes that the terms of these transactions
were substantially as favorable to the Company as those available from
non-affiliates. The rent expense under the lease agreement has been shared
equally between the Company and CCM.
The Company shares office space, certain employees and other overhead with
certain other entities controlled by Mr. Chapman including CCM and The Chapman
Insurance Agency, Inc. The Company allocates compensation and benefits expense
to CCM and The Chapman Insurance Agency, Inc. based on actual compensation and
benefits expense and the estimated percentage of the employee's time spent
performing services for each entity. The Company allocates other expenses based
on estimated usage. Pursuant to such allocation arrangements, as of December 31,
1997 and 1998, CCM owed the Company $28,782 and $275,562, respectively. The
Company treats such outstanding allocation amounts as normal receivables to be
paid in the ordinary course of business. The common management and/or ownership
among the Company and other entities controlled by Mr. Chapman may involve
potential conflicts of interest. See "Risk Factors--Certain Transactions;
Relationships with Other Chapman Entities; Conflicts of Interest."
On November 10, 1998, the Company erroneously deposited $291,207 in the
securities account of CCM. As of December 31, 1998, CCM owed the Company
$104,270 of this amount. CCM repaid the Company in full on January 12, 1999.
The Company and Mr. Chapman have entered into a non-exclusive, royalty-free
licensing agreement pertaining to the Company's use of the DEM and Domestic
Emerging Markets trademarks that are owned by Mr. Chapman.
All transactions with affiliates of the Company are approved by a majority
of the Board of Directors, including a majority of the disinterested Directors.
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 20,000,000 shares of
Common Stock, par value $0.001 per share.
Holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of stockholders. Stockholders do not
have cumulative voting rights. Holders of Common Stock are entitled to receive
ratably such dividends as may be declared from time to time by the Board of
Directors out of funds legally available therefor. See "Dividend Policy." In the
event of a dissolution, liquidation or winding-up of the Company, holders of
Common Stock are entitled to share
21
<PAGE>
ratably in all assets remaining after payment of liabilities. Holders of Common
Stock have no right to convert their Common Stock into any other securities. The
Common Stock has no preemptive or other subscription rights. There are no
redemption or sinking fund provisions applicable to the Common Stock. All
outstanding shares of Common Stock are duly authorized, validly issued, fully
paid and nonassessable.
MARYLAND LAW AND CERTAIN CHARTER PROVISIONS
The Charter of the Company, provides that the Company shall indemnify its
currently acting and its former directors and officers against any and all
liabilities and expenses incurred in connection with their services in such
capacities to the maximum extent permitted by the Maryland General Corporation
Law, as from time to time amended (the "MGCL"). If approved by the Board of
Directors, the Company may indemnify its employees, agents and persons who serve
or have served, at its request as a director, officer, partner, trustee,
employee or agent of another corporation, partnership, joint venture or other
enterprise to the extent determined to be appropriate by the Board of Directors.
The Company shall advance expenses to its directors and officers entitled to
mandatory indemnification to the maximum extent permitted by the Maryland
General Corporation Law and may in the discretion of the Board of Directors
advance expenses to employees, agents and others who may be granted
indemnification.
Pursuant to the Agency Agreement the Company has agreed to indemnify the
Agent and the Agent has agreed to indemnify the Company and its directors,
officers and controlling persons against certain civil liabilities that may be
incurred in connection with this Offering, including certain liabilities under
the Securities Act.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company has been
informed that in the opinion of the Commission such indemnification is against
public policy as expressed in the Securities Act and is therefore unenforceable.
Furthermore, the Charter of the Company provides that, to the fullest extent
permitted by the MGCL as it may be amended from time to time, no director or
officer of the Company shall be liable to the Company or its stockholders for
monetary damages arising out of events occurring at the time such person is
serving as a director or officer, regardless of whether such person is a
director or officer at the time of a proceeding in which liability is asserted.
Under current Maryland law, the effect of this provision is to eliminate the
rights of the Company and its stockholders to recover monetary damages from a
director or officer except (i) to the extent that it is proved that the director
or officer actually received an improper benefit, or profit in money, property,
or services for the amount of the benefit or profit in money, property or
services actually received, or (ii) to the extent that a judgment or other final
adjudication adverse to the person is entered in a proceeding based on a finding
in the proceeding that the person's action, or failure to act, was the result of
active and deliberate dishonesty and was material to the cause of action
adjudicated in the proceeding. In situations to which the Charter provision
applies, the remedies available to the Company or a stockholder are limited to
equitable remedies such as injunction or rescission.
SHARES ELIGIBLE FOR FUTURE SALE
The Company has 2,953,622 shares of Common Stock outstanding, of which
1,828,115 shares or approximately 61.9% are directly held by Nathan A. Chapman,
Jr. All of the shares directly held by Mr. Chapman are currently available for
resale in the public market, under Rule 144, promulgated pursuant to the
Securities Act. As of February 28, 1998, an additional 118,047 shares, or
approximately 4% of the outstanding Common Stock, where held in inventory by the
Company's subsidiary, The Chapman Co. in its capacity as market-maker for the
Common Stock. All of the shares held by The Chapman Co. are available for
immediate resale pursuant to this prospectus. No prediction can be made as to
the effect, if any, that sales of shares of Common Stock or the availability of
such shares for sale will have on the market prices prevailing from time to
time. Nevertheless, the possibility that substantial amounts of Common
22
<PAGE>
Stock may be sold in the public market may adversely affect the prevailing
market price for the Common Stock and could impair the Company's ability to
raise capital through the sale of its equity securities.
In general, under Rule 144, a person (or persons whose shares are required
to be aggregated), including any affiliate of the Company, who beneficially owns
"restricted shares" for a period of at least one year is entitled to sell within
any three-month period, shares equal in number to the greater of: (i) 1% of the
then-outstanding shares of Common Stock; or (ii) the average weekly trading
volume of the Common Stock during the four calendar weeks preceding the filing
of the required notice of sale with the Commission. In addition, any person (or
persons whose shares are aggregated) who is not, at the time of the sale, nor
during the preceding three months, an affiliate of the Company, and who has
beneficially owned restricted shares for at least two years, can sell such
shares under Rule 144 without regard to the notice, manner of sale, public
information or volume limitations described above.
PLAN OF DISTRIBUTION
This Prospectus may be used by The Chapman Co. in connection with offers and
sales related to market-making transactions in shares of Common Stock effected
from time to time. The Chapman Co. may act as principal or agent in such
transactions, including as agent for the counterparty when acting as principal
or as agent for both counterparties, and may receive compensation in the form of
discounts and commissions, including from both counterparties when it acts as
agent for both. Such sales will be made at prevailing market prices at the time
of sale, at prices related thereto or at negotiated prices. For a description of
certain relationships and transactions between The Chapman Co. and its
affiliates and the Company, see "Management," "Certain Transactions" and
"Principal Stockholders." The Company has been advised by The Chapman Co. that,
subject to applicable laws and regulations, The Chapman Co. currently intends to
make a market in the Common Stock. However, The Chapman Co. is not obligated to
do so and any market-making activity will be subject to the limits imposed by
the Securities Act and the Securities Exchange Act of 1934, as amended. There
can be no assurance that an active trading market will be sustained. See "Risk
Factors--Risks of Low Priced Stock." The Chapman Co. has informed the Company
that it does not intend to confirm sales to any accounts over which it exercises
discretionary authority without the prior specific written approval of such
transactions by the customer.
STOCKHOLDER INFORMATION
The Common Stock is quoted on the SmallCap Market under the symbol "CMAN."
As of March 17, 1999, there were approximately 28 holders of record and
approximately 500 beneficial owners of the Common Stock.
PRICE RANGE PER SHARE
Set forth below is the range of high and low bid information on the Nasdaq
SmallCap Market for the Company's Common Stock for each quarter since the
Company's initial public offering. These quotations reflect inter-dealer prices,
without retail mark-up, mark-down or commission, and may not represent actual
transactions.
<TABLE>
<CAPTION>
1998
----------------------
QUARTER HIGH LOW
- ---------------------------------------------------------------------------------------------------- --------- ---
<S> <C> <C>
January to March*................................................................................... 10 9 3/4
--
---
April to June....................................................................................... 11 10
--
---
July to September................................................................................... 10 1/8 10
--
---
October to December................................................................................. 9 3/4 4 1/2
--
---
</TABLE>
- ------------------------
* The common stock commenced trading on the Nasdaq SmallCap Market in February
1998.
23
<PAGE>
DIVIDENDS
The Company has never declared or paid cash or other dividends on its Common
Stock and does not anticipate doing so in the foreseeable future. The payment of
dividends, if any, in the future is within the discretion of the Board of
Directors and will depend upon the Company's earnings, if any, its financial
condition, and other relevant factors. The Company intends to retain any
earnings in the foreseeable future for the Company's continued growth.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is UMB Bank, N.A.
LEGAL MATTERS
The legality of the securities offered hereby has been passed upon for the
Company by Venable, Baetjer and Howard, LLP.
EXPERTS
The audited consolidated financial statements of the Company included in
this Prospectus and elsewhere in the Registration Statement have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
report with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said report.
ADDITIONAL INFORMATION
The Company has filed with the Commission in Washington, DC, a Registration
Statement under the Securities Act with respect to the Shares offered by this
Prospectus. This Prospectus does not contain all of the information set forth in
the Registration Statement, certain parts of which are omitted in accordance
with the rules and regulations of the Commission. For further information with
respect to the Company and this offering, reference is made to the Registration
Statement, including the exhibits filed therewith, copies of which may be
obtained at prescribed rates from the Commission at the public reference
facilities maintained by the Commission at Judiciary Plaza Building, 450 Fifth
Street, NW, Washington, DC 20549. Descriptions contained in this Prospectus as
to the contents of any contract or other documents filed as an exhibit to the
Registration Statement are not necessarily complete and each such description is
qualified by reference to such contract or document. The Commission maintains a
Web site on the Internet that will contain all future reports, proxy and
information statements and other information that the Company is required to
file electronically with the Commission. The address of the Commission's Web
site is http://www.sec.gov.
The Company will furnish to its stockholders annual reports containing
financial statements for each fiscal year audited by an independent accounting
firm.
24
<PAGE>
CHAPMAN HOLDINGS, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Report of Independent Public Accountants................................................................... F-2
Financial Statements
Consolidated Balance Sheet as of December 31, 1998....................................................... F-3
Consolidated Statements of Operations for the Years Ended December 31, 1998 and 1997..................... F-4
Consolidated Statements of Changes in Stockholders' Equity for the Years Ended December 31, 1998 and
1997................................................................................................... F-5
Consolidated Statements of Cash Flows for the Years Ended December 31, 1998 and 1997..................... F-6
Notes to Consolidated Financial Statements............................................................... F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Chapman Holdings, Inc:
We have audited the accompanying consolidated balance sheet of Chapman Holdings,
Inc. and Subsidiaries (a Maryland corporation) as of December 31, 1998, and the
related consolidated statements of operations, changes in stockholders' equity
and cash flows for the two years ended December 31, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Chapman Holdings,
Inc. and Subsidiaries as of December 31, 1998, and the results of their
operations and their cash flows for the two years ended December 31, 1998, in
conformity with generally accepted accounting principles.
/S/ARTHUR ANDERSEN LLP
Baltimore, Maryland,
February 22, 1999
F-2
<PAGE>
CHAPMAN HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1998
<TABLE>
<CAPTION>
ASSETS:
Cash and cash equivalents.................................................... $3,089,683
<S> <C>
Cash deposits with clearing organization..................................... 2,388,600
Investments.................................................................. 203,750
Securities owned............................................................. 2,080,355
Receivables from brokers and dealers......................................... 331,428
Receivables from discontinued operations..................................... --
Receivables from affiliates.................................................. 379,832
Income taxes receivable...................................................... 294,000
Advances to officer/employee................................................. 657,198
Office equipment, net........................................................ 37,653
Prepaids and other assets.................................................... 583,172
Intangible assets............................................................ 145,000
Deferred tax asset........................................................... 14,467
Net assets from discontinued operations...................................... --
----------
Total assets............................................................. $10,205,138
----------
----------
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY:
<S> <C>
Accounts payable and accrued expenses........................................ $ 261,457
Margin loan payable.......................................................... 2,559,189
Accrued compensation......................................................... 242,807
Deferred rent................................................................ 78,143
Payable to affiliated partnership............................................ --
Income taxes payable......................................................... --
Deferred tax liability....................................................... --
Net liabilities from discontinued operations................................. --
----------
Total liabilities........................................................ 3,141,596
----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $.001 par value, 20,000,000 shares authorized, 2,953,622 shares
issued and outstanding..................................................... 2,954
Additional paid-in capital................................................... 7,902,561
Accumulated deficit.......................................................... (841,973)
----------
Total stockholders' equity............................................... 7,063,542
----------
Total liabilities and stockholders' equity............................... $10,205,138
----------
----------
</TABLE>
The accompanying notes are an integral part of this consolidated balance sheet.
F-3
<PAGE>
CHAPMAN HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
------------- ------------
<S> <C> <C>
REVENUE:
Commissions........................................................................ $ 2,538,436 $ 2,612,251
Underwriting and management fees................................................... 699,797 324,826
Interest and dividends............................................................. 334,793 54,724
Loss on trading.................................................................... (637,957) --
------------- ------------
Total revenue.................................................................. 2,935,069 2,991,801
------------- ------------
EXPENSE:
Compensation and benefits.......................................................... 2,185,396 1,120,753
Floor brokerage and clearing fees.................................................. 430,989 286,505
Communications..................................................................... 192,408 154,364
Occupancy, equipment rental, and depreciation...................................... 460,079 355,542
Travel and business development.................................................... 255,017 210,881
Professional fees.................................................................. 416,267 103,431
Other operating expense............................................................ 610,671 269,797
------------- ------------
Total expense.................................................................. 4,550,827 2,501,273
------------- ------------
(Loss) income from continuing operations before income tax (benefit)
provision.................................................................... (1,615,758) 490,528
INCOME TAX (BENEFIT) PROVISION....................................................... (485,000) 205,000
------------- ------------
(Loss) income from continuing operations....................................... (1,130,758) 285,528
INCOME FROM DISCONTINUED OPERATIONS, net of income taxes of $40,000.................. -- 51,459
------------- ------------
Net (loss) income.............................................................. $ (1,130,758) $ 336,987
------------- ------------
------------- ------------
BASIC EARNINGS PER SHARE DATA:
Income from continuing operations.................................................. $ (.40) $ 0.14
Income from discontinued operations................................................ -- 0.03
------------- ------------
Net (loss) income.............................................................. $ (.40) $ 0.17
------------- ------------
------------- ------------
Weighted average shares outstanding................................................ 2,792,891 2,001,914
------------- ------------
------------- ------------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-4
<PAGE>
CHAPMAN HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
RETAINED
ADDITIONAL EARNINGS TOTAL
COMMON PAID-IN (ACCUMULATED STOCKHOLDERS'
STOCK CAPITAL DEFICIT) EQUITY
----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1996.................................. $ 1,945 $ 1,309,005 $ (181,743) $1,129,207
Net income................................................ -- -- 336,987 336,987
Purchase of 152,250 shares of stock....................... (152) (217,348) -- (217,500)
Issuance of 196,594 shares of stock in exchange for a
stock warrant........................................... 196 (196) -- --
----------- ------------ ------------ ------------
BALANCE, December 31, 1997.................................. 1,989 1,091,461 155,244 1,248,694
Net loss.................................................. -- -- (1,130,758) (1,130,758)
Accumulated deficit from discontinued operations.......... -- -- 133,541 133,541
Net proceeds from issuance of common stock................ 965 6,811,100 -- 6,812,065
----------- ------------ ------------ ------------
BALANCE, December 31, 1998.................................. $ 2,954 $ 7,902,561 $ (841,973) $7,063,542
----------- ------------ ------------ ------------
----------- ------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-5
<PAGE>
CHAPMAN HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
-------------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income................................................................... $ (1,130,758) $ 336,987
Adjustments to reconcile net (loss) income to net cash used in operating activities:
Depreciation expense.............................................................. 7,500 --
Unrealized/realized loss on securities owned...................................... 637,957 --
Deferred taxes.................................................................... (122,467) 108,000
Effect from changes in assets and liabilities--
Deposits with clearing organization............................................. (2,348,484) (5,116)
Receivables from brokers and dealers............................................ 53,722 (228,743)
Receivables from discontinued operations........................................ 800,672 (118,029)
Receivables from affiliates..................................................... (379,587) (45)
Income tax receivable........................................................... (294,000) --
Advances to officer/employee.................................................... (481,147) (66,378)
Prepaids and other assets....................................................... (494,764) (24,330)
Net assets from discontinued operations......................................... 5,934 83,628
Accounts payable and accrued expenses........................................... 192,593 (24,104)
Accrued compensation............................................................ 173,897 (7,461)
Deferred rent................................................................... (10,905) --
Payable to affiliated partnership............................................... (9,846) (49,230)
Income taxes payable............................................................ (97,837) (52,504)
-------------- ----------
Net cash used in operating activities......................................... (3,497,520) (47,325)
-------------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of office equipment........................................................ (22,810) (9,785)
Purchase of Bell.................................................................... (219,827) --
Purchase of investments............................................................. (1,207,444) (11,806)
Proceeds from sale of investments................................................... 1,013,877 --
-------------- ----------
Net cash used in investing activities......................................... (436,204) (21,591)
-------------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common stock.......................................... 7,715,096 --
Issuance costs...................................................................... (903,031) --
Purchase of stock................................................................... -- (217,500)
-------------- ----------
Net cash provided by (used in) financing activities........................... 6,812,065 (217,500)
-------------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................................. 2,878,341 (286,416)
CASH AND CASH EQUIVALENTS, beginning of year.......................................... 211,342 497,758
-------------- ----------
CASH AND CASH EQUIVALENTS, end of year................................................ $ 3,089,683 $ 211,342
-------------- ----------
-------------- ----------
</TABLE>
>The accompanying notes are an integral part of these consolidated statements.
F-6
<PAGE>
CHAPMAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
ORGANIZATION AND BUSINESS
Chapman Holdings, Inc. (the "Company") provides securities brokerage and
investment banking services. The Company, during December 1997, became the
parent of a wholly-owned subsidiary, The Chapman Co. ("Chapman") and its two
subsidiaries, Chapman Capital Management, Inc. ("CCM") and Chapman Insurance
Agency, Incorporated ("CIA") pursuant to the merger of a newly formed wholly-
owned subsidiary of the Company into Chapman. CCM and CIA were spun off from
Chapman as part of the initial public offering ("IPO") on February 26, 1998.
The Company allocates compensation, benefits and other costs to CCM and CIA
on a proportional allocation cost method which management believes is
reasonable. Compensation and benefits are allocated based on management's
estimate of the percentage of time employees spend performing services for CCM
and CIA. Other costs, consisting of communications, occupancy and administrative
support, are allocated based on estimated usage by CCM and CIA.
BASIS OF PRESENTATION
The accompanying consolidated financial statements are presented on the
accrual basis of accounting in accordance with generally accepted accounting
principles. All significant intercompany balances have been eliminated in
consolidation. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities as of the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
ACQUISITION
The Company acquired all of the outstanding stock of Charles A. Bell (Bell),
a securities brokerage firm located in San Francisco, California, on December
29, 1998, for approximately $391,200. The acquisition resulted in recording
approximately $145,000 of intangible assets from the purchase price being in
excess of the book value of Bell. The assets acquired consist of cash, current
assets, property and intangibles.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents primarily consists of cash invested in the U.S.
Treasury Money Fund, a fund managed by Chapman Capital Management, Inc., an
affiliate.
INVESTMENTS
Investments as of December 31, 1998 and 1997, consist primarily of
certificates of deposit in which cost approximates market.
SECURITIES OWNED AND NOT YET PURCHASED
Securities owned consist of trading proprietary stock, which is carried at
market. The proprietary stock is primarily stock of Chapman Capital Management
Holdings, Inc. (CCMH), a company whose majority
F-7
<PAGE>
CHAPMAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
stockholder is also the majority stockholder of the Company. Chapman is the
market maker for the Company and CCMH and, thus, holds their stock in inventory.
As of December 31, 1998, Chapman held 115,997 shares of common stock of the
Company, with a market value of $579,985. The proprietary stock was purchased on
margin.
FINANCIAL INSTRUMENTS
The carrying amounts reported in the consolidated balance sheet for cash and
cash equivalents, receivables, investments, securities owned, advances, accounts
payable, accrued expenses and margin loan payable approximate fair value.
EARNINGS PER SHARE
As of December 31, 1997, the Company adopted Financial Accounting Standards
Board Statement No. 128, "Earnings Per Share" (SFAS No. 128). Under SFAS No.
128, a company must disclose basic earnings per share (the principal difference
being that common stock equivalence would not be considered in the compilation
of basic earnings per share) and diluted earnings per share. The Company adopted
this pronouncement which required restatement of all prior periods presented.
Earnings per share are based on the weighted average number of common and
dilutive common equivalent shares outstanding during the period the calculation
is made. Common equivalent shares consist of shares issuable upon the exercise
of stock warrants, using the treasury stock method. The weighted average shares
outstanding as of December 31, 1998 and 1997, are the weighted average common
shares outstanding of 2,792,891 and 2,001,914, respectively. The options granted
during 1998 would be antidilutive and, thus, are not required in the earnings
per share calculation.
INTANGIBLE ASSETS
Intangible assets consist of a non-compete agreement of $75,000 being
amortized over 2 years and goodwill of $70,000 being amortized over 15 years.
These intangibles are related to the Bell acquisition.
SEGMENT REPORTING
The Company has adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information" as of December 31, 1998, and has determined
that the Company has only one segment, securities brokerage and investment
banking services. The Company came to this conclusion because the Company
operates in one regulatory environment and has only one management group that
manages the entire Company. Information on the Company's results are provided as
one segment to the key decision-maker to make decisions.
COMPREHENSIVE INCOME
The Company has adopted SFAS, No. 130, "Reporting Comprehensive Income" and
has determined that the Company does not have any comprehensive income
adjustments for the periods presented, and therefore, comprehensive income
equals net income.
F-8
<PAGE>
CHAPMAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
REVENUE RECOGNITION
The Company records commission revenue, underwriting and management fees,
and related expenses on a trade date basis.
VOLATILITY OF BUSINESS
The Company's revenues and operating results may fluctuate from month to
month, quarter to quarter and year to year due to a combination of factors,
including the number of underwriting transactions in which the Company
participates, access to public markets for companies in which the Company has
invested as a principal, the level of institutional and retail brokerage
transactions, and expenses of establishing new business units. The Company's
revenues from an underwriting transaction are recorded only when the
underwritten security commences trading; accordingly, the timing of the
Company's recognition of revenue from a significant transaction can materially
affect the Company's operating results. As a result, the Company could
experience losses if demand for the above transactions declines faster than the
Company's ability to change its cost structure.
OFFICE EQUIPMENT
Office equipment is depreciated using the straight-line method over the
estimated useful life of 3 to 5 years. As of December 31, 1998, accumulated
depreciation was $7,500.
TRANSACTIONS WITH CLEARING ORGANIZATION
The Company is required to have cash on deposit with its clearing agent for
general trading purposes. In addition, receivables from and payables to the
clearing organization arise from cash settlements on ordinary trading activity
and clearing expenses.
INCOME TAXES
The Company accounts for income taxes under the separate company liability
method, whereby deferred income taxes are recognized for the tax consequences of
temporary differences by applying enacted statutory tax rates applicable to
future years to differences between the financial statement carrying amounts and
the tax bases of existing assets and liabilities.
2. INITIAL PUBLIC OFFERING AND SPIN-OFF OF OPERATIONS:
On February 26, 1998, the Company consummated an initial public offering
(the Offering) of its Common Stock pursuant to which the Company received net
proceeds, after the offering costs, of approximately $6,812,000.
Effective February 26, 1998, concurrent with the Company's completed initial
public offering, the Company spun off two of its wholly owned subsidiaries,
Chapman Capital Management, Inc. and the Chapman Insurance Agency, Inc. For the
year ended December 31, 1997, the results of operations of CCM and CIA are
reflected on the accompanying consolidated statement of operations as income
from discontinued operations, respectively.
F-9
<PAGE>
CHAPMAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
3. CAPITAL STOCK:
The common stock activity included in the accompanying consolidated
financial statements has been restated to reflect the one-for-five share
exchange of stock related to the merger of Chapman into the Company during 1998.
As such, all share data related to Chapman prior to the merger has been restated
at the Company's stock conversion amounts.
4. COMMITMENTS AND CONTINGENCIES:
The Company has entered into an operating lease agreement for office
facilities which expires on October 15, 2000. Rent expense under this agreement
was $209,052 in 1998 and 1997. The aggregate minimum future annual rental for
the following fiscal years ending December 31 is as follows:
<TABLE>
<CAPTION>
<S> <C>
1999.............................................................................. $ 252,660
2000.............................................................................. 200,022
</TABLE>
In addition, a proportionate share of real estate taxes and building
expenses in excess of base year amounts are charged to the Company. This lease
agreement includes scheduled rent increases which are recognized on a
straight-line basis. As of December 31, 1998, the Company recorded $78,143 in
deferred rent relating to this straight-line basis of rent expense recognition.
The Company leases furniture and equipment from the Chapman Limited
Partnership I (the Partnership), an entity in which certain officers and
stockholders of the Company are partners. The lease requires monthly payments of
$9,846 and contains one year renewable terms, at the option of the Company,
through September 2000, at which time the Company can purchase the furniture and
equipment at fair value. Rent expense under this lease agreement was $118,152 in
1998 and 1997.
The Company clears all transactions for its brokerage customers through its
clearing agent, which carries and clears all customer securities accounts. The
clearing agent also lends funds to the Company's brokerage customers through the
use of margin credit. These loans are made to customers on a secured basis, with
the clearing agent maintaining collateral in the form of saleable securities,
cash or cash equivalents. Pursuant to the terms of the agreement between the
Company and the clearing agent, in the event that customers fail to pay for
their purchases, to supply the securities that they have sold, or to repay funds
they have borrowed, and the clearing agent satisfies any customer obligations,
the Company would be obligated to indemnify the clearing agent for any resulting
losses. For the years ended December 31, 1998 and 1997, the Company did not
incur such losses.
Securities brokerage firms become parties to arbitrations brought by
dissatisfied customers in the general course of business. The Company has been
and is currently a party to such proceedings, none of which has resulted or
which management believes will result in any material liability.
F-10
<PAGE>
CHAPMAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
5. INCOME TAXES:
A reconciliation of the statutory income taxes to the recorded income tax
(benefit) provision for the years ended December 31, 1998 and 1997, are as
follows:
<TABLE>
<CAPTION>
1998 1997
----------- ----------
<S> <C> <C>
Statutory tax (at 35% rate).................................................... $ (566,000) $ 167,000
Effect of state income taxes................................................... (79,000) 24,000
Effect of graduated tax rate................................................... 120,000 --
Effect of permanent book to tax differences.................................... 40,000 14,000
----------- ----------
Income tax (benefit) provision................................................. $ (485,000) $ 205,000
----------- ----------
----------- ----------
</TABLE>
The components of the income tax (benefit) provision for the years ended
December 31, 1998 and 1997, are as follows:
<TABLE>
<CAPTION>
1998 1997
----------- ----------
<S> <C> <C>
Current........................................................................ $ (362,533) $ 57,000
Deferred....................................................................... (122,467) 108,000
Discontinued operations........................................................ -- 40,000
----------- ----------
Income tax (benefit) provision................................................. $ (485,000) $ 205,000
----------- ----------
----------- ----------
</TABLE>
The Company's deferred income tax asset and liability as of December 31,
1998, consist of the following:
<TABLE>
<CAPTION>
<S> <C>
Deferred tax asset:
NOL carryforward.......................................................................... $ 64,999
Deferred tax liability:
Other..................................................................................... (50,532)
----------
Net deferred tax asset recorded on the consolidated balance sheet........................... $ 14,467
----------
----------
</TABLE>
6. REGULATORY REQUIREMENTS:
Pursuant to the requirements of the Securities and Exchange Commission's
(SEC) Uniform Net Capital Rule (Rule 15c3-1), the Company is required to
maintain net capital, as defined, of not less than $100,000 and a ratio of
aggregate indebtedness to net capital, as defined, not to exceed 15 to 1. As of
December 31, 1998, the Company had excess net capital of $697,382 and a ratio of
aggregate indebtedness to net capital of .7 to 1. As of December 31, 1997, the
Company had excess net capital of $169,509 and a ratio of aggregate indebtedness
to net capital of .9 to 1.
The Company is subject to compliance with various SEC and National
Association of Securities Dealers, Inc. (NASD) regulations. Also, the NASD
periodically reviews the Company's records and procedures for compliance with
its requirements. Any acts of noncompliance may subject the Company to fines and
other punitive remedies and may significantly effect the Company's ability to
operate.
F-11
<PAGE>
CHAPMAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
7. STATEMENTS OF CASH FLOWS-SUPPLEMENTAL DISCLOSURE:
Supplemental cash flow disclosure for the years ended December 31, 1998 and
1997 were as follows:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Cash paid-
Interest........................................................................ $ 9,686 $ 9,341
Income taxes.................................................................... 29,000 182,232
</TABLE>
8. EMPLOYEE SAVINGS PLAN:
The Company's Retirement Savings Plan, a 401(k) plan, provides participants
a mechanism for making contributions for retirement savings. Each participant
may make pre-tax and after-tax contributions based upon eligible compensation.
The Company may make discretionary contributions based on the participants'
compensation for the plan year. The Company elected not to contribute to the
plan for the years ended December 31, 1998 and 1997.
9. OMNIBUS STOCK PLAN:
In March 1998, Chapman started an Omnibus Stock Plan (the Plan) to enable
selected management, employees, consultants and directors to acquire interest in
Chapman through ownership of common stock. The Plan has 150,000 shares of common
stock registered. On September 28, 1998, Chapman granted options for 43,900
shares of common stock at fair market value at the date of grant, which was
$9.50. The options vested on the grant date and have a three-year term. None of
those options had been exercised, expired or canceled as of December 31, 1998.
The Company accounts for its stock-based compensation plans as permitted by
FASB Statement No. 123, "Accounting for Stock-Based Compensation," which allows
the Company to follow Accounting Principles Board Opinion No. 25 ("APB No. 25"),
"Accounting for Stock Issued to Employees" and recognize no compensation cost
for options granted at fair market prices. The Company has computed, for pro
forma disclosure purposes, the value of all compensatory options granted during
1998, using the Black-Scholes option pricing model. The following assumptions
were used for grants for the year ended December 31, 1998:
<TABLE>
<S> <C>
Risk free interest rate.................................................... 4.51%
Expected dividend yield.................................................... 0.0%
Expected lives............................................................. 2 years
Expected volatility........................................................ 59%
</TABLE>
Options were assumed to be exercised upon vesting for the purposes of this
valuation. Had compensation costs for compensatory options been determined
consistent with SFAS No. 123, the Company's pro forma net loss and earnings per
share information reflected on the accompanying consolidated statements
F-12
<PAGE>
CHAPMAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
9. OMNIBUS STOCK PLAN: (CONTINUED)
of operations would have been increased to the following "as adjusted" amount
for the year ended December 31, 1998:
<TABLE>
<S> <C>
Net loss:
As reported........................................................... $1,130,758
As adjusted........................................................... 1,234,639
Basic earnings:
Per share-
As reported......................................................... (.40)
As adjusted......................................................... (.44)
</TABLE>
Weighted average fair value of options granted for the year ended December
31, 1998, was $3.37. The value was calculated using the Black-Scholes option
pricing model.
10. RELATED PARTY TRANSACTIONS:
The Company served as the underwriter for DEM, Inc. (DEM), a registered
non-diversified closed-ended management investment company. CCM provides
investment advisory and administrative services to DEM under an investment
advisory and administrative services agreement which sets forth the services to
be provided and the fees to be charged. The Company purchased 69,000 shares of
DEM stock during 1998. During the fourth quarter of 1998, DEM was dissolved. The
Company recognized a $159,123 loss on trading due to this dissolution.
Listed below are fees and commissions earned from DEM for the year ended
December 31, 1997.
<TABLE>
<S> <C>
Included in continuing operations (underwriting fees)..................... $ 432,008
Included in discontinued operations....................................... 138,614
---------
$ 570,622
---------
---------
</TABLE>
As of December 31, 1998, the Company had outstanding advances to its
majority stockholder and other employees of $657,198. The advances to the
majority stockholder are reflected in demand notes, which accrue interest at
5.5% per annum.
F-13
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON IS AUTHORIZED TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER
THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY OR THE AGENT. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THE SECURITIES OFFERED
BY THIS PROSPECTUS, OR AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY
SECURITIES BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS
NOT AUTHORIZED OR IS UNLAWFUL. THE DELIVERY OF THIS PROSPECTUS SHALL NOT, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION HEREIN IS CORRECT
AS OF ANY TIME SUBSEQUENT TO THE DATE OF THIS PROSPECTUS.
[LOGO]
CHAPMAN HOLDINGS, INC.
COMMON STOCK
---------------------
PROSPECTUS
---------------------
THE CHAPMAN CO.
[ ], 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 2-418 of the Maryland General Corporation Law (the "MGCL") provides
that the Registrant may indemnify any director who was, is or is threatened to
be made a named defendant or respondent to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative by reason of the fact that he is or was a director of the
Registrant, or while a director, is or was serving at the request of the
Registrant as a director, officer, partner, trustee, employee or agent of
another foreign or domestic corporation, partnership, joint venture, trust,
other enterprise or employee benefit plan, against reasonable expenses
(including attorneys' fees), judgments, penalties, fines and settlements,
actually incurred by the director in connection with such action, suit or
proceeding, unless it is established that: (i) the act or omission of the
director was material to the matter giving rise to such action, suit or
proceeding, and was committed in bad faith or was the result of active and
deliberate dishonesty; (ii) the director actually received an improper personal
benefit in money, property or services; or (iii) in the case of any criminal
proceeding, the director had reasonable cause to believe that the act or
omission was unlawful. If the action, suit or proceeding was one by or in the
right of the Registrant, no indemnification shall be made with respect to any
action, suit or proceeding in which the director shall have been adjudged to be
liable to the Registrant. A director also may not be indemnified with respect to
any action, suit or proceeding charging improper personal benefit to the
director, whether or not involving action in the director's official capacity,
in which the director is adjudged to be liable on the basis that a personal
benefit was improperly received. Unless limited by the Registrant's Charter: (i)
a court of appropriate jurisdiction, upon application of a director, may order
such indemnification as the court shall deem proper if it determines that the
director is fairly and reasonably entitled to indemnification in view of all of
the relevant circumstances, regardless of whether the director has met the
standards of conduct required by MGCL Section 2-418; and (ii) the Registrant
shall indemnify a director if such director is successful on the merits or
otherwise in defense of any action, suit or proceeding referred to above.
However, with respect to any action, suit or proceeding by or in the right of
the Registrant or in which the director was adjudged to be liable on the basis
that a personal benefit was improperly received, the Registrant may only
indemnify the director for any expenses (including attorneys' fees) incurred in
connection with such action, suit or proceeding.
MGCL Section 2-418 further provides that unless limited by the Registrant's
Charter, the Registrant: (i) shall (a) indemnify an officer of the Registrant if
such officer is successful on the merits or otherwise in defense of any action,
suit or proceeding referred to above, and (b) indemnify an officer of the
Registrant if a court of appropriate jurisdiction, upon application of an
officer, shall order indemnification; (ii) may indemnify and advance expenses to
an officer, employee or agent of the Registrant to the same extent that it may
indemnify directors; and (iii) may indemnify and advance expenses to an officer,
employee or agent who is not a director to such further extent, consistent with
law, as may be provided by the Charter, Bylaws, general or specific action of
the Registrant's Board of Directors or contract.
The Charter of the Registrant, provides that the Registrant shall indemnify
its currently acting and its former directors and officers against any and all
liabilities and expenses incurred in connection with their services in such
capacities to the maximum extent permitted by the MGCL, as from time to time
amended. If approved by the Board of Directors, the Registrant may indemnify its
employees, agents and persons who serve and have served, at its request as a
director, officer, partner, trustee, employee or agent of another corporation,
partnership, joint venture or other enterprise to the extent determined to be
appropriate by the Board of Directors. The Registrant shall advance expenses to
its directors and officers entitled to mandatory indemnification to the maximum
extent permitted by the MGCL and may in the discretion of the Board of Directors
advance expenses to employees, agents and others who may be granted
indemnification.
II-1
<PAGE>
The Registrant's Charter provides that, to the fullest extent permitted by
the MGCL, as amended or interpreted, no director or officer of the Registrant
shall be personally liable to the Registrant or its stockholders for monetary
damages in connection with events occurring at the time such person served as a
director or officer.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. THE REGISTRANT ESTIMATES
THAT EXPENSES PAYABLE BY IT IN CONNECTION WITH THE OFFERING DESCRIBED IN THIS
REGISTRATION STATEMENT WILL BE AS FOLLOWS:
<TABLE>
<S> <C>
Printing and engraving expenses.................................................... $ 10,000
Accounting fees and expenses....................................................... 2,000
Legal fees and expenses............................................................ 2,000
Miscellaneous...................................................................... 5,000
---------
Total.............................................................................. $ 19,000
</TABLE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
During the past three years, the following securities were issued by the
Company without registration under the Securities Act:
On December 12, 1997, in connection with the organization of the Company,
the Company issued one share of Common Stock, to Nathan A. Chapman, Jr. for an
aggregate price of $8.00. This transaction was exempt from registration under
the Securities Act under Section 4(2) because it did not involve a public
offering. Such transaction was completed without an underwriter.
On December 22, 1997, the Company issued 196,594 shares of Common Stock to
Mr. Chapman in consideration for which Mr. Chapman contributed a warrant for
1,048,500 shares of The Chapman Co., currently the Company's wholly-owned
subsidiary, then exercisable at a price of $0.10 per share. This transaction was
exempt from registration under the Securities Act under Section 4(2) because it
did not involve a public offering. Such transaction was completed without an
underwriter.
On December 29, 1997, the Company issued 1,792,640 shares of Common Stock to
19 former stockholders of The Chapman Co. in a statutory merger pursuant to a
vote of the security holders of The Chapman Co. Specifically, a wholly-owned
subsidiary of the Company was organized and merged into The Chapman Co. with The
Chapman Co. surviving the merger as a wholly-owned subsidiary of the Company.
All shares of Common Stock, Preferred Stock and Preferred Stock--Series B of The
Chapman Co. that were outstanding prior to the merger automatically converted at
the effective time of the merger into shares of Common Stock of the Company.
This transaction was exempt from registration under the Securities Act under
Section 4(2) because it did not involve a public offering. Such transaction was
completed without an underwriter.
II-2
<PAGE>
ITEM 27. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
The following exhibits are filed as part of this Registration Statement:
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ----------- -------------------------------------------------------------------------------------------------------
<C> <S>
1.1 Underwriting Agreement between the Company and The Chapman Co.(2)
1.2 Qualified Independent Underwriter Agreement between the Company and Ferris Baker Watts,
Incorporated.(2)
1.3 Escrow Agreement between the Company and UMB Bank, N.A.(2)
3.1 Articles of Incorporation of the Company.(1)
3.2 By-laws of the Company.(4)
4 Form of Common Stock Certificate.(1)
5. Opinion of Venable, Baetjer and Howard, LLP(2)
10.1 $106,922.68 Promissory Note to The Chapman Co. from Nathan A. Chapman, Jr. dated December 31, 1996.(1)
10.2 Chapman Holdings, Inc. 1998 Omnibus Stock Plan.(1)
10.3 Fully Disclosed Clearing Agreement between RPR Clearing Services and The Chapman Co. dated April 1,
1993, as amended June 16, 1993 and February 4, 1997.(1)
10.4 [Reserved]
10.5 Placement Agency Agreement between DEM, Inc. and The Chapman Co. dated May 30, 1997(1)
10.6 Distribution Agreement between The Chapman Co. and The Chapman Funds, Inc. on behalf of The Chapman
U.S. Treasury Money Fund and The Chapman Institutional Cash Management Fund dated April 30, 1997.(1)
10.7 Distribution Agreement between The Chapman Co. and The Chapman Funds, Inc. on behalf of the DEM Equity
Fund dated October 28, 1997.(1)
10.8 Equipment Lease Agreement between The Chapman Co. and Chapman Limited Partnership I dated October 1,
1993.(1)
10.9 Trademark Assignment from The Chapman Co. to Nathan A. Chapman, Jr. dated December 24, 1997.(1)
10.10 Trademark Assignment from The Chapman Co. to Nathan A. Chapman, Jr. dated December 24, 1997.(1)
10.11 License Agreement between The Chapman Co. and Nathan A. Chapman, Jr dated December 26, 1997.(1)
10.12 $763,367 Promissory Note to The Chapman Co. from Chapman Capital Management, Inc. dated December 28,
1997.(2)
10.13 Lock-up Agreement between the Company and Nathan A. Chapman, Jr. dated December 28, 1997.(2)
10.14 $176,250 Promissory Note to The Chapman Co. from Nathan A. Chapman, Jr. dated February 11, 1998.(2)
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ----------- -------------------------------------------------------------------------------------------------------
<C> <S>
10.15 $285,587 Promissory Note to the Company from Nathan A. Chapman, Jr. dated March 11, 1998.(3)
10.16 $100,000 Promissory Note to The Chapman Co. from Nathan A. Chapman, Jr. dated May 1, 1998.(3)
10.17 $51,690 Promissory Note to the Company from Nathan A. Chapman, Jr. dated December 31, 1998.(4)
21 Subsidiaries of the Company.(4)
23.1 Consent of Arthur Andersen LLP(4)
23.2 Consent of Venable, Baetjer and Howard, LLP (included in Exhibit 5)
24 Power of Attorney.(4)
27 Financial Data Schedule(4)
</TABLE>
(1) Incorporated by reference to the Company's Registration Statement on Form
SB-2 (File No. 333-43487) as filed with the Securities and Exchange
Commission on December 30, 1997.
(2) Incorporated by reference to Pre-Effective Amendment 1 to the Company's
Registration Statement on Form SB-2 (File No. 333-43487) as filed with the
Securities and Exchange Commission on February 17, 1998.
(3) Incorporated by reference to the Company's Quarterly Report on Form 10-QSB
(File No. 0-23587) as filed with the Securities and Exchange Commission on
November 16, 1998.
(4) Filed herewith.
ITEM 28. UNDERTAKINGS.
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement;
(i) To include any Prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the Prospectus any facts or events which,
individually or together, represent a fundamental change in the
information in the Registration Statement (or the most recent
post-effective amendment thereof); and notwithstanding the
forgoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would
not exceed that which was registered) and any deviation from
the low or high end of the estimated maximum offering range may
be reflected in the form of Prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in the volume and price represent no more than a 20%
change in the maximum aggregate offering price set forth in
"Calculation of Registration Fee" table in the effective
registration statement;
(iii) To include any additional or changed material information with
respect to the plan of distribution.
(2) That, for the purpose of determining liability under the Securities
Act of 1933, each post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the Offering.
(b) The undersigned Registrant hereby undertakes to provide to the
underwriter at the closing specified in the underwriting agreements,
certificates in such denominations and registered in such names as
required by the underwriter to permit prompt delivery to each purchaser.
(c) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the
Commission such indemnification is against public policy as expressed in
the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered,
the Registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
(d) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as
part of this Registration Statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the Registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Securities Act of 1933
shall be deemed to be part of this Registration Statement as of the
time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
II-5
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this Post-Effective
Amendment 2 to the Registration Statement to be signed on its behalf by the
undersigned, in the city of Baltimore, state of Maryland, on March 19, 1999.
<TABLE>
<S> <C> <C>
CHAPMAN HOLDINGS, INC.
By: /s/ NATHAN A. CHAPMAN, JR.
-----------------------------------------
Nathan A. Chapman, Jr.
PRESIDENT AND CHAIRMAN OF THE BOARD
</TABLE>
In accordance with the requirements of the Securities Act of 1933, this
Post-Effective Amendment 2 to the Registration Statement has been signed by the
following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE AND CAPACITY DATE
- ------------------------------ -------------------------- -------------------
<S> <C> <C>
/s/ NATHAN A. CHAPMAN, JR. President and Chairman of March 19, 1999
- ------------------------------ the Board (Principal
Nathan A. Chapman, Jr. Executive Officer)
/s/ M. LYNN BALLARD Treasurer (Principal March 19, 1999
- ------------------------------ Financial Officer and
M. Lynn Ballard Principal Accounting
Officer)
The Entire Board of Directors
Nathan A. Chapman, Jr.
Donald V. Watkins
Earl U. Bravo
Lottie H. Shackelford
</TABLE>
<TABLE>
<S> <C> <C> <C>
By: /s/ NATHAN A. CHAPMAN, March 19, 1999
JR.
-------------------------
Nathan A. Chapman, Jr.
ATTORNEY-IN-FACT
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE NO.
- --------------- --------------------------------------------------------------------------------------- ---------------
<C> <S> <C>
3.2 By-laws of the Company.
10.17 $51,690 Promissory Note to the Company from Nathan A. Chapman, Jr. dated December 31,
1998.
21 Subsidiaries of the Company.
23.1 Consent of Arthur Andersen LLP
24 Power of Attorney.
27 Financial Data Schedule
</TABLE>
<PAGE>
Exhibit 3.2
MARCH 10, 1999
BYLAWS
OF
CHAPMAN HOLDINGS, INC.
ARTICLE I.
STOCKHOLDERS
SECTION 1. ANNUAL MEETINGS.
The annual meeting of the stockholders of the Corporation shall be held
on such date within the month of May as may be fixed from time to time by the
Board of Directors. Not less than ten nor more than 90 days' written or printed
notice stating the place, day and hour of each annual meeting shall be given in
the manner provided in Section 1 of Article IX hereof. The business to be
transacted at the annual meetings shall include the election of directors,
consideration and action upon the reports of officers and directors, and any
other business within the power of the Corporation. All annual meetings shall be
general meetings at which any business may be considered without being specified
as a purpose in the notice unless otherwise required by law.
SECTION 2. SPECIAL MEETINGS CALLED BY CHAIRMAN OF THE BOARD, PRESIDENT OR BOARD
OF DIRECTORS.
At any time in the interval between annual meetings, special meetings
of stockholders may be called by the Chairman of the Board, or by the President,
or by the Board of Directors. Not less than ten days' nor more than 90 days'
written notice stating the place, day and hour of such meeting and the matters
proposed to be acted on thereat shall be given in the manner provided in Section
1 of Article IX. No business shall be transacted at any special meeting except
that specified in the notice.
SECTION 3. SPECIAL MEETING CALLED BY STOCKHOLDERS.
Upon the request in writing delivered to the Secretary by the
stockholders entitled to cast at least 25% of all the votes entitled to be cast
at the meeting, it shall be the duty of the Secretary to call forthwith a
special meeting of the stockholders. Such request shall state the purpose of
such meeting and the matters proposed to be acted on thereat, and no other
business shall be transacted at any such special meeting. The Secretary shall
inform such stockholders of the reasonably estimated costs of preparing and
mailing the notice of the meeting, and upon payment to the Corporation of such
costs, the Secretary shall give not less than ten nor more than 90 days' notice
of the time, place and purpose of the
<PAGE>
meeting in the manner provided in Section I of Article IX. If, upon payment of
such costs the Secretary shall fail to issue a call for such meeting within ten
days after the receipt of such payment (unless such failure is excused by law),
then the stockholders entitled to cast 25% or more of the outstanding shares
entitled to vote may do so upon giving not less than ten days' nor more than 90
days' notice of the time, place and purpose of the meeting in the manner
provided in Section 1 of Article IX.
SECTION 4. PLACE OF MEETINGS.
All meetings of stockholders shall be held at the principal office of
the Corporation in the State of Maryland or at such other place within the
United States as may be fixed from time to time by the Board of Directors and
designated in the notice.
SECTION 5. QUORUM.
At any meeting of stockholders the presence in person or by proxy of
stockholders entitled to cast a majority of the votes thereat shall constitute a
quorum. In the absence of a quorum, the stockholders present in person or by
proxy, by majority vote and without notice other than by announcement, may
adjourn the meeting from time to time, but not for a period exceeding 60 days
until a quorum shall attend.
SECTION 6. ADJOURNED MEETINGS.
A meeting of stockholders convened on the date for which it was called
(or one adjourned to achieve a quorum as above provided in Section 5 of this
Article) may be adjourned from time to time without further notice to a date not
more than 120 days after the record date, and any business may be transacted at
any adjourned meeting which could have been transacted at the meeting as
originally called.
SECTION 7. VOTING.
A majority of the votes cast at a meeting of stockholders, duly called
and at which a quorum is present, shall be sufficient to take or authorize
action upon any matter which may properly come before the meeting, unless more
than a majority of votes cast is required by statute or by the Charter. The
Board of Directors may fix the record date for the determination of stockholders
entitled to vote in the manner provided in Article VIII, Section 3 of these
Bylaws.
SECTION 8. PROXIES.
A stockholder may vote the shares owned of record by him either in
person or by proxy executed in writing and signed by the stockholder or by his
duly authorized attorney-in-fact. Every proxy shall be dated, but need not be
sealed, witnessed or acknowledged. No proxy shall be valid after 11 months from
its date, unless otherwise provided in the proxy. In the case of stock held of
record by more than one person, any
2
<PAGE>
co-owner or co-fiduciary may execute the proxy without the joinder of his
co-owner(s) or co-fiduciary(ies), unless the Secretary of the Corporation is
notified in writing by any co-owner or co-fiduciary that the joinder of more
than one is to be required. At all meetings of stockholders, the proxies shall
be filed with and verified by the Secretary of the Corporation, or, if the
meeting shall so decide, by the Secretary of the meeting.
SECTION 9. ORDER OF BUSINESS.
At all meetings of stockholders, any stockholder, present and entitled
to vote in person or by proxy shall be entitled to require, by written request
to the Chairman of the meeting, that the order of business shall be as follows:
(1) Organization
(2) Proof of notice of meeting or of waivers thereof. (The certificate
of the Secretary of the Corporation, or the affidavit of any other person who
mailed or published the notice or caused the same to be mailed or published,
shall be proof of service of notice.)
(3) Submission by Secretary of the Corporation of a list of the
stockholders entitled to vote, present in person or by proxy.
(4) A reading of unapproved minutes of preceding meetings and action
thereon.
(5) Reports.
(6) If an annual meeting, or a special meeting called for that purpose,
the election of directors.
(7) Unfinished business.
(8) New business.
(9) Adjournment.
SECTION 10. REMOVAL OF DIRECTORS.
At any special meeting of the stockholders called in the manner
provided for by this Article, the stockholders, by the affirmative vote of a
majority of all the votes entitled to be cast for the election of directors, may
remove any director or directors from office, with or without cause, and may
elect a successor or successors to fill any resulting vacancies for the
remainder of his or their terms.
3
<PAGE>
SECTION 11. INFORMAL ACTION BY STOCKHOLDERS.
Any action required or permitted to be taken at any meeting of
stockholders may be taken without a meeting if a consent in writing setting
forth such action is signed by all the stockholders entitled to vote thereon and
such consent is filed with the records of stockholders' meetings.
SECTION 12. ADVANCE NOTICE OF MATTERS TO BE PRESENTED AT AN ANNUAL MEETING OF
STOCKHOLDERS.
At an annual meeting of the stockholders, only such business
shall be conducted as shall have been properly brought before the meeting as set
forth below. To be properly brought before an annual meeting, such business must
(1) be specified in the notice of the meeting (or any supplement thereto) given
by the Corporation pursuant to Section 1 of Article IX of these bylaws, or (2)
be brought before the meeting by or under the direction of the Board of
Directors (or the Chairman of the Board or the President), or (3) be properly
brought before the meeting by a stockholder. In addition to any other applicable
requirements, for business to be properly brought before an annual meeting by a
stockholder, the stockholder must have given timely notice thereof in writing to
the Secretary. To be timely, such stockholder's notice must be delivered to or
mailed and received by the Secretary at the principal executive offices of the
Corporation not earlier than the close of business on the 120th day and not
later than the close of business on the 90th day prior to the date of the annual
meeting; provided, however, that in the event that during the prior year the
Corporation did not hold an annual meeting, or if the date of the annual meeting
has changed more than 30 days from the first anniversary of the prior year's
annual meeting (other than as a result of adjournment), than such stockholder's
notice must be delivered to or mailed and received by the Secretary at the
principal executive offices of the Corporation not earlier than the close of
business on the 120th day prior to such annual meeting and not later than the
close of business on the later of the 90th day prior to such annual meeting or
the 10th day following the day on which public announcement of the date of such
annual meeting is first made. For purposes of this section, "public
announcement" shall mean disclosure in a press release reported by the Dow Jones
News Service, Associated Press or comparable national news service or in a
document publicly filed by the Corporation with the Securities and Exchange
Commission pursuant to Section 13, 14 or 15(d) of the Securities Exchange Act of
1934, as amended. A stockholder's notice to the Secretary shall set forth as to
each matter the stockholder proposes to bring before the annual meeting (i) a
brief description of the business desired to be brought before the annual
meeting and the reasons for conducting such business at the annual meeting, (ii)
the name and address of the stockholder proposing such business, (iii) the class
and number of shares of the Corporation which are beneficially owned by the
stockholder, and (iv) any material interest of the stockholder in such business.
4
<PAGE>
Notwithstanding anything in these Bylaws to the contrary, no
business shall be conducted at the annual meeting except in accordance with the
procedures set forth in this Section 12.
The Chairman of the meeting shall have the authority, if the
facts warrant, to determine that business was not properly brought before the
meeting in accordance with the provisions of this Section 12, and if he should
so determine, he shall so declare to the meeting and any such business not
properly brought before the meeting shall not be transacted.
SECTION 13. ADVANCE NOTICE OF NOMINEES FOR DIRECTORS.
Only persons who are nominated in accordance with the
following procedures shall be eligible for election as directors at any meeting
of stockholders. Nominations of persons for election to the Board of Directors
of the Corporation may be made at an annual meeting of stockholders or at a
special meeting of stockholders as to which the notice of meeting provides for
election of directors, by or under the direction of the Board of Directors, or
by any nominating committee or person appointed by the Board of Directors, or by
any stockholder of the Corporation entitled to vote for the election of
directors at the meeting who complies with the notice procedures set forth in
this Section 13. Such nominations, other than those made by or under the
direction of the Board of Directors or by any nominating committee or person
appointed by the Board of Directors, shall be made pursuant to timely notice in
writing to the Secretary. In the event that such stockholder's notice pertains
to an annual meeting of stockholders, to be timely, such stockholder's notice
must be delivered to or mailed and received by the Secretary at the principal
executive offices of the Corporation not earlier than the close of business on
the 120th day and not later than the close of business on the 90th day prior to
the date of the annual meeting; provided, however, that in the event that during
the prior year the Corporation did not hold an annual meeting, or if the date of
the annual meeting has changed more than 30 days from the first anniversary of
the prior year's annual meeting (other than as a result of adjournment), than
such stockholder's notice must be delivered to or mailed and received by the
Secretary at the principal executive offices of the Corporation not earlier than
the close of business on the 120th day prior to such annual meeting and not
later than the close of business on the later of the 90th day prior to such
annual meeting or the 10th day following the day on which public announcement of
the date of such annual meeting is first made. In the event that such
stockholder's notice pertains to a special meeting of stockholders, to be
timely, such stockholder's notice must be delivered to or mailed and received by
the Secretary at the principal executive offices of the Corporation not later
than the close of business on the later of the 90th day prior to such special
meeting or the 10th day following the day on which public announcement of the
date of such special meeting is first made. For purposes of this section,
"public announcement" shall mean disclosure in a press release reported by the
Dow Jones News Service, Associated Press or comparable national news service or
in a document publicly filed by the Corporation with the Securities and Exchange
Commission pursuant to Section 13, 14 or 15(d) of the Securities Exchange Act of
1934, as amended. Such
5
<PAGE>
stockholder's notice shall set forth: (a) as to each person whom the stockholder
proposes to nominate for election as a director, (i) the name, age, business
address and residence address of the person, (ii) the principal occupation or
employment of the person, (iii) the class and number of shares of stock of the
Corporation which are beneficially owned by the person, and (iv) any other
information relating to the person that is required to be disclosed in
solicitations for proxies for election of directors pursuant to the rules and
regulations under the Securities Exchange Act of 1934; and (b) as to the
stockholder giving the notice, (i) the name and address of the stockholder and
(ii) the class and number of shares of the Corporation which are beneficially
owned by the stockholder. The Corporation may require any proposed nominee to
furnish such other information as may reasonably be required by the Corporation
to determine the eligibility of such proposed nominee to serve as a director of
the Corporation. No person shall be eligible for election as a director of the
Corporation unless nominated in accordance with the procedures set forth herein.
The Chairman of the meeting shall have the authority, if the
facts warrant, to determine that a nomination was not made in accordance with
the foregoing procedure, and if he should so determine, he shall so declare to
the meeting and the defective nomination shall be disregarded.
ARTICLE II.
DIRECTORS
SECTION 1. POWERS.
The business and affairs of the Corporation shall be managed under the
direction of its Board of Directors. All powers of the Corporation may be
exercised by or under the authority of the Board of Directors except as
conferred on or reserved to the stockholders by law, by the Charter or by these
Bylaws. A director need not be a stockholder. The Board of Directors shall keep
minutes of its meetings and full and fair accounts of its transactions.
SECTION 2. NUMBER; TERM OF OFFICE; REMOVAL.
The number of directors of the Corporation shall be not less than three
or the same number as the number of stockholders, whichever is less; provided,
however, that such number may be increased and thereafter decreased from time to
time by vote of a majority of the entire Board of Directors to a number not
exceeding ten (10). The first directors of the Corporation shall hold their
office until the first annual meeting of the Corporation, or until their
successors are elected and qualify, and thereafter the directors shall hold
office for the term of one year, or until their successors are elected and
qualify. A director may be removed from office as provided in Article I, Section
10 of these Bylaws.
SECTION 3. ANNUAL MEETING; REGULAR MEETINGS.
6
<PAGE>
As soon as practicable after each annual meeting of stockholders, the
Board of Directors shall meet for the purpose of organization and the
transaction of other business. No notice of the annual meeting of the Board of
Directors need be given if it is held immediately following the annual meeting
of stockholders and at the same place. Other regular meetings of the Board of
Directors may be held at such times and at such places, within or without the
State of Maryland, as shall be designated in the notice for such meeting by the
party making the call. All annual and regular meetings shall be general
meetings, and any business may be transacted thereat.
SECTION 4. SPECIAL MEETINGS.
Special meetings of the Board of Directors may be called by the
Chairman of the Board or the President, or by a majority of the directors.
SECTION 5. QUORUM; VOTING.
A majority of the Board of Directors shall constitute a quorum for the
transaction of business at every meeting of the Board of Directors; but, if at
any meeting there be less than a quorum present, a majority of those present may
adjourn the meeting from time to time, but not for a period exceeding ten days
at any one time or 60 days in all, without notice other than by announcement at
the meeting, until a quorum shall attend. At any such adjourned meeting at which
a quorum shall be present, any business may be transacted which might have been
transacted at the meeting as originally called. Except as hereinafter provided
or as otherwise provided by the Charter or by law, directors shall act by a vote
of a majority of those members in attendance at a meeting at which a quorum is
present.
SECTION 6. NOTICE OF MEETINGS.
Notice of the time and place of every regular and special meeting of
the Board of Directors shall be given to each director in the manner provided in
Section 2 of Article IX hereof. Subsequent to each Board meeting, and as soon as
practicable thereafter, each director shall be furnished with a copy of the
minutes of said meeting. At least 24 hours' notice shall be given of all
meetings. The purpose of any meeting of the Board of Directors need not be
stated in the notice.
SECTION 7. VACANCIES.
(a) If the office of a director becomes vacant for any reason other
than removal or increase in the size of the Board, such vacancy may be filled by
the Board by a vote of a majority of directors then in office, although such
majority is less than a quorum.
7
<PAGE>
(b) If the vacancy occurs as a result of the removal of a director, the
stockholders may elect a successor or may delegate that authority to the Board
of Directors.
(c) If the vacancy occurs as a result of an increase in the number of
directors, it may be filled by vote of a majority of the entire Board of
Directors.
(d) If the entire Board of Directors shall become vacant, any
stockholder may call a special meeting in the same manner that the Chairman of
the Board or the President may call such meeting, and directors for the
unexpired term may be elected at such special meeting in the manner provided for
their election at annual meetings.
(e) A director elected by the Board of Directors to fill a vacancy
shall serve until the next annual meeting of stockholders and until his
successor is elected and qualifies. A director elected by the stockholders to
fill a vacancy shall serve for the unexpired term and until his successor is
elected and qualifies.
SECTION 8. RULES AND REGULATIONS.
The Board of Directors may adopt such rules and regulations for the
conduct of its meetings and the management of the affairs of the Corporation as
it may deem proper and not inconsistent with the laws of the State of Maryland
or these Bylaws or the Charter.
SECTION 9. EXECUTIVE COMMITTEE.
The Board of Directors may constitute an Executive Committee, composed
of at least one director, from among its members. The Executive Committee shall
hold office at the pleasure of the Board of Directors. Between sessions of the
Board of Directors, such Committee shall have all of the powers of the Board of
Directors in the management of the business and affairs of the Corporation,
except those powers specifically denied by law. If any position on the Executive
Committee becomes vacant, or if the number of members is increased, such vacancy
may be filled by the Board of Directors. The taking of any action by the
Executive Committee shall be conclusive evidence that the Board of Directors was
not in session at the time of such action. The Executive Committee shall hold
formal meetings and keep minutes of all of its proceedings. A copy of such
minutes shall, after approval by the members of the Committee, be sent to all
directors as a matter of information. Any action taken by the Executive
Committee within the limits permitted by law shall have the force and effect of
Board action unless and until revised or altered by the Board. The presence of
not less than a majority of the Committee shall be necessary to constitute a
quorum. Action may be taken without a meeting if unanimous written consent is
signed by all of the members of the Committee, and if such consent is filed with
the records of the Committee. The Executive Committee shall have the power to
elect one of its members to serve as its Chairman unless the Board of Directors
shall have designated such Chairman.
8
<PAGE>
SECTION 10. COMPENSATION.
The directors may receive a stated salary for their services, and/or
fixed sum and expenses of attendance may be allowed for attendance fee, if any,
shall be determined by resolution of the Board; provided, however, that nothing
herein contained shall be construed as precluding a director from serving the
Corporation in any other capacity and receiving compensation therefor.
SECTION 11. PLACE OF MEETINGS.
Regular or special meetings of the Board may be held within or without
the State of Maryland, as the Board may from time to time determine. The time
and place of meeting may be fixed by the party making the call.
SECTION 12. INFORMAL ACTION BY THE DIRECTORS.
Any action required or permitted to be taken at any meeting of the
Board may be taken without a meeting, if a written consent to such action is
signed by all members of the Board and such consent is filed with the minutes of
the Board.
SECTION 13. TELEPHONE CONFERENCE.
Members of the Board of Directors or any committee thereof may
participate in a meeting of the Board or such committee by means of a conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other at the same time and
participation by such means shall constitute presence in person at the meeting.
ARTICLE III.
OFFICERS
SECTION 1. IN GENERAL.
The Board of Directors may choose a Chairman of the Board from among
the directors. The Board of Directors shall elect a President, a Treasurer, a
Secretary, and such Vice Presidents, Assistant Secretaries and Assistant
Treasurers as the Board may from time to time deem appropriate. All officers
shall hold office only during the pleasure of the Board or until their
successors are chosen and qualify. Any two of the above offices, except those of
President and Vice President, may be held by the same person, but no officer
shall execute, acknowledge or verify any instrument in more than
9
<PAGE>
one capacity when such instrument is required to be executed, acknowledged or
verified by any two or more officers. The Board of Directors may from time to
time appoint such other agents and employees with such powers and duties as the
Board may deem proper. In its discretion, the Board of Directors may leave
unfilled any offices except those of President, Treasurer and Secretary.
SECTION 2. CHAIRMAN OF THE BOARD.
The Chairman of the Board, if one is elected, shall have the
responsibility for the implementation of the policies determined by the Board of
Directors and for the administration of the business affairs of the Corporation.
He shall preside over the meetings of the Board and of the stockholders at which
he is present. He shall be the Chief Executive Officer of the Corporation if so
designated by resolution of the Board.
SECTION 3. PRESIDENT.
The President shall have the responsibility for the active
management of the business and general supervision and direction of all of the
affairs of the Corporation. In the absence of a Chairman of the Board, he shall
preside over the meetings of the Board and of the stockholders at which he shall
be present, and shall perform such other duties as may be assigned to him by the
Board of Directors or the Executive Committee. The President shall have the
authority on the Corporation's behalf to endorse securities owned by the
Corporation and to execute any documents requiring the signature of an executive
officer. He shall perform such other duties as the Board of Directors may
direct. He shall be the Chief Executive Officer of the Corporation unless the
Chairman of the Board is so designated by resolution of the Board.
SECTION 4. VICE PRESIDENTS.
The Vice Presidents, in the order of priority designated by the Board
of Directors, shall be vested with all the power and may perform all the duties
of the President in his absence. They may perform such other duties as may be
prescribed by the Board of Directors or the Executive Committee or the
President.
SECTION 5. TREASURER.
The Treasurer shall be the Chief financial officer of the
Corporation and shall have general supervision over its finances. He shall
perform such other duties as may be assigned to him by the Board of Directors or
the President. If required by resolution of the Board, he shall furnish bond
(which may be a blanket bond) with such surety and in such penalty for the
faithful performance of his duties as the Board of Directors may from time to
time require, the cost of such bond to be defrayed by the Corporation.
SECTION 6. SECRETARY.
10
<PAGE>
The Secretary shall keep the minutes of the meetings of the
stockholders and of the Board of Directors and shall attend to the giving and
serving of all notices of the Corporation required by law or these Bylaws. He
shall maintain at all times in the principal office of the Corporation at least
one copy of the Bylaws with all amendments to date, and shall make the same,
together with the minutes of the meeting of the stockholders, the annual
statement of affairs of the Corporation and any voting trust or other
stockholders agreement on file at the office of the Corporation, available for
inspection by any officer, director or stockholder during reasonable business
hours. He shall perform such other duties as may be assigned to him by the Board
of Directors.
SECTION 7. ASSISTANT TREASURER AND SECRETARY.
The Board of Directors may designate from time to time Assistant
Treasurers and Secretaries, who shall perform such duties as may from time to
time be assigned to them by the Board of Directors or the President.
SECTION 8. COMPENSATION; REMOVAL; VACANCIES.
The Board of Directors shall have power to fix the compensation of all
officers of the Corporation. It may authorize any committee or officer, upon
whom the power of appointing subordinate officers may have been conferred, to
fix the compensation of such subordinate officers. The Board of Directors shall
have the power at any regular or special meeting to remove any officer, if in
the judgment of the Board the best interests of the Corporation will be served
by such removal. The Board of Directors may authorize any officer to remove
subordinate officers. The Board of Directors may authorize the Corporation's
employment of an officer for a period in excess of the term of the Board. The
Board of Directors at any regular or special meeting shall have power to fill a
vacancy occurring in any office for the unexpired portion of the term.
SECTION 9. SUBSTITUTES.
The Board of Directors may from time to time in the absence of any one
of its officers or at any other time, designate any other person or persons, on
behalf of the Corporation to sign any contracts, deeds, notes or other
instruments in the place or stead of any of such officers, and may designate any
person to fill any one of said offices, temporarily or for any particular
purpose; and any instruments so signed in accordance with a resolution of the
Board shall be the valid act of the Corporation as fully as if executed by any
regular officer.
ARTICLE IV.
RESIGNATION
11
<PAGE>
Any director or officer may resign his office at any time. Such
resignation shall be made in writing and shall take effect from the time of its
receipt by the Corporation, unless some time be fixed in the resignation, and
then from that date. The acceptance of a resignation shall not be required to
make it effective.
ARTICLE V.
COMMERCIAL PAPER, ETC.
All bills, notes, checks, drafts and commercial paper of all kinds to
be executed by the Corporation as maker, acceptor, endorser or otherwise, and
all assignments and transfers of stock, contracts, or written obligations of the
Corporation, and all negotiable instruments, shall be made in the name of the
Corporation and shall be signed by any one or more of the following officers as
the Board of Directors may from time to time designate, i.e., the Chairman of
the Board, the President, any Vice President, or the Treasurer, or by such other
person or persons as the Board of Directors or Executive Committee may from time
to time designate.
ARTICLE VI.
FISCAL YEAR
The fiscal year of the Corporation shall cover such period of 12 months
as the Board of Directors may determine. In the absence of any such
determination, the accounts of the Corporation shall be kept on a calendar year
basis.
ARTICLE VII.
SEAL
The seal of the Corporation shall be in the form of two concentric
circles inscribed with the name of the Corporation and the year and State in
which it is incorporated. The Secretary or Treasurer, or any Assistant Secretary
or Assistant Treasurer, shall have the right and power to attest to the
corporate seal. In lieu of affixing the corporate seal to any document, it shall
be sufficient to meet the requirements of any law, rule or regulation relating
to a corporate seal to affix the word "(SEAL)" adjacent to the signature of the
person authorized to sign the document on behalf of the Corporation.
ARTICLE VIII.
STOCK
SECTION 1. ISSUE.
12
<PAGE>
Each stockholder shall be entitled to a certificate or certificates
which shall represent and certify the number and class of shares of stock owned
by him in the Corporation. Each certificate shall be signed by the Chairman of
the Board, the President or any Vice President, and countersigned by the
Secretary or any Assistant Secretary or the Treasurer or any Assistant
Treasurer, and sealed with the seal of the Corporation. The signatures of the
Corporation's officers and its corporate seal appearing on stock certificates
may be facsimiles if each such certificate is authenticated by the manual
signature of an officer of a duly authorized transfer agent. Stock certificates
shall be in such form not inconsistent with law or with the Charter, as shall be
approved by the Board of Directors. In case any officer of the Corporation who
has signed any certificate ceases to be an officer of the Corporation, whether
by reason of death, resignation or otherwise, before such certificate is issued,
then the certificate may nevertheless be issued by the Corporation with the same
effect as if the officer had not ceased to be such officer as of the date of
such issuance.
SECTION 2. TRANSFERS.
The Board of Directors shall have power and authority to make all such
rules and regulations as the Board may deem expedient concerning the issue,
transfer and registration of stock certificates. The Board of Directors may
appoint one or more transfer agents and/or registrars for its outstanding stock,
and their duties may be combined. No transfer of stock shall be recognized or
binding upon the Corporation until recorded on the books of the Corporation, or,
as the case may be, of its transfer agent and/or of its registrar, upon
surrender and cancellation of a certificate or certificates for a like number of
shares.
SECTION 3. RECORD DATES FOR DIVIDENDS AND STOCKHOLDERS' MEETING.
The Board of Directors may fix a date not exceeding 90 days preceding
the date of any meeting of stockholders, any dividend payment date or any date
for the allotment of rights, as a record date for the determination of the
stockholders entitled to notice of and to vote at such meeting, or entitled to
receive such dividends or rights, as the case may be, and only stockholders of
record on such date shall be entitled to notice of and to vote at such meeting
or to receive such dividends or rights as the case may be. In the case of a
meeting of stockholders, the record date shall be fixed not less than ten days
prior to the date of the meeting.
SECTION 4. NEW CERTIFICATES.
In case any certificate of stock is lost, stolen, mutilated or
destroyed, the Board of Directors may authorize the issue of a new certificate
in place thereof upon indemnity to the Corporation against loss and upon such
other terms and conditions as it may deem advisable. The Board of Directors may
delegate such power to any officer or officers of the Corporation or to any
transfer agent or registrar of the Corporation; but the Board of Directors, such
officer or officers or such transfer agent or registrar may, in their
13
<PAGE>
discretion, refuse to issue such new certificate save upon the order of some
court having jurisdiction in the premises.
ARTICLE IX.
NOTICE
Whenever by law or these Bylaws notice is required to be given to any
stockholder, such notice shall be in writing and may be given to each
stockholder by leaving the same with him or at his residence or usual place of
business, or by mailing it, postage prepaid, and addressed to him at his address
as it appears on the books of the Corporation or its transfer agent. Such
leaving or mailing of notice shall be deemed the time of giving such notice.
SECTION 2. NOTICE TO DIRECTORS AND OFFICERS.
Whenever by law or these Bylaws notice is required to be given to any
director or officer, such notice may be given in any one of the following ways:
by personal notice to such director or officer, by telephone communication with
such director or officer personally, by telegram, cablegram or radiogram,
addressed to such director or officer at his then address or at his address as
it appears on the books of the Corporation, or by depositing the same in writing
in the post office or in a letter box in a postage paid, sealed wrapper
addressed to such director or officer at his address as it appears on the books
of the Corporation. The time when such notice shall be consigned to a
communication company for delivery shall be deemed to be the time of the giving
of such notice, and 48 hours after the time when such notice shall be mailed
shall be deemed to be the time of the giving of such notice by mail.
SECTION 3. WAIVER OF NOTICE.
Notice to any stockholder or director of the time, place and/or purpose
of any meeting of stockholders or directors required by these Bylaws may be
dispensed with if such stockholder shall either attend in person or by proxy, or
if such director shall attend in person, or if such absent stockholder or
director shall, in writing filed with the records of the meeting either before
or after the holding thereof, waive such notice.
ARTICLE X.
VOTING OF STOCK IN OTHER CORPORATIONS
Any stock in other corporations, which may from time to time be held by
the Corporation, may be represented and voted at any meeting of stockholders of
such other corporations by the President or a Vice-President or by proxy or
proxies appointed by the President or a Vice-President, or otherwise pursuant to
authorization thereunto given by a resolution of the Board of Directors adopted
by a vote of a majority of the directors.
14
<PAGE>
ARTICLE XI.
INDEMNIFICATION
To the maximum extent permitted by the Maryland General Corporation Law
as from time to time amended, the Corporation shall indemnify its currently
acting and its former directors and officers and those persons who, at the
request of the corporation serve or have served another corporation,
partnership, joint venture, trust or other enterprise in one or more of such
capacities against any and all liabilities incurred in connection with their
services in such capacities.
ARTICLE XII.
AMENDMENTS
These Bylaws may be added to, altered, amended, repealed or suspended
by a vote of a majority of the Board of Directors at any regular or special
meeting of the Board.
15
<PAGE>
Exhibit 10.17
PROMISSORY NOTE
$51,690.56 BALTIMORE, MARYLAND
as of December 31, 1998
WITHIN THREE YEARS, the undersigned promise to pay to the order of
Chapman Holdings, Inc., Fifty-one thousand six hundred ninety dollars
and fifty-six cents ($51,690.56), at its offices in Baltimore, Maryland,
together with interest thereon from the date hereof until paid at the
rate of 4.33% per annum.
/s/ NATHAN A. CHAPMAN, JR.
-----------------------------
Nathan A. Chapman, Jr.
<PAGE>
Exhibit 21
SUBSIDIARIES OF THE REGISTRANT
The Chapman Co., a Maryland corporation
Charles A. Bell & Co., Inc., a California corporation
Charles A. Bell Securities Corp., a California corporation
Charles A. Bell Asset Management Corp., a California corporation
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
and to all references to our firm included in or made a part of this
registration statement.
/s/ ARTHUR ANDERSON LLP
Baltimore, Maryland
March 18, 1999
<PAGE>
Exhibit 24
CHAPMAN HOLDINGS, INC.
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned Director(s) and
Executive Officers of CHAPMAN HOLDINGS, INC., a Maryland corporation, hereby
constitute and appoint NATHAN A. CHAPMAN, JR., and EARL U. BRAVO, SR. and
either of them, the true and lawful agents and attorney-in-fact of the
undersigned with full power and authority in either said agent and
attorney-in-fact, to sign for the undersigned and in their respective names
as Directors and Executive Officers of Chapman Holdings, Inc., Post-Effective
Amendment No. 2 to the Registration Statement on Form SB-2, and any and all
further amendments to said Registration Statement, hereby ratifying and
confirming all acts taken by such agent and attorney-in-fact, as herein
authorized.
Dated as of: March 18,1999
/s/ Nathan A. Chapman, Jr. /s/ Donald V. Watkins
- --------------------------------------- ----------------------------
Nathan A. Chapman, Jr., President, Donald V. Watkins, Director
Chairman of the Board and
Director (Principal Executive Officer)
/s/ Earl U. Bravo, Sr. /s/ Lottie H. Shackelford
- ------------------------------------- ----------------------------
Earl U. Bravo, Sr., Director Lottie H. Shackelford, Director
/s/ M. Lynn Ballard
- ------------------------------------
M. Lynn Ballard, Treasurer
(Principal Accounting and
Financial Officer)
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF THE COMPANY FOR THE FISCAL YEARS ENDED DECEMBER 31, 1998
AND 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-START> JAN-1-1998 JAN-1-1997
<PERIOD-END> DEC-31-1998 DEC-31-1997
<CASH> 3,089,683 0
<SECURITIES> 2,284,105 0
<RECEIVABLES> 1,662,458 0
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 10,045,671 0
<PP&E> 45,153 0
<DEPRECIATION> 7,500 0
<TOTAL-ASSETS> 10,205,138 0
<CURRENT-LIABILITIES> 3,141,596 0
<BONDS> 0 0
0 0
0 0
<COMMON> 2,954 0
<OTHER-SE> 7,060,588 0
<TOTAL-LIABILITY-AND-EQUITY> 10,205,138 0
<SALES> 2,935,069 2,991,801
<TOTAL-REVENUES> 2,935,069 2,991,801
<CGS> 4,550,827 2,501,273
<TOTAL-COSTS> 4,550,827 2,501,273
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 9,686 0
<INCOME-PRETAX> (1,615,758) 490,528
<INCOME-TAX> (485,000) 205,000
<INCOME-CONTINUING> (1,130,758) 285,528
<DISCONTINUED> 0 51,459
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (1,130,758) 336,987
<EPS-PRIMARY> 0.40 0.17
<EPS-DILUTED> 0 0
</TABLE>
